Civil Insolvency Law in Saudi Law

Civil Insolvency Law in Saudi Law

Financial transactions are the basis of various fields of life. In lights of the remarkable economic development, some society members may be unable to fulfill their obligations and become insolvent. Below, we shall explain the concept of insolvency, its procedures, how to declare it, and its conditions.

What is Insolvency in language?

Insolvency is defined as a financial imbalance with negative elements surpass positive ones. This means that the person's debts are more than his credits. Insolvency is also divided into (legal and actual) insolvency.

Legal Insolvency:

It is when the debtor's funds are not sufficient to pay his outstanding debts, and a court order declares it.

Actual Insolvency:

It is when the debtor's funds are not sufficient to pay his debts, whether outstanding or unserviceable, and a court order does not declare it.

• Article (77) of the Saudi Enforcement Law stipulates that 

“If the debtor fails to repay the debt and claims insolvency, the enforcement judge shall verify the insolvency claim upon completion of the procedures of disclosure of property, questioning, and tracking of such property in accordance with the provisions of this Law and upon an announcement that includes the grounds for filing for insolvency published in one daily newspaper or more in the area of the debtor.”

What are the Insolvency procedures?

These are as follows:

1. Disclosure of Property:

The process of disclosing property is considered a procedural means that distinguishes the Saudi Enforcement Law, as it facilitates the control of the debtor's funds. The insolvent person must file the lawsuit using a form set by the Ministry of Justice to guarantee the creditors' rights.

• Article (46) of the Saudi Enforcement Law stipulates that 

If the debtor fails to comply or to disclose property sufficient to satisfy the debt within five days from the date of notifying him of the enforcement order or from the date of its publication in a newspaper if notification is not possible, he shall be deemed in default.

• Article (17) of the Saudi Enforcement Law stipulates that 

All competent authorities or bodies overseeing asset registration as well as the debtor’s debtor, accountant, and employees shall disclose the assets of the debtor pursuant to the order of the enforcement judge in a period not exceeding 10 days from the date of notification.

Accordingly, the Law obligated the parties concerned with the implementation of the enforcement document to comply with the order of the enforcement judge and disclose the debtor’s assets, whether fixed or movable. Due to the generality of the text, the regulator designated some entities to comply with the judge’s order; namely: the Saudi Arabian Monetary Agency (for cash), notary publics and courts (for real estate), the Traffic Department (for cars), the Ministry of Commerce (for commercial establishments), and the Financial Market (for stocks and bonds). The regulator designated these entities because they supervise the registration of property.”

2. Questioning: 

It is an important procedure carried out by the judge to question the debtor, with the aim of proving their funds that can be executed upon. The debtor shall be questioned in more detail and confronted with inquiries and witnesses. Interrogation is considered an important procedure within the investigation procedures, as it aims to interrogate the debtor and prove or deny the charge. The debtor must not be coerced or be under oath during the interrogation. The regulator has set conditions that must be fulfilled when conducting the interrogation, as this procedure is subject to the discretionary authority of the judge; he may interrogate the debtor himself, or refer him to the investigation authority.

• Article (17) of the Saudi Law of Judiciary stipulates that 

First:

To be appointed as a judge, a candidate shall fulfill the following requirements: he shall be of Saudi nationality; he shall be of good character and conduct; he shall not have been sentenced for a crime affecting honor, or punished by disciplinary action dismissing him from a public office, even though he may have been rehabilitated; he shall hold the degree of one of the Shariah colleges in the Kingdom of Saudi Arabia or any equivalent certificate, provided that, in latter case, he shall pass a special examination to be prepared by the Supreme Council of Judiciary. He shall not be less than forty years of age if he is to be appointed to the rank of an appellate judge, and not less than twenty two if he is to be appointed to any other rank in the judiciary

Second: 

The debtor's statements must be recorded and signed, either by his handwriting, his seal, or his thumbprint, and if a thumbprint is not possible, then by any other finger.

Tracking: 

The Judge's aim is for the creditor to get his right. If the debtor pays it, the debt is extinguished. If he does not pay, the creditor may get his right from the debtor’s property. If the property is no longer owned by the debtor, the judge shall track that property to get the creditor's right.

• Article (47) of the Saudi Enforcement Law stipulates that 

The enforcement judge may question the debtor, his accountant, employees, persons suspected of favoring him and his debtors for the purpose of tracing his property. Said judge may assign an expert to trace the debtor’s property.

The previous text indicated that: The enforcement judge may appoint an expert to verify the debtor’s property and the creditors, in order to ensure that their funds are transferred legally. If the expert finds collusion in the debtor’s property, he must present evidence and proof to the enforcement judge to take precautionary measures, which are referred to the Public Prosecution, in order to file a lawsuit against the debtor and those who participated in smuggling his property, to achieve criminal justice.

What is Insolvency Announcement?

The purpose of these announcements is to defame the debtor as many of them fear that and cease to claim insolvency lawsuit. Only the person who is actually harmed continues to do so, because the harm of defamation is less harmful than claiming the debt. Announcement also aims to warn others not to conclude any financial transactions with the debtor, because he is insolvent or is deceitful to hide his property under the insolvency lawsuit. Such announcements must be made in the designated place in Court and shall be displayed on the website designated for enforcement announcements, and published in daily newspapers. The judge also has the right to respond to anyone who has an interest in the case, if he requests to re-publish the announcement or publication by any other means, provided that the applicant bears the costs of these announcements.

What are Insolvency Announcement Conditions:

To declare insolvency, the following conditions must be met: 

1. The debtor’s property is not sufficient to pay the outstanding debts only. This means that in order for a judgment to declare insolvency, the debtor’s property must be less than the value of the outstanding debts only, not the installments that have not yet fallen due.

2. Insolvency must be declared by a court order, at the request of the creditors or the debtor's request. This court order creates a new legal situation, in which the debtor is considered insolvent, not only before the creditor who filed the lawsuit, but also before all creditors and persons not acting in good faith. Accordingly, the debtor's actions may not be invalidated. The law also stipulates that the insolvency order must be public.

In conclusion:

The insolvency lawsuit is filed by one of the parties; the creditor or the debtor, to prove the debtor's state of insolvency. If the debtor's insolvency is proven, it is declared by a court order.

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