Article 227 of the Saudi Companies Law
المادة 227 من نظام الشركات · الفصل الثاني: اندماج الشركات
The article requires the party companies to announce the merger at least 30 days ahead, and gives creditors of the merged company the right to object and to resort to the competent judicial authority.
Official text (Arabic)
This article has not been amended since the law was issued.
1- على كل شركة طرف في الاندماج الإعلان عنه قبل مدة لا تقل عن (ثلاثين) يومًا على الأقل من التاريخ المحدد لاتخاذ القرار بشأن مقترح الاندماج والتصويت عليه.
2- يكون لأي من دائني الشركة المندمجة الاعتراض على الاندماج بخطاب مسجل إلى الشركة أو بأي وسيلة أخرى يحددها الإعلان المشار إليه في الفقرة (1) من هذه المادة، وذلك خلال (خمسة عشر) يومًا من تاريخ الإعلان، وعلى الشركة الوفاء بدين الدائن المعترض إذا كان حالًّا أو تقديم ضمان كاف للوفاء به إذا كان آجلًا.
3- للدائن الذي أبلغ الشركة باعتراضه على الاندماج وفقًا للفقرة (2) من هذه المادة ولم تفِ الشركة بالدين إذا كان حالًّا، أو لم تقدم له ضمانًا كافيًا للوفاء به إذا كان آجلًا، أن يتقدم إلى الجهة القضائية المختصة خلال مدة لا تقل عن (عشرة) أيام قبل التاريخ المحدد لاتخاذ قرار الاندماج، ويكون للجهة القضائية المختصة في هذه الحالة أن تأمر بالوفاء بالدين إذا كان حالًّا أو تقديم ضمان للوفاء به إذا كان آجلًا، وإذا رأت أن الاندماج سيترتب عليه أضرار جسيمة بحق الدائن المعترض دون تمكن الشركة المندمجة أو الشركة الدامجة من الوفاء بالدين أو تقديم الضمان، جاز لها أن تأمر بوقف الاندماج أو تأجيله، على أن يصدر قرارها بذلك قبل نفاذ قرار الاندماج. وإذا لم تبت الجهة القضائية المختصة في اعتراض الدائن قبل نفاذ قرار الاندماج وثبت لها بعد ذلك صحة مطالبة الدائن المعترض، فلها أن تصدر قرارًا بتعويضه عن الأضرار التي تلحق به نتيجة هذا الاندماج.
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 227 explained in plain English
This article protects the creditors of the merged company, because its merger into another company may affect its ability to pay its debts. It involves three stages:
1- The announcement: Each company party to the merger must announce it at least 30 days before the date set for deciding on and voting on the merger proposal.
2- The creditor's objection: Any creditor of the merged company may object by registered letter to the company or by any other means the announcement specifies, within 15 days of the date of the announcement. The company must then:
- pay the debt if it is due;
- or provide sufficient security for its payment if it is not yet due.
3- Resorting to the competent judicial authority: If the company does not pay the due debt or does not provide sufficient security for the debt not yet due, the objecting creditor may apply to it within a period of not less than 10 days before the date set for the merger decision. It may:
- order payment of the due debt or the provision of security for the debt not yet due;
- order the merger to be stopped or postponed if it considers that it will cause the creditor serious harm without the merged or absorbing company being able to pay or provide security, provided its decision is issued before the merger decision takes effect;
- award the creditor compensation for the harm resulting from the merger, if it did not decide on the objection before the decision took effect and the creditor's claim was later proven valid.
Under Article 228, the date the merger decision takes effect is determined by the date of registration in the commercial register. Because the periods here are short and consecutive, a creditor is advised to consult a lawyer specializing in company matters as soon as the announcement is issued.
Practical example
A contracting company in Dammam owes a supplier SAR 500,000, which is due now, and it announced that it will merge into a larger company. The supplier objected by registered letter within 15 days of the announcement, and the company did not pay. The supplier then applied to the competent judicial authority more than 10 days before the date of the merger decision, and it may order payment of its debt.
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 227 of the Saudi Companies Law
How long does a creditor have to object to a company merger?
15 days from the date of the merger announcement, by registered letter to the company or by any other means the announcement specifies.
What must the company do if a creditor objects to the merger?
It must pay the debt if it is due, or provide sufficient security for its payment if it is not yet due.
Can a company merger be stopped because a creditor objects?
Yes. The competent judicial authority may order the merger stopped or postponed if it considers that it will cause the creditor serious harm without the two companies being able to pay or provide security, provided its decision is issued before the merger decision takes effect.
When must a merger be announced?
At least 30 days before the date set for deciding on and voting on the merger proposal.
More articles on Company Conversion and Merger
- Article 215
The article allows the partners or shareholders to convert a professional company into another form of company listed in Article 4, after meeting the conditions of the Law and the regulations.
يجوز للشركاء أو المساهمين في الشركة المهنية تحويلها إلى شكل آخر من أشكال الشركات الواردة في المادة (الرابعة) من النظام، وذلك بعد استيفاء الشروط والضوابط التي ين
- Article 220
The article regulates converting a company from one form to another, the conditions for converting to a simplified joint stock or joint stock company, and transferring sole proprietorship assets to companies.
1- يجوز تحول الشركة إلى شكل آخر من الشركات بقرار يصدر وفقًا للأوضاع المقررة لتعديل عقد تأسيسها أو نظامها الأساس وبعد استيفاء شروط التأسيس والقيد والشهر المقررة
- Article 221
The article states when a private non-profit company may convert to another form and on what conditions, and permits any company to convert to a non-profit company by unanimous consent of the partners.
1- مع مراعاة حكم الفقرة (1) من المادة (العشرين بعد المائتين) من النظام، يجوز تحول الشركة غير الربحية الخاصة دون العامة إلى أي شكل من الشركات ما لم ينص عقد تأسيس
- Article 222
The article gives a partner or shareholder who objects to a company's conversion resolution the right to withdraw by written request within 15 days, with payment of the value of their stakes or shares.
دون إخلال بأحكام التنازل عن الحصص أو الأسهم المقررة بحسب شكل الشركة، للشركاء أو المساهمين الذين يعترضون على قرار التحول التخارج من الشركة بناء على طلب مكتوب يقد
- Article 223
The article provides that a company's conversion does not create a new legal person, so the company keeps its rights and remains liable for its pre-conversion obligations.
لا يترتب على تحول الشركة نشوء شخص ذي صفة اعتبارية جديد، وتظل الشركة محتفظة بحقوقها ومسؤولة عن التزاماتها السابقة للتحول.
- Article 224
The article provides that converting a general or simple limited partnership does not discharge the partners with joint liability from pre-conversion debts, unless the creditors expressly accept or none objects within 30 days.
لا يترتب على تحول شركة التضامن أو شركة التوصية البسيطة إلى أي شكل من أشكال الشركات، إبراء ذمة الشركاء المتضامنين من مسؤوليتهم عن ديون الشركة السابقة للتحول، إلا
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.