Category Archives: Arbitration

The inheritance of wealth, property, and control over family businesses in Saudi Arabia is not merely a personal matter, it is a legally and strategically consequential transition that often exposes deep fault lines within families. As a new generation steps into leadership and the legal landscape matures, the resolution of inheritance disputes and the liquidation of estates has emerged as one of the most complex legal challenges for high-net-worth families, shareholders, and beneficiaries in the Kingdom.

While family harmony is a cultural imperative, the rise in contested estates and legal proceedings, particularly in multi-branch, high-value families, is forcing both local and international stakeholders to re-evaluate how succession and estate planning are structured, managed, and, when necessary, resolved.

A Distinct Legal Foundation: Shariah Law in Practice

At the heart of the Saudi legal system lies the application of Islamic Shariah, which governs inheritance with mandatory and non-negotiable rules on how estates must be divided. This includes a fixed formula for the distribution of shares among heirs—sons, daughters, spouses, and extended relatives, irrespective of the deceased’s wishes unless very specific pre-conditions have been met.

Unlike many other jurisdictions, there is no concept of a discretionary will that can override Shariah-prescribed allocations. This makes proactive estate structuring and pre-death planning not just advisable, but essential, particularly in families with significant assets, real estate portfolios, or operational businesses.

Inheritance Disputes: Why They Arise

Despite the clarity of Islamic inheritance law on paper, disputes often arise due to real-world complications:

• Ambiguity in Asset Ownership: Many founders maintain informal ownership of assets or mix personal and business holdings, making it difficult to distinguish what falls into the estate.
• Heir Disagreement on Valuation and Liquidation: Beneficiaries may contest the valuation of key assets or resist the liquidation of income-generating properties and companies.
• Exclusion or Disproportionate Benefit Claims: Allegations of unfair enrichment, particularly by second families, distant relatives, or those in managerial roles, frequently trigger formal challenges.
• Lack of Succession Infrastructure: In many cases, there is no central register of assets, no governance framework for ongoing business operation, and no appointed administrator to oversee the estate. This paralysis can last for years.

These disputes are not only destabilising—they can erode the value of the estate, fracture family unity, and invite regulatory or creditor intervention.

The Process of Estate Liquidation in KSA

The liquidation and distribution of a deceased’s estate in Saudi Arabia typically begins with an application to the Personal Status Court, followed by a formal inventory of the deceased’s assets and a ruling on the rightful heirs. However, in high-value estates or those involving real estate, commercial shareholdings, or offshore components, the process becomes far more intricate.

Where minors are involved, or where the estate includes ongoing businesses, the court may appoint a judicial guardian or administrator. Additionally, estates with foreign heirs or international components often require cross-border legal coordination and recognition of foreign judgments, further complicating proceedings.

Notably, in 2022, the Personal Status Law was codified for the first time under Saudi Vision 2030’s legal reforms, providing more clarity and predictability to issues surrounding guardianship, documentation, and enforcement. Still, estate cases remain time-consuming and procedurally complex without proactive legal guidance.

Strategic Techniques for Dispute Resolution and Prevention

We approach inheritance disputes not merely as legal cases but as strategic family transitions. Our experience shows that the following frameworks significantly reduce conflict and preserve asset value:

1. Establishing Clear Legal Documentation in Life
   Founders should formalise asset ownership under registered entities, distinguish between personal and business assets, and, where possible, utilise legal vehicles such as holding companies to structure family participation. Shariah-compliant gift structures (hiba) can also be used pre-death to transfer assets within permissible bounds.
2. Appointing an Estate Administrator or Executor
   A court-recognised administrator can ensure the timely management and safeguarding of estate assets, particularly where businesses or significant liabilities are involved. We work with families to structure these roles in advance, often embedding them in shareholder agreements or trust structures.
3. Mediation and Arbitration for Heirs
   Rather than litigating disputes in open court, we have successfully resolved complex inheritance matters through family mediation forums and private arbitration panels, particularly in high-profile families concerned with confidentiality and reputation.
4. Forensic Asset Mapping and Reconciliation
   In cases of unclear ownership or suspected misappropriation, our team conducts comprehensive forensic reviews to trace assets, reconstruct records, and support rightful claims. This often serves as a turning point in resolving contested matters with transparency.
5. Structuring Multi-Generational Frameworks
   We advise families to look beyond a single estate event and create governance charters, family councils, and long-term wealth vehicles that preserve intergenerational continuity and avoid piecemeal asset dilution.

Cross-Border and Foreign Investor Considerations

Estate-related disputes in KSA increasingly affect foreign investors—either as co-owners, creditors, or partners in family businesses where a principal passes away. Understanding the application of Shariah law, the role of Saudi courts, and the enforceability of shareholder agreements or buy-sell clauses is critical. Where foreign nationals are heirs or claimants, issues of jurisdiction, documentation, and power of attorney must be handled with precision.

Our firm frequently acts as a liaison between Saudi courts, foreign trustees, and consular services to coordinate multi-jurisdictional estate matters and ensure proper legal standing for non-GCC beneficiaries.

The Stakes Are Higher Than Ever

In today’s rapidly changing Saudi landscape, estate disputes are not just about division of wealth—they are often existential events that determine the future of a business, family cohesion, and the credibility of a legacy. For families looking to preserve what previous generations built, and for external stakeholders seeking clarity, there is no room for ambiguity.

Proactive legal structuring, early intervention, and skilled dispute management are the new imperatives. Saudi Arabia’s courts are evolving, but the burden of foresight remains with families and their advisors.

If your family is navigating a succession event, or if you are a business partner or foreign investor facing the impact of an unresolved estate, our inheritance and disputes team at Hammad & Al-Mehdar is ready to assist with discretion, strategic clarity, and unwavering commitment to legal precision.

In today’s evolving commercial environment, the concept of business failure is no longer synonymous with stigma or scandal. As Saudi Arabia accelerates its economic transformation, the ability for businesses to restructure, wind down, or exit the market lawfully and transparently has become a critical feature of the Kingdom’s modern legal infrastructure. For business owners, directors, creditors, and foreign investors alike, understanding the legal landscape of insolvency is no longer optional—it is an essential component of risk management.

A Legal Framework Built for Economic Resilience

The introduction of the Saudi Bankruptcy Law in 2018 marked a significant shift in the Kingdom’s approach to managing financial distress. Enacted under Royal Decree No. M/50, the law provided a structured and commercially credible framework for businesses to manage insolvency, preserving economic value and market integrity. Its alignment with global norms—particularly the UNCITRAL Model Law on Cross-Border Insolvency—also signalled Saudi Arabia’s intent to position itself as a globally integrated and investor-friendly jurisdiction.

What sets the Saudi regime apart is its dual focus: it offers tools for early intervention when recovery is possible, and it provides mechanisms for orderly exit where continuation is no longer viable. This flexibility has been crucial in destigmatising bankruptcy and fostering a more proactive, compliance-driven corporate culture.

The Human and Commercial Stakes

For directors and shareholders, insolvency is not just a financial event—it is a test of governance. Saudi law imposes clear duties on company leadership once financial instability is evident. Ignoring warning signs or continuing to operate while insolvent may not only worsen outcomes for creditors but could result in personal liability or sanctions. The role of the Bankruptcy Commission, established under the new regime, is to ensure fairness, transparency, and consistency while holding individuals accountable where negligence or misconduct is identified.

Creditors, meanwhile, have a defined path to recover value through structured repayment hierarchies and legal participation in proceedings. Secured creditors, employees, and government authorities are granted priority; however, even unsecured creditors have a meaningful standing in shaping the outcome of restructuring plans or liquidation terms.

A Tool for Economic Continuity, Not Collapse

Too often, liquidation is viewed as the end of the road. In reality, Saudi Arabia’s legal system treats insolvency as a legitimate—and sometimes even strategic—means of market correction and economic renewal. Whether it involves resolving failed startups, distressed joint ventures, or underperforming family businesses, the law offers mechanisms that protect stakeholders and preserve remaining value.

Smaller entities benefit from simplified procedures that ease administrative burdens. Larger firms can explore supervised restructurings that salvage viable operations. In extreme cases where debts exceed asset value, administrative liquidation ensures a fair and efficient closure with regulatory oversight. This layered system reflects a mature and responsible approach to economic management.

Cross-Border Implications and the Need for Legal Foresight

In an increasingly interconnected Gulf economy, cross-border insolvency poses a significant risk that extends beyond theoretical considerations. Multinational entities, foreign investors, and joint ventures operating in the KSA must be acutely aware of how Saudi law interacts with the legal principles of their home jurisdictions. Recognition of foreign insolvency proceedings, creditor claims from abroad, and the handling of assets across borders are complex but navigable areas, provided legal counsel is engaged early.

From Crisis to Compliance

The reality of doing business includes the possibility of failure, but how that failure is managed can define a company’s legacy, protect reputations, and shape future opportunities. Saudi Arabia’s Bankruptcy Law has laid the groundwork for a responsible, transparent, and modern approach to corporate distress. Yet the law alone is not enough. Business leaders must act early, seek legal advice, and approach distress not as a crisis to be concealed, but as a legal process to be navigated with discipline and foresight.

At HMCO, we advise clients across sectors on strategic responses to financial instability, ensuring their decisions today create options, protections, and clarity for tomorrow.