The liquidation of companies is one of the significant legal processes aimed at formally and organizationally terminating the existence of a company. In the Kingdom of Saudi Arabia, the liquidation of companies is governed by the new Companies Law promulgated under Royal Decree No. (M/132) dated 01/12/1443 A.H., which outlines the rules and procedures necessary for the legal and orderly termination of companies, with ensuring the protection of the rights of shareholders and creditors. The liquidation of companies requires compliance with the laws and regulations established by the Ministry of Commerce, thereby safeguarding the rights of shareholders and creditors, as well as protecting public interests.
Methods of Company Liquidation:
One of the most important considerations for company founders, partners, or investors is the method of company liquidation and the obligations that must be fulfilled during the liquidation process.
Article (245) of the Companies Law stipulates that: “Upon its expiration, a company shall be liquidated in accordance with the provisions of this Law, unless the manner of liquidation is provided for in the company’s articles of incorporation or articles of association, or is agreed upon by the partners, general assembly, or shareholders, as the case may be.”
The reasons for company liquidation in the Kingdom may vary and include:
As stated in Article (243) of the Companies Law: “
General Reasons for Termination of Company
Subject to the reasons prescribed for the termination of each form of company, a company shall be terminated for any of the following reasons:
- Expiration of its term if it is incorporated for a specified period, unless the term is extended in accordance with the provisions of this Law.
- Agreement of the partners or shareholders to dissolve the company.
- Issuance of a final judgment to dissolve or annul the company.”
1. Financial Losses: When a company faces insurmountable financial difficulties.
2. Expiration of the company’s term: If the company was established for a specific period and such period has expired.
3. Shareholders’ Agreement: When the partners or shareholders agree to terminate the company’s operations.
4. Judicial Ruling: In some cases, courts may issue an order to liquidate the company due to disputes or violations.
The procedures for company liquidation in Saudi Arabia include the following steps:
- Appointment of a Legal Liquidator: A certified liquidator is selected to manage the liquidation process.
- Enumeration of Company Assets: The liquidator enumerates and evaluates all the company’s assets.
- Settlement of Debts: Settling financial liabilities with creditors.
- Distribution of Remaining Profits: After settling the liabilities, the remaining profits are distributed to the partners or shareholders.
- Cancellation of the Commercial Register: Submitting a formal request to cancel the company’s commercial register with the Ministry of Commerce.
- Upon the death of a partner in the company:
- Withdrawal or separation of one of the partners from the company.
- In the event of the seizure of a partner’s assets or their bankruptcy.
Legal Procedures for Company Liquidation:
Article (245) of the Companies Law stipulates the method for conducting liquidation
“Upon its expiration, a company shall be liquidated in accordance with the provisions of this Law, unless the manner of liquidation is provided for in the company’s articles of incorporation or articles of association, or is agreed upon by the partners, general assembly, or shareholders, as the case may be.”
The intent is that companies in the Kingdom of Saudi Arabia are responsible for carrying out numerous procedures as part of the liquidation process. This includes settling all their rights and debts, determining any remaining funds within the company, and subsequently distributing them to the partners. Additionally, all conditions stipulated in the company’s articles of incorporation must be adhered to during this process.
The decision to appoint a liquidator shall be made in accordance with Article (248), which states:
- A liquidator shall be appointed pursuant to a decision by the partners, general assembly, or shareholders subject to the conditions prescribed for amending the company’s articles of incorporation or articles of association as per the company’s form, within a period not exceeding sixty (60) days from the termination date of the company. If a liquidator is not appointed during such period, their appointment shall be made under a decision from the competent judicial authority upon a request by any of the partners, shareholders, or interested parties.
- With the exception of paragraph (1) of this Article, if the termination of the company is due to its dissolution or annulment pursuant to a final judgment, the liquidator shall be appointed by the judicial authority which rendered said judgment.
- The competent judicial authority shall, prior to issuing the decision to appoint a liquidator in accordance with the provisions of paragraphs (1) and (2) of this Article, request the company’s partners, shareholders, managers, or board of directors, as the case may be, to submit the statement referred to in Article (242/1) of this Law or the necessary accounting data and records, or financial statements, if any, which establish that the company’s assets are sufficient to pay its debts by the end of the liquidation period as stipulated in this Part, and that the company is not distressed under the Bankruptcy Law, within a period not exceeding thirty (30) days from the date of request. If the competent judicial authority finds that the company’s assets are not sufficient to pay its debts, it shall take the measures necessary to initiate any liquidation proceedings under the Bankruptcy Law.
- In all cases, the decision to appoint a liquidator shall determine the liquidator’s powers, remuneration, and any imposed restrictions, if any, as well as the period needed for liquidation.
Challenges and Risks
Companies in the Kingdom confronts numerous challenges during the liquidation process, such as disputes among shareholders, the complexity of debt settlement, and the possibility of the process taking longer than expected.
Conclusion:
In conclusion, the liquidation of companies in the Kingdom is a complex yet essential legal process designed to ensure the termination of companies in a manner that safeguards rights.
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