Article 20 of the Saudi Law on Security Rights in Movable Assets

After Article 19 ranked priority among the holders of security rights themselves, this article determines their position relative to other creditors generally.

The rule: security rights that are effective against third parties rank ahead of other debts in priority of payment, and the article expressly provides that this includes:

• Workers' rights.
• Government dues.

Condition for priority: the security right must be effective against third parties, that is, its effectiveness was achieved by registration or by transfer of possession. A security right that is not effective is not covered by this article as worded.

Importance: this rule gives financiers who accept movables as collateral greater confidence that they will recover their rights from the collateral, even if the grantor owes debts to workers or to government bodies. That explains the importance of achieving effectiveness early.

Limits of the article: the article speaks of priority of payment for an effective security right, and it is tied to the collateral over which the right falls, as understood from the definition of priority in Article 19 as precedence in recovering the secured obligation from the collateral.

It is followed by Article 21, which allows the secured party to waive in writing the rank of his priority. Because the competition among debts when a debtor defaults is a delicate matter, it is advisable to consult a lawyer specialized in commercial and finance matters.