Article 6 of the Saudi Law on Security Rights in Movable Assets
المادة 6 من نظام ضمان الحقوق بالأموال المنقولة · الفصل الثالث: إنشاء حق الضمان
The article sets five conditions for a security right to be valid between its parties, including writing, authority of the grantor, a description of the secured obligation and of the collateral, and consideration, and allows securing past, concurrent or later obligations.
Official text (Arabic)
This article has not been amended since the law was issued.
1- يكون حق الضمان صحيحًا ومنتجًا لآثاره بين أطرافه، إذا استوفى الشروط الآتية:
أ- أن يكون مكتوبًا سواء في عقد مستقل أو ضمن عقد آخر.
ب- أن يكون الضامن مخولًا بإنشاء حق الضمان على الضمانة.
ج- أن يوصف الالتزام المضمون وصفًا عامًّا أو محددًا، ويشمل ذلك تحديد الحد الأعلى له.
د- أن توصف الضمانة وصفًا عامًّا أو محددًا بما يتيح التعرف عليها، ويشمل ذلك وصفها على أنها كامل أموال الضامن، أو فئة محددة أو عامة أو صنف محدد أو عام من أموال الضامن.
هـ- أن يؤدي المضمون له مقابل الالتزام المضمون أو أن يلتزم بأدائه.
2- ينشأ حق الضمان لضمان التزام أو أكثر، سواء أكان الالتزام سابقًا لتاريخ إنشاء حق الضمان أو متزامنًا معه أو لاحقًا له.
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 6 explained in plain English
This article shows when a security right is valid and produces its effects between its parties, that is, between the grantor and the secured party. Five conditions must all be met:
- Writing: the security right must be in writing, whether in a separate contract or within another contract such as the financing contract itself.
- Authority of the grantor: the grantor must be authorized to create the security right over the collateral.
- Description of the secured obligation: in a general or specific way, including stating the maximum amount of it.
- Description of the collateral: in a general or specific way that allows it to be identified, and it may be described as all the grantor's assets, or a specific or general category or type of his assets.
- Consideration: the secured party must perform, or undertake to perform, in return for the secured obligation, for example by disbursing the financing or promising to disburse it.
Obligations that can be secured: paragraph (2) provides that a security right is created to secure one or more obligations, whether the obligation precedes the date the security right is created, is concurrent with it, or is later than it. This is consistent with the definition of the secured obligation in Article 1, which covers present and future obligations.
Note that this article concerns validity between the parties only; the effectiveness of a security right against third parties has separate provisions in the Law. Article 5, which precedes it, sets out the excepted assets, and Article 7, which follows it, gives no effect to a security right over assets on which another law bars creating one. When drafting a security contract, it is advisable to consult a lawyer specialized in commercial and finance matters.
Practical example
A contracting company in Dammam signed a financing contract with a financing company that includes a written clause under which the company provides all its equipment as collateral, sets the maximum secured amount at five million riyals, and under which the financing company undertakes to disburse the financing. The conditions for the validity of the security right between the two parties are thus met.
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 6 of the Saudi Law on Security Rights in Movable Assets
Must a security contract be in writing?
Yes. The security right must be in writing, whether in a separate contract or within another contract.
Must the maximum amount of the secured debt be stated?
The article requires the secured obligation to be described in a general or specific way, and provides that this includes stating its maximum amount.
Can all of a company's assets be pledged by a general description?
Yes. The collateral may be described as all the grantor's assets or a specific or general category or type of them.
Can security be created for a debt that has not yet arisen?
Yes. A security right is created to secure an obligation that precedes, is concurrent with, or follows the date it is created.
More articles on Creating a Security Right
- Article 7
The article provides that a security right created over assets on which another law bars creating a security right is given no effect.
لا يعتد بحق الضمان المنشأ على الأموال التي لا يجوز -بناء على نظام آخر- إنشاء حق ضمان عليها.
- 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
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.