Small Debtor Procedures in Saudi Arabia: One You Open Yourself, One You Cannot Open Without an Officeholder

The overwhelming majority of Saudi businesses are not large corporates. When one of them runs into trouble, the first question is usually: are the bankruptcy procedures even designed for a company this size, or will the cost consume whatever is left?

The Law anticipated that. Alongside the three standard procedures it created three simplified procedures for small debtors — shorter, cheaper, and lighter in process. And they contain one detail most owners do not know: one of them does not start at court at all, and another cannot be opened without first engaging a licensed officeholder.

Who counts as a small debtor?

Article 1 of the Bankruptcy Law defines a small debtor as a debtor meeting the criteria set by the Bankruptcy Commission in coordination with the Small and Medium Enterprises General Authority (Monsha’at). The Law itself sets no figure; it delegates that to the Commission.

Those criteria were issued by Bankruptcy Commission decision no. (0218/12) dated 29/2/1440H. In its own guidance the Commission states that a debtor is treated as a small debtor where its total debts do not exceed SAR 2 million.

A practical note: because the figure comes from a Commission decision rather than from the text of the Law, it is subject to change. The prevailing criterion should be checked with the Commission before a decision is built on it.

The three simplified procedures

• Small debtors’ protective settlement — an agreement with creditors, with management remaining in the debtor’s hands.
• Small debtors’ financial restructuring — restructuring obligations under an officeholder’s supervision.
• Small debtors’ liquidation — sale of assets and distribution of the proceeds.

Under Article 128, a small debtor may apply to open the standard procedure instead of the simplified one where that is more suitable. Qualifying as a small debtor does not lock you into the simplified track; it adds an option.

Small debtors’ protective settlement: a procedure that does not start at court

This is what most distinguishes the procedure, and what is most often misunderstood. In the standard procedure you file with the court and wait for a judgment opening it. Here, Article 129 provides that the small debtor issues the decision opening the procedure itself, using the form issued by the Bankruptcy Commission.

1. The small debtor prepares the proposal before issuing its decision, including an account of its financial position and the documents specified in the Regulation.
2. It issues the opening decision on the Commission’s form.
3. It deposits the decision in the Bankruptcy Register together with a copy of the proposal — and the decision takes effect from the date of that deposit.
4. It invites its unsecured creditors to vote on the proposal.

Where the proposal affects owners’ rights, they must be invited to vote at least 21 days before the voting date, and before the creditors vote.

The stay here: requested from the court, decided in five days

Although opening does not go through the court, the stay of claims does. Between the opening of the procedure and creditor approval of the proposal, the small debtor may ask the court to suspend claims for a period not exceeding 90 days, and the court issues its judgment within 5 days of the application (Article 131).

Compare the standard procedure: there a licensed officeholder’s report must be attached and the ceiling is 180 days. Here no officeholder report is required, the ceiling is 90 days, and the decision comes faster.

A simpler majority: no classes

The standard procedure requires every class of creditors to approve. Article 134 provides instead that the proposal is accepted where creditors representing two-thirds of the value of the debts of those voting — with no division into classes — vote in favour, including creditors representing more than half the value of the debts of non-related parties where any exist.

And no court ratification

Here lies the biggest difference. Where the standard procedure ends in a ratification hearing, Article 136 provides that a proposal approved by the creditors takes effect from the date the voting result is deposited with the court, and thereafter is the plan binding on the debtor, the creditors and the owners. The small debtor must deposit the result with the court and in the Bankruptcy Register within 3 days of the close of voting.

A creditor who voted against retains the right to object to the court within 14 days of the deposit, where it believes on reasonable grounds that the plan prejudices it and breaches the criteria of fairness. The court may order the effect of the plan suspended for up to 14 days while it decides.

Small debtors’ financial restructuring: it cannot be opened without an officeholder

The second procedure differs on one decisive point. Among the conditions for opening it, the Bankruptcy Commission lists a requirement with no counterpart in the small debtors’ protective settlement:

• The debtor is bankrupt, distressed, or facing financial disturbance.
• The application is made by the debtor, a creditor, or the authority supervising the debtor’s activity.
• The debtor has not been subject to this procedure or to financial restructuring in the preceding twelve months.
• The debtor — or the authority supervising its activity — has agreed with an officeholder listed on the register of bankruptcy officeholders to assume the officeholder’s duties, and the officeholder makes the judicial filing.
• The court considers it likely that the debtor’s business can continue and creditors’ claims be settled within a reasonable period.

Read the fourth condition twice. Engaging the officeholder is not a step that follows opening; it is a precondition of it. The officeholder is the one who makes the “judicial filing” — delivering to the court the opening decision issued by the party who engaged them. In practice: a small business that wants a simplified restructuring cannot start the file alone and look for an officeholder afterwards.

Note too that here the right to apply extends to a creditor and to the supervising authority — as in the standard procedure — unlike the small debtors’ protective settlement, whose opening decision is issued by the debtor alone.

Simplified or standard: how to choose

Qualifying as a small debtor does not automatically make the simplified track the right one. In practice the choice turns on three questions:

1. How much time do you need? The stay ceiling in a small debtors’ protective settlement is 90 days, against 180 in the standard procedure. If your file needs a long negotiation, the standard route may be worth its cost.
2. How is your debt distributed? The absence of classes simplifies the arithmetic, but it also means a single large creditor can block the two-thirds threshold on its own. In standard financial restructuring, ratification over a dissenting class is available.
3. What share is held by related parties? The “more than half of non-related-party debt” condition applies on both tracks, and it defeats many family-business proposals once owner loans are counted among the voters.

Answering all three takes one table: an accurate creditor list with amounts, security, and the status of each creditor. A business that has that table settles the choice in a single sitting. One that does not loses weeks it cannot afford.

How we help

Al-Mousa & Al-Tamimi Certified Public Accountants includes an officeholder licensed by the Bankruptcy Commission (licence no. 148045). We can therefore assume the officeholder’s duties in a small debtors’ financial restructuring — including the judicial filing without which the procedure cannot be opened — rather than only advise on it.

In a small debtors’ protective settlement we handle what precedes the decision: building the creditor list with amounts, security and the status of each creditor; preparing a proposal with numbers that can actually be delivered; and calculating the majority before the invitation to vote goes out, not after.

See our bankruptcy officeholder service · Protective settlement guide · Financial restructuring guide · Contact us

The Saudi Bankruptcy Law series

• What a bankruptcy officeholder does and when you need one
• Protective settlement: stay of claims, voting and ratification
• Financial restructuring: three differences that decide it

Sources: Bankruptcy Law, issued by Royal Decree No. (M/50) dated 28/5/1439H — official text on the Saudi Laws Portal; Bankruptcy Commission (Eisar) — FAQ: Debtor; Bankruptcy Commission decision on small-debtor criteria no. (0218/12) dated 29/2/1440H. This article is general guidance and is not a substitute for advice on a specific case.