Article 7 of the Saudi Law on Security Rights in Movable Assets

This article places a limit on the breadth the Law gives to the assets that can be collateral: if another law bars creating a security right over a particular asset, a security right created over that asset is given no effect.

What does "given no effect" mean? It means that it does not produce the effect a security right produces under this Law, even if the parties met the formal conditions in Article 6, such as writing and describing the obligation and the collateral. Meeting the conditions of this Law is not enough if the asset itself is barred from being pledged by another law.

How do you read this article with the ones before it?

• Article 6 sets out the conditions for the validity of a security right between its parties, including that the grantor must be authorized to create the security right over the collateral.
• This article adds that the asset itself must not be one over which another law bars creating a security right.
• Article 8, which follows, moves on to the conditions for the effectiveness of a security right against third parties.

The article does not list the barred assets but refers to other laws, so anyone who accepts collateral must verify that the asset is not barred from being pledged under its own law. Before accepting collateral about which there is doubt, it is advisable to consult a lawyer specialized in commercial and finance matters.