Article 11 of the Saudi Law on Security Rights in Movable Assets
المادة 11 من نظام ضمان الحقوق بالأموال المنقولة · الفصل الرابع: نفاذ حق الضمان في مواجهة الغير
The article provides that where the collateral is a right against a third party, the security right becomes effective against that third party from the date he is notified of its creation over the right.
Official text (Arabic)
This article has not been amended since the law was issued.
إذا كانت الضمانة حقًّا لدى الغير، فيكون نفاذ حق الضمان في مواجهة ذلك الغير من تاريخ إبلاغه بإنشاء حق الضمان على الحق.
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 11 explained in plain English
This article deals with a special kind of collateral, where the collateral is a right against a third party, such as sums owed to the grantor by his customers. One form of it is the receivable, which according to Article 1 is an unsecured monetary right of the debtor against a third party.
In this case there are three parties: the grantor who holds the right, the secured party to whom the right was provided as security, and the third party who owes that right.
The rule: the security right becomes effective against that third party from the date he is notified of the creation of the security right over the right. Before notice, the security right is not effective against him; after it, the right becomes effective against him.
Why notice? Because the person who owes the right is not a party to the security contract and may not know of its existence. Notice is what links him to the security right. The article does not specify the form of notice or who gives it, so it is important to keep what proves the notice and its date, because the date is the start of effectiveness against the debtor.
Note that this article concerns effectiveness against the person who owes the right specifically. It follows Article 10 on the proceeds of the collateral, and precedes Article 12, which provides that a condition restricting the grantor's right to provide his receivables as security does not affect the validity or effectiveness of the security right. When pledging amounts owed by customers, it is advisable to consult a lawyer specialized in commercial and finance matters.
Practical example
A software company in Riyadh provided its receivables from a government client as security for financing from a bank. The bank's right is not effective against the client until the date the client is notified of the creation of the security right over those receivables.
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 11 of the Saudi Law on Security Rights in Movable Assets
When does a pledge of receivables become effective against the person who owes them?
From the date that person is notified of the creation of the security right over the right.
What if the collateral is amounts owed by customers?
The article contemplates that the collateral may be a right against a third party, and it makes the security right effective against the person who owes it from the date he is notified.
More articles on Effectiveness of a Security Right Against Third Parties
- Article 8
The article requires registration, or transfer of possession of the collateral to the secured party, for a security right to be effective against third parties, and refers to the Implementing Regulations the cases where possession is the only means.
1- يشترط لنفاذ حق الضمان في مواجهة الغير الإشهار، أو انتقال حيازة الضمانة إلى المضمون له انتقالاً مباشرًا أو غير مباشر سواء كان انتقالاً حقيقيًّا أو حكميًّا. 2-
- Article 9
The article provides that replacing the method of effectiveness of a security right from registration to possession, or the reverse, does not interrupt its continued effectiveness against third parties, subject to the cases where possession is the only means.
مع مراعاة حكم الفقرة (2) من المادة (الثامنة) من النظام، لا يؤثر استبدال طريقة نفاذ حق الضمان على الضمانة من الإشهار إلى الحيازة أو العكس، في استمرار نفاذ حق الض
- Article 10
The article extends a security right's effectiveness automatically to the proceeds of the collateral for fifteen days from the grantor's receipt of them unless excluded, after which it lapses except for identifiable cash proceeds or proceeds described in the registration.
1- يستمر حق الضمان النافذ في مواجهة الغير تلقائيًّا على عوائد الضمانة لمدة (خمسة عشر) يومًا من قبض الضامن لها، ما لم يتفق عند إنشاء حق الضمان على استثنائها. 2-
- Article 12
The article provides that a condition restricting the grantor's right to provide his receivables or assign his rights as security does not affect the validity or effectiveness of the security right, and the party who required it may still claim against the grantor.
لا يؤثر أي شرط في اتفاق يقيد حق الضامن في تقديم ديونه أو حوالة حقوقه ضمانة على صحة عقد إنشاء حق الضمان أو نفاذه، ولا يمنع ذلك الطرف الذي اشترط القيد لمصلحته من
- Article 13
The article provides that a registered security right stays effective if the collateral becomes real estate by designation, and is effective against creditors secured by that real estate, unless the collateral was designated before the real estate was mortgaged and the right was not registered.
1- أ- يستمر نفاذ حق الضمان في مواجهة الغير حتى وإن أصبحت الضمانة عقارًا بالتخصيص؛ إذا كان حق الضمان مشهرًا في السجل. ب- يسري نفاذ حق الضمان المشهر في الضمانة ال
- Article 14
The article provides that a security right stays effective against third parties if the collateral is attached to another movable asset in a way that allows it to be separated.
يستمر نفاذ حق الضمان في مواجهة الغير في حال إلحاق الضمانة بمال منقول آخر بشكل قابل للفصل.
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.