The Role of Insolvency Trustees in Tracing and Recovering Assets under the Saudi Bankruptcy Law
Financial Services Focus
Mohammed NegmPartner,Dispute Resolution
Insolvency trustees play a pivotal role in managing and supervising insolvency procedures under the Saudi Bankruptcy Law. Appointed by the court, the trustee is responsible for identifying and tracing the debtor’s assets, regardless of their current possession, whether the proceedings involve financial restructuring or liquidation. Trustees must take all necessary measures and exert every effort to recover these assets—whether they were deliberately concealed by the debtor, neglected, or left uncollected due to a failure to initiate the required legal actions. In this article, I will shed light on this trustee’s role, following an overview of the legal framework governing insolvency in Saudi Arabia.
Saudi Bankruptcy law, issued by Royal Decree M/50 of 2018, comprises 231 articles that establish a comprehensive framework for Bankruptcy procedures aligned with international best practices. The law provides for various procedures, such as preventive settlement, financial restructuring, and liquidation, and outlines the responsibilities of courts, trustees, and the Bankruptcy Commission (“EISAR”). The Executive Regulations further detail the law’s provisions, including the rules governing insolvency procedures.
In response to globalization and the complexity of cross-border transactions, Saudi Arabia has also adopted international insolvency rules. In December 2022, rules based on the UNCITRAL Model Law on Cross-Border Insolvency were approved. These rules facilitate cooperation between Saudi and foreign courts in international insolvency cases and enable foreign trustees to obtain rights equivalent to those of local trustees when tracing assets within Saudi Arabia.
For more details on cross-border rules read my article: New in Saudi Arabia: The rules of cross-border bankruptcy
Trustees utilize several legal and technical methods to uncover any assets that the debtor may have attempted to hide from creditors:
Financial Records Analysis and Transaction Audits: Trustees conduct a detailed review of the debtor’s accounting books and bank statements. Through forensic financial audits, they can identify suspicious transfers or asset reassignments made before or during insolvency proceedings. For example, an analysis might reveal significant transfers to related-party accounts shortly before the declaration of insolvency, indicating a potential attempt to hide funds.
Tracing Banking Transactions and Digital Assets: With the authority granted by the law, trustees may request bank statements and monitor the movement of funds. Unusual transfers to unfamiliar accounts or offshore havens may signal the concealment of financial assets. This method also extends to nontraditional assets such as investment portfolios and cryptocurrencies, with coordination from relevant regulatory bodies.
Cooperation with Competent Authorities: Trustees work closely with regulatory bodies such as the Saudi Central Bank (SAMA) to obtain critical information. The law empowers the Public Prosecution to investigate insolvency-related crimes, including embezzlement and asset concealment. Trustees can refer to evidence of criminal conduct to initiate investigations and secure immediate freezing of suspicious funds. SAMA also assists by directing banks to cooperate and provide necessary account data.
Requesting Information from the Debtor and Related Parties: The Bankruptcy Law obliges the debtor to fully disclose assets and cooperate with the trustee. Failure to provide accurate or complete information constitutes a serious violation. Trustees are thus empowered to request any documents or information necessary to uncover the truth. If the debtor refuses to cooperate or withholds documentation, the court may issue orders compelling disclosure or allow trustees to access premises to gather evidence.
Once hidden assets are identified, the next phase is to recover them and return them to the insolvency estate for equitable distribution among creditors. The Saudi Bankruptcy Law provides several legal mechanisms to achieve asset recovery:
Claw-Back of Suspicious Transactions: If it is found that the debtor engaged in transactions aimed at concealing assets or harming creditors—such as selling a valuable asset to a relative at a significantly undervalued price or transferring property without adequate compensation—the trustee may petition the court to nullify these transactions. The law explicitly invalidates any transaction conducted on insolvency assets after the trustee’s appointment. The court’s authority also extends to reversing fraudulent transactions conducted prior to insolvency if they harmed creditors’ interests. According to Article 210, any interested party may file an objection before the court against any transaction executed by the debtor within the twelve months preceding the initiation of insolvency proceedings with an unrelated party, or within twenty-four months preceding the proceedings with a related party. This includes:
The full or partial transfer of any asset, right, or provided guarantee.
Entering into a transaction without adequate compensation or at a price below fair value.
Settling debts before their due dates or on inequitable terms.
Providing guarantees for debts before such debts are established.
Discharging the debtor, in part or in full, for an outstanding debt.
Judicial Orders for Seizure and Delivery: Trustees may request court orders to seize hidden assets, whether in the form of bank accounts or tangible property. For instance, if a property registered in another person’s name is discovered as an attempt to camouflage its true ownership, the court may issue an order to freeze and re-register it under the insolvency estate. Similarly, banks can be ordered to transfer concealed cash into accounts managed by the trustee.
Cross-Border Coordination: In cases where assets are located outside Saudi Arabia, trustees can leverage cross-border insolvency rules. Once the Saudi insolvency proceedings are recognized internationally, the trustee may initiate legal actions in the foreign jurisdiction to recover assets. This may include appointing local legal agents to file lawsuits or enforce judgments in favor of the insolvency estate. Conversely, a foreign trustee seeking to recover assets within Saudi Arabia can coordinate with a local trustee after the Saudi courts recognize the foreign proceeding.
Compensation for Affected Creditors: When direct recovery of an asset is not possible—for instance, if the asset has been consumed or damaged—the court may award monetary compensation equivalent to the lost asset’s value, thus placing creditors in the position they would have been if the asset had not been hidden.
Insolvency trustees are vital in protecting creditor rights by using forensic audits, claw-back provisions, and Article 210 to trace and recover assets that debtors attempt to conceal.
The Saudi Bankruptcy Law imposes penalties to deter debtors from concealing assets or engaging in fraudulent practices that harm creditors. The law details various insolvency-related offenses and their corresponding sanctions:
Crimes of Concealing Assets and Manipulation: Concealing debtor or insolvency estate assets is expressly criminalized, along with embezzlement, tampering with accounting records, maintaining fictitious accounts, and submitting false information to the court or trustee.
Imprisonment and Financial Fines: Any person found guilty of offenses under Articles 200, 201 and 202 may face up to five years of imprisonment or fines up to five million riyals, or both. These strict penalties underscore the legislature’s commitment to preventing fraudulent insolvency practices.
Additional Sanctions: Beyond imprisonment and fines, the court may impose supplementary measures, such as barring the offender from holding managerial positions or board memberships in any company for up to five years, or prohibiting administrative ownership rights.
For more details on Bankruptcy crimes read my article: What do you know about bankruptcy crimes in Saudi law?
Trustees serve as a cornerstone for achieving financial justice and ensuring that non-compliant debtors do not evade responsibility. With the powers granted to them, trustees can trace every concealed asset and restore it to the insolvency estate, thereby protecting creditors’ rights and strengthening confidence in the legal and economic systems.
For further information,please contact Mohammed Negm.
Published in March 2025
