What Is Preventive Settlement and How Is It Filed?
In brief: Preventive settlement allows a debtor to reach an agreement with creditors while retaining management of the business. Only the debtor may file the application, and the Commercial Court considers it within no more than forty days from registration.
What is Preventive Settlement?
Preventive settlement is a bankruptcy procedure through which a debtor seeks an agreement with creditors to settle or reschedule debts while continuing to manage the business.
What is the purpose of this procedure?
To address financial distress before it worsens, preserve viable businesses and protect creditors through an orderly and fair settlement.
Who may use this procedure and when?
Only the debtor may apply to the Commercial Court to commence preventive settlement.
When the procedure may be used:
- When the debtor expects financial disruption that may lead to distress.
- When the debtor is financially distressed.
- When the debtor is bankrupt.
What are the main stages?
File the application
The debtor files an application with the Commercial Court through the commercial judiciary service.
Court review
The court schedules consideration of the application within no more than forty days after registration.
Court decision
The court may commence the procedure, reject the application or adjourn consideration.
Settlement process
The required trustee notation is completed and the debtor works with creditors toward the proposed settlement.
Frequently asked questions about Preventive Settlement
The debtor alone may apply to the court to commence preventive settlement.
The debtor may apply when financial disruption is expected, or when the debtor is distressed or bankrupt.
The court sets a hearing within no more than forty days from the date the application is registered.
Source: Saudi Bankruptcy Law, its Implementing Regulations and Bankruptcy Commission guidance — Bankruptcy Commission. This content is for general information and does not constitute legal advice.