Saudi Bankruptcy Law: Reorganization and Protective Settlement

Saudi Arabia's Bankruptcy Law, issued by Royal Decree No. M/50 dated 28/5/1439H (14 February 2018), gives distressed businesses and their creditors seven court-supervised procedures, from a debtor-led protective settlement to full liquidation. This guide, current as of October 2026 and reflecting the 1441H amendments, explains who can file, how the statutory moratorium works, creditor voting thresholds, and when directors become personally exposed.

Key takeaways

• A debtor that is distressed, defaulting or insolvent may apply for a protective settlement, provided it has not used that procedure in the previous 12 months (Article 13).
• The protective settlement stay is granted for up to 90 days, extendable in 30-day steps to a maximum of 180 days (Article 18).
• In financial reorganization, filing alone triggers a 180-day stay, extendable by up to 180 days more under the 1441H amendment (Article 46).
• A creditor class approves a proposal when creditors holding two-thirds of the voting claims in that class vote yes, including more than half of the claims held by unrelated parties (Articles 31 and 79).
• Directors who keep trading when liquidation can no longer be avoided face up to 5 years' imprisonment and a fine of up to SAR 5 million, or either (Articles 200 and 203).

What procedures does Saudi bankruptcy law offer?

The law sets out seven procedures: protective settlement, financial reorganization, liquidation, and small-debtor versions of each, plus administrative liquidation for estates too small to fund a regular liquidation (Article 2). The Commercial Court has jurisdiction.

It applies to individuals carrying on commercial, professional or profit-making activity, to companies and profit-making entities registered in the Kingdom, and to foreign investors, but only as to their assets in Saudi Arabia (Article 4). That last point matters for foreign shareholders: offshore assets are outside the procedure.

Two definitions drive everything. A defaulting debtor has stopped paying a due and demanded debt; an insolvent debtor has debts exceeding all of its assets (Article 1).

What is a protective settlement, and who can apply?

A protective settlement helps the debtor reach a deal with creditors while management stays in control, with no trustee running the business. Only the debtor can apply; creditors cannot.

Conditions under Articles 13 and 15:

• The debtor is defaulting, insolvent, or likely to face financial difficulty that could lead to default.
• It has not been through a protective settlement (or the small-debtor version) in the past 12 months.
• The application includes the proposal, a summary of the financial position and a fair classification of creditors.
• The court is persuaded the business can continue and settle claims within a reasonable time.

The court schedules a hearing within 40 days of registration and may adjourn it for up to 21 days. If it opens the procedure, the creditor vote is set within 40 days (extendable by 40 more), and the debtor must announce the opening within 7 days (Articles 15 and 16).

How does the moratorium on claims work?

In a protective settlement the stay is not automatic. The debtor must request it and attach a report from a licensed bankruptcy trustee confirming that majority creditor support and implementation are likely (Article 17). The court may grant up to 90 days, extendable by 30 days at a time, capped at 180 days (Article 18).

During the stay (Article 20):

• No claim, enforcement step or competing bankruptcy filing may proceed against the debtor or its assets.
• Secured assets cannot be enforced without court approval.
• Personal guarantors and third-party security providers cannot be pursued without court approval.

Any contrary step is void. Contracts continue, and ipso facto clauses that accelerate debts or terminate on filing are void (Articles 22 and 23), with carve-outs for government procurement contracts and, in part, bank financing (Article 26). For creditors used to ordinary debt recovery in Saudi Arabia, this pause is the main practical change.

How does financial reorganization differ from a protective settlement?

The key difference is oversight. In financial reorganization the court appoints a licensed reorganization trustee who supervises the business and its finances (Articles 50 and 58). Creditors and the competent regulator can also file, not just the debtor (Article 42).

Other differences:

• Automatic stay: filing triggers a 180-day stay, extendable by up to 180 days, under Article 46 as amended by Royal Decree M/89 dated 9/7/1441H.
• Claims process: the trustee publishes the opening within 7 days of appointment and invites claims within a period of up to 90 days (Article 56).
• After confirmation: the debtor needs the trustee's written consent to borrow, grant security or transfer assets outside the ordinary course, and reports every 3 months on plan performance (Articles 84 and 85).

During reorganization, the debtor and its directors are exempt from the Companies Law rules on accumulated losses reaching a set threshold, as detailed in the Implementing Regulations (Article 45).

What creditor vote is needed to approve a plan?

A class approves if creditors holding two-thirds of the value of claims voting in that class vote in favour, including creditors holding more than half of the claims of unrelated parties. Value counts, not headcount.

• Protective settlement: every class must approve (Article 31).
• Financial reorganization: the court confirms if all classes approve, or if at least one class approves and creditors holding at least 50% of all voting claims across classes vote yes, and the court finds confirmation serves the majority of creditors (Article 80). This is the cram-down mechanism.

Shareholders vote first where their rights are affected. A dissenting creditor may object at the confirmation hearing on fairness grounds: voting process, adequate information, and fair sharing of losses and security (Articles 34 and 35). Once confirmed, the plan binds the debtor, creditors and shareholders (Article 37).

When can a creditor petition for liquidation?

The debtor, a creditor or the competent regulator may seek liquidation of a defaulting or insolvent debtor (Article 92). A creditor petition is registered only if (Article 93):

• The debt is due, fixed in amount and cause, with any security identified.
• The debt, or the petitioners' combined debts, meets the minimum set by the Bankruptcy Commission.
• The debt rests on an enforceable instrument or ordinary document, and the creditor demanded payment at least 28 days before filing without payment or dispute.

If the debtor disputed the debt beforehand, the petition is refused as an abuse of process (Article 94). The route then is a claim before the Commercial Court to establish the debt first. On opening, the debtor loses control to the liquidation trustee (Article 100).

Distribution runs: trustee fees and sale costs, secured debts, secured new financing, 30 days' wages for employees, then the remaining priorities, with unsecured debts ranking ahead of unsecured government dues (Articles 195 and 196).

What are the small-debtor procedures?

The small-debtor procedures are faster and cheaper versions. Who qualifies as a small debtor depends on criteria set by the Bankruptcy Commission with the SME authority (Monsha'at).

• Small-debtor protective settlement: the debtor opens it by its own resolution on the Commission's form, effective on filing in the Bankruptcy Register (Article 129). A stay of up to 90 days may be requested, decided within 5 days, but it does not cover secured debts (Articles 131 and 133). Approval needs two-thirds by value of voting claims, without classes (Article 134).
• Small-debtor reorganization: opened through a licensed trustee by judicial deposit, with a 180-day stay extendable by up to 120 days (Article 147 as amended).
• Small-debtor liquidation: for a defaulting or insolvent small debtor that cannot continue and has enough assets to fund the procedure (Article 162).

When are directors personally liable?

Directors can face both civil and criminal exposure. A company may only be wound up voluntarily under another law if its assets cover all debts and it is not in default; otherwise board members or managers become jointly liable for any remaining debt (Article 7).

Criminal offences for directors, before or during a procedure, where creditors are harmed, include (Article 200):

• Continuing to trade when liquidation can no longer be avoided.
• Reckless methods to avoid or delay liquidation, such as selling below market price to raise cash.
• Transactions for no or unfair value, or preferring one creditor over others.

Penalties reach 5 years' imprisonment and a SAR 5 million fine, or either, plus a director ban of up to 5 years, doubled for repeat offences (Articles 203 and 209). Transactions within 12 months before opening (24 months for related parties) can be set aside (Article 210). Boards should seek corporate law advice at the first sign of distress.

How do you file a bankruptcy application?

1. Choose the procedure: the Bankruptcy Commission (Eisar) publishes an interactive guide and a document checklist for each procedure on bankruptcy.gov.sa.
2. Check eligibility: financial status, the 12-month bar, and regulator approval if the debtor is a regulated entity such as a bank or insurer; the regulator decides within 30 days, and silence counts as approval (Article 3).
3. Prepare the file: financial statements, creditor list and classes, the proposal, and a trustee report if requesting a stay.
4. File with the Commercial Court, attaching the information and documents required by the Implementing Regulations.
5. Track deadlines: hearing within 40 days, announcement, vote, confirmation, and filings in the public Bankruptcy Register.

Frequently asked questions

Can a creditor force a company into a protective settlement?

No. Under Article 13 of the Bankruptcy Law, only the debtor can apply for a protective settlement. A creditor can instead apply for financial reorganization where the debtor is defaulting, insolvent or likely to default, or petition for liquidation under Article 93, which requires the debt to meet the Bankruptcy Commission's minimum and a payment demand made at least 28 days before filing.

Does the stay protect personal guarantors?

In a protective settlement, Article 20 bars any action against a personal guarantor or third-party security provider during the stay unless the court approves. The court will allow enforcement where it does not affect the business's continuity or creditor approval, or where refusal would cause the secured creditor serious harm outweighing the harm to the debtor and other creditors.

What is the longest protection a company can get from creditors?

In a protective settlement the stay is capped at 180 days. In financial reorganization it is 180 days, extendable by up to 180 more following the 1441H amendment to Article 46, so roughly 360 days in total. Small-debtor reorganization allows 180 days plus up to 120. The stay ends earlier if the plan is confirmed or the procedure is terminated.

Do supplier contracts survive a protective settlement filing?

Yes. Contracts remain in force, and the counterparty must perform while the debtor pays for post-opening obligations. Clauses that terminate the contract or accelerate debts because of the filing are void. Government procurement contracts are excluded from these protections, and bank and finance company facilities are excluded from some of them under Article 26.

Who regulates bankruptcy trustees in Saudi Arabia?

The Bankruptcy Commission, branded Eisar, formed by a Council of Ministers resolution under Article 9 of the law and operating under the supervision of the Minister of Commerce. It licenses trustees and experts, maintains their lists and the public Bankruptcy Register, sets small-debtor criteria and the minimum debt for liquidation petitions, and runs administrative liquidations.

Official sources

Current as of October 2026. The latest published amendment to the law is Royal Decree M/89 dated 9/7/1441H, amending Articles 46 and 147.

• Bankruptcy Law, Bureau of Experts at the Council of Ministers
• Implementing Regulations of the Bankruptcy Law, Bureau of Experts
• Bankruptcy procedures, Bankruptcy Commission (Eisar)