Article 41 of the Saudi Commercial Pledge Law
المادة 41 من نظام الرهن التجاري · الفصل الخامس: المحافظة على المال المرهون واستثماره
The article allows the pledgee under an effective pledge contract to transfer to others its right to recover the secured debt together with the pledge securing it.
Official text (Arabic)
This article has not been amended since the law was issued.
للمرتهن -في عقد الرهن النافذ- أن ينقل إلى الغير حقه في استيفاء الدين المضمون مع الرهن الضامن له.
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 41 explained in plain English
This article deals with the right of the pledgee, that is, the creditor for whose benefit the pledge was provided, to transfer its right to another person. The pledgee may transfer to others:
- Its right to recover the secured debt.
- Together with the pledge securing it.
That is, the debt and the pledge pass together to the new pledgee, who takes the place of the first pledgee in benefiting from the pledge.
The article requires that this take place under an effective pledge contract, meaning a contract that has completed what is needed for it to be effective against third parties.
The article does not address the procedures for this transfer or what is needed to prove it, so conditions not stated in it should not be assumed.
This article differs from the cases of ending the pledge in Article 40; transferring the right to others is not among the grounds of ending mentioned there, which include: extinguishing the secured debt in full by performance, release or otherwise, agreement of the pledgor and the pledgee to end the contract, and the pledgee's waiver of the pledge. Article 40 also provides that the pledge does not end by rescheduling or renewing the secured debt.
To learn the effect of transferring the right in a particular dealing, it is advisable to consult a lawyer specialized in commercial and finance matters.
Practical example
A finance company in Riyadh gave a commercial establishment financing secured by an effective pledge over its equipment. Later the finance company sold a portfolio of its debts to another financing entity. It may transfer to the new entity its right to recover the establishment's debt together with the pledge securing it, and the new entity becomes the holder of the right under the pledge.
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 41 of the Saudi Commercial Pledge Law
Can the pledgee transfer the debt and the pledge to another party?
Yes. Under an effective pledge contract, the pledgee may transfer to others its right to recover the secured debt together with the pledge securing it.
Must the pledge be effective in order to transfer it?
Yes. The article provides that this takes place under an effective pledge contract.
Does the pledge end if the debt is rescheduled?
No. Article 40 provides that the pledge does not end by rescheduling the debt it secures or renewing it.
More articles on Disposing of the Pledged Asset
- Article 19
The article lets a pledgee with a right of pursuit enforce against the pledged asset in the hands of whoever acquired its ownership even if unaware of the pledge, and gives that person recourse against the pledgor or seller.
يترتب على ثبوت حق المرتهن في تتبع المال المرهون حقه في التنفيذ عليه في يد من انتقلت إليه ملكيته وإن لم يعلم بوجود الرهن، ويحق لمن انتقلت إليه ملكية المال المرهو
- Article 20
The article provides that a pledged asset passing by inheritance or bequest passes burdened by the pledge, so the pledge does not lapse upon its transfer.
ينتقل المال المرهون بالإرث أو الوصية محملاً بالرهن.
- Article 21
The article lets whoever acquired ownership of the pledged asset clear it by paying the debt, costs and expenses, and then have recourse against the pledgor within the limit of what the pledgor would have paid.
يجوز لمن انتقلت إليه ملكية المال المرهون تطهيره بأداء الدين المضمون والنفقات والمصروفات التي تكبدها المرتهن، ويحق له في هذه الحال الرجوع على الراهن بما لا يتجاو
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.