Saudi Arabia: Registration Of Security Interests

Last Updated: 7 September 2015
Article by Glenn Lovell and Ahmed Mahomed

No time limit has been specified for registration of a security interest once that interest has been created.

Background

Historically it has been difficult for financiers to register security interests over all types of asset classes in the Kingdom of Saudi Arabia ("KSA") other than in respect of specific categories of property like marine vessels, aircraft, automobiles, real estate, certain types of company shares and intellectual property.

This inability to register a security interest created by (what many Western jurisdictions would term) a "fixed charge", "floating charge", 'pledge", "lien", "mortgage" or even title retention provisions like what is commonly referred to as a Romalpa Clause, has meant that financiers found difficulty in gaining comfort lending against many types of assets available in the ordinary course of a borrower's business.

As a consequence, businesses (particularly small to medium enterprises) would often be faced with situations where they were unable to sufficiently leverage off all their available assets which in turn meant that raising finance was problematic. In such situations it is understandable that financiers would require personal guarantees from business owners as well as other security that ultimately results in borrowers paying a higher cost for finance.

Recognising the importance small to medium enterprises have to the national economy, in 2004 the Ministry of Finance introduced a supporting initiative known as the "Kafalah Program". This program is managed by the Saudi Industrial Development Fund under the auspices of the Ministry of Commerce and Industry. The program provides participating banks with guaranteed repayment of up to eighty percent of a qualifying loan provided to small to medium enterprises. It is hoped that being able to register security interests will further enhance the effectiveness of this program and also facilitate lending to all businesses.

Commercial Mortgage Law

The Commercial Mortgage Law was issued by Royal Decree No. (M/75) on 1 January 2004 and its Implementing Regulations issued by Ministerial Resolution No. 6320 dated 4 August 2004 (together the "Commercial Mortgage Law").

The Commercial Mortgage Law essentially defines a commercial mortgage as the pledging of a movable asset (but not money) as security for a debt that is considered commercial in nature, in relation to the provider of the security. Therefore the security provider may either be the actual debtor or guarantor of a debtor.

The Commercial Mortgage Law originally contemplated the establishment of a Unified Centre for Lien Registration ("UCLR") that was to be maintained by the Ministry of Commerce and Industry and where security interests could be registered. However, the concept has never really progressed to its full potential. A brief start up period occurred in 2011, where for about six months the Saudi Arabian General Investment Authority ("SAGIA") established and maintained the UCLR following an agreement with the Ministry of Commerce and Industry.

Unified Centre for Lien Registration –operational again

The UCLR has recently become operational again under SAGIA. The practical effect of this means that security interests over moveable assets can now be registered.

Assets Capable of Being Registered

The Commercial Mortgage Law provides for security over moveable assets granted to a creditor with respect to commercial debts provided that the amount of the secured debt or maximum limit is specified in the relevant security agreement.

In general terms, the assets to be secured must be:

  • in existence (i.e. not future assets);
  • in the possession of the debtor;
  • owned by the debtor and capable of being disposed of by the debtor;
  • (tradable, with details stated in the relevant security agreement; and
  • identifiable without ambiguity.

It is important to note that the application form for registration of the secured asset with the UCLR contemplates registration of the following:

  • "Individual Items" that can be uniquely identified (for example, cars, boats, airplanes, serialnumbered equipment); and
  • "General Collateral" that does not have any unique identifying characteristics (for example, inventory and accounts receivable).

Process of Registration

Once the relevant security agreement has been entered into, a copy of the signed instrument should be lodged at the UCLR if there is no other more appropriate registering agency for the particular security interest.

The UCLR contemplates dual security registrations in circumstances where there is another registering agency for the particular asset category (like marine vessels, aircrafts, automobiles etc. mentioned previously). In these situations evidence of the existing registration must also be supplied to the UCLR.

In all cases, the above documents must be submitted together with a completed registration application form signed by the relevant creditor and debtor.

In general terms, the application form for new registration requires the following information to be supplied:

  • profile of the debtor which must be supplied with a copy of the debtor's identification document – like a commercial registration certificate;
  • profile of the creditor;
  • presenter information (that is, information of the individual who submits the application form to the UCLR);
  • details and description of the collateral; and
  • proof of authorisation to act - the names and signatures of the individuals authorised to act on behalf of the debtor and creditor.

Practical aspects of registration are yet to become clear. For example, whether English language documents can be registered without first being translated to Arabic and if there is a requirement for KSA company signatures to be attested at the Chamber of Commerce before being in a form that is acceptable to the UCLR.

Effect of Registration

It is difficult to make a definitive determination on how effective the register will be and what the detriment is for failing to register. An overall assessment can be made such that registration would be evidentially beneficial in respect of a security interest and that failure to register could conceivably have dire consequences should there be a later registered security interest for that same asset. For example, take a situation where the same secured asset is subject to competing claims by numerous creditors – in these circumstances registration could make the difference with a bona fide first in time registered interest having a priority claim.

It will also be interesting to see how KSA courts deal with situations akin to a common law lien where a creditor is in possession of an asset that becomes subject of a creditor priority dispute.

Searching the Register

Only manual 'in-person' searches are currently available, although it is hoped that over time and with further development, electronic search capabilities will be introduced.

Enforcement

Generally speaking, to enforce a commercial mortgage over moveable assets requires application before a competent KSA court, after providing at least three days notice to the debtor. On satisfaction of a claim, the court will order the sale (in full or part) of the assets subject of the security. Ordinarily the sale will be by way of public auction.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

    Disclaimer

    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

    Registration

    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

    Cookies

    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

    Links

    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

    Mail-A-Friend

    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

    Emails

    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

    Security

    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions