Article 25 of the Saudi Bankruptcy Law
المادة 25 من نظام الإفلاس · الفصل الثالث: إجراء التسوية الوقائية: العقود
Article 25 allows the court, at the debtor's request, to terminate any contract to which it is a party if necessary to protect its business and in the interest of a majority of creditors without serious harm to the counterparty, except security contracts.
Official text (Arabic)
This article has not been amended since the law was issued.
1- للمحكمة -بناء على طلب المدين في جلسة يبلغ بها المتعاقد- إنهاء أي عقد يكون المدين طرفاً فيه إذا كان الإنهاء ضرورياً لحماية نشاطه، وكانت فيه مصلحة لأغلبية الدائنين، على ألا يترتب على الإنهاء ضرر بالغ على المتعاقد، ويجب تبليغ المتعاقد بقرار المحكمة إذا لم يحضر الجلسة. وتحدد اللائحة ضوابط ذلك.
2- استثناء من الفقرة (1) من هذه المادة، لا يجوز إنهاء أي من عقود الضمانات بما في ذلك عقد الرهن إلا وفقاً لأحكام النظام أو الأنظمة ذات العلاقة.
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 25 explained in plain English
The debtor may have burdensome contracts that drain its resources and hinder the rescue of its business. This article gives the debtor a way to be rid of them through the court and under specific conditions.
Procedure: The debtor asks the court to terminate the contract, and the court considers the request at a hearing of which the contracting party is notified. If the contracting party does not attend the hearing, it must be notified of the court's decision.
Conditions (all must be met):
- The termination must be necessary to protect the debtor's business.
- It must be in the interest of a majority of the creditors.
- It must not cause serious harm to the contracting party.
The Implementing Regulations set the rules for this; additional details are found in the Implementing Regulations.
Exception: Security contracts, including a mortgage contract, may not be terminated in this way, but only in accordance with the provisions of the Bankruptcy Law or the relevant laws. The purpose is to protect secured creditors from losing their security.
Note the difference between this article and Article 24: Article 24 allows the contracting party to request termination of the contract if the debtor defaults on its obligations arising after the opening, whereas this article allows the debtor to request termination to protect its business. Article 26 also excludes certain types of contracts from these provisions, such as government tender and procurement contracts and financing contracts concluded by banking companies or finance companies with the debtor.
To assess whether the conditions are met for a particular contract, it is advisable to consult a lawyer specializing in commercial and bankruptcy cases.
Practical example
A retail company in Jeddah for which a protective settlement procedure has been opened has a long lease for a loss-making branch. It asks the court to terminate the contract, and the court considers the request at a hearing of which the lessor is notified. It terminates the contract if that is necessary to protect the company's business and in the interest of a majority of creditors without causing serious harm to the lessor.
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 25 of the Saudi Bankruptcy Law
Can a company terminate a loss-making lease during a protective settlement?
At the debtor's request, the court may terminate any contract to which it is a party if the termination is necessary to protect its business and in the interest of a majority of creditors, without serious harm to the contracting party.
Can a mortgage contract be terminated in a protective settlement?
Security contracts, including a mortgage contract, may not be terminated except in accordance with the provisions of the Bankruptcy Law or the relevant laws.
Is the other party notified of a request to terminate the contract?
Yes. The court considers the request at a hearing of which the contracting party is notified, and it must be notified of the decision if it does not attend.
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.