Saudi Arabia: Saudi Arabia Update – September 2016

Last Updated: 30 September 2016
Article by Amgad T. Husein and Anas A. Akel

Legal developments

Single owner LLCs – SAGIA cooperation

As per the new Companies Law that came into effect on 2 May 2016 and which we have described in previous  updates, single owner LLCs may be formed – whereas previously a minimum of two shareholders was required.

Even so, the Saudi Arabian General Investment Authority (SAGIA) has refused to license or otherwise allow foreign investors to establish single owner LLCs. SAGIA representatives have informed us that they have not received instructions from leadership to begin doing so.

In an important update, SAGIA released an email message this month notifying foreign investors that SAGIA now intends to begin complying with the new Companies Law and allow foreign investors to establish single owner LLCs.

SAGIA – 25 September 2016

Legal assistance for foreign employees

The Ministry of Labor (MOL) announced that a new system has been implemented whereby the MOL will provide foreign employees with free legal assistance and representation in claims against their employers. It is not clear which types of claims will be entitled to free legal assistance, but the MOL cited specifically that delays in payment of salaries would be handled and followed up by MOL lawyers – which may be a response to recent reports of large construction companies, such as Saudi Oger and the Binladin Group, failing to pay employee salaries in light of ongoing economic difficulty.

Labor and employment law claims tend to be widespread in Saudi Arabia, and employers are typically eager to settle - knowing that the process can be time-consuming and unpredictable. Thus, it will be interesting to see to what extent MOL lawyers and legal representatives take part in such claims, and if such involvement will lead to a decrease of frivolous claims against employers.

Saudi Gazette – 25 August 2016

Proposed new bankruptcy law

Currently, Saudi Arabia's bankruptcy and insolvency regime is very minimal and governed comprehensively by two largely "toothless" legal codes: 1) the Commercial Court Law; and 2) the Bankruptcy Preventive Settlement Law. Bankruptcy and insolvency in Saudi Arabia under these provisions is time consuming and unpredictable and, rather than forcing a judicially-imposed settlement according to a clearly defined set of rules, these provisions mainly seek to bring disputing creditors and debtors together to come to an amicable agreement in a spirit of brotherhood and good relations.

The lack of a clearly defined bankruptcy and insolvency regime in Saudi Arabia has been a deterrent to foreign investment and, in that regard, in line with Vision 2030, a new Bankruptcy Law has been proposed.

Arab News – 21 August 2016

New visa fees take effect on 2 October 2016

As we have mentioned in our previous update, Saudi Arabia has decided to revise the visa fees for visitors and expatriate employees in the Kingdom. The Council of Ministers issued a new resolution specifying that the new visa fees will take effect on 2 October 2016.

Um Al-Qura – 2 September 2016

Electronic system reduces time for CMA to enforce judicial orders

An electronic system which connects the Capital Market Authority (CMA) and the Ministry of Justice (MOJ), called the Nafith system, has reduced the average time for the CMA to execute judicial orders relating to disclosure, seizure, lifting seizures, and executing on securities and funds by up to 85 per cent. Before the application of the Nafith system, the execution of judicial orders used to take the CMA 20 to 25 business days, while now it only takes three to five business days.

The system was developed by the CMA in order to enable execution judges to carry out judicial orders through an electronic path connecting the MOJ with the CMA.

Arab News – 18 August 2016

Competition Law – enforcement example

Saudi Arabia's competition law regime is governed primarily by the Competition Law (CL) and its Implementing Regulations (IRs). The CL and IRs are enforced by the Council of Competition Protection (CCP).

In practice, the CCP rarely takes an active role in enforcing the CL and IRs and typically does not publicise its proceedings or investigations.

In a rare example demonstrating application of the CL and IRs to a real case, the Appeals Court upheld a ruling to fine six soft drink companies SAR 5 million for price-fixing.

According to Ibrahim Al Salim, secretary of the CCP, the six companies agreed to increase their products from SAR 1 to SAR 1.5 at the end of 2009 with no justifiable reason for the increase. The CCP investigated for six years and found that the price increase was made solely to increase the companies' profits. The CCP made an official request to the companies to return their prices to the original amount and avoid any penalties, but the companies did not respond.

Counsel for the six companies has stated that the ruling will be appealed to the Supreme Administrative Court.

Arab News – 21 August 2016

Delayed court hearings

The Supreme Judicial Council has announced that court hearings are not to be postponed if a judge is on vacation, on training, or out on an appointment, and that delaying hearings in such cases will be considered a violation of the judge's judicial duty and the court president's administrative responsibilities. If the judge of the case was not able to meet the date of the hearing or a president of the court was not able to perform his responsibility at any given time, an acting judge or president must step in.

Saudi Gazette – 17 August 2016

Capital market developments

IPOs will open for foreign institutions

While Vision 2030 is aiming to improve the economic conditions in Saudi Arabia over the next five years and strengthen the country's non-oil sectors, Saudi Arabia will permit foreign institutional investors to directly buy shares in IPOs. The CMA published new rules that list qualified foreign investors (QFIs) among the types of institutions allowed to bid in the book-building process which underwriters use to price and allocate shares in IPOs. These rules will take effect at the start of next year.

Arab News – 19 August 2016

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