Article 7 of the Saudi Bankruptcy Law
المادة 7 من نظام الإفلاس · الفصل الأول: أحكام عامة
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.
Official text (Arabic)
This article has not been amended since the law was issued.
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 وتصفيته اختيارياً بالمخالفة لحكم الفقرة (1) من هذه المادة، فيعد أعضاء مجلس إدارة المدين أو أعضاء مجلس مديريه، ومن في حكمهم، مسؤولين بالتضامن عن أي دين متبق في ذمة المدين.
3- يحظر إدراج بند التصفية الاختيارية للمدين للتصويت عليه في الجمعية العامة أو جمعية الشركاء بالمخالفة للفقرة (1) من هذه المادة.
4- تحدد اللائحة الأحكام اللازمة لتنفيذ 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 7 explained in plain English
This article places an important restriction on liquidation outside the Bankruptcy Law, such as the voluntary liquidation of companies, subject to what is stated in Article 4 of the Law, as the opening of the article provides.
The rule: no person is liquidated under another law unless two conditions are both met:
- Its assets are enough to pay all its debts.
- It is not defaulting.
The consequence of violation: if the debtor is dissolved and voluntarily liquidated without these two conditions being met, the members of its board of directors or board of managers and those in a similar position are jointly liable for any debt remaining in its account. That is, a creditor may claim the full remaining debt from any of them.
Ban on voting: it is prohibited to put a voluntary liquidation item to a vote in the general assembly or the partners' assembly if that would violate the two conditions above.
The article refers to the Regulations to determine the provisions necessary to implement it, so procedural details are referred to the Regulations.
The provision shows that it prevents resorting to liquidation under another law when the debtor's assets are not enough to pay all of its debts or when it is defaulting, in order to protect creditors' rights. Members of management would do well to consult a lawyer specialized in commercial and bankruptcy cases before making a decision to dissolve.
Practical example
A limited liability company in Riyadh has debts exceeding its assets, and the partners decided to dissolve it and liquidate it voluntarily. This article prohibits putting a voluntary liquidation item to a vote in this case, and if the liquidation is carried out anyway, the members of the board of managers become jointly liable for the remaining debts.
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 7 of the Saudi Bankruptcy Law
Can a company be voluntarily liquidated while it has debts?
Liquidation under another law is not permitted unless the company's assets are enough to pay all of its debts and it is not defaulting.
Who bears the debts if a company is voluntarily liquidated in violation of this?
The members of the board of directors or board of managers and those in a similar position are jointly liable for any debt remaining in the company's account.
Can the general assembly vote on voluntary liquidation of a defaulting company?
No. It is prohibited to put a voluntary liquidation item to a vote in the general assembly or the partners' assembly in violation of these two conditions.
Articles this article refers to
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 2
Article 2 lists the seven bankruptcy procedures the Law regulates, from protective settlement to administrative liquidation.
يهدف النظام إلى تنظيم إجراءات الإفلاس، وهي: 1- التسوية الوقائية. 2- إعادة التنظيم المالي. 3- التصفية. 4- التسوية الوقائية لصغار المدينين. 5- إعادة التنظيم المال
- 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
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.