Overview Of New Bankruptcy Law And Restructuring In Saudi Arabia

Saudi Arabia Government is modifying laws that encourage foreign and local businesses to invest in a variety of private sectors. The legal framework is new, so it becomes necessary to understand the rights and responsibilities if your investment experiences financial issues. Until now, the KSA has no comprehensive insolvency law, which is a major concern for professional advisors and businesses. Lack of regulation has caused disorderly debt collection and multiple lawsuits due to which there is less scope for the business to move on resulting in insolvencies.

New Bankruptcy Law – Overview

A Bankruptcy law was proposed in 2016 by the KSA’s Ministry of Commerce & Investment. It features Western-style insolvency terms, so let’s get to know the key aspects of restructuring. You can consult the ERLF law firm in Saudi Arabia to understand it in detail.

The main aim of bankruptcy law is to reduce the financial disruption of the insolvent debtor by reorganizing their financial status, resume unworkable activities, and offer monetary support. The law helps to increase asset sale values and ensures the creditor’s fair distribution as per their hierarchy.

The four key features of bankruptcy management in KSA are –

  1. Preventative settlement
  2. Financial restructuring
  3. Liquidation
  4. Administrative liquidation

Set-off rights are regulated for equity management between creditors. There are horrible penalties against transactions done to defraud the creditors. Concealing assets can cause financial penalties and criminal charges. A non-judicial admin committee is established to keep and manage the insolvency register. They will also prepare a list of competent persons and bankruptcy representatives.

The new insolvency law is a crucial step for KSA to make its economic diversification program a success. It is an optimistic step taken to strengthen the financial and legislative structure of KSA.

The reality is business hardly collapses from success to failure overnight. Early signals of financial and commercial issues need to get recognized, so steps can be taken to get back on the right path. Certain restructuring tools can help an underperforming business. The management, shareholders, banks, and advisors need to work together to survive the dip and later grow strong.

The main restructuring tasks are as follows

  • Diagnosis 

The management and the stakeholders need to act in the best interest of the company. Focus on saving the business and overcome existing challenges. There has to be transparency among the directors and management. No blame game! Identify the factors that are the root cause like internal [mismanagement, working capital, underperforming trades, etc.] and external factors [recession, lawsuits, law changes, new market pressure, etc.].

  • Solutions 

If the diagnosed issue is a regulation change like KSA markets are open to foreign investors, VAT, etc. then design objectives capable of contesting with world leaders. Design quarterly objectives like strategy shit, tweak in the business model, cost-saving program, etc. Effective short term solutions can draw in the much-needed money.

  • Funding sources

Money is needed to sustain the operations as well as time to see its effects. Finding resources to keep the company afloat until it gets transformed and restructured is a huge challenge. You can take advice from ELF, professional bankruptcy & insolvency services. They will help you identify the resources like the liquidation of the excess assets.

Successful restricting means your company, bank, and creditors win!

Pedro Aylin
the authorPedro Aylin