Article 34 of the Saudi Commercial Papers Law
المادة 34 من نظام الأوراق التجارية · الفصل الرابع: مقابل الوفاء
Article 34 sets out the holder's right to the funds for payment of a bill of exchange when the drawer or the drawee goes bankrupt, according to the nature of those funds.
Official text (Arabic)
This article has not been amended since the law was issued.
إذا أفلس الساحب ولو قبل ميعاد استحقاق الكمبيالة فلحاملها دون غيره من دائني الساحب اقتضاء حقه من مقابل الوفاء الموجود على وجه صحيح لدى المسحوب عليه، وإذا أفلس المسحوب عليه وكان مقابل الوفاء دينا في ذمته دخل هذا الدين في موجودات التفليسة، وأما إذا كان مقابل الوفاء عينا جائزا استردادها وفقا لأحكام الإفلاس، فلحامل الكمبيالة الأولوية في اقتضاء حقه من قيمة المقابل.
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 34 explained in plain English
Article 34 deals with the effect of bankruptcy on the funds for payment, and distinguishes three cases:
- Bankruptcy of the drawer: even if it occurs before the due date of the bill, the holder alone, to the exclusion of the drawer's other creditors, may collect his or her right from the funds for payment that validly exist with the drawee.
- Bankruptcy of the drawee where the funds are a debt owed by the drawee: this debt enters the assets of the bankruptcy estate.
- Bankruptcy of the drawee where the funds are a specific asset that may be recovered under the bankruptcy rules: the holder of the bill has priority in collecting his or her right from the value of those funds.
The first rule means that the drawer's creditors do not compete with the holder for these funds. The text requires the funds to exist "validly" with the drawee. As to when an asset may be recovered, the article refers to the bankruptcy rules without detailing them.
Because bankruptcy matters are complex, the holder of a bill of exchange in these cases would do well to consult a lawyer specializing in commercial cases, commercial papers and bankruptcy.
Practical example
A supplier in Jeddah holds a bill of exchange drawn by an establishment on one of its customers who owes it money, and the establishment then went bankrupt before the due date. Under Article 34, the supplier alone may collect his right from the funds for payment that validly exist with the customer, and the establishment's other creditors do not share them with him.
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 34 of the Saudi Commercial Papers Law
What happens to the holder's right if the drawer of a bill of exchange goes bankrupt?
The holder alone, to the exclusion of the drawer's other creditors, may collect his or her right from the funds for payment validly existing with the drawee, even if the bankruptcy occurs before the due date.
And if the drawee goes bankrupt?
If the funds for payment are a debt owed by the drawee, it enters the assets of the bankruptcy estate; if they are an asset that may be recovered under the bankruptcy rules, the holder has priority in collecting his or her right from its value.
More articles on Bill of Exchange
- Article 1
The article sets out the eight particulars a bill of exchange must contain, including the word "bill of exchange", the amount, the name of the drawee, the due date and the drawer's signature.
تشتمل الكمبيالة على البيانات الآتية: أ - كلمة (كمبيالة) مكتوبة في متن الصك وباللغة التي كتب بها. ب - أمر غير معلق على شرط بوفاء مبلغ معين من النقود. ج - اسم من
- Article 2
An instrument lacking the particulars of Article 1 is not a bill of exchange, except where the due date, place of payment, drawee's domicile or place of issue is missing, each of which has a substitute rule.
لا يعتبر الصك الخالي من البيانات المذكورة في المادة السابقة كمبيالة إلا في الأحوال الآتية: أ - إذا خلت الكمبيالة من بيان ميعاد الاستحقاق، اعتبرت مستحقة الوفاء ل
- Article 3
The article permits three ways of drawing a bill of exchange: to the drawer's own order, on the drawer himself, or for the account of another person.
يجوز سحب الكمبيالة لأمر الساحب نفسه، ويجوز سحبها على ساحبها، ويجوز سحبها لحساب شخص آخر.
- Article 4
The article permits stipulating that a bill of exchange be paid at the domicile of a person other than the drawee, whether in the drawee's town or in another.
يجوز اشتراط وفاء الكمبيالة في موطن شخص آخر غير المسحوب عليه سواء كان هذا الموطن في الجهة التي فيها موطن المسحوب عليه أو في جهة أخرى.
- Article 5
If the amount of a bill written in words differs from the amount in figures, the words prevail; if the amount is written several times and differs, the smaller amount prevails.
إذا كتب مبلغ الكمبيالة بالحروف وبالأرقام معا فتكون العبرة عند الاختلاف بالمكتوب بالحروف، وإذا كتب المبلغ عدة مرات بالحروف أو بالأرقام فتكون العبرة عند الاختلاف
- Article 6
Article 6 provides that any stipulation of interest on the amount of a bill of exchange is treated as if it had not been written.
اشتراط فائدة الكمبيالة يعتبر كأن لم يكن.
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.