Financial Services Focus
Mohammed NegmSenior Counsel,Dispute Resolution
Cross-border bankruptcy is a complicated situation that may occur when a debtor with assets in multiple countries becomes unable to pay their debts. These cases typically involve issues of conflict of laws, including choice of law rules, jurisdiction rules, and enforcement of judgment rules. However, the main focus is often on the recognition of foreign bankruptcy officials and their authority.
No doubt that in these cases, without an effective system for coordinating such proceedings, there is a risk of conflicting decisions and wasted resources, which can ultimately result in a poorer recovery for creditors. Therefore, in 1997 a model law on cross-border insolvency was developed by the United Nations Commission on International Trade Law (UNCITRAL), with the aim of addressing the challenges that can arise when a debtor has assets in more than one jurisdiction. The model law has been adopted by more than 50 countries around the world according to UNCITRAL’s website.
Now, in Saudi Arabia for the first time, the Minister of Commerce has issued new rules on cross-border bankruptcy procedures, which became effective on December 16, 2022. These rules are based on the Bankruptcy Law of Saudi Arabia which was enacted in 2018.
The new rules outline the jurisdiction of the courts in Saudi Arabia in cases involving cross-border bankruptcy procedures, including the recognition of foreign bankruptcy proceedings and the appointment of a foreign officeholder. The rules also detail the powers and duties of the foreign officeholder, as well as the process for opening and closing a foreign bankruptcy procedure in Saudi Arabia.
In this article, I will provide an overview of some of the key provisions of these new rules to provide a clearer understanding:
As the same as definitions in UNCITRAL’s model law, key terms related to cross-border bankruptcy are defined in the rules, in order to provide clarity and understanding of the context and scope of the rules. Some of the key terms defined in the rules include:
"Foreign bankruptcy procedure," which is defined as "a collective judicial or administrative proceeding in a foreign State, including an interim proceeding, pursuant to the bankruptcy law in which proceeding the assets and affairs of the debtor are subject to control or supervision by a foreign court, for the purpose of restructuring or liquidation."
"Main foreign bankruptcy procedure," which is defined as "a foreign proceeding taking place in the State where the debtor has the headquarters of its business."
"Non-main foreign bankruptcy procedure," which is defined as "a foreign proceeding, other than a foreign main proceeding, taking place in a State where the debtor carries out a non-transitory economic activity with human means and goods or services."
These definitions are important for understanding the different types of bankruptcy procedures that can take place in different countries, and for distinguishing between proceedings that take place in the country where the debtor's main office is located and those that take place in other countries where the debtor is engaged in economic activity.
The scope of application of the rules covers a range of situations that may arise in cases involving debtors with assets in multiple countries.
One key scenario covered by the rules is the request for judicial assistance from a foreign court or foreign officeholder in connection with a foreign bankruptcy procedure. This could involve a request for the recognition of a foreign bankruptcy procedure in Saudi Arabia, or for assistance with the administration of the bankruptcy process.
Another scenario covered by the rules is the request for judicial assistance from the court, the bankruptcy committee, or the officeholder in Saudi Arabia in connection with a bankruptcy procedure under the provisions of the Bankruptcy Law. This could include requests for the appointment of a foreign officeholder, or for the liquidation of assets in Saudi Arabia as part of a foreign bankruptcy process.
The rules also apply in cases where the debtor is subject to a bankruptcy procedure in Saudi Arabia and a foreign bankruptcy procedure at the same time. This can be a complex situation that requires coordination between the two proceedings to ensure that the debtor's assets are distributed fairly and efficiently among creditors.
In addition, the rules apply upon submission of a request related to a bankruptcy procedure or intervention in it by any creditor or interested party from a foreign country in accordance with the provisions of the Bankruptcy Law.
The rules are not intended to override or conflict with any international conventions that Saudi Arabia has entered into, such as conventions on cross-border bankruptcy.
One key principle is that the rules do not prejudice international agreements to which the Kingdom is a party. This means that the rules are not intended to override or conflict with any international conventions that Saudi Arabia has entered into, such as conventions on cross-border bankruptcy.
Another principle is that the Saudi court may refuse to take any action if it includes something contrary to public order in the Kingdom. This is an important safeguard to ensure that the court's actions in cross-border bankruptcy cases are consistent with the values and laws of Saudi Arabia.
The rules also do not in accordance with the relevant laws of the Kingdom restrict the power of the Saudi court or the officeholder to provide any other assistance to the foreign officeholder. This flexibility allows the court to provide additional support or assistance as needed in cases involving cross-border bankruptcy, in order to ensure that the bankruptcy process is conducted in an efficient and fair manner.
The rules state that when implementing the provisions contained in the rules, their international nature should be taken into account. This means that the rules should be applied in a way that promotes their uniform application in other countries and encourages cooperation and good faith between the various parties involved in cross-border bankruptcy cases.
The officeholders have the authority to exercise their powers and duties related to the foreign country in accordance with the provisions of the Bankruptcy Law, communicate directly with the foreign court and the foreign officeholders, and cooperate with them under the supervision of the court.
A foreign officeholder as defined in the rules is a person who is appointed in a foreign bankruptcy procedure to restructure or liquidate the debtor's assets or business. A foreign officeholder may be an individual or a legal person (such as a company or organization). The appointment of a foreign officeholder may be temporary or permanent, depending on the specific circumstances of the bankruptcy case.
The foreign officeholders have the ability to apply directly to the Saudi court with a request for recognition of the foreign bankruptcy procedures in which they are appointed and a request for judicial assistance.
Finally, these new rules on cross-border bankruptcy procedures in Saudi Arabia provide a framework for the regulation of such cases for the first time. The aim of these rules is to ensure that cross-border bankruptcy proceedings are conducted fairly and transparently in Saudi Arabia.
The aim of these rules is to ensure that cross-border bankruptcy proceedings are conducted fairly and transparently in Saudi Arabia.
However, it is still unclear how the courts will interpret and apply these rules in practice. It will be important to monitor the development in this area in order to gain a better understanding of the practical implications of these rules and how they will be applied in cross-border bankruptcy cases.
For further information,please contact Mohammed Negm
Published in February 2023
