Article 38 of the Saudi Commercial Pledge Law

This article offers a flexible form of pledge suited to businesses whose assets change constantly, such as inventory and equipment. It rests on three rules:

1. Scope of the pledge: The pledge may fall on all the movable assets the pledgor owns, or on part of them, or on a class of them, and any movable asset described in the contract in general terms may also be pledged, provided the description is sufficient to identify it. A movable asset, under Article 1, includes present and future assets and a future right.
2. Time of enforcement and what it covers: Enforcement against this pledge may take place only when the debtor defaults on its obligation secured by the pledge. At that point the pledge covers all of the pledgor's assets that match the descriptions in the pledge contract, provided they are owned by it and in its possession on the due date.
3. The pledgor's freedom to dispose before default: The pledgor may dispose of these assets or invest them in its ordinary business activities, unless a default occurs that warrants enforcement.

In practice, this means a merchant can keep selling its goods and buying others, and what counts at enforcement is what it owns and possesses of the assets described in the contract on the due date, not what it had on the day the contract was signed.

Article 39 explains that the pledge of certain assets, such as ships, aircraft, traded securities and trademarks, is subject to their special laws, and the provisions of this law apply to it only where those laws are silent.

Paragraph (1) of this article was amended and paragraphs (4) and (5) were deleted by Royal Decree No. M/19 dated 9/2/1411 AH, as shown in the amendment record. To assess how to word the description of the pledged assets in a particular contract, it is advisable to consult a lawyer specialized in commercial and finance matters.