Saudi Arabia Government signals the green light to implement the approved bankruptcy law. This is a great step towards revolutionizing good business practices.
At present Saudi Arabia Government are focusing its energies towards Saudi Vision 2030 and the National Transformation Programme (NTP), improving and developing its economy, branching away from reliance on the oil sector and increasing the level of private sector business participation.
There have been a number of strategies designed to modernize the current systems in place for doing business in the Kingdom. The driving force is to boost the economy, streamline business practices and attract foreign investors to setup a company in Saudi Arabia.
The United Arab Emirates introduced the bankruptcy law in 2016 to better deal with corporate insolvencies, it was only a matter of time that Saudi would follow suit. Formerly neither country had a law in place to aid businesses that came into financial difficulties. Since there has been an economic slowdown worldwide this is another strategy in place to boost the economy for Saudi Arabia.
Saudi Arabia bankruptcy legislation was initially published in February 2018 – Majed Al Rasheed, secretary general of the bankruptcy committee at the Ministry of Commerce and Investment (MOCI), has declared this law will come into effect within the next few weeks.
KSA bankruptcy law update is very much needed to strengthen the system. Investors need to feel protected and aware of their rights and obligations should they run into any financial difficulties.
The lack of a fit for purpose insolvency system has been a major concern for business advisors, investors, entrepreneurs and corporations that are looking to expand or start a company in Saudi.
Below lists some of the problems that those doing business in KSA have previously encountered:
There has not been enough effective protection for a debtor whose company is undergoing financial hardships, yet they still remain financially viable. Where there are several creditors there may be no opportunity for the same debtor to trade their way out of those struggles and repair the financial health of their company. On the other hand, preserving the company in some form may be suitable for most of the creditor’s in particular small creditors – even if it means getting less than their due. The new bankruptcy law will strengthen KSA’s business environment by helping cash strapped organizations restructure and encourage more foreign investment. As a result we expect to see more companies looking to tap into the market and form a company in Saudi Arabia.
Saudi’s bankruptcy law includes many aspects of a western styled insolvency regime displaying a greater bench-marking process. Moreover, the new law clears up certain issues that creditors face when dealing with insolvent debtors.
The new bankruptcy law aims to:
The new bankruptcy law applies to:
Improving KSA business regulatory environment is a key force of Vision 2030. Officials have already revised several commercial laws and introduced new laws to offer increase protection to investors.
The bankruptcy law sets out regulations for insolvencies, preventive proceedings, courses for financial restructuring and settlement processes. Additionally, borrowers and creditors can reach restructuring solutions much easier, speed up liquidation of non-viable businesses and reduce the risk for lenders.
The bankruptcy law is a positive and important development for Saudi Arabia. We predict it will only be a matter of time before we see further legal structures in line with global standards. We are excited to see what is in store for the Kingdom.
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