Critical Examination of Saudi Restructuring Law in the Light of United Kingdom and United States Experiences

The evolution of the ‘rescue culture’ and rehabilitation of companies and businesses in corporate insolvency has received global attention for decades. Chapter 11 in the US Bankruptcy Code 1978 is thought to have significantly influenced the development of corporate rescue processes across the globe. Indeed, Chapter 11 has widely been considered the gold standard for corporate restructuring that many jurisdictions have attempted to emulate. Moreover, the socio-economic benefits of adopting rescue-oriented insolvency legislation have been actively promoted by international organisations such as the World Bank, the United Nations Commission on International Trade Law (UNCITRAL) and the International Monetary Fund (IMF). Providing formal restructuring procedures in addition and as an alternative to liquidation procedures is regarded by these organisations as a criterion for the international respectability of a nation’s insolvency laws. Corporate reorganisation is based on the presence of a distinction between the going concern value of the distressed business and its liquidation value. If the going concern value of a company is higher than the value extracted from the liquidation of its assets, the reorganisation procedure may be an attractive alternative to liquidation. In this scenario, it would be more advantageous for creditors if the business continues to operate, and it would be in the interest of society if a firm that is worth more alive than dead is successfully restructured. The enactment of the Bankruptcy Preventative Settlement (BPS) Law in 1996 represented the first step toward providing formal rescue procedures for distressed businesses in Saudi Arabia. However, that law was criticised and rarely applied in practice mainly due to its brief content. Given the absence of comprehensive formal restructuring procedures provided by the BPS, the outcome of restructuring cases relied heavily on the court’s discretion, which was highly unpredictable.

Modernising the laws governing business activities has been one of the central initiatives taken by the Saudi government to attract foreign investment. This is viewed as essential to accomplishing the ultimate goal of achieving the Kingdom’s 2030 Vision: the diversification of economic sources and the reduction of the country’s dependence on oil as a main source of income. One of the remarkable changes in the Saudi commercial law area is the introduction of the first comprehensive Bankruptcy Law (BL) 2018, which was enacted in February 2018. BL 2018 provides two restructuring procedures: preventative settlement (PS) and financial restructuring (FR). This thesis examines the rules of corporate restructuring under these two procedures with reference to the UK and US’s invaluable experiences. The examination focuses on four particular aspects of restructuring procedures: access to restructuring procedures, control of companies during procedures, moratorium against creditors’ actions, and restructuring plans. Referring to the laws in the UK and the US regarding the above aspects is highly important, as the Saudi legal system can learn valuable lessons from these well-developed jurisdictions. Moreover, the UK’s and the US’s experiences are helpful in progressing Saudi restructuring law, especially because the UK and the US were two of the main jurisdictions that Saudi lawmakers looked at as models when they sought to modernise bankruptcy law in general and restructuring procedures specifically.