Circular: Instructions for Banking Obligations and Transactions in Accordance with the Bankruptcy Law and Its Implementing Regulations

Saudi Central Bank
Saudi Central Bank

Number: 42066419
Date: 1442/09/20 (2021/05/02 AD)
Attachments: 6 pages

Circular

To: Esteemed Gentlemen,
Greetings,

Subject: Clarifying Instructions for Banking Obligations and Transactions in Light of the Bankruptcy Law and Its Implementing Regulations.

I refer to the Bankruptcy Law, issued by Royal Decree No. (M/50) dated 1439/05/28 AH (2018/02/14 AD), and its Implementing Regulations, issued by Council of Ministers Resolution No. (622) dated 1439/12/24 AH (2018/09/04 AD), and the important role of banks and financial institutions in activating the bankruptcy system.

These instructions aim to clarify the obligations of banks and financial institutions according to the provisions of the Bankruptcy Law and its Implementing Regulations, in addition to facilitating banking transactions related to bankruptcy procedures; attached are the clarifying instructions for banking obligations and transactions in light of the Bankruptcy Law and its Implementing Regulations, which supersede the Central Bank's instructions communicated by Circular No. (41039914) dated 1441/06/08 AH (2020/02/02 AD).

For your information and action in accordance with the instructions effective from this date.
Best regards,

[Signature]
Fahad bin Ibrahim Al-Shathri
Deputy Governor for Supervision

Distribution Scope:

• Banks and financial institutions operating in the Kingdom.

P.O. Box 2992 Riyadh 11169 Kingdom of Saudi Arabia Tel: +966 11 463 2000

Clarifying Instructions for Banking Obligations and Transactions In Light of the Bankruptcy Law and Its Implementing Regulations (First Edition - April 2021)

Saudi Central Bank
Saudi Central Bank

Table of Contents

Part	Page No.
Chapter One: Definitions and General Provisions	3
Chapter Two: Obligations of Banks and Financial Institutions	4
Chapter Three: Banking Transactions that the Trustee or Committee May Require	4

2

Chapter One
Definitions and General Provisions

1. Definitions:
1.1. The words and phrases contained in these instructions shall have the meanings assigned to them in Article (1) of the Bankruptcy Law, issued by Royal Decree No. (M/50) dated 1439/05/28 AH (2018/02/14 AD), and Article (1) of its Implementing Regulations, issued by Council of Ministers Resolution No. (622) dated 1439/12/24 AH (2018/09/04 AD).
1.2. The following words and phrases – wherever they appear in these instructions – shall have the meanings assigned to each of them, unless the context requires otherwise:
Central Bank: Saudi Central Bank.
Law: The Bankruptcy Law.
Regulations: The Implementing Regulations of the Bankruptcy Law.
Competent Court: The court where the application for commencing bankruptcy proceedings is filed.
Committee: The Bankruptcy Committee.

2. General Provisions:
2.1. These instructions aim to clarify the obligations of banks and financial institutions in accordance with the provisions of the Law and the Regulations, in addition to facilitating banking transactions related to bankruptcy procedures.
2.2. These instructions shall not prejudice the provisions contained in the Law and the Regulations, in addition to other relevant regulations and instructions, including – but not limited to – the following:

• Rules and Guide for Managing Potentially Non-Performing Loans, communicated by Central Bank Circular No. (41033343) dated 1441/05/11 AH (2019/12/08 AD).
• Rules for Bank Accounts, communicated by Central Bank Circular No. (65681/67) dated 1440/11/01 AH (2019/07/04 AD).
• Rules Regulating Bankruptcy Case Procedures in Commercial Courts, issued by Minister of Justice Resolution No. (6421) dated 1441/03/21 AH (2019/11/18 AD).
• Central Bank Circular No. (42025830) dated 1442/04/21 AH (2020/12/06 AD), regarding emphasizing non-refusal to confiscate a bank guarantee letter due to the commencement of bankruptcy proceedings and the suspension of claims against the client ordering the issuance of the letter.
• Central Bank Circular No. (42016471) dated 1442/03/16 AH (2020/11/02 AD), regarding the importance of observing regulations related to the commercial environment and credit transactions.

Chapter Two
Obligations of Banks and Financial Institutions

3. Banks and financial institutions – in their capacity as banking practitioners or creditors of the debtor – must adhere to the following:
3.1. Enable the Trustee or the Committee – as the case may be – to access any information or procedures related to the transactions of the debtor subject to financial reorganization proceedings, liquidation proceedings, financial reorganization proceedings for small debtors, liquidation proceedings for small debtors, or administrative liquidation proceedings, through various channels, in accordance with the provisions of Chapter Three of these instructions.
3.2. Adhere to the suspension of claims against the debtor immediately upon the bank receiving proof of the Competent Court's decision to suspend claims, through official notification methods, or the Trustee, or the debtor – as the case may be – including deduction and transfer orders from bank accounts based on judgments and decisions issued by the Competent Courts after the suspension of claims, while observing the following:

• Adherence to the suspension of claims according to the periods specified for each procedure in the Law, or until the bank receives notification of the cancellation of the claim suspension, taking into account any extensions to the periods based on a decision from the Competent Court.
• The effect of claim suspension shall not extend to attachment and deduction orders from bank accounts and prohibition of dealing based on judgments and decisions issued before the suspension of claims, unless a decision to the contrary is issued by the Competent Court.
• Without prejudice to the relevant statutory provisions regarding enforcement on collateral during the claim suspension period.
  3.3. Adhere to submitting the bank's claims to the Trustee or the Committee – as the case may be – within the specified period for submission, clarifying their nature and attaching supporting documents.
  3.4. Verify the powers and duties of the Trustee, and each Trustee individually if there are multiple, based on the Competent Court's decision.
  3.5. Ensure that relevant departments and branches are familiar with these instructions.

Chapter Three
Banking Transactions that the Trustee or Committee May Require

4. Bank Accounts:
4.1. A bank account shall be opened for the debtor subject to one of the bankruptcy procedures stipulated in paragraph (3.1) according to the following requirements:

1. A request submitted by the Trustee or the Committee – as the case may be – to open the account, clarifying its purpose.
2. A decision from the Competent Court including any of the following:
   a. Commencement of liquidation proceedings or liquidation for small debtors for a natural or legal person and appointment of a single trustee. b. Commencement of liquidation proceedings or liquidation for small debtors and appointment of more than one trustee, specifying the duties and powers of the trustee, including opening and managing bank accounts.
   c. Commencement of administrative liquidation proceedings and appointment of the Bankruptcy Committee to manage the proceedings.
   d. Divestment of the debtor and assignment of the trustee to manage the activity in financial reorganization proceedings.
3. A copy of the Trustee's national identity, or a letter from the Committee containing the details of the authorized person to manage the account in administrative liquidation proceedings, with a copy of their national identity.
4. A copy of the commercial register and articles of association and its annexes for the legal person subject to bankruptcy proceedings, or the national identity/residency for the natural person.
   4.2. The Trustee or the Committee shall be enabled to complete the management of the debtor's accounts subject to one of the bankruptcy procedures stipulated in paragraph (3.1) according to the following requirements:
5. A decision from the Competent Court including any of the following:
   a. Commencement of liquidation proceedings or liquidation for small debtors for a natural or legal person and appointment of a single trustee. b. Commencement of liquidation proceedings or liquidation for small debtors and appointment of more than one trustee, specifying the duties and powers of the trustee, including managing bank accounts.
   c. Commencement of administrative liquidation proceedings and appointment of the Bankruptcy Committee to manage the proceedings.
   d. Divestment of the debtor and assignment of the trustee to manage the activity in financial reorganization proceedings.
6. A copy of the Trustee's national identity, or a letter from the Committee containing the details of the authorized person to manage the account in administrative liquidation proceedings, with a copy of their national identity.
   4.3. A bank account shall be opened for the purpose of depositing the proceeds from the sale of the bankruptcy estate securing the debtor's debt subject to financial reorganization proceedings or financial reorganization for small debtors, according to the following requirements:
7. A request submitted by the Trustee to open the account, clarifying its purpose and the account's validity period, provided it does not exceed the date of the Competent Court's judgment terminating the proceedings.
8. A decision from the Competent Court including the commencement of financial reorganization proceedings or financial reorganization for small debtors for a natural or legal person and the appointment of the Trustee.
9. A copy of the Trustee's national identity.
10. The Trustee's acknowledgment to notify the bank immediately upon the Competent Court's decision to dismiss them or accept their resignation, and the new Trustee shall be enabled to complete the management of the account, after fulfilling the Competent Court's decision appointing the new Trustee in place of the current Trustee, and a copy of their national identity.

5. Bank Account Statements for Ten Years:
5.1. The Trustee or the Committee – as the case may be – shall be provided with bank account statements for the debtor subject to one of the bankruptcy procedures stipulated in paragraph (3.1), after fulfilling the Competent Court's decision including any of the following:
a. Commencement of liquidation proceedings or liquidation for small debtors for a natural or legal person and appointment of a single trustee. b. Commencement of liquidation proceedings or liquidation for small debtors and appointment of more than one trustee, specifying the duties and powers of the trustee, including requesting bank account statements.
c. Commencement of administrative liquidation proceedings and appointment of the Bankruptcy Committee to manage the proceedings.
d. Divestment of the debtor and assignment of the trustee to manage the activity in financial reorganization proceedings.

6. The execution or provision of the transactions specified in paragraphs (4) and (5) must not exceed the periods specified in the following table:

Paragraph	Period
Paragraph No. (4.1)	One business day from completion of requirements
Paragraph No. (4.2)	Immediately upon completion of requirements
Paragraph No. (4.3)	One business day from completion of requirements (for account opening), and immediately upon completion of requirements (for completing account management)
Paragraph No. (5.1)	Seven business days from completion of requirements