Article 23 of the Saudi Bankruptcy Law
المادة 23 من نظام الإفلاس · الفصل الثالث: إجراء التسوية الوقائية: العقود
Article 23 provides that filing a protective settlement application or opening the procedure has no effect on any contract to which the debtor is a party, and any contrary condition is void.
Official text (Arabic)
This article has not been amended since the law was issued.
دون الإخلال بأحكام الفصل (الرابع عشر) من النظام، لا يرتب قيد طلب افتتاح إجراء التسوية الوقائية أو افتتاحه أثراً في أي عقد يكون المدين طرفاً فيه، ويعد باطلاً كل شرط بخلاف ذلك.
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 23 explained in plain English
This article protects the stability of the debtor's contracts when it resorts to a protective settlement, without prejudice to the provisions of Chapter Fourteen of the Bankruptcy Law.
The rule: Neither the filing of an application to open the protective settlement procedure nor its opening has any effect on any contract to which the debtor is a party.
In practice, this means that a protective settlement application or its opening is not, in itself, a ground to terminate, end, amend or suspend the contract.
Invalidity of a contrary condition: Any term providing otherwise is considered void. If a lease, supply or services contract contains a term allowing the other party to terminate the contract if the debtor requests a protective settlement, that term has no effect.
Why this rule? Because the debtor needs its important contracts to continue, such as the lease of its premises or its raw material supply contracts, so that it can carry on its business and succeed in the settlement. If contracting parties could end contracts merely because a settlement was requested, the procedure would lose its value.
Note that the article concerns the effect of filing the application or the opening specifically. It complements Article 22, which prevents debts from falling due because of the application or opening, and Article 24, which provides that contracts remain in force and requires the party contracting with the debtor to perform its obligations after the opening in return for the debtor performing the obligations arising after it, and allows the court to end the contract at the contracting party's request if the debtor does not meet those obligations.
Practical example
A restaurant in Riyadh leases its premises under a contract stating that the lessor has the right to terminate the contract if the tenant applies for settlement or bankruptcy. When the restaurant requested a protective settlement, the lessor could not rely on this term because it is considered void under this article.
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 23 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 23 of the Saudi Bankruptcy Law
Can the other party terminate the contract because the debtor requested a protective settlement?
No. Filing a protective settlement application or opening the procedure has no effect on any contract to which the debtor is a party, and any contrary term is void.
Is a clause ending the contract on a party's bankruptcy valid?
In a protective settlement, any term that gives the filing of the application or the opening of the procedure an effect on a contract to which the debtor is a party is considered void.
More articles on Protective Settlement
- Article 13
Article 13 allows a debtor at risk of default, defaulting or bankrupt to request the opening of protective settlement, and bars it if it underwent the procedure in the previous twelve months.
1- دون الإخلال بأحكام الأنظمة ذات العلاقة، للمدين التقدم إلى المحكمة بطلب افتتاح إجراء التسوية الوقائية في أي من الحالات الآتية: أ- إذا كان من المرجح أن يعاني م
- Article 14
Article 14 requires the protective settlement request to be accompanied by the proposal, information and documents, and the proposal to include the debtor's financial position and a classification of creditors into classes.
1- يقيد طلب افتتاح إجراء التسوية الوقائية لدى المحكمة بعد تقديمه مرافقاً له المقترح والمعلومات والوثائق ذات العلاقة، وفقاً لما تحدده اللائحة. 2- يجب أن يتضمن ال
- Article 15
Article 15 governs how the court hears a protective settlement application within 40 days, and when it opens the procedure, rejects the application, or adjourns the hearing for up to 21 days.
1- تحدد المحكمة موعداً للنظر في طلب افتتاح إجراء التسوية الوقائية على أن يكون الموعد خلال مدة لا تزيد على (أربعين) يوماً من تاريخ قيد الطلب، وتبلغ المحكمة المدي
- Article 16
Article 16 requires the ruling opening a protective settlement to set a creditors' vote within 40 days, extendable by another 40 days, and requires the debtor to announce the opening within 7 days.
1- تحدد المحكمة في حكمها الصادر بافتتاح إجراء التسوية الوقائية موعداً لتصويت الدائنين على المقترح، على أن يكون الموعد خلال مدة لا تزيد على (أربعين) يوماً من تار
- Article 17
Article 17 allows the debtor to request a stay of claims when applying for a protective settlement, provided it attaches a report from a trustee listed in the register of bankruptcy trustees.
للمدين -عند طلب افتتاح إجراء التسوية الوقائية- أن يطلب من المحكمة تعليق المطالبات، على أن يرفق بطلبه تقريراً معداً من أمين مدرج بقائمة أمناء الإفلاس يتضمن ترجيح
- Article 18
Article 18 sets the stay of claims at no more than 90 days, extendable by 30 days at the debtor's request up to a maximum of 180 days, and explains when the stay ends.
1- دون إخلال بأحكام الفصل (الرابع عشر) من النظام، للمحكمة تعليق المطالبات لمدة لا تزيد على (تسعين) يوماً من تاريخ افتتاح الإجراء، ولها تمديد هذه المدة لـ (ثلاثي
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.