LONDON: Saudi Arabia will introduce its first comprehensive bankruptcy law on Aug. 18 in a move designed to encourage foreign and domestic investment in private business, experts say.
The move is also seen as providing a boost for competitiveness and jobs, and to help pave the way for the transfer of knowledge and skills as part of a drive to modernize the economy.
Based on internationally recognized insolvency standards, the new rules have been drawn up to offer protection to creditors such as banks, as well as stricken companies that seek to wind up their affairs in an orderly manner, thereby shielding themselves from arbitrary seizure of their assets.
"The new regulations will offer lenders, firms and their executives peace of mind and spur overseas investment in the private sector," said Dario Najm, an associate in the corporate and M&A practice at BSA Ahmad Bin Hezeem & Associates LLP in Riyadh.
In an interview with Arab News, he said that until now there had been little in the way of "procedural clarity" in the way bankruptcies have been handled in KSA. But this was vital to generate confidence and "bring in foreign direct investment that will help to expand the private sector in line with Vision 2030, and refashion the economy."
Najm also indicated that many investors were waiting for the new laws to come into force before making KSA investment decisions.
The laws would encourage the creation of new enterprises and medium-sized businesses, by Gulf and overseas entrepreneurs, creating employment for Saudi nationals, Najm said. It would generate confidence that a formal system was in place to liquidate companies that had run into trouble, or allow them time to recover by arranging a debt-repayment schedule.
Jason Tuvey, Middle East economist at Capital Economics, told Arab News that "there is a good chance these latest developments will help to attract more foreign investment, and aid the wider economy in terms of knowledge transfer, which in turn could lead to stronger productivity growth."
He said that the law would encourage risk-takers to invest capital in new businesses that will help take the country away from its dependency on oil.
"It allows creditors and debtors to enter into agreements to schedule the payment of debts, a measure that will enable indebted corporations to achieve a stable financial status."
Confirmation that the new bankruptcy law would be implemented in five weeks came from a Saudi Ministry of Commerce and Investment official during a workshop.
Speakers said that the bankruptcy law served an Islamic purpose, which was the preservation of money, and was to be applied according to the best international practices for addressing financial issues, Asharq Al-Awsat newspaper reported.
Majed Al-Rasheed, secretary-general of the Bankruptcy Commission at the Ministry of Commerce and Investment, was quoted as saying the law provided "a set of tools and solutions that regulate the value of the debtor's assets to be sold at the highest possible price in a short period of time, and this establishes trust in the credit market."
Maher Saeed, director of the bankruptcy law project, said that the new laws — first outlined in February — included seven chapters for bankruptcy procedures.
The idea was to take into account the circumstances of defaulters and small debtors, providing them with special procedures.
"The law will bolster Saudi national choices emphasized in Vision 2030, which aim to establish a prosperous economy, facilitate business, help investors overcome financial obstacles, and empower debtors," he said.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.