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Article 221 of the Saudi Bankruptcy Law

المادة 221 من نظام الإفلاس · الفصل السادس عشر: أحكام خاصة بالمدين المتوفى

The article governs the debtor's death after an application to open liquidation and before it is decided, allowing heirs and creditors, where the conditions for financial reorganization are met instead, to form a company or request liquidation.

Official text (Arabic)

This article has not been amended since the law was issued.

1- إذا توفي المدين بعد تقديم طلب افتتاح إجراء التصفية أو إجراء التصفية لصغار المدينين أو إجراء التصفية الإدارية وقبل حكم المحكمة بافتتاح الإجراء أو رفض الطلب، تنظر المحكمة في الطلب، وتدعو -إذا ثبت لها عدم تحقق شروط افتتاح الإجراء وتحقق شروط افتتاح إجراء إعادة التنظيم المالي- ورثة المدين المتوفى ودائنيه لاجتماع خلال مدة تحددها اللائحة لاتخاذ أي من الآتي:

أ- قراراً بأن يؤسس ورثة المدين شركة ذات مسؤولية محدودة أو مساهمة تنتقل إليها حقوقهم وحقوق الدائنين في أصول المدين المتمثلة في تركة المدين لتكون أصول الشركة، وتحل الشركة محل المدين المتوفى في استكمال إجراءات افتتاح إجراء إعادة التنظيم المالي. وتحدد اللائحة الأحكام اللازمة لذلك.

ب- قراراً بطلب افتتاح إجراء التصفية وفقاً لما تحدده اللائحة.

2- إذا ثبت للمحكمة تحقق شروط افتتاح الإجراء أو تعذر اتخاذ قرار وفق الفقرة (1) من هذه المادة فتقضي بافتتاح إجراء التصفية أو إجراء التصفية الإدارية لتركة المدين المتوفى وفقاً لما تحدده اللائحة.

3- يتخذ القرار المشار إليه في الفقرة (1) من هذه المادة بموافقة جميع ورثة المدين المتوفى والدائنين.

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 221 explained in plain English

This article deals with the case of the debtor's death after an application to open liquidation, liquidation for small debtors, or administrative liquidation is filed, and before the court rules to open the procedure or reject the application.

The court examines the application, and the outcome differs according to what it establishes:

  • If it is established that the conditions for the requested procedure are not met, while the conditions for opening financial reorganization are met: it calls the heirs and creditors to a meeting within a period specified by the Implementing Regulations to take one of two decisions:
    1. That the heirs form a limited liability company or a joint-stock company to which their rights and the creditors' rights in the debtor's assets, represented by his estate, pass, and the company replaces the deceased debtor in completing the procedures for opening financial reorganization; the Implementing Regulations specify the necessary provisions for this.
    2. A request to open liquidation as the Implementing Regulations specify.
  • If it is established that the conditions for the requested procedure are met, or no decision can be taken at the meeting: the court rules to open liquidation or administrative liquidation of the deceased debtor's estate as the Implementing Regulations specify.

The meeting's decision is taken with the approval of all the heirs and creditors.

The article thus gives an opportunity to rescue the business through reorganization instead of liquidation when its conditions are met. It corresponds to Article 220, which concerns death after an application for protective settlement or financial reorganization, and Article 222, which concerns death after liquidation is opened. For an assessment of a specific situation, consult a lawyer specializing in bankruptcy and commercial cases.

Practical example

A creditor applied to open liquidation against a merchant in Riyadh, and the merchant died before the application was decided. If the court establishes that the conditions for liquidation are not met but the conditions for financial reorganization are, it calls the heirs and creditors to a meeting; if they all agree to form a joint-stock company, it replaces the merchant in completing the financial reorganization procedures.

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 221 of the Saudi Bankruptcy Law

What happens to a liquidation application if the debtor dies before it is decided?

The court examines the application, and if its conditions are established or no decision can be taken at the meeting, it rules to open liquidation or administrative liquidation of the debtor's estate.

When can the heirs avoid liquidation?

If the court establishes that the conditions for the requested procedure are not met and the conditions for financial reorganization are met, and all the heirs and creditors decide to form a company to replace the debtor.

What type of company do the heirs form?

A limited liability company or a joint-stock company.

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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.