Article 22 of the Saudi Law on Security Rights in Movable Assets

This article opens the provisions on the right to follow the collateral, and it balances the grantor's need to continue his business against the creditor's need to protect his collateral.

The rule (paragraph 1): the grantor may not transfer ownership of the collateral except in two cases:

1. If the secured party consents.
2. If the transfer of ownership is within the grantor's ordinary course of business, such as a merchant selling pledged inventory to his customers in the course of his normal trade.

The consequence of breach (paragraph 2): if the grantor transfers ownership of the collateral in breach of paragraph (1), and the security right is effective against third parties, the secured party has the right to follow the collateral into any hands to recover his rights. That is, the collateral remains burdened by the security right even if it passes to someone else.

What does this mean for the buyer? Someone who buys a movable without the secured party's consent and outside the seller's ordinary course of business may find that the creditor follows it, if the security right is effective against third parties, so he is well advised to verify the status of the asset before buying.

Condition for following: the security right must be effective against third parties, since a right that is not effective does not carry this effect as the article is worded.

This article follows Article 21 on waiving priority, and is followed by Article 23, which begins the provisions on enforcement against the collateral. If you are a seller or buyer of an asset that may be pledged, it is advisable to consult a lawyer specialized in commercial and finance matters.