Insolvency and bankruptcy of enterprises in the Kingdom of Saudi Arabia: Causes and solutions

  • Keynote speaker: Dr. Suleiman Tufail

Speaker 1: Mr. Nabil Al-Mubarak

  • Speaker 2: Mr. Fahad Al-Qasim

Moderator: Mr. Jamal Mala’ekah


Insolvency is the middle stage between defaulting and bankruptcy. Since its establishment, the Kingdom of Saudi Arabia has been concerned with regulating cases of commercial bankruptcy to keep up with the development of commercial life that was simple and not complicated as it is today. The regulation took place through the Commercial Court Law issued by Royal Decree No. 32 on June 2, 1931, as the Saudi courts dealt with Civil insolvency cases until the announcement of the new bankruptcy law. The Kingdom also accelerated the development of its commercial laws by approving the bankruptcy prevention law issued by Royal Decree No. M / 16 on 25/1/1996. With the announcement of the Saudi bankruptcy law No. M / 50 on 14/02/2018, which came to address defaulting and bankruptcy in one law, there have been many instances of bankruptcy. Those cases varied among activities and sectors, which hurt the atmosphere and environment of the economy, especially the more organized markets, such as the financial markets. As many companies listed in the Saudi capital market were stopped and left the market, many large companies and institutions declared bankruptcy and liquidation, as well as many well-known pioneers and businessmen in the Saudi business. The number of bankruptcies on the Bankruptcy Committee website (an independent governmental committee) exceeded 130 cases, including companies, institutions, and entrepreneurs, the capital of which exceeded billions of riyals. Their most prominent activities were in the contracting sector, and there are hundreds or even thousands of cases in the Saudi courts related to default and bankruptcy. This does not mean that bankruptcy cases did not appear until recently or after the bankruptcy law was announced. There are countless cases of insolvency and bankruptcy that have appeared decades ago, affecting the banking sector, industry, trade, agriculture, and services. The contracting sector was especially affected, which was and is still subject to the most bankruptcy cases, starting with government projects, especially educational projects, infrastructure, and roads. Many construction projects have also been suspended, as well as development projects that have been stalled and disrupted up today, for various reasons. Some were suspended based on financial and administrative corruption, some for poor planning and management, and some for force majeure.

Some experts attributed bankruptcy cases to two reasons: the first is within companies, and the second is external. As for the bankruptcy law applicable in the Kingdom, its goal is not to protect companies. It was enacted to organize the bankruptcy process and maintain the rights of all related parties.

The issue of bankruptcy is not a brand new one. It started with practicing trade in the world. In Islamic law, there are many of the terms and provisions that regulate the processes of default and bankruptcy of companies, merchants, and individuals. However, what is new here is that we have a bankruptcy law, which needs concentration, explanation, and understanding by all relevant parties.

The contributions made to the discussion included the themes below:

  • Reasons for bankruptcy of small and medium-sized enterprises.
  • The impact of fees on small and medium-sized enterprises.
  • Suggested solutions to address the failure of enterprises and bankruptcy.

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  1. Establishing an agency linked with the Ministry of Commerce for managing bankruptcy.
  2. Obliging the government contracting agency to pay the contractor’s dues within one month of delivery, provided that the contractor shall submit a memorandum of reception and performance certificate. The contractor shall also submit the legally required bill.
  3. Activating the role of Chambers of Commerce to understand the reasons for bankruptcy. They shall report to the concerned agency regularly or monthly.
  4. Considering fee waiver for the small and medium-sized enterprises for five years, an action that is similar to the factories. Such enterprises may be given a reasonable grace period so that they can raise job nationalization and recover the fees which they have paid earlier to the government.
  5. Establishing a government fund that provides financial subsidies to small and medium-sized enterprises through long-term and interest-free loans. Repayment may start in five years of obtaining the loan in an easy payment condition.


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