Learn about the Rules Governing Cross-Border Bankruptcy Procedures

There is no notable difficulty in applying the bankruptcy rules provided for in the Bankruptcy Law when the debtor is a national individual or a national company conducting its commercial activity in its home country, to which it belongs by nationality and in which it disposes of its funds within its territory, and then ceases paying its debts in its country of origin or in one of the countries where it carries out its commercial activity, leading to the declaration of its bankruptcy therein. The difficulty arises, however, when the activity of the individual or national company extends to several other countries, and the debtor ceases paying its debts in its country of origin or in one of the countries where it carries out its commercial activity, resulting in a declaration of bankruptcy therein.

During the last two centuries, the world witnessed the occurrence of international bankruptcies that had wide-ranging effects, as international or multinational companies ceased paying their debts and were exposed to bankruptcy declarations. The effects of financial collapse were not limited to regional borders only but extended to the jurisdictions of countries in which the creditors of those companies were located (1).

This prompted the United Nations Commission on International Trade Law (UNCITRAL) to establish the UNCITRAL Model Law on Cross-Border Insolvency with the aim of providing effective mechanisms to address cases of insolvency (bankruptcy) across borders. The law was also prepared to assist states in modernizing their legislation relating to cross-border insolvency (bankruptcy) by providing a modern, harmonized, and fair framework for dealing with the application of cross-border insolvency (bankruptcy) (2). The Saudi regulator acted wisely by introducing the rules governing cross-border bankruptcy procedures in line with the UNCITRAL Model Law on Cross-Border Insolvency in order to keep pace with modern systems of bankruptcy provisions. And while the general rule is the principle of territoriality of laws, meaning the application of national law to every person present in the territory of the state that issued it, whether national or foreign (3), the rules governing cross-border bankruptcy procedures constitute an exception to this rule. Cross-border bankruptcy procedures serve as a safety valve for creditors, as they enable them to recover their debts from a debtor who owns funds in several countries, so that all of those funds become a general guarantee for them, which enhances confidence, creditworthiness, the business environment, and investments, and contributes effectively to the prosperity of commercial activity and the increase of sustainable economic development, one of the most important objectives of Saudi Vision 2030.

Definitions of the Terms Set Out in the Rules Governing Bankruptcy Procedures (4):

Rules: The rules governing cross-border bankruptcy procedures.

Bankruptcy: A legal system of collective execution against the assets of the merchant debtor who ceases to pay his commercial debts due to deterioration of his financial condition (5).

Foreign Bankruptcy Proceeding: A judicial or administrative collective proceeding in a foreign country, even if temporary, under the provisions of a bankruptcy law whereby the debtor’s assets and property are placed under the control or supervision of the foreign court for the purpose of financial reorganization or liquidation.

Foreign Main Bankruptcy Proceeding: A proceeding in a foreign country where the debtor has its main center of activities through which it exercises its economic activity.

Foreign Non-Main Bankruptcy Proceeding: A proceeding in a foreign country in which the debtor does not have its main center, but in which it conducts non-incidental economic activity through human resources or goods or services.

Cross-Border Bankruptcy Procedures: A set of procedures applied outside the borders of the country that issued the proceeding, such that enforcement takes place within the territory of another country over the bankrupt debtor’s assets located in that country in accordance with its legal system (6).

Foreign Court: The court or authority in a foreign country that is competent to open or supervise the foreign bankruptcy proceeding.

Foreign Trustee: A natural or legal person appointed, even temporarily, in the foreign bankruptcy proceeding to reorganize, liquidate, or manage the debtor’s assets or business, or to act as a representative of the foreign bankruptcy proceeding.

Scope of Application of the Rules Governing Cross-Border Bankruptcy Procedures:

The rules governing cross-border bankruptcy procedures apply in the following cases:

1. If a foreign court or foreign trustee requests judicial assistance from the court regarding a foreign bankruptcy proceeding.
2. If the court, the Bankruptcy Commission, or the trustee requests judicial assistance from the foreign court or foreign trustee regarding a bankruptcy proceeding under the provisions of the law.
3. If the debtor is subject to a bankruptcy proceeding under the provisions of the law and a foreign bankruptcy proceeding at the same time.
4. Upon submission of an application related to or intervention in a bankruptcy proceeding by any creditor or interested party from a foreign country in accordance with the provisions of the law.

General Principles Underpinning the Rules Governing Cross-Border Bankruptcy Procedures:

The Saudi regulator has established several general principles on which the rules governing cross-border bankruptcy procedures are based, namely:

1. The rules do not prejudice international treaties to which the Kingdom is a party.
2. The court may refuse to take any measure if it involves anything contrary to public order in the Kingdom.
3. The rules do not restrict the authority of the court or the trustee to provide any other assistance to the foreign trustee pursuant to the relevant Saudi regulations.
4. When applying the provisions of the rules, their international nature shall be taken into consideration in order to promote their uniform application and good faith.

The Court Competent to Consider Applications for Recognition of Foreign Bankruptcy Proceedings and Judicial Assistance:

Article 4 of the Saudi Rules Governing Cross-Border Bankruptcy Procedures states that: “The court shall have jurisdiction to consider applications for recognition of foreign bankruptcy proceedings and applications for judicial assistance.” Although the regulation does not specify which court has jurisdiction to hear applications for recognition of foreign bankruptcy proceedings and judicial assistance, reference to the Bankruptcy Law shows that jurisdiction over bankruptcy disputes is vested in the Commercial Court (7). Accordingly, the Commercial Court is competent to consider applications for recognition of foreign bankruptcy proceedings and applications for judicial assistance.

Recognition of Foreign Bankruptcy Proceedings:

Recognition of cross-border bankruptcy procedures is of paramount importance, as such recognition obligates the state to enforce the proceeding. Recognition in this context means the state’s acknowledgment of the foreign proceeding in preparation for its enforcement. Recognition is considered a form of judicial cooperation between the state and the state issuing the proceeding and concerns the provision of assistance and implementation of judicial measures related to the debtor’s assets and property located in that state (8).

Once the state recognizes the validity of such proceeding or judicial judgment relating to bankruptcy, it is deemed an acknowledgment of the validity of that proceeding or judgment and therefore an approval to enforce it in accordance with the conditions provided for in Article 14 of the Saudi Enforcement Law issued by Royal Decree No. (M/53) dated 13/8/1433H.

Conditions for Recognition of Cross-Border Bankruptcy Procedures:

Several conditions must be met for recognition of bankruptcy proceedings (9):

1. The foreign trustee, when submitting to the court a request for recognition of the foreign bankruptcy proceeding in which he was appointed, must attach the following documents:
2. A copy of the decision opening the foreign bankruptcy proceeding and appointing him as trustee.
3. A certificate from the foreign court confirming the validity of the foreign bankruptcy proceeding and the continuation of his appointment in that same proceeding.
4. A statement identifying the foreign bankruptcy proceedings relating to the debtor of which the foreign trustee is aware.
5. When considering the request for recognition, the court determines whether the legal definitions of the terms (foreign bankruptcy proceeding) and (foreign trustee) set out in paragraph (2) of Article (1) of the rules apply to the foreign bankruptcy proceeding and the foreign trustee, and whether the documents provided correspond with subparagraphs (1/A) and (1/B) of this Article.
6. The court may accept the information and documents submitted regarding the application even if not authenticated.
7. If it is impossible to provide the documents referred to in subparagraphs (1/A) and (1/B) of Article Eight, any document proving the validity of the foreign proceeding and the appointment of the foreign trustee may be submitted, and the court may accept or reject it.
8. The court may require the foreign trustee to provide Arabic translations of the documents submitted for the purpose of considering the application.
9. The debtor’s registered main office, or habitual residence if the debtor is a natural person, shall be deemed the debtor’s main center unless proven otherwise.

In addition, the foreign bankruptcy proceeding must not contravene public order and morals in the state to which enforcement is requested, and the court receiving the request must have jurisdiction.

Article 12 of the rules governing cross-border bankruptcy procedures further stipulates the following conditions:

1. The legal definitions of the terms (foreign bankruptcy proceeding) and (foreign trustee) set out in paragraph (2) of Article (1) of the rules must apply to the foreign bankruptcy proceeding and the foreign trustee.
2. The request for recognition must meet the requirements specified in paragraph (1) of Article Eight of the rules.
3. Recognition of a foreign bankruptcy proceeding shall be as a foreign main bankruptcy proceeding or a foreign non-main bankruptcy proceeding in accordance with paragraph (2) of Article (1) of the rules.
4. The court shall decide urgently on a request for recognition of a foreign bankruptcy proceeding submitted in accordance with Article Eight of the rules.
5. The court may amend or terminate recognition if it becomes evident that the conditions for granting recognition were not fully or partially met, or are no longer present.

Effects of Recognition of Cross-Border Bankruptcy Procedures:

Upon recognition of the foreign bankruptcy proceeding, the foreign trustee has the right to intervene in the procedures relating to the debtor (10).

Once the court accepts the request for recognition of the foreign main bankruptcy proceeding, the following effects occur:

1. Suspension of the right to take or continue any action or measure against the debtor, its assets, rights, or obligations.
2. Suspension of the right to enforce against any of the debtor’s assets.
3. Suspension of the right to transfer, mortgage, or dispose of any of the debtor’s assets in any manner (11).

Furthermore, upon the court’s acceptance of recognition of the foreign bankruptcy proceeding, the foreign trustee may request judicial assistance from the court to protect the debtor’s assets or the interests of its creditors (12).

What was the primary motivation for the Saudi regulator to introduce rules governing cross-border bankruptcy?

The primary motivation for the Saudi regulator to introduce rules governing cross-border bankruptcy procedures was to keep pace with modern international bankruptcy systems and provide effective mechanisms for addressing insolvency cases that cross national borders.

According to the sources, several specific factors drove this decision:

• Alignment with International Standards: The rules were introduced in line with the UNCITRAL Model Law on Cross-Border Insolvency, which provides a modernized, fair, and harmonized framework for states to handle international bankruptcies.
• Addressing Economic Realities: As the activities of individuals and companies expand into multiple countries, significant legal difficulties arise when they cease paying debts. The rules address these complexities by allowing for the enforcement of proceedings over a debtor’s assets located in different territories, serving as an exception to the traditional “principle of territoriality”.
• Protection of Creditors and the Economy: These procedures act as a “safety valve” for creditors, enabling them to recover debts from a debtor’s worldwide assets. This helps enhance confidence, creditworthiness, and the overall business environment.
• Supporting Saudi Vision 2030: By fostering a stable investment climate and promoting sustainable economic development, these rules directly contribute to the key objectives of Saudi Vision 2030.

What is the legal distinction between a “Foreign Main Bankruptcy Proceeding” and a “Foreign Non-Main Bankruptcy Proceeding”?

The legal distinction between these two types of proceedings centers on the location and nature of the debtor’s economic activity in the country where the bankruptcy case is initiated.

Foreign Main Bankruptcy Proceeding

A Foreign Main Bankruptcy Proceeding is one that takes place in a foreign country where the debtor has its main center of activities for conducting economic activity.

• How it is determined: The rules presume that a company’s registered main office or a natural person’s habitual residence is the main center of activities, unless there is proof to the contrary.
• Legal Impact: Recognition of a main proceeding by a Saudi court carries significant weight, as it results in the suspension of actions or measures against the debtor, a stay on enforcement against assets, and a suspension of the right to transfer or dispose of assets.

Foreign Non-Main Bankruptcy Proceeding

A Foreign Non-Main Bankruptcy Proceeding occurs in a foreign country where the debtor does not have its main center, but still conducts non-incidental economic activity.

• Activity Requirements: To qualify, the debtor must be performing economic activity in that country through the use of human resources, goods, or services.
• Recognition: While the Saudi court can recognize these proceedings, they are categorized differently from main proceedings based on the level of the debtor’s established presence in that jurisdiction.

In short, the primary difference is that a Main Proceeding is tied to the debtor’s primary economic hub (like a headquarters), while a Non-Main Proceeding is tied to a location where the debtor has a significant and active business presence but not its primary center.

Overview of the Rules Governing Cross-Border Bankruptcy Procedures

The text outlines the legal framework governing cross-border insolvency, specifically focusing on how Saudi Arabia has integrated international standards into its national legislation. By adopting rules aligned with the UNCITRAL Model Law, the Saudi regulator provides a structured mechanism for the Commercial Court to recognize foreign bankruptcy proceedings and assist international trustees. This system acts as an exception to territoriality, allowing for a unified approach to managing a debtor’s assets across multiple jurisdictions to protect creditor rights. The document details necessary procedural requirements, such as the submission of specific judicial documents and the adherence to public policy, to ensure valid recognition. Ultimately, these rules aim to foster economic stability and investment by creating a predictable environment for multinational financial reorganization and liquidation

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Sources:

1- Dr. Nabil Mohamed Fathi Omran, The Legal System of Cross-Border Bankruptcy: A Comparative Study, Master’s Thesis, Faculty of Law, Mansoura University 2006/2007, pp. 9-10.

2- Preamble to the UNCITRAL Model Law on Cross-Border Insolvency, p. 3, published on the website of the UNCITRAL Model Law on Cross-Border Insolvency with Legislative Guide and Interpretation, accessed 21/10/2025 at 3:51 PM.

3- Dr. Mohamed Hossam Mahmoud Lotfi, Introduction to the Study of Law in Light of the Opinions of Jurisprudence and Judicial Rulings, Cairo, p. 267.

4- Article One of the Rules Governing Cross-Border Bankruptcy Procedures issued pursuant to Minister of Commerce Decision No. 149 dated 14/5/1444H.

5- Abdulrahman Al-Sayyid Qarman, Commercial Papers, Bankruptcy, and Protective Settlement under Saudi Regulations, Riyadh, Arab World Library, 4th Edition, 1436H, p. 295.

6- Dr. Fadwa Ali Badawi, Procedural Rules for Cross-Border Bankruptcy: An Analytical Comparative Study, published in the Journal of Legal and Economic Studies, peer-reviewed scientific periodical, Volume 11, Issue 3, September 2025, p. 1260, accessed at article_451102_81d4c1aa929053f0482796b1fe3ded3b.pdf on 22/10/2025 at 12:30 PM.

7- Article 1 of the Bankruptcy Law issued by Royal Decree No. (M/50) dated 28/5/1439H.

8- Dr. Fadwa Ali Badawi, Procedural Rules for Cross-Border Bankruptcy: An Analytical Comparative Study, reference cited, p. 1267.

9- Article 8 of the Rules Governing Cross-Border Bankruptcy Procedures issued pursuant to Minister of Commerce Decision No. 149 dated 14/5/1444H.

10- Article 13 of the same rules.

11- Article 14 of the same rules.

12- Article 15/1 of the same rules.