Financial restructuring as part of bankruptcy procedures helps companies reorganize their debts and strengthen their financial position through a structured plan. This process plays a key role in ensuring business continuity and promoting economic growth. It aims to help companies overcome financial difficulties without resorting to liquidation, enhancing the resilience of the Kingdom's economy. Financial restructuring also provides a legal framework that safeguards creditors' rights while giving companies a chance to recover and avoid failure.

In this article, you will be introduced to the concept of financial restructuring within the framework of bankruptcy in Saudi Arabia. We’ll discuss its significance in assisting individuals facing financial difficulties to reorganize their debts and enhance their financial well-being. Additionally, you’ll find a thorough overview of the legal procedures and requirements essential for implementing a successful financial restructuring plan. Moreover, this guide sheds light on how financial restructuring ensures a fair balance between the interests of all parties involved, making it a valuable solution for sustainable recovery.

Financial Restructuring Concept

• Financial restructuring is a key process in Saudi Arabia’s bankruptcy Law that facilitates an agreement between the debtor and his creditors for the financial restructuring of the debtor’s business under the supervision of the financial restructuring trustee.
• The provisions of Bankruptcy Law in Saudi Arabia shall apply to:
• Natural persons engaging in commercial or professional activities or any other for-profit activities in the Kingdom.
• Commercial and professional companies, regulated entities, as well as other companies and for-profit entities registered in the Kingdom.
• Non-Saudi investors of a natural or legal personality holding assets in the Kingdom, or engaging in commercial or professional activities, or any for-profit activities through a licensed establishment in the Kingdom. This Law shall only apply to said investors’ assets which are located in the Kingdom.

Filing Petitions for the Initiation of the Financial Restructuring Procedure

• Debtor, creditor, or the competent authority overseeing the entity's operations—such as a person authorized to engage in financial activities or manage a public facility—may file a petition with the court for the initiation of a financial restructuring procedure if the debtor is:
• likely to suffer financial difficulties that may lead to distress;
• distressed; or
• bankrupt.
• A petition for the initiation of a financial restructuring procedure shall not be filed if the debtor has been subject to such procedure or to a small debtors’ financial restructuring procedure during the 12 months preceding the petition.
• The petition for the initiation of a financial restructuring procedure shall be registered with the court upon filing it along with the relevant information and documents. This petition shall include the following details:
• The type of petition and the reason for its submission.
• The type of the bankruptcy procedure;
• The judgment or decision to initiate the procedure, if any.
• The data of the appointed or proposed trustee, if any

Effect of filing the petition to initiate a financial restructuring procedure.

• The filing and registration of the petition to initiate a financial restructuring procedure shall suspend all claims for 180 days. The court may, either on its own or at the request of the trustee or debtor, extend this period by no more than 180 days.
• The suspension of claims shall end either upon the completion of the 180-day period or earlier if the petition to initiate the procedure is rejected, or upon confirmation of the proposal by the court, or the termination of the procedure prior to confirmation.
• If a person other than the debtor files a petition for the initiation of a financial restructuring procedure, the court shall notify the debtor thereof within a period not exceeding five days from the date of filing. The debtor may object to the petition before the court at the scheduled hearing if:
• The conditions for the initiation of the procedure are not satisfied.
• The debt is disputed.
• The creditor seeks to abuse the procedure.
• The court shall set a hearing date for considering the petition for the initiation of the procedure within 40 days from the date of filing, and notify the petitioner and debtor thereof within five days from the date of registering the petition. The court shall take any of the following decisions:
• Initiate the procedure if:
• The debtor is likely to remain in business, and the claims of creditors are likely to be settled within a reasonable time.
• The debtor is bankrupt, distressed, or is likely to suffer financial difficulties that may lead to distress.
• The petitioner provides the information and documents.
• Reject the petition if:
• The petition does not satisfy the statutory requirements, or is unjustifiably incomplete.
• The petitioner acts in bad faith, or commits any of the offenses stipulated in this Law.
• The court may postpone the hearing for a period not exceeding 21 days to provide any additional information or documents it requests. The relevant party shall submit the required information on the set date and prior to the date set for the postponed hearing. The court shall decide to either initiate the
• procedure or reject the petition. The court shall notify the debtor who fails to attend the hearing of its decision within five days from the date of its issuance.

Appointment of a Bankruptcy Trustee for the financial restructuring procedure.

• In its decision to initiate a financial restructuring procedure, the court shall appoint a listed trustee. The petitioner for the initiation of the procedure may propose to the court the name of the listed trustee to be appointed. In the appointment of the trustee, his financial capabilities and academic qualifications, as well as the qualifications of his team shall be taken into consideration. The trustee shall exercise due diligence vis-a-vis creditors’ interests.
• The trustee may, upon the court's approval, delegate certain duties to a listed trustee or expert, when necessary, provided that such duties are clearly specified in the court’s decision.
• The court may, when necessary, appoint more than one trustee to jointly act in accordance with this Law and the court's instructions, provided the court appoints a chairman from among them. The trustees shall be jointly liable for
• 
  their actions. The trustee shall deposit a copy of the court’s decision to initiate the procedure, along with a copy of their appointment, in the Bankruptcy Register.
• The following shall not be appointed as trustees or experts:
• The debtor’s creditor, spouse, son-in-law, or relative up to the fourth degree.
• The debtor’s partner, employee, auditor, or agent during the two years preceding the initiation of the procedure.
• The debtor shall obtain written approval from the trustee for any of the following acts, from the initiation of the financial restructuring procedure until the approval of the proposal before undertaking any of the following acts:
• Preparing the proposal and implementing its procedures, including inviting creditors to vote thereon.
• Applying for financing.
• Paying due or outstanding debts.
• Concluding a new insurance contract that entails substantial obligations.
• Vacating any of the leased bankruptcy assets, and concluding any lease contract necessary or beneficial for his business.
• Concluding any agreement or settlement with one or more creditors.
• Providing or renewing any security for a third party.
• Changing any of the debtor’s registered premises or offices.
• Voting on a proposal of a debtor's debtor under any of the bankruptcy procedures entailing waiving any of the debtor’s rights.
• Concluding a contract for obtaining legal, accounting, or other consultancy services to assist him in the financial restructuring of his business.
• Filing cases or litigating in any proceeding before judicial, quasi-judicial, or arbitration bodies.
• Appointing an agent to act on his behalf, except if such appointment falls within the scope of the debtor’s normal course of business.
• Establishing a subsidiary, or purchasing shares in another company.
• Transferring ownership of all or some of his business or assets beyond the normal course of his business.
• Requesting the termination of the procedure. If the debtor requests the termination of the procedure, citing that the conditions for its initiation are no longer met, and attaches a supporting report from the trustee, or if the trustee submits a request signed by the debtor to terminate the procedure due to the debtor’s decision not to continue managing their business or completing the plan's implementation.

Termination of the Procedure

• The court shall order the termination of a financial restructuring procedure if:
• The debtor files a petition for the termination of the procedure because the conditions for the initiation of the procedure are no longer applicable, provided the petition is supported by a report from the trustee;
• The trustee files a petition for the termination of the procedure due to the completion of the implementation of the plan and the end of his duties;
• The trustee files a petition for the termination of the procedure due to the lack of quorum necessary for the creditors' voting on the proposal, or that such voting does not take place on the set date.
• The court refuses to confirm the proposal.
• The trustee or the creditor files a petition for the termination of the procedure due to the infeasibility of implementing the plan.
• The trustee files a petition signed by the debtor for the termination of the procedure due to the debtor's intention not to continue management of his business or implementation of the plan.
• A person with interest requests termination of the procedure due to material violations during the procedure, or due to the debtor's commission of any of the offenses stipulated in this Law during the validity of the procedure.
• A court's decision ordering the termination of a financial restructuring procedure shall not relieve the guarantor from his obligations to implement the plan. Moreover, a creditor shall not be required to return to the debtor any payments received prior to the termination of the procedure.

In summary, the financial restructuring procedure, as an integral aspect of bankruptcy, is vital for maintaining the continuity of struggling businesses and preventing their liquidation. This procedure allows companies to reorganize their debts and adjust their financial situation, facilitating their return to the market with improved flexibility. A thorough grasp of the financial restructuring procedure is essential for safeguarding the rights of creditors and ensuring that debtors adhere to their recovery plans. Additionally, increasing awareness of these procedures fosters a robust and sustainable economic environment in the Kingdom, thereby strengthening the stability of financial and commercial markets.

Financial Restructuring Services

Bankruptcy procedures in Saudi Arabia are governed by the Bankruptcy Law issued in 1439 AH, which aims to regulate bankruptcy cases in a manner that ensures a balance between the rights of creditors and debtors while encouraging the economic continuity of distressed companies.

Financial restructuring services are essential for ensuring regulatory compliance and offering effective solutions that support business continuity. Here are the primary legal services related to financial restructuring within bankruptcy procedures provided by Dr. Fahad Alrefaei & Partners Consulting & Law Firm in Saudi Arabia:

• Legal consultations on Financial Restructuring
• Preparing and submitting petitions for financial restructuring to the court.
• Preparing a financial restructuring plan.
• Negotiating with creditors.
• Managing assets during bankruptcy.
• Representing clients before the courts.
• Administrative and financial restructuring of companies.

For Bankruptcy application services in Saudi Arabia, please contact Dr. Fahad Alrefaei & Partners Consulting & Law Firm at 920012753 or via [email protected]
We are pleased to assist you.

Please find: Bankruptcy Application Services