Article 25 of the Saudi Law on Security Rights in Movable Assets
المادة 25 من نظام ضمان الحقوق بالأموال المنقولة · الفصل الثامن: التنفيذ على الضمانة
The article provides that non-judicial or judicial enforcement against the collateral clears it of the rights attached to it.
Official text (Arabic)
This article has not been amended since the law was issued.
يترتب على التنفيذ غير القضائي أو القضائي على الضمانة؛ تطهيرها من الحقوق المترتبة عليها.
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 25 explained in plain English
This article states an important effect of enforcement against the collateral, which is clearing.
The rule: enforcement against the collateral, whether non-judicial or judicial, results in clearing it of the rights attached to it. That is, the collateral comes out of enforcement free of those rights.
Practical importance:
- For the buyer: someone who buys the collateral as a result of enforcement can be confident that the rights that were on it do not remain attached to it, which makes it easier to dispose of the collateral on enforcement.
- For the rights holders: their rights do not follow the collateral after enforcement; instead the Law regulates the distribution of the enforcement proceeds among them by order of priority.
Relation to the neighboring articles: Article 24, before it, allows the secured party to repair the collateral, improve it and prepare it for sale, and Article 26, after it, sets the order of distribution of the proceeds if they are insufficient: the costs of repair and preparation for sale, then the costs of enforcement, then the holders of security rights by priority, with the remainder returned to the grantor in non-judicial enforcement, and any shortfall remaining an unsecured debt of the debtor.
The article itself does not set out the clearing procedures. If you have a right over collateral that is being enforced against, it is advisable to consult a lawyer specialized in commercial and finance matters.
Practical example
A factory's equipment, pledged to two creditors, was sold at an enforcement auction in Riyadh and bought by another factory. The equipment passes to the buyer free of the creditors' rights, and the two creditors recover their rights from the sale price in the order of their priority.
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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Dr. Ali Al-Rubaie Law Office and Ittihad Al-Asr Legal Company
Dr. Saleh Altayyar & Partners Law Firm
Frequently asked questions about Article 25 of the Saudi Law on Security Rights in Movable Assets
Do pledges remain on the collateral after it is sold on enforcement?
No. Judicial or non-judicial enforcement against the collateral clears it of the rights attached to it.
Does clearing include non-judicial enforcement?
Yes. The article provides that clearing results from non-judicial or judicial enforcement.
More articles on Enforcing Against Collateral
- Article 23
The article allows a written agreement made before breach to let the secured party enforce against the collateral without the courts by auction, direct sale or taking ownership, and refers the details to the Implementing Regulations.
1- يجوز اتفاق الضامن والمضمون له على تمكين المضمون له من التنفيذ غير القضائي على الضمانة استيفاءً لحقه في حال الإخلال بالوفاء بالالتزام المضمون، على أن يكون هذا
- Article 24
The article allows the secured party to take the steps needed to repair the collateral, improve it and prepare it for sale.
للمضمون له اتخاذ الإجراءات اللازمة لإصلاح الضمانة وتحسينها وإعدادها للبيع.
- Article 26
The article sets the order of distributing enforcement proceeds if they are insufficient, requires the secured party in non-judicial enforcement to return the remainder to the grantor, and keeps any shortfall as an unsecured debt of the debtor.
1- إذا كانت حصيلة التنفيذ على الضمانة لا تكفي للوفاء بالحقوق المترتبة عليها فتوزع وفق الترتيب الآتي: أ- نفقات اتخاذ الإجراءات اللازمة لإصلاح الضمانة وتحسينها وإ
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.