Article 40 of the Saudi Commercial Pledge Law

This article explains when a pledge ends and when it remains in place even though the debt changes.

First: cases in which the pledge ends (any one of them is enough):

1. The secured debt is extinguished in full, whether by performance, release or any other way a debt is extinguished. Under the text, paying part of the debt is not enough; it must be extinguished entirely.
2. Destruction of the pledged asset, unless the pledgor and the pledgee agree that another asset replaces it. This rule applies without prejudice to paragraph (2) of Article 24, which provides that if the destruction gives rise to compensation, the pledge moves to the compensation unless the parties agree otherwise, and the pledgor deposits the compensation amount in a special account and the provisions of the original pledge contract apply to it, unless they agree in writing to deduct it from the principal debt. Paragraph (1) of Article 24 also provides that the debt falls due and the term lapses if the asset is destroyed in the pledgor's hands through its transgression or neglect.
3. Agreement of the pledgor and the pledgee to end the pledge contract.
4. Waiver by the pledgee of the pledge.

Second: what does not end the pledge: The pledge does not end by rescheduling the debt it secures or renewing it, so the asset remains pledged as security for the debt after rescheduling or renewal.

Sub-paragraphs (e), (f) and (g) of paragraph (1) were deleted by Royal Decree No. M/94 dated 15/8/1441 AH. To assess whether a particular pledge has ended, it is advisable to consult a lawyer specialized in commercial and finance matters.