Article 2 of the Saudi Bankruptcy Law
المادة 2 من نظام الإفلاس · الفصل الأول: أحكام عامة
Article 2 lists the seven bankruptcy procedures the Law regulates, from protective settlement to administrative liquidation.
Official text (Arabic)
This article has not been amended since the law was issued.
يهدف النظام إلى تنظيم إجراءات الإفلاس، وهي:
1- التسوية الوقائية.
2- إعادة التنظيم المالي.
3- التصفية.
4- التسوية الوقائية لصغار المدينين.
5- إعادة التنظيم المالي لصغار المدينين.
6- التصفية لصغار المدينين.
7- التصفية الإدارية.
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 2 explained in plain English
This article shows that the Bankruptcy Law is not limited to liquidating a debtor's funds, but regulates seven different procedures, which are:
- Protective settlement.
- Financial reorganization.
- Liquidation.
- Protective settlement for small debtors.
- Financial reorganization for small debtors.
- Liquidation for small debtors.
- Administrative liquidation.
Going back to the definitions in Article 1, the difference between them becomes clear: in protective settlement the debtor seeks an agreement with its creditors to settle its debts while keeping the management of its business; in financial reorganization the agreement is under the supervision of a financial reorganization trustee; and liquidation aims to record creditors' claims, sell the assets of the bankruptcy estate and distribute the proceeds to them under the management of a liquidation trustee. Administrative liquidation is for cases in which the proceeds of selling the assets are not expected to cover the liquidation expenses, and it is managed by the Bankruptcy Committee.
The list shows that a small debtor has procedures of its own parallel to the first three procedures, and the Law defines a small debtor as one to whom criteria set by the Bankruptcy Committee apply.
Choosing the appropriate procedure depends on the debtor's position and the conditions of each procedure as regulated by the later articles, so a person in financial distress in their business would do well to consult a lawyer specialized in commercial and bankruptcy cases.
Practical example
A small company in Riyadh is struggling to pay its debts but wants to keep operating. From this article it understands that it has options other than liquidation, such as protective settlement for small debtors or financial reorganization for small debtors, if the criteria for a small debtor apply to it.
Translated from our Arabic explanation with machine assistance. For guidance only; it does not replace advice from a lawyer on your situation.
How we write and review contentA question about Article 2 of Bankruptcy Law?
Describe what happened and specialist lawyers answer. You can write in English.
- Completely free
- Lawyers from the directory answer
- Your name stays hidden
Commercial & Corporate Law lawyers: ask a specialist about your case
Describe your situation briefly and we'll suggest a lawyer who specialises in this law
Commercial & Corporate Law lawyers
Lawyers who handle this kind of case
شركة امتداد النظام للمحاماة والاستشارات المهنية
- Labour & Employment Law
- Criminal Law
- Criminal Law
- Commercial & Corporate Law
Frequently asked questions about Article 2 of the Saudi Bankruptcy Law
How many bankruptcy procedures are there in Saudi law?
Seven: protective settlement, financial reorganization, liquidation, their three counterparts for small debtors, and administrative liquidation.
Does bankruptcy always mean liquidating the company?
No. The Law regulates procedures aimed at reaching an agreement with creditors and continuing the business, such as protective settlement and financial reorganization, in addition to the liquidation procedures.
More articles on General Provisions and the Bankruptcy Committee
- Article 1
Article 1 defines the key terms of the Bankruptcy Law, such as debtor, creditor, defaulting debtor, bankrupt, related party and the different bankruptcy procedures.
يقصد بالألفاظ والمصطلحات الآتية -أينما وردت في هذا النظام- المعاني المبينة أمام كل منها ما لم يقتض السياق خلاف ذلك: النظام: نظام الإفلاس. اللائحة: اللائحة التنف
- Article 3
Article 3 specifies which entities are regulated entities and requires the competent authority's approval before a request to open any bankruptcy procedure for them is registered.
1- يعد ما يأتي كياناً منظماً في تطبيق أحكام النظام: أ- الشركات المصرفية وشركات التمويل وشركات التأمين وشركات الصيرفة. ب- الأشخاص المرخص لهم بممارسة أعمال الأورا
- Article 4
Article 4 specifies who is subject to the Bankruptcy Law: individuals carrying on commercial, professional or profit-making business, registered companies and profit-making entities, and non-Saudi investors to the extent of their assets in the Kingdom.
تسري أحكام النظام على كلّ من: أ - الشخص ذي الصفة الطبيعية الذي يمارس في المملكة أعمالاً تجارية، أو مهنية، أو أعمالاً تهدف إلى تحقيق الربح. ب - الشركات التجارية
- Article 5
Article 5 sets out the objectives of bankruptcy procedures: enabling the debtor to organize its affairs, treating creditors fairly, maximizing asset value, cutting costs and time, and administrative liquidation when assets are weak.
تهدف إجراءات الإفلاس إلى الآتي: أ - تمكين المدين المفلس أو المتعثر أو الذي يتوقع أن يعاني من اضطراب أوضاعه المالية من الاستفادة من إجراءات الإفلاس، لتنظيم أوضاع
- Article 6
Article 6 gives the court the power to issue the judgments and decisions needed for bankruptcy procedures, supervise their execution, decide their disputes and impose penalties.
تصدر المحكمة الأحكام والقرارات اللازمة لتطبيق الإجراءات المنصوص عليها في النظام، وتتولى الإشراف على تنفيذها، والفصل فيما ينشأ عنها من نزاعات، وإيقاع العقوبات ال
- Article 7
Article 7 bars the liquidation of any person under another law unless its assets cover all its debts and it is not defaulting, and makes management members jointly liable if this is violated.
1- مع مراعاة ما ورد في المادة (الرابعة) من النظام، لا يصفى أي شخص بموجب نظام آخر إلا إذا كانت أصوله تكفي لسداد جميع ديونه وكان غير متعثر. 2- إذا تم حل المدين وت
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.