An extract from The Insolvency Review, 9th Edition
Plenary insolvency proceedings
Although the Law requires the setting up of a bankruptcy register, and that the information therein must be available to the public, the register does not provide a detailed level of information about proceedings. While the announcements of the entities subject to bankruptcy procedures have been made public, nevertheless, the information publicly available is limited to the name of the entity subject to bankruptcy and the type of bankruptcy procedure applicable. Thus, some of the examples we now discuss are current proceedings that have been commenced, while others are major bankruptcies that have taken place but have yet to be filed for in the courts.
The following are some of the most significant completed and pending plenary insolvency proceedings during the past 12 months.i Financial restructuring of SAAD Group and AHAB Ahmad Hamad al-Gosaibi and Brothers
SAAD Group is owned by the Saudi billionaire Maan al-Sanea, who was ranked by Forbes in 2007 as one of the 100 richest people in the world, SAAD Group and another conglomerate, Ahmad Hamad al-Gosaibi and Brothers (AHAB), defaulted on loans worth billions of dollars in 2009. For the past 10 years, creditors have been chasing the company for the repayment of their debts, estimated to be between US$11 and US$16 billion, although the total amount of debt is believed to be US$22 billion.
The company, whose activities range from construction and engineering, real estate development, financial services and banking to healthcare, filed for financial restructuring in the Dammam Court under the new Law in February 2019; the court approved and appointed an independent trustee, Saleh Al-Naim. The trustee sent a notice to creditors, the majority of which are banks, announcing the beginning of the financial restructuring proceedings, and asked them to submit their claims within 90 days.
SAAD Group's filing is one of the first to be accepted under the new Law. From the reading the court judgment approving the financial restructuring application of SAAD, one can observe the following:
- The adviser or the bankruptcy trustee has to issue a list of approved and non-approved creditors to the court.
- The bankruptcy court has to issue a judgment approving the list of creditors created by the advisers or the bankruptcy trustee.
AHAB also filed for financial restructuring at the First Instance Court of Dammam, which the court approved on 19 May 2019. The Court appointed Mr Badr Al-Tamimi as trustee to oversee the activities of the business and assist in the bankruptcy procedure.
In January 2020, the Dammam Commercial Court approved more than US$7 billion of claims against AHAB out of the US$12 billion of claims alleged against the corporation. The court also approved approximately US$6.5 billion of claims against SAAD Group out of the almost US$18 billion of listed claims. Claims were approved from over 70 financial institutions in the AHAB case, which includes international banks such as Deutsche Bank and JP Morgan. Two claims totalling nearly US$3 billion against AHAB by Bahrain's The International Bank were refused; the funds at issue were raised in the international markets and transferred to AHAB.8ii Saudi Oger
The bankruptcy case of Saudi Oger was filed by one of the creditors (National Commercial Bank) against the will of the debited company and the bankruptcy court such application and appointed a bankruptcy trustee.
There continue to be no announcements about whether Saudi Oger has started bankruptcy proceedings, but the company is expected to use the current law for assistance.
Low oil prices and state spending cuts have resulted in a slowdown in the Saudi construction sector. As one of the major players in the construction sector in Saudi Arabia, Saudi Oger has faced serious financial difficulties from this slowdown. Mismanagement of the company, as well corruption, which is often found in Saudi construction companies, have greatly contributed to the creation of this debt. The company owed medical insurance and fees to the General Organization for Social Insurance and was forced to lay off thousands of its employees.
There are currently approximately 45,000 creditor claims against Saudi Oger. The amount of debt they are suffering is reportedly more than 40 billion riyals. This amount includes nearly 22 billion riyals owed to suppliers, and 6.2 billion riyals owed to employees. Reportedly more than 6,000 people, banks and companies have approached the court to seek payment.9
It is expected that the company will file for one of the procedures of bankruptcy under the Bankruptcy Law.iii Liquidation for Al-Mashfa Medical Center
Another industry that has suffered from cuts in government spending, unregulated competition and mismanagement is the health industry. Following several medical mistakes and shareholders disputes that have resulted in scandals at the AlMashfa Medical Center, the legitimacy of this fairly new hospital was questioned, leading to a reduction in profit.
In April 2019, one of the creditors for the hospital, a company called Takniyat Medical Services, filed for liquidation. On 31 May 2019, the Fourth Circuit at the Commercial Court of Jeddah announced the appointment of Mazen Batarji as trustee to manage the company's activities and oversee its duties until the court announces the commencement of the liquidation procedure.
The bankruptcy register does not include details regarding the number of creditors or the amount of debt, neither has any additional information on the matter been published by the media.iv Liquidation for Ghassan Al Sulaiman Autos
The automotive industry has also suffered from a shortage of cash and unregulated competition. Following an expansion plan to distribute luxury cars, such as Bentleys and Lamborghinis – which caused a severe liquidity crunch – the legitimacy of Ghassan Autos was questioned, leading to closure of the business.
In March 2019, the owner of the business filed for liquidation. On 31 March 2019, the Fourth Circuit at the Commercial Court of Jeddah announced the appointment of Mr Mazen Batarji as trustee to manage the business's activities and oversee its duties until the court announces the commencement of the liquidation procedure. Ghassan was reportedly ordered by the Jeddah Commercial Court to sell a fleet of high-end luxury cars after filing for bankruptcy.10
The bankruptcy register does not include details regarding the number of creditors or the amount of debt, neither has any additional information on the matter been published by the media.General principles set by the bankruptcy courts
From our review of the published bankruptcy case law can draw certain principles such as:
- the court rejects the bankruptcy application when it is found that the origin of the debts was not related to the main business of the applicant but rather personal debts;
- to constrain the management of the bankrupted company and give the bankruptcy trustee full authority over the company;
- to reject the bankruptcy applications if the debtor's application does not meet the minimum requirement under the law and the implementing regulations; and
- to reject the bankruptcy application filed by the creditor unless he has a confirmed debt of a final court judgment.
Ancillary insolvency proceedings
In August 2020, the Ministry of Commerce issued the rules of cross-border insolvency procedures to match the modern practices in bankruptcy laws globally. Cross-border insolvency (sometimes called international insolvency) regulates the treatment of financially distressed debtors where such debtors have assets or creditors in more than one country.
The rules set forth are designed to accommodate and assist cross-border insolvency procedures in relation to debtors undergoing stark financial distress or insolvency. The rules aim to effectively address the problems debtors and creditors face in relation to proceedings that are hindered by various legal restraints, as such the rules of cross-border insolvency shall remedy such burdensome restraints. The rules provide a primary focus on the encouragement of cooperation and coordination between states and their respective judiciaries, while maintaining sovereign integrity and respecting the differences between national procedural regulations.
The rules provide judicial assistance, whenever sought by a trustee appointed in cross-border insolvency procedures. Saudi courts would recognise judgments from foreign courts in such insolvency procedures abroad. The rules further entail recognition of foreign court decisions announcing insolvency proceedings court is satisfied that the interests of the creditor and related parties, including the debtor are adequately protected. Moreover, without prejudice to the laws of foreign states and in-line with international agreements, the scope of judicial assistance includes the coordination between the national courts and the foreign courts in relation to the commencement of cross-border insolvency procedures.
The rules further afford, to the appointed trustee in a foreign insolvency process, the same privileges as any national and waived from local laws pertaining to the appointment of trustees. Notwithstanding, the rules stipulate that the foreign creditor shall have similar rights to the creditor in the Saudi Arabia in relation to the commencement and participation in an insolvency proceeding.
Moreover, in relation to insolvency proceedings that take place concurrently, the decision to grant judicial assistance shall be consistent with the foreign insolvency procedure; however, the court shall have the discretion to modify or terminate whatever is found to be inconsistent with the national insolvency procedures commenced in Saudi Arabia.