Article 196 of the Saudi Bankruptcy Law
المادة 196 من نظام الإفلاس · الفصل الثاني عشر: أولوية الديون
The article sets the order of priority of debts in liquidation and liquidation for small debtors, from debts secured by property to unsecured government dues, without prejudice to Article 195.
Official text (Arabic)
This article has not been amended since the law was issued.
دون إخلال بأحكام المادة (الخامسة والتسعين بعد المائة) من النظام، يستوفى عند إجراء التصفية وإجراء التصفية لصغار المدينين الدين ذو الأولوية الأعلى قبل الدين ذي الأولوية الأقل، وتكون أولوية الديون على النحو الآتي:
أ- الديون المضمونة ضماناً عينياً.
ب- التمويل المضمون وفقاً للفقرة (أ) من المادة (الرابعة والثمانين بعد المائة) من النظام وما تحدده اللائحة من ضمانات أخرى وفق الفقرة (هـ) من المادة نفسها.
ج- مبلغ لعمال المدين يعادل أجر (ثلاثين) يوماً.
د - النفقات الأسرية المقررة بموجب نص نظامي أو حكم قضائي.
هـ- المصروفات اللازمة لاستمرار نشاط المدين أثناء الإجراء، وفقاً لما تحدده اللائحة.
و- أجور عمال المدين السابقة.
ز- الديون غير المضمونة.
ح- الرسوم والاشتراكات والضرائب والمستحقات الحكومية غير المضمونة وفقاً لما تحدده اللائحة.
وتحدد اللائحة ترتيب أولوية الديون في كل من الأولويات الواردة في هذه المادة.
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 196 explained in plain English
This is one of the most important articles of the Bankruptcy Law, because it answers the question: who is paid first from the liquidation proceeds? It applies in the liquidation procedure and the liquidation procedure for small debtors, without prejudice to Article 195, which puts the bankruptcy trustee's fees and expenses, the expert's (if any), and the costs of selling assets ahead of debts.
The rule is that the debt with the higher priority is paid before the debt with the lower priority, and the order is as follows:
- Debts secured by a security interest in property.
- Secured financing under paragraph (a) of Article 184, and other security interests specified by the Implementing Regulations under paragraph (e) of the same article.
- An amount for the debtor's workers equal to 30 days' wages.
- Family maintenance established by a statutory provision or a court judgment.
- Expenses needed to keep the debtor's business running during the procedure, as specified by the Implementing Regulations.
- The debtor's workers' earlier wages.
- Unsecured debts.
- Fees, contributions, taxes and unsecured government dues, as specified by the Implementing Regulations.
Note that workers' rights appear in two places: an amount equal to 30 days' wages in third place, then their earlier wages in sixth place. Unsecured government dues come last, after unsecured debts.
The article leaves it to the Implementing Regulations to set the order of debts within each of these ranks. Article 197 completes the rule: if the proceeds of selling the asset securing a debt do not cover the secured debt, the remainder is treated as an unsecured debt. For an assessment of a specific situation, consult a lawyer specializing in bankruptcy and commercial cases.
Practical example
A trading company in Riyadh was liquidated, and after the trustee's fees and the sale costs were paid, a limited amount remained from the proceeds. First paid is the bank holding the mortgage on the company's warehouse, then the secured financier under Article 184, then each worker receives an amount equal to 30 days' wages, then the established family maintenance, and so on until the proceeds run out.
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 196 of the Saudi Bankruptcy Law
What is the order of paying debts when a company is liquidated?
Debts secured by a security interest in property come first, then the secured financing specified in the article, then 30 days' wages for workers, then family maintenance, then expenses of continuing the business, then workers' earlier wages, then unsecured debts, then unsecured government dues.
Do workers have priority in liquidation?
Yes. They get an amount equal to 30 days' wages in third place, and their earlier wages in sixth place.
Where do taxes and government fees fall in the order?
Fees, contributions, taxes and unsecured government dues come last, as specified by the Implementing Regulations.
Does the bankruptcy trustee's fee come before this order?
Yes. The article applies without prejudice to Article 195, which puts the trustee's and expert's fees and expenses and the costs of sale ahead of debts.
Articles this article refers to
- Article 195
The article gives the bankruptcy trustee's fees and expenses, the expert's, and the costs of selling the estate's assets priority over debts in liquidation, and requires them to be paid before distribution to creditors.
تكون لأتعاب ومصروفات أمين الإفلاس والخبير -إن وجد- ومصروفات بيع أصول التفليسة أولوية على الديون في إجراء التصفية وإجراء التصفية لصغار المدينين، ويجب الوفاء بها
- Article 184
The article sets out the cases in which financing given to the debtor counts as secured financing, including priority over unsecured debts, pledges on stated conditions, and whatever the Implementing Regulations specify.
يعد التمويل مضموناً إذا كان: أ- ذا أولوية على الديون غير المضمونة وقت تقديم طلب التمويل. ب - مضموناً برهن أصل للمدين ليس محلاً لرهن آخر. ج - مضموناً برهن أصل لل
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.