What do you know about bankruptcy crimes in Saudi law?
Financial Services Focus
What do you know about bankruptcy crimes
in Saudi law?
In 2018, Saudi Arabia enacted the Bankruptcy Law, which establishes the legal framework that enable the businesses to settle their debts through repayment plans or liquidation. However, certain actions can be taken by debtors or those involved in the management of a debtor that can be considered violations of the law and can result in damages to third-party rights, including creditors.
Chapter Thirteen of the Bankruptcy Law outlines penalties for those who violate the provisions of the law and states certain actions that a person or business can take that are considered violations of the bankruptcy laws.
These actions, which are outlined in Articles 200, 201, and 202 may be taken either before the commencement of any bankruptcy procedure or during the procedure and may result in the individual or entity being considered in violation of the law.
One such action is the misuse or seizure of the debtor's assets or bankruptcy assets or the abuse of powers. This can include transferring assets to other individuals or entities in an attempt to avoid paying creditors or using the assets for personal gain rather than for the benefit of the debtor and its creditors. Engaging in the debtor's activities to defraud its creditors is another action that can be considered a violation of the law. This can include hiding assets or providing false information to creditors in an attempt to deceive them.
Continuing the debtor's activities with no possibility of avoiding liquidation is another action that can be considered a violation of the law. This can include continuing to operate a business that is no longer viable or taking on additional debt when it is clear that the debtor will not be able to pay it back. Adopting arbitrary or negligent methods to avoid or delay the commencement of the liquidation procedure is also a violation of the law. This can include selling goods at rates below market price to generate cash or failing to follow the proper procedures for bankruptcy proceedings.
Executing transactions for free or for unfair consideration is another action that can be considered a violation of the law. This can include giving away assets or entering into contracts without receiving fair value in return. Paying the debts of any creditor in a manner that prejudices the rights of other creditors is also a violation of the law. This can include prioritizing the payment of certain creditors over others or paying off smaller creditors while larger debts remain unpaid.
Also, abusing any of the bankruptcy procedures is a violation of the law. This can include failing to disclose all assets or liabilities or failing to cooperate with the bankruptcy process.
The embezzlement or concealment of the debtor's assets or the bankruptcy assets. This means that the person or business cannot take any steps to hide or remove assets that should be used to pay off their debts.
Another violation is the concealment, destruction, or alteration of the debtor's books, or the failure to keep them. This means that the person or business must accurately record their financial transactions and maintain complete and accurate records.
Retaining false accounts or failing to keep accounts in accordance with approved standards is also a violation of bankruptcy laws. This includes the removal of documents from the debtor's accounts.
Fraudulent conduct, such as inflating the debtor's obligations or reducing the value of their assets, is strictly prohibited during the bankruptcy process. Similarly, providing misleading or incorrect information to the bankruptcy officeholder, the court, or the bankruptcy commission is a violation of the law.
Pledging or disposing of the debtor's assets or repaying debts in violation of the law or a judicial ruling is also prohibited. This includes the settlement of creditor rights or the disposal of debtor or bankruptcy assets in violation of any approved bankruptcy plan.
Any person or business cannot abuse their powers for personal gain or to obtain unlawful benefits from a third party. This includes any actions taken directly or indirectly to benefit from the bankruptcy process.
As you may see, the protection of creditor rights is a fundamental aspect of bankruptcy law. In order to ensure that the bankruptcy process is fair and just for all parties involved, it is essential that creditors act in good faith and adhere to the provisions of the law.
Therefore, one keyway in which creditors can violate the law is by fraudulently submitting a claim against the debtor. This might involve exaggerating the value of the claim or making false statements in an attempt to secure a larger payout. Such actions undermine the integrity of the bankruptcy process and can result in harm to other creditors, who may not receive their fair share as a result.
Another way in which creditors can act in violation of the law is by agreeing to arrangements with the debtor that are prejudicial to the interests of other creditors. This might include making special deals or agreements that give certain creditors an advantage over others. Such arrangements can be highly disruptive to the bankruptcy process and can result in significant harm to the rights of other creditors.
Finally, creditors can also violate the law if they abuse the bankruptcy procedures in any way. This might include attempting to interfere with the process, making false statements or providing false information to the bankruptcy court. Such actions can seriously disrupt the bankruptcy process and can result in harm to the rights of other creditors and the debtor.
Article 203 of the Law outlines the penalties for individuals or businesses that violate the provisions of Articles 200, 201, and 202.
According to Article 203, violators of these provisions can be punished with imprisonment for up to five years and a fine of up to five million Saudi Riyals, or either of these penalties.
In addition to these penalties, the court may also impose additional penalties against violators for a period of up to five years. These penalties may include:
Barring the violator from directly or indirectly managing any for-profit establishment, or from participating in any for-profit establishment where their ownership entails actual or de facto management.
Barring the violator from voting on decisions concerning the nomination, candidacy, or selection of a candidate in any for-profit establishment.
Barring the violator from owning shares or stock in any for-profit establishment if such ownership entails engaging in any direct or indirect management activities.
A person who is subject to these penalties may request court approval to engage in any of the activities from which they are barred. This allows the person to seek relief from the penalties if they can demonstrate that they have corrected their behaviors and are no longer in violation of the bankruptcy laws.
In conclusion, it is essential that debtors and creditors act in accordance with the relevant regulations and avoid committing any of the actions outlined above. It is important for individuals and businesses to understand their responsibilities and obligations during a bankruptcy procedure, as violating the law can result in damages to third-party rights and can have serious consequences. It is always best to seek legal advice and follow the proper procedures when dealing with bankruptcy.
For further information,
please contact Mohammed Negm
Published in February 2023