Initiating preventive settlement procedure
Last week, we discussed salient features of the Kingdom’s bankruptcy law and the mechanism of filing for insolvency. This week we will continue to share some more details with our readers about preventive settlement procedure.
A debtor can initiate a preventive settlement procedure if he expects financial turmoil and is unable to pay debts, or if the assets he owns are not sufficient to pay off the debts.
The debtor may request a suspension of claims and the court may order a temporary extension for up to 90 days which can be extended further, provided the period of suspension does not exceed 180 days. During the period of suspension, claims against the debtor and enforcement procedures are stayed.
The court may, on its own initiative or upon the request of an interested party, decide to recover any assets disposed of during the period of suspension of claims or as it deems appropriate, taking into account the rights of others (in good faith), and the aggrieved party may file a lawsuit for compensation.
The request to initiate the preventive settlement procedure is registered at a court. It should be supported by a proposal detailing the business situation, relevant information and documents as specified by the law.
The proposal must include a summary of the debtor’s financial position and the effects of the economic situation on him and the classification of creditors into categories.
Consequently, the court sets a date to consider the request to initiate the preventive settlement procedure.
A date of hearing is given which does not exceed 40 days from time of filing the request. The court informs the debtor of the hearing date within five working days from the submission of the request.
The court shall decide to initiate the procedure if by doing so it can ensure continuity of the debtor’s activity and help settling creditors’ claims within a reasonable period.
The court also have the right to reject a request if the application does not meet the statutory requirements or is incomplete without an acceptable justification, if the applicant acted in bad faith or committed any criminal acts.
Furthermore, the debtor — when requesting the opening of the preventive settlement procedure — can ask the court to suspend the claims. He is required to submit a report prepared by a trustee included in the bankruptcy trustees’ list.
• Dimah Talal Alsharif is a Saudi legal consultant, head of the health law department at the law firm of Majed Garoub and a member of the International Association of Lawyers. Twitter: @dimah_alsharif