THE IMPLEMENTING REGULATIONS
Nearly six months after Saudi Arabia approved its first Bankruptcy Law (Saudi Arabia Royal Decree No. M5/1439 and Saudi Arabia Cabinet Decision No. 264/1439), the Kingdom's Council of Ministers has adopted the new law's Implementing Regulations in Saudi Arabia Cabinet Decision No. 622/1439 which was published in the Official Gazette, Issue 4744 on 4 September 2018," Dario Najm states.
"These Regulations organise the different types of proceedings under the Bankruptcy Law before the relevant courts. Short notification periods have been given for all procedures mentioned in the Bankruptcy Law and technology is also to be used in all the relevant procedures, including notification by electronic means, e.g. SMS messages will be sent through authenticated mobile numbers, emails or accounts registered in any of the Government's electronic systems. In addition, in another move to modernise, all meetings involving bankruptcy (likely to be mainly creditors' meetings) can be held with the aid of technology when and if one of the relevant parties cannot be physically present for any of the meetings," Najm adds.
BANKRUPTCY TRUSTEES AND EXPE
"Under Article 9 of Saudi Arabia Cabinet Decision No. 264/1439, a Bankruptcy Committee will license the trustees and experts in line with the Regulations," Najm adds.
"The Implementing Regulations now clarify that one year from the Saudi Bankruptcy law coming into force, people who can be considered licensed and enrolled in the list of bankruptcy trustees with the bankruptcy committee will need to meet a number of conditions. These include being a Saudi national who is of good conduct and has not been convicted of a crime involving moral turpitude or dishonesty or convicted by any court or disciplinary committee."
"Such individuals must also be a member of the Saudi Organisation for Certified Public Accountants (or SOCPA), or a licensed lawyer who has an academic or professional qualification in accounting and is accredited by SOCPA. They must also have practical experience of at least three years after obtaining the basic membership or the license for practising legal profession," Najm adds.
"It is also important to note that the Implementing Regulations state that after the first year has elapsed, anyone who wishes to be registered on the trustees or experts' list must fulfil the conditions stipulated in the licensing rules."
"Articles 22 and 23 of the Implementing Regulations also detail the terms and conditions for the resignation and dismissal of trustees and experts and some general provisions relating to trustees," Najm states.
"The Implementing Regulations detail some common provisions for all bankruptcy proceedings," Najm states. "These include the submission of a petition to open bankruptcy proceedings before the court and provisional measures based on court orders. There are also notification and announcement procedures, and specific rules on documentation and access to information and confidentiality."
"The regulations cover the sale of a bankrupt's assets and provide a list of creditors' requests prepared by the trustee or the bankruptcy committee. These include information relating to the creditors, the existence of securities over assets and debts which are susceptible to setoff," Najm continues
"Proposals for a preventive composition can be voted on as can preventive compositions for small debtors, financial reorganisations or financial reorganisations for small debtors. There are details of the information relating to the debtors and their activity, assets, guarantees and claims and lawsuits filed against debtors."
"In addition the regulations provide more detail on termination of proceedings, and the formation and termination of creditors' committees, as well as their tasks and meetings," Najm notes. "Article 27 of the Implementing Regulations includes details on meetings of the creditors' committee and states their deliberations and voting can be concluded using modern technology. There are also details on the amendment of a plan at the request of debtors or trustees and after the court has accepted it," Najm adds.
PREVENTATIVE SETTLEMENT PROCEEDING
"Preventative settlements are procedures which allow a debtor to reach an agreement with their creditors in order to settle their debts while maintaining their management of the company," Najm states. "A debtor must ensure the performance of their contractual obligations once the preventive settlement proceeding is activated. During this period, they must deposit in the bankruptcy register, the court's decision approving the petition for suspension or extension of claims on its issuance. If a debtor wishes to protect their activities and/or the interest of the majority of the creditors, they may terminate a contract to which they are a party by submitting a petition for termination to the court under Article 37 of the Implementing Regulations."
"They may also apply to the court to amend the proposal. However all of these options require the prior approval of the court and that the creditors vote in their favour," Najm adds.
"One interesting point is that the provisions on preventative settlement for debtors and small debtors found in the regulations are similar."
FINANCIAL REORGANISATION PROCEEDING
"When it comes to proceedings on financial reorganisation, again these are similar for debtors and small debtors," Najm states. "Under Article 2 of Saudi Arabia Cabinet Decision No. 264/1439 financial reorganisation proceedings are a procedure which allows a debtor to reach an agreement with their creditors through reorganising their financial arrangements under the supervision of a bankruptcy licensed trustee," Najm explains. "A financial reorganisation application will be acceptable if, and only if, the petition for opening the financial reorganisation is recorded before the expiry of the period specified in Articles 150 and 181 of the Companies' Law, Saudi Arabia Royal Decree No. M3/1437 and Saudi Arabia Cabinet Decision No. 30/1437."
"More detail on this area is given in the Implementing Regulations, as Article 45 and 65 state the trustee should attach their report on their opinion on the creditor's possible approval of the proposal and its feasibility. Once the creditors have voted, the trustee then submits the result to the court and request its ratification or the termination of the financial reorganisation."
"It is important to note that during a financial reorganisation, the debtor has to prepare a report every three months on the progress of the implementation of the plan and submit this to the trustee. This must include a statement on the implementation of the plan's clauses during the reported period, a statement of difficulties faced by the debtor in implementing the plan and steps taken or proposed to overcome those difficulties. Financial statements and/or the financial position and any other information or data determined by the bankruptcy committee is also needed," Najm adds.
"Liquidation is the act of selling the debtors' assets and distributing the proceeds to the creditors, through and under the supervision of the bankruptcy-licensed trustee. Under Article 93(2)(c) of the Companies' Law, Saudi Arabia Royal Decree No. M3/1437 and Saudi Arabia Cabinet Decision No. 30/1437, in order for there to be a petition to open a liquidation process and register it with the court, the claimed debt must be payable under a writ of execution or under an ordinary document and the creditor must prove they have requested the debtor pay their claim 28 days before the date of the petition's registration, that no payment has been made and no dispute has been filed," Najm explains.
"The Implementing Regulations also now specify how the announcement of the bankruptcy assets must be executed, how the termination of employment agreements works and distribution to creditors based on the amounts allocated to each of them," Najm states.
"Under Articles 1 and 167 of the Bankruptcy Law, administrative liquidation is the process of selling the liquidation assets which are not expected to cover the expenses of the liquidation (including the Small Debtors' Liquidation Process)," Najm states.
"Article 70 of the Implementing Regulations clarifies this area too as it states the proceeds of the sale of bankruptcy assets will not be effective if the estimated cost of selling the asset is equal to or greater than the estimated value of its sale or if the asset cannot be sold within a reasonable period."
"However, if the proceeds from the sale of bankruptcy assets are sufficient to meet the expenses of the liquidation process, the proceeds are distributed in a specific way," Najm explains.
"Firstly, they will cover fees and expenses of the bankruptcy committee. Then there will be distributions to creditors in line with the provisions of distribution stipulated in the Bankruptcy Law and the Implementing Regulations."
"The Implementing Regulations came into force on 14 September 2018 which means the Saudi Bankruptcy Law itself is now in force and options for corporate restructuring in Saudi Arabia have become clearer to those interested in using them," Najm states.
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