Article 2 of the Saudi Law on Security Rights in Movable Assets
المادة 2 من نظام ضمان الحقوق بالأموال المنقولة · الفصل الثاني: نطاق التطبيق
The article applies the Law to any contract or transaction creating a security right over collateral, including commercial pledge, sale with repurchase, transfer of title for security, retention of title, assignment security and sale of receivables.
Official text (Arabic)
This article has not been amended since the law was issued.
تسري أحكام النظام على أي عقد أو معاملة تتضمن إنشاء حق ضمان على الضمانة، ويشمل ذلك بوجه خاص الآتي:
أ- الرهن التجاري.
ب- بيع المال المنقول المتضمن شرطًا باسترداده أو إعادة شرائه.
ج- نقل ملكية المال المنقول لغرض الضمان.
د- بيع المال المنقول بشرط تأجيل نقل ملكيته إلى حين استيفاء الثمن.
هـ- الضمان بحوالة الحق.
و- بيع الحقوق في الذمم المدينة.
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 2 explained in plain English
This article defines the scope of the Law by a broad test: it applies to any contract or transaction that creates a security right over collateral, regardless of the name the parties give the contract. What counts is the substance of the transaction, that is, that it creates a right over a movable asset to secure performance of an obligation.
The article then names in particular the following transactions:
- Commercial pledge.
- Sale of a movable asset containing a condition to take it back or repurchase it, that is, a person sells a movable and keeps the right to take it back later.
- Transfer of title to a movable asset for the purpose of security.
- Sale of a movable asset on condition that transfer of its ownership is deferred until the price is paid, as in an installment sale where the seller keeps ownership until payment.
- Security by assignment of a right, which according to Article 1 is an agreement under which a person provides his rights against third parties as security for his debt.
- Sale of rights in receivables, a receivable being, according to Article 1, an unsecured monetary right of the debtor against a third party.
The phrase "in particular" means that this list gives prominent examples and is not exhaustive. A transaction that falls within the scope of the Law is subject to its provisions on creation, effectiveness, registration, priority and enforcement. It is followed by Article 3, which sets out the movable assets that may be collateral. To know whether a particular transaction is subject to the Law, it is advisable to consult a lawyer specialized in commercial and finance matters.
Practical example
An equipment company in Riyadh sold a forklift to a factory in installments, and they agreed that ownership of the forklift would not pass to the factory until the full price was paid. This sale on condition that transfer of ownership is deferred is among the transactions to which the provisions of the Law apply.
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 2 of the Saudi Law on Security Rights in Movable Assets
Which transactions does the Law on Security Rights in Movable Assets apply to?
Any contract or transaction that creates a security right over collateral, including commercial pledge, sale with a condition to take back, deferral of transfer of ownership, assignment of a right and sale of receivables.
Does the Law cover a sale where the seller keeps ownership until the price is paid?
Yes. The article expressly mentions the sale of a movable asset on condition that transfer of its ownership is deferred until the price is paid.
Is the list in the article exhaustive?
No. The article mentions these transactions "in particular", after making the Law apply to any contract or transaction that creates a security right.
More articles on Definitions and Scope of the Law
- Article 1Amended by M/191
The article defines the key terms of the Law on Security Rights in Movable Assets, such as security right, collateral, grantor, secured party, Registry, registration, real estate by designation and proceeds.
يُقصد بالألفاظ والعبارات الآتية -أينما وردت في هذا النظام- المعاني المبينة أمام كل منها: النظام: نظام ضمان الحقوق بالأموال المنقولة. اللائحة: اللائحة التنفيذية
- Article 4
The article excepts two transactions from the Law: assignment of a right for debt collection purposes, and purchase of a debt that is part of an agreement to acquire a business.
لا تسري أحكام النظام على المعاملتين الآتيتين: أ- حوالـة الحـق لغايات تحصيل الديون. ب- شراء دين يكون جزءًا من اتفاقية تملك مشروع.
- Article 5
The article excepts from the Law security rights over ships, aircraft, listed securities, trademarks, investment accounts, assets with ownership registries, and goods in public warehouses unless the right preceded deposit.
لا تسري أحكام النظام على حقوق الضمان المتعلقة بالآتي: أ- السفن، والطائرات. ب- الأوراق المالية المدرجة في السوق المالية. ج- البضائع المودعة في المخازن العامة ما
- Article 28
The article requires the Minister of Commerce to issue the Regulations within thirty days of the Law's publication, covering in particular registration procedures, searching the registry and obtaining extracts, and the fees for registry services.
يصدر الوزير اللائحة خلال (ثلاثين) يومًا من تاريخ نشر النظام في الجريدة الرسمية، على أن تتضمن بوجه خاص الآتي: أ- إجراءات الإشهار. ب- إجراءات البحث في السجل والحص
- Article 29
The article provides that the Law on Security Rights in Movable Assets takes effect from the date of its publication in the Official Gazette.
يعمل بالنظام من تاريخ نشره في الجريدة الرسمية.
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.