CreditHub: Saudi Arabia

• Two or more partners with joint liability.
• Partnership name indicates partnership and can include a foreigner's name.
• Shares are not negotiable instruments.

These involve two or more partners who assume joint liability for the partnership's debts using their entire funds. The name of a general partnership should indicate the existence of a partnership and can include a foreigner's name with consent. Partners' shares are not negotiable instruments, and profit and loss sharing is determined by the pre-commencement agreement. This structure is most suitable for small businesses or professional services where partners are closely involved in operations.

Best for small or professional businesses with closely involved partners.

• Two teams of partners: joint and limited.
• Joint partners have full liability; limited partners have limited liability.
• Limited partners cannot participate in management.

Limited partnerships consist of two teams of partners. One team includes at least one joint partner who is liable for the partnership's debts. The other team consists of limited partners who have limited liability. Limited partners cannot participate in management decisions. This structure is often used when there are passive investors who do not wish to be involved in the daily management of the business.

Suitable for businesses with passive investors not involved in management.

• Collaborative business arrangements.
• Established for specific projects or ventures.
• Not separate legal entities unless structured as such.

These are collaborative business arrangements between two or more parties to pursue a specific project or venture. Joint ventures can be established for a limited duration or purpose and are governed by specific agreements. They are not considered separate legal entities unless they are structured as such, and they are common in sectors like construction, oil and gas, and technology.

Common in sectors like construction, oil and gas, and technology.

• Shareholders hold tradable shares.
• Suitable for large-scale operations.
• Comply with strict regulatory requirements.

JSCs allow shareholders to hold tradable shares in the company. These companies are suitable for large-scale operations and can be publicly listed. Shareholders' liability is limited to their investment in the company. JSCs are governed by the Saudi Companies Law and must comply with strict regulatory requirements, including the need for audited financial statements and regular public disclosures if they are publicly listed.

Ideal for large-scale operations with strict regulatory compliance.

• Combines features of partnerships and corporations.
• Limited liability for members.
• No minimum capital requirement unless specified.

LLCs are popular due to their flexibility. They combine features of partnerships and corporations. LLCs have limited liability for members, and their management structure can be customized. Foreign investors often choose LLCs for ease of operation. There is no minimum capital requirement unless specified for certain business activities, and they are the most common business structure for foreign investments.

Most common structure for foreign investments due to flexibility.

• Owned and run by one individual person.
• No other shareholders and no minimum capital requirements.
• Liability is not distinct from the enterprise.

Often referred to as an 'establishment,' this business structure is owned and run by one individual person. There are no other shareholders and no minimum capital requirements. The liability of the owner is not distinct from the enterprise. Such businesses are not subject to corporate law and instead fall under commercial registry law. Only Saudi or GCC member state nationals can register an establishment in Saudi Arabia. This structure is typically used for small, family-owned businesses or individual service providers.

Suitable for small, family-owned businesses or individual service providers.

• Local credit rating agencies like SIMAH
• National Commercial Bank search
• Saudi Ministry of Commerce portal

Corporate information is more challenging to obtain in the Middle East, with a preference to go through local credit rating agencies such as SIMAH (Saudi Credit Bureau). Another option is to utilise the National Commercial Bank to search for the company in question. Additionally, the Saudi Ministry of Commerce provides an online portal where certain business information can be accessed, including the registration status of companies.

Utilise local credit agencies or the Saudi Ministry of Commerce portal for company information.

• Local credit rating agencies like SIMAH
• National Commercial Bank search
• Direct sharing of financial accounts

Some information may be found through local credit rating agencies such as SIMAH or the National Commercial Bank. A further option is to explore the distribution and sharing of the financial accounts directly with the business owner, although this would often be subject to a non-disclosure agreement (NDA). In cases where businesses are publicly listed, their financial information might also be available through the Saudi Stock Exchange (Tadawul).

Consider NDAs for financial account sharing; use Tadawul for public listings.

• Information in credit reports from SIMAH
• Saudi Ministry of Justice online portal

Normally, you find this information in a credit report. Credit reports are offered as a service online by local credit agencies like SIMAH. Additionally, the Saudi Ministry of Justice offers some public access to court records through its online portal, where it may be possible to find information on judgments.

Use SIMAH credit reports or the Saudi Ministry of Justice portal for judgment information.

• Copies of invoices
• Commercial Registration Copies
• Signed contractual agreement
• Signed power of attorney

A claimant is free to choose which evidence it wishes to submit in support of the claim, but as a minimum, it is advisable to have at least the following available:

• Copies of the invoices
• Commercial Registration Copies (of both creditor and debtor)
• A signed contractual agreement inclusive of the terms and conditions
• A signed power of attorney

In disputed cases, it is highly recommended to present copies of the formal notices and/or reminders sent to the debtor, proof of orders or contracts, proof of the delivery of the goods, and any other document signed by the debtor in which the debtor acknowledges the claim or the dispute. The creditor should also be able to provide any notes of conversations between the creditor and the debtor.

Ensure all contracts and supporting documents are signed and properly documented.

• Allows seller to retain ownership until conditions are met.
• Not legally enforceable under Shariah law.
• Consider alternative guarantees like letters of credit.

Retention of title when included in trade contracts allows the seller to retain ownership over the goods supplied until certain contractually defined conditions are met. However, in the Kingdom of Saudi Arabia, such clauses are not legally enforceable. Under Shariah law, the owner of an item bears the risk of loss or damage of that specific item. Any such retention of title clauses would hence not be upheld in court. As an alternative, sellers might consider securing other forms of guarantees, such as letters of credit or performance bonds, to protect their interests.

Consider alternative forms of guarantees like letters of credit to protect interests.

• Negotiation advised before court action.
• Warning notice mandatory before filing enforcement claims.

Creditors are always advised to pursue negotiation with any debtor regarding outstanding debt prior to any court action. A warning notice to the debtor is mandatory before filing any enforcement claims. The warning notice should include:

• Creditor name and overview of the claim
• The total amount of the claim, including penalties (interest)
• Payment method required
• A warning that the claim will be enforced through the enforcement authority in case the claim is not settled by the required date
• Information on how to dispute the claim

If this measure has been taken and the payment still has not been made after the 15-day notice period (according to the law), the creditor may file for court enforcement. Such a court enforcement may only take place five days after notification from the creditor to the debtor.

Always send a warning notice before proceeding with court enforcement.

• Interest for late payment prohibited by Islamic law.
• Debt collection costs generally not recoverable unless agreed.

In Saudi Arabia, interest for late payment is prohibited by Islamic law and hence not recoverable. Furthermore, debt collection costs are generally not recoverable unless otherwise agreed upon by both parties in a specific signed agreement. However, creditors may negotiate and include clauses in contracts that allow for certain fees related to the recovery of debt, provided these do not constitute interest.

Include specific clauses for fees related to debt recovery in contracts.

• General limitation period: 5 years
• No statute for enforcing a foreign judgment of arbitration

The Commercial Courts Law (effective since June 2020) introduces a limitation period of five years for commercial proceedings. Cases filed after such a period must be dismissed by the court unless accepted by the debtor. There is no statute of limitations under Saudi law for enforcing a foreign judgment of arbitration. A formal notice may extend the limitation period for a maximum of one year if certain formal requirements are met. It's important to keep all relevant documentation in order to ensure that claims can be pursued within this timeframe.

Act within the 5-year limitation period for commercial claims.

• Two most common methods: Arbitration and Mediation
• Governed by the Saudi Centre for Commercial Arbitration (SCCA)

In Saudi Arabia, there are several methods of ADR that can be explored, with the two most common being Arbitration and Mediation, both of which are governed by the Saudi Centre for Commercial Arbitration (SCCA). Arbitration is a procedure in which both parties opt for private dispute resolution in which a binding decision is made (by the third-party arbitrator) subject to the evidence presented. Arbitration is commonly used for commercial disputes. Mediation is typically voluntary and non-binding. The process results in a third-party mediator assessing submitted evidence to guide the outcome. The Saudi Government aims to mediate 25% of commercial disputes to avoid potential court cases.

Consider ADR methods as potentially faster and less costly than litigation.

• Judgment may be issued up to a year after hearing
• Disputes and appeals can extend the process to several years

The time taken to obtain a judgment varies subject to the case. The process is initiated by the filing of a claim in the Commercial Court, which organises a hearing requiring the presence of both parties. A judgment may be issued up to a year from such a hearing. If there is a dispute and/or appeal, it can take from one to several years to obtain a judgment. Judgments exceeding 50,000 SAR (roughly £10,000) may be appealed within 30 days.

Prepare for potentially lengthy legal proceedings, especially if disputes arise.

• Approximate cost of 5,000 SAR (roughly £1,050)
• Additional costs for legal representation, witnesses, and experts

The cost of a Commercial Court case is approximately 5,000 SAR (roughly £1,050), although this varies subject to the case. Legal representation costs and fees are established subject to the case, as well as the tasks performed by the lawyer. These costs are not charged back to the debtor. If a party uses a document that is not in the language of the legal proceedings, the other party and/or court can ask for the translation of the document; a cost which is not charged to the debtor. Additionally, there may be costs for witnesses, experts, and other court fees which vary depending on the complexity and requirements of the case.

Consider all potential costs before initiating legal proceedings.

• Required for non-compliant parties
• Granted by a judge
• Allows enforcement officer to act

When a party refuses to comply with a legal judgment, the opposing party may apply for an execution order. This order, when approved by a judge, grants an enforcement officer the right to take action against the debtor's assets.

For more information, visit the Saudi Ministry of Justice.

An execution order is necessary to enforce judgments against non-compliant parties.

• Asset seizure
• Income stream freezing
• Auction of moveable assets

The enforcement officer has several options to enforce the judgment:

• Assess and freeze the debtor's income streams (e.g., salaries, shares, bank deposits)
• Visit the debtor's registered premises
• Seize and auction moveable assets
• Distribute cash proceeds to creditors as dividends against the outstanding debt

For more details, refer to the Saudi Ministry of Justice.

Enforcement can include freezing assets, seizing property, and auctioning assets to satisfy the judgment.

• Borne by the debtor
• Not paid by the applicant

All fees arising from the enforcement process will be borne by the debtor. The applicant (creditor) does not have to pay such fees.

For more information, visit the Saudi Ministry of Justice.

Enforcement costs are added to the debt and paid by the debtor, not the creditor.

• Must be recognized by Saudi courts
• Subject to reciprocity principle
• Must not contradict Sharia law

Foreign judgments must be recognized by Saudi courts before they can be enforced. This process is subject to the principle of reciprocity and the judgment must not contradict Sharia law or public policy in Saudi Arabia. The process can be complex and time-consuming.

For more details, refer to the Saudi Ministry of Justice.

Enforcing foreign judgments requires additional steps and may face challenges if not compliant with local laws.

This process focuses on restructuring a debtor's financial obligations through reorganization of debt to ensure the continuity of business. It involves negotiations with creditors to extend payment terms, reduce the debt amount, or convert debt into equity. The goal is to allow the business to continue operating while repaying its debts over time.

For more information, visit the Saudi Arabian Monetary Authority (SAMA).

Financial restructuring can save a business by allowing it to continue operations while repaying debts over time.

When restructuring is not feasible, a debtor may opt for liquidation, ceasing all commercial activities and selling off assets to pay creditors. There are two types:

• Voluntary Liquidation: Initiated by the debtor when they recognize that they cannot meet their financial obligations.
• Compulsory Liquidation: Initiated by creditors through a court petition, leading to the appointment of a liquidator to manage the sale of assets and distribution of proceeds.

For more details, refer to the Saudi Ministry of Justice.

Liquidation is a last resort when restructuring is not feasible, involving the sale of assets to pay creditors.

Special provisions exist for small debtors to expedite the insolvency process, making it less cumbersome and more aligned with their scale of operations. This includes simplified documentation requirements and faster resolution timelines.

For more information, visit the Saudi Arabian Monetary Authority (SAMA).

Small debtors have tailored procedures to ease the insolvency process, with simplified documentation and faster resolution.

Claims are paid in a specific order of priority, typically starting with secured creditors, followed by unsecured creditors, and finally shareholders.

For more details, refer to the Saudi Ministry of Justice.

Understand the priority of claims to know where you stand in the payment order.

Secured creditors have collateral backing their claims and are paid first. Unsecured creditors do not have collateral and are paid from remaining assets.

For more information, visit the Saudi Arabian Monetary Authority (SAMA).

Secured creditors are prioritized over unsecured creditors due to collateral backing.

In complex insolvency cases, creditors may form committees to represent their interests, negotiate with the debtor, and oversee the restructuring or liquidation process.

For more details, refer to the Saudi Ministry of Justice.

Participation in creditors' committees can provide a stronger voice in the proceedings.

Debtors must provide accurate and complete financial information to the insolvency practitioner and creditors.

For more information, visit the Saudi Arabian Monetary Authority (SAMA).

Ensure full transparency by providing accurate financial information.

Debtors must cooperate with the appointed insolvency practitioner, providing access to records and assisting in the asset liquidation or restructuring process.

For more details, refer to the Saudi Ministry of Justice.

Cooperate fully with the insolvency practitioner to facilitate the process.

Debtors must comply with all court orders and legal requirements throughout the insolvency process.

For more information, visit the Saudi Ministry of Justice.

Comply with court orders to avoid further legal complications.