Article 191 of the Saudi Bankruptcy Law
المادة 191 من نظام الإفلاس · الفصل الحادي عشر: المقاصة التلقائية عند التصفية
The article provides that opening liquidation, liquidation for small debtors or administrative liquidation results in automatic set-off between the debtor's and its creditor's mutual debts, with an exception for regulated financial entities.
Official text (Arabic)
This article has not been amended since the law was issued.
1- يترتب على افتتاح أي من إجراءات التصفية أو التصفية لصغار المدينين أو التصفية الإدارية إجراء المقاصة التلقائية فيما يكون للمدين من دين على دائنه في تاريخ الافتتاح مقابل ما لهذا الدائن من دين على المدين.
2- يسري حكم الفقرة (1) من هذه المادة على الديون التبادلية وأي تعامل تبادلي آخر بين المدين ودائنه في تعامل أو دين قائم في ديون التفليسة، وتكون الديون أو التعاملات تبادلية إذا كانت بين ذات الأطراف وكانت لهم ذات الصفات والحقوق بالنسبة لتلك الديون أو التعاملات.
3- استثناء من حكم الفقرة (2) من هذه المادة، يجوز للكيانات المنظمة التي تمارس نشاطاً مالياً إجراء عمليات المقاصة متعددة الأطراف فيما بينها وفقاً لما تحدده اللائحة.
This is the official Arabic wording, the only legally binding version. We do not translate the law itself; the explanation below is ours. Official source: Bureau of Experts at the Council of Ministers
Article 191 explained in plain English
Unlike the protective settlement and financial reorganization procedures, this article provides that opening any of the liquidation, liquidation for small debtors or administrative liquidation procedures results in automatic set-off.
Its provisions are as follows:
- The rule: set-off takes place automatically between what the debtor is owed by its creditor on the date of opening and what this creditor is owed by the debtor.
- The scope: the rule applies to mutual debts and any other mutual dealing between the debtor and its creditor in a dealing or debt existing among the estate's debts. Debts or dealings are mutual if they are between the same parties, who have the same capacities and rights in respect of them.
- The exception: regulated entities that carry on a financial activity may carry out multilateral set-off among themselves, as specified by the Implementing Regulations.
Article 192 sets the limits of this provision: debts and dealings arising after the date the procedure is opened are not considered mutual debts or dealings for the purpose of automatic set-off, and remain valid and produce their effects. The article differs from Article 190, which deals with the case of the debtor claiming from its creditor and the creditor deducting what it is owed within the framework of the suspension of claims.
The practical effect is that a creditor who is also indebted to the debtor has its debt deducted automatically, and takes part in the distribution of liquidation proceeds only for the excess. To assess a particular situation, it is advisable to consult a lawyer specialized in bankruptcy and commercial matters.
Practical example
The liquidation procedure was opened for a contracting company in Riyadh, which on the date of opening was owed SAR 40,000 by one of its suppliers, while the supplier was owed SAR 150,000 by it for earlier supplies. Set-off takes place automatically between the two debts, so the supplier is left with SAR 110,000 to claim in the liquidation.
Translated from our Arabic explanation with machine assistance. For guidance only; it does not replace advice from a lawyer on your situation.
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Frequently asked questions about Article 191 of the Saudi Bankruptcy Law
Does set-off take place automatically when a company is liquidated?
Yes. Opening liquidation, liquidation for small debtors or administrative liquidation results in automatic set-off between the debts of the debtor and its creditor on the date of opening.
Does set-off cover debts that arise after opening?
No. Under Article 192, debts and dealings arising after the date of opening are not considered mutual for the purpose of automatic set-off.
What is the exception for banks and financial entities?
Regulated entities that carry on a financial activity may carry out multilateral set-off among themselves as specified by the Implementing Regulations.
More articles on Set-Off and Priority of Debts
- Article 81
A financial restructuring proposal may not include anything that contravenes the provisions of the law and relevant laws on set-off and priority of debts, and any contravening act is void.
لا يجوز أن يتضمن المقترح ما يخالف أحكام النظام والأنظمة ذات العلاقة بشأن حقوق المقاصة وأولويات الديون، ويعد باطلاً أي تصرف خلاف ذلك.
- Article 82
The trustee sells the bankruptcy estate assets securing the debtor's debt under the plan and with court approval, deposits the net proceeds in a separate account for the secured creditor, and the surplus in the debtor's account.
يتولى الأمين -بناء على الخطة وبعد موافقة المحكمة- بيع أي من أصول التفليسة الضامنة لدين المدين خلال فترة الإجراء بالأسعار المتداولة وقت البيع. وعليه بعد استيفاء
- Article 113
The article makes undue debts that are established against the debtor payable and due as soon as the liquidation procedure is opened.
تكون الديون غير الحالة الثابتة في ذمة المدين واجبة ومستحقة الأداء فور افتتاح إجراء التصفية.
- Article 116
The article governs the trustee's decision to distribute the proceeds of selling the estate assets to creditors, notice of it, objecting to it, and reserving amounts for debts in court dispute.
1- يصدر الأمين قراراً بتوزيع حصيلة بيع أصول التفليسة على الدائنين وفقاً لما تحدده اللائحة، ويتولى الأمين توزيع هذه الحصيلة على الدائنين مرة واحدة وفقاً لترتيب ا
- Article 187
The article provides that any secured financing the court approves is considered priority financing.
كل تمويل مضمون توافق عليه المحكمة يعد تمويلاً ذا أولوية.
- Article 188
The article prohibits automatic set-off after protective settlement and financial reorganization (and their small debtor versions) open, and allows the proposal to provide for set-off of specified mutual debts.
مع مراعاة أحكام الفصل (الرابع عشر) من النظام، تحظر المقاصة التلقائية بعد افتتاح أي من الإجراءات الآتية: أ - التسوية الوقائية. ب - إعادة التنظيم المالي. ج - التس
The texts are reproduced from the official website of the Bureau of Experts at the Council of Ministers for reference; where they differ, the officially published Arabic text prevails. This content is not legal advice.