What is Bankruptcy and Liquidation?
Bankruptcy and liquidation is the legal and accounting process of winding up an insolvent business by realizing (selling) its assets and distributing the proceeds to creditors in order of legal priority, with any residual returning to shareholders.
How It Works
- Petition: filed by the debtor or creditors with the Bankruptcy Commission.
- Trustee appointed: takes control of assets and operations.
- Asset realization: inventory, receivables, property converted to cash.
- Distribution: secured creditors first, then preferred, then unsecured, residual to shareholders.
Saudi Context
Saudi Arabia’s Bankruptcy Law (effective 2018) introduced a modern bankruptcy regime overseen by the Bankruptcy Commission and bankruptcy courts. The law offers three procedures: Preventive Settlement, Financial Restructuring, and Liquidation. Liquidation is the last resort for unrecoverable businesses, with proceeds distributed under a strict priority waterfall.
Example
A Saudi distressed contractor enters liquidation with SAR 30,000,000 in realizable assets and SAR 50,000,000 in claims (SAR 20,000,000 secured bank debt, SAR 15,000,000 unsecured suppliers, SAR 15,000,000 shareholder loans). Secured creditors recover 100%, unsecured recover ~67%, shareholders receive nothing.