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Keeping it in the Family: Resolving Disputes in Family Businesses

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Family businesses are unique in their dynamics, combining the intricacies of both business and personal relationships. These enterprises often span generations, with a deep-rooted sense of tradition and shared history. However, the qualities that make family businesses successful can lead to conflicts and disputes. Disagreements can arise due to differences in vision, management styles, and expectations among family members. Resolving these disputes amicably is crucial to maintain harmony within the family and ensuring the long-term sustainability of the business.

When conflicts emerge within a family business, the stakes are high. Disagreements can not only strain personal relationships but also jeopardise the financial health and reputation of the enterprise. It is essential to address disputes promptly and amicably to prevent them from escalating and causing irreparable damage.

Preserving the family’s unity and fostering a collaborative environment can help overcome challenges and lay the foundation for continued success and prosperity in the family business. Family members can work together to find mutually beneficial solutions by opting for amicable resolution methods. There are several measures available, which include:

Mediation and Conciliation:

Mediation and conciliation often provide a less adversarial and more collaborative approach to resolving disputes, preserving family relationships and business interests. Engaging a neutral third party, such as a professional mediator or a trusted family advisor, can help facilitate open communication and negotiation between conflicting parties.

Review the Business’s Legal Framework:

Familiarise yourself with the legal structure of the family business, including any governing documents such as partnership agreements, bylaws, or shareholder agreements. These documents can outline dispute resolution mechanisms, including arbitration or alternative dispute resolution methods, which may offer a faster and more cost-effective means of resolving conflicts than traditional litigation.

Engage Experienced Legal Counsel:

When legal complexities arise, seeking the advice of experienced legal counsel specialising in family business disputes is essential. A skilled legal professional can guide you through the legal process, help assess the merits of your case, and suggest the most appropriate course of action. They can also provide valuable insights into relevant Saudi Arabian laws and regulations, ensuring compliance and protecting your business interests.

Explore Alternative Dispute Resolution (ADR):

ADR methods, such as arbitration or mediation, can offer advantages over traditional litigation. These processes are often more time-efficient, confidential, and flexible, allowing the parties to tailor the resolution process to their needs. ADR can be particularly beneficial for family businesses, providing a more private and less adversarial setting for resolving disputes and minimising potential damage to family relationships.

Document Agreements and Compromises:

In a settlement or agreement reached through mediation or negotiation, it is crucial to document the terms in writing. This agreement should include clear details regarding the resolution of the dispute, any financial settlements, and future actions or obligations. A written agreement helps prevent misunderstandings and provides a legal reference point in further disputes.

Litigation:

While litigation should be the last resort, there may be instances where it becomes necessary to protect the interests of the family business. In such cases, it is crucial to ensure that all legal requirements are met, including filing the appropriate documents and adhering to prescribed procedures and timelines set by the Saudi legal system. Engaging experienced legal counsel specialising in family business litigation can provide valuable guidance and representation throughout the process.

Family businesses play a vital role in the economic landscape of Saudi Arabia, making substantial contributions to its growth and employment. Given their significance, these businesses are subject to various legal laws and regulations in the country. These laws serve as a framework to ensure the smooth functioning and stability of family businesses, protecting the interests of all stakeholders involved. They aim to promote transparency, accountability, and fairness within family businesses while providing clear guidelines for their management and operations; these regulations include:

Saudi Arabian Companies Law:

The Companies Law, issued by the Ministry of Commerce and Investment, provides the general legal framework for all companies in Saudi Arabia, including family businesses. It covers company formation, governance, shareholder rights, and capital requirements matters.

Commercial Companies Law:

The Commercial Companies Law, enacted in 2015, specifically addresses regulations related to joint-stock companies, limited liability companies, and partnerships in Saudi Arabia. It defines the rights and obligations of shareholders, directors, and managers and rules for capital contributions, profit distribution, and shareholder meetings.

Saudi Arabian Labour Law:

The Labour Law governs the relationship between employers and employees, including family members working in the family business. It addresses employment contracts, wages, working hours, leave entitlements, termination, and dispute resolution between employers and employees.

Inheritance Law:

Family businesses are often closely tied to inheritance in Saudi Arabia. The Sharia-based inheritance law governs the distribution of assets and shares within the family upon the death of a business owner. It outlines the rights and entitlements of heirs, including family members involved in the family business.

Regulatory Laws:

Family businesses may also be subject to sector-specific regulations and laws based on their industry or activities. For example, finance, healthcare, real estate, or construction businesses may have to comply with specific laws and regulations about those sectors.

Compliance with these legal requirements is crucial for family businesses to uphold their integrity, sustain long-term growth, and navigate potential challenges effectively. By adhering to the applicable laws and regulations, family businesses in Saudi Arabia can foster a favourable environment for business continuity, preserve family harmony, and contribute to the overall economic prosperity of the nation.

Resolving legal disputes within family businesses requires a delicate balance between protecting the business interests and maintaining family relationships. Family businesses can effectively navigate and resolve disputes by employing mediation, exploring ADR methods, seeking legal counsel, and ensuring compliance with relevant legal frameworks. Ultimately, the goal should be to preserve family harmony and the long-term sustainability of the business.

Saudi Arabia Passes New Amendments to the Personal Data Protection Law

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Saudi Arabia has taken a momentous stride towards safeguarding individual privacy by passing the new amendments to the Personal Data Protection Law (“PDPL”). In a rapidly evolving digital landscape, privacy regulations have become crucial in ensuring personal data’s secure collection, processing, and storage.

This article delves into the key revisions introduced by the new amendments to the PDPL in Saudi Arabia and their potential implications for businesses and individuals. The Saudi Council of Ministers recently approved the amendments to the PDPL pursuant to Royal Decree No. M147 dated 05/09/1444H corresponding to 27/03/2023G. The PDPL was originally issued in September 2021 and was planned to come into effect during March 2023 due to it being revised and subject to public consultation which has seen some changes made to the original PDPL. The amended PDPL will now come into effect 720 days following its publication in the official gazette, which will be by 14/09/2023, where those who are subject to the PDPL being granted a one-year grace period to comply with the PDPL.

The PDPL brings about significant changes to the existing legal framework for data protection, aimed at aligning the country’s data protection practices with international standards. The key factors and changes introduced by the PDPL and its amendments include:

Applicability:

The PDPL applies to the processing of personal data of individuals in the Kingdom of Saudi Arabia (“KSA”), including if such processing of data occurs from outside of KSA. An exception to this is where the processing of personal data is done by an individual for personal or family use, so long as such personal data is not published or disclosed to others. It should be further noted that the upcoming Implementing Regulations should clarify the meaning of ‘personal or family use’.

Legitimate interests for processing:

Controllers may now process and disclose personal data on the basis of legitimate interest, as long as it does not breach the data subject’s rights or interest under the PDPL and that such data is not regarded as ‘sensitive data’. The forthcoming Implementing Regulations are expected to provide further guidance with respect to what constitutes ‘legitimate interest’.

Data breaches:

Unlike the previous PDPL, controllers are now relieved from the obligation to immediately notify the competent authority upon discovering a data breach, including unauthorized access or loss of personal data. The Implementing Regulations are expected to provide the deadline for such notifications in case any personal data has been leaked or damaged.

International data transfers:

The amendments have brought about one of the most significant changes to the original PDPL. Under the old framework, controllers were prohibited from transferring personal data outside of KSA or disclosing it to any entity outside KSA, except under extreme circumstances, which typically required the approval of the competent authority. However, under the recent amendments, controllers are no longer required to obtain approval from the competent authority prior to transferring or disclosing personal data to an entity outside KSA. The transfer or disclosure of personal data is generally allowed (with certain conditions) under the amendments for specific purposes, including obligations under international agreements in which KSA is a party, serving national interests, performing obligations to which the data subject is a party, or for any other purpose as determined by the Implementing Regulations.

However, controllers must comply with certain conditions when transferring or disclosing personal data outside the Kingdom for any of the aforementioned purposes. These conditions include ensuring that the transfer or disclosure does not adversely affect the national security or vital interests of KSA and ensuring that the jurisdiction to which the personal data is transferred or disclosed has protection measures that are no less than those provided under the PDPL and its Implementing Regulations. The Implementing Regulations may exempt controllers from these conditions under certain circumstances as specified by SDAIA.

Registration requirement and appointing local representative:

Prior to the amendments, the original PDPL mandated controllers to register through SDAIA’s electronic portal and pay an annual fee not exceeding SAR 100,000. However, the amendments have removed this obligation. Nevertheless, the Implementing Regulations will outline situations where controllers are required to designate one or more personal data protection officers and define their responsibilities in accordance with the provisions of the PDPL.

Penalties and criminal sanctions:

The amended PDPL has now removed the restrictions and penalties relating to the transfer of personal data outside of KSA which were imposed by the original PDPL, as the criminal sanctions under the amended PDPL have now been somewhat limited. Such sanctions under the amended PDPL would be applicable in the event of unlawful publishing or disclosure of sensitive personal data in breach of the provisions of the PDPL if it was done with the intention of harming the personal data subject or for the purpose of personal gains. Such penalties include a fine not exceeding SAR 3,000,000 and/or imprisonment for a period not exceeding two (2) years. Further sanctions may be imposed in case of violating the PDPL including issuing a warning or a fine not exceeding SAR 5,000,000 which may be doubled in case of repeat violations.

Compliance Checklist: Essential Steps for Companies to Comply with the PDPL:

Organizations and businesses subject to the PDPL are required to take necessary steps to ensure compliance with the law upon its commencement on September 14th, 2023. In order to comply with the PDPL, businesses are advised to:

  • Conduct staff training on the PDPL and integrate data protection policies and measures in the business.
  • Revise internal and external policies, such as privacy notices, to ensure compliance with the PDPL.
  • Identify the types of data collected and the purpose of collection.
  • Implement data minimization procedures to limit personal data processing and collection.
  • Monitor internal data flow to ensure transparent storage and transfer of personal data.
  • Develop and amend policies and procedures, including contracts, to reflect individual data rights and obligations.
  • Implement technical and organizational procedures to safeguard and protect personal data.

The data privacy landscape in KSA is changing rapidly, requiring companies to adopt effective privacy practices. To ensure compliance with the PDPL, local and international businesses should conduct a privacy audit assessment and follow the steps outlined above. Developing and implementing a clear privacy framework will help inform employees and consumers about internal processes that keep information secure and the individuals responsible for managing the program. It is important to note that privacy frameworks can and should be tailored to a business’s specific needs, resulting in an appropriate privacy governance framework that meets the necessary standard under the PDPL.

If you need further support or information regarding the PDPL or require assistance with your privacy policies, please do not hesitate to contact us.

Unlocking the Potential of Project Financing in Saudi Arabia’s Energy Sector

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Project financing has played a significant role in the development of the energy sector in Saudi Arabia. The Kingdom is a critical player in the global energy industry, and its vast oil and natural gas reserves have helped fuel economic growth for decades. In recent years, however, the Saudi government has recognized the need to diversify the country’s energy mix and reduce its reliance on fossil fuels. As a result, there has been a surge in investment in renewable energy projects, which has required innovative financing solutions.

Project financing is a method in which the lender provides financing for a specific project based on its expected cash flows rather than the borrower’s assets. This method of financing is often used in large infrastructure projects, such as those in the energy sector, where the risks and costs are high. In Saudi Arabia, project financing has become an increasingly popular method of financing energy projects, particularly those involving renewable energy sources.

The Saudi government has set ambitious targets for renewable energy development, with plans to generate 9.5 gigawatts of renewable energy by 2023 and 58.7 gigawatts by 2030. The government has launched several initiatives to achieve these targets, including the National Renewable Energy Program (NREP) and the Green Middle East Initiative, which aim to attract private sector investment in renewable energy projects.

One of the advantages of project financing is that it allows investors to spread their risks across multiple stakeholders. In the energy sector, this means that lenders can share the risks associated with the project developers, contractors, and other stakeholders. This approach can help reduce the project’, making it more attractive to investors.

Another advantage of project financing is that it provides a structured framework for managing the project’s cash flows. This is particularly important in the energy sector, where projects can have long lifetimes and complex cash flow structures. Project financing allows investors to manage these cash flows in a predictable and structured manner, which can help to mitigate the risks associated with the project.

In Saudi Arabia, project financing has been used to fund a range of energy projects, including solar and wind power plants and transmission and distribution infrastructure. For example, in 2018, the Saudi Arabian government signed an agreement with a consortium of international lenders to finance the 300 MW Sakaka solar project, which is expected to generate electricity for 75,000 households. The project is being developed by ACWA Power, a Saudi-based energy developer, and is one of the first utility-scale solar projects in the country.

Another notable project in Saudi Arabia is the Dumat Al Jandal wind farm, which is being developed by a consortium led by French energy company EDF Renewables. The project, which is expected to have a capacity of 400 MW, will be the country’s first utility-scale wind farm and is expected to generate electricity for up to 70,000 homes. The project is financed through a mix of equity and debt, with international lenders providing project financing.

Project financing is a complex process that requires careful consideration of various legal aspects. This is particularly true in Saudi Arabia, where the legal system is based on Islamic law, and local regulations can differ from those in other countries. This article will explore some critical legal aspects investors and developers should consider when seeking project financing in Saudi Arabia.

Contractual Frameworks

One of the most important legal aspects of project financing in Saudi Arabia is the contractual framework that governs the project. The contractual framework should clearly define the rights and obligations of all parties involved in the project, including the lender, borrower, and other stakeholders. It should also establish dispute resolution mechanisms in case of disagreements.

In Saudi Arabia, project agreements are typically governed by Saudi Arabian law, and ensuring that the contracts comply with local regulations is essential. Investors should also consider incorporating Shariah-compliant financing structures based on Islamic finance principles.

Security and Collateral

Another critical legal aspect of project financing in Saudi Arabia is the security and collateral required to secure the loan. Lenders typically require a range of security and collateral to protect their investment, including mortgages, pledges, and guarantees.

In Saudi Arabia, the legal system recognizes various forms of collateral, including real estate, movable assets, and shares in a company. Ensuring that the collateral is appropriate and enforceable under Saudi Arabian law is important. It is also essential to ensure that the collateral is sufficient to cover the loan in case of default.

Regulatory Compliance

Saudi Arabia has a highly regulated business environment, and project financing transactions are subject to various regulatory requirements. Investors and developers must comply with various laws and regulations related to foreign investment, taxes, and environmental protection.

Working with experienced legal advisors familiar with the local legal and regulatory environment is essential to ensure regulatory compliance. Before starting the project, investors and developers should also obtain all necessary licenses and permits.

Dispute Resolution

Disputes are an inevitable part of any project financing transaction, and it is essential to establish clear and effective dispute resolution mechanisms. In Saudi Arabia, disputes can be resolved through various methods, including arbitration, litigation, and mediation.

Arbitration is often preferred as it is more efficient and confidential than litigation. Investors should ensure that the dispute resolution mechanism is clearly defined in the contractual framework and complies with local regulations.

As the Kingdom progresses toward a more sustainable future, project financing in the energy sector will undoubtedly play a crucial role. By prioritizing the legal aspects of project financing, investors and developers can ensure that their renewable energy projects in Saudi Arabia are set up for success. With the right approach and partnerships, project financing in Saudi Arabia can unlock opportunities for growth, innovation, and long-term success in the energy sector.

However, investors and developers must know the various legal aspects of project financing in Saudi Arabia. This includes ensuring the contractual framework is transparent and complies with local regulations, providing sufficient collateral, and meeting all necessary regulatory requirements. Effective dispute resolution mechanisms must also be established to mitigate potential conflicts. Working with experienced legal advisors can help ensure a successful project financing transaction in Saudi Arabia.

Powering Up: M&A in Saudi Arabia’s Energy Sector

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Mergers and acquisitions (M&A) within the energy sector in Saudi Arabia has become increasingly common in recent years. With the country being the largest oil exporter in the world, the energy sector is a critical component of the Saudi Arabian economy. As such, M&A activity within this sector has significant implications for both the country and the global energy industry.

M&A activity within the energy sector in Saudi Arabia is primarily driven by a desire to increase operational efficiencies, gain access to new technologies, and expand market share. Additionally, the recent economic and political reforms in the country have encouraged foreign investment, which has further fuelled M&A activity within the energy sector.

One notable example of an M&A within the energy sector in Saudi Arabia is the acquisition of a 70% stake in Saudi Basic Industries Corporation (SABIC) by Saudi Aramco, the state-owned oil company. The acquisition was completed in 2020 and was one of the largest M&A deals in the world, valued at $69.1 billion. The acquisition allowed Saudi Aramco to diversify its business and expand its downstream capabilities, while also giving it access to SABIC’s technology and expertise.

Another notable example of an M&A within the energy sector in Saudi Arabia is the acquisition of a 51% stake in ACWA Power, a leading developer and operator of power generation and desalinated water plants, by the Public Investment Fund (PIF), the sovereign wealth fund of Saudi Arabia. The acquisition was completed in 2018 and was valued at $1.2 billion. The acquisition allowed PIF to expand its investments in the renewable energy sector and support the country’s efforts to diversify its energy mix.

Here are some continued themes impacting the energy sector in Saudi Arabia:

Diversification of the energy mix: Saudi Arabia has set ambitious goals to diversify its energy mix and increase its share of renewable energy. The country plans to develop 58.7 gigawatts (GW) of renewable energy capacity by 2030, which would account for 30% of the country’s energy mix. This shift towards renewables is expected to reduce the country’s reliance on oil for power generation and support its efforts to reduce greenhouse gas emissions.

Continued investment in the energy sector: Saudi Arabia has signaled its commitment to investing in the energy sector to support its economic growth and diversification goals. The country’s Public Investment Fund (PIF) has announced plans to invest $40 billion annually in the domestic economy, with a significant portion of this investment expected to be directed toward the energy sector.

Expansion of Renewable Energy: The country has set ambitious targets for renewable energy, with a goal of generating 50% of its electricity from renewable sources by 2030. This target is expected to drive significant investment in the renewable energy sector, particularly in solar and wind power.

Increased Foreign Investment: Saudi Arabia has been actively seeking foreign investment in the energy sector, particularly in the form of joint ventures and partnerships. The recent reforms in the country, coupled with its large reserves of oil and gas, are likely to attract continued foreign investment in the sector.

Growth in the downstream sector: The country has significant downstream capabilities, with its state-owned oil company, Saudi Aramco, being one of the largest downstream players in the world. The country is expected to continue to invest in its downstream sector to capture more value from its oil and gas resources and support the growth of its petrochemicals industry.

Adoption of new technologies: Saudi Arabia has been exploring the use of new technologies in the energy sector, such as carbon capture and storage (CCS) and hydrogen production. These technologies could help the country reduce its carbon footprint and increase its energy efficiency. Saudi Arabia is expected to adopt new technologies to increase operational efficiencies and reduce costs in the energy sector. This includes the adoption of digital technologies such as artificial intelligence, the internet of things, and blockchain to improve efficiency, reduce costs, and enhance safety.

Impact of Global Energy Transition: The global transition to cleaner energy sources is likely to have a significant impact on the energy sector in Saudi Arabia. While the country is taking steps to diversify its energy mix, it remains heavily dependent on oil exports. As the demand for oil declines in the global market, Saudi Arabia may need to adjust its energy strategy to remain competitive.

M&A activity within the energy sector in Saudi Arabia is subject to a range of legal and regulatory requirements. The Saudi Arabian General Investment Authority (SAGIA) and the Capital Market Authority (CMA) regulate M&A activity in the country and must approve all transactions. Several laws impact energy companies in Saudi Arabia who are considering an M&A. Some of the key laws are as follows:

Companies Law: The Companies Law in Saudi Arabia governs the formation, operation, and dissolution of companies in the country. The law provides guidelines on the various types of companies that can be formed, their legal structure, and the rights and obligations of shareholders. Any M&A transaction involving a company in Saudi Arabia must comply with the requirements of the Companies Law.

Antitrust Law: The Saudi Arabian General Authority for Competition (GAC) is responsible for enforcing the country’s antitrust laws. These laws prohibit anti-competitive practices, such as price fixing and market allocation, and require that M&A transactions be reviewed for potential anti-competitive effects.

Foreign Investment Law: The Saudi Arabian General Investment Authority (SAGIA) is responsible for regulating foreign investment in the country. The Foreign Investment Law outlines the rules and regulations governing foreign investment in Saudi Arabia, including the procedures for establishing and registering foreign-owned companies.

Environmental Laws: Energy companies in Saudi Arabia are subject to a range of environmental laws and regulations that are designed to protect the environment and public health. These laws cover areas such as air and water pollution, waste management, and environmental impact assessments.

Tax Laws: M&A transactions may have tax implications for energy companies in Saudi Arabia. The country has a complex tax system, with different tax regimes for different types of companies and industries. Energy companies should seek professional tax advice before engaging in an M&A transaction.

Securities Law: The Capital Market Authority (CMA) regulates the securities market in Saudi Arabia. Any M&A transaction that involves a public company or the issuance of securities must comply with the requirements of the Securities Law.

In conclusion, the energy sector in Saudi Arabia is expected to undergo significant changes in the coming years, driven by a range of factors such as diversification, renewable energy, foreign investment, new technologies, and the global energy transition. While these changes may bring challenges, they also present opportunities for the country to adapt and thrive in a rapidly evolving energy landscape.

Hammad & Al-Mehdar Contributes the Saudi Arabia Chapter to The Mergers & Acquisitions Review, 14th Edition

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HAMMAD & AL-MEHDAR CONTRIBUTES THE SAUDI ARABIA CHAPTER TO THE MERGERS & ACQUISITIONS REVIEW, 14TH EDITION

Hammad & Al-Mehdar partner Abdulrahman Hammad and senior associate Samy Elsheikh author the Saudi Arabia chapter of The Mergers & Acquisitions Review, 14th edition, published by Law Business Research.

The chapter provides a deep dive into the relevant laws and regulations relating to the Saudi Arabia’s M&A sphere, and is an important comparative reading for counsel and managers looking acquisitions or divestitures in the Kingdom.

The chapter is available for download here.

The Unified Registry for Commercial Pledges Takes Effect in Saudi Arabia

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THE UNIFIED REGISTRY FOR COMMERCIAL PLEDGES TAKES EFFECT IN SAUDI ARABIA

The Saudi Arabian Ministry of Commerce and Investment (MCI) launched on 17 March 2019 the Unified Registry for Commercial Pledges (URCP) and published the regulations for its implementation. The announced procedural rules envisaged in the Commercial Pledge Law (CPL) that came into effect in April 2018. The CPL stipulates the regulations and procedures for creating, granting, perfecting, and enforcing pledges over movable and future assets as security for “economic” debts.

Whom Should the URCP Regulations Concern?

URCP regulations apply to creditors (pledgees), debtors (pledgers), and any interested third parties. Registering a pledged movable asset with the URCP in strict compliance with the relevant procedural rules gives the pledgee a valid priority security claims over the asset or a recognized right provided for by the CPL against other interested entities.

What are Pledgeable Assets?

According to the CPL, lenders can register commercial pledges with the URCP over any of the following asset categories:

•    Companies: An economic enterprise may agree to a pledge over its entire tangible and intangible business assets.

•    Receivables: The law now recognizes potential business earnings as valid collateral. For example, an organization may qualify for construction financing after agreeing to the registration of a pledge on its future revenue.

•    Bank accounts and deposits: Lenders can take security over pledged bank accounts, deposits, or balances. The pledge agreement on a current account remains valid even if the borrower deposits more funds after the date of the URCP contract registration.

•    Inventory: Enterprises can grant a pledge over their stocks to secure financing. One tool they can use is the floating pledge.

•    Shares: There is now a legal framework for pledging shares, including limited liability companies.

Registering a Commercial Pledge Under URCP Procedural Rules

A person must first open an electronic account to log a pledge with the URCP. The MCI has set up an online portal for this purpose as no other method is acceptable for registering movable assets going forward. Below are some of the mandatory steps in commercial pledge registration:

1.    The pledgee sends a registration application to the URCP via the official online registry. The applicant must attach a copy of the pledge contract and any other pertinent documents to the request. Vital information to provide includes the name and contact details of all parties to the pledge agreement, the value of the pledged asset, date of the security contract, and the secured debt’s maturity date.

2.    The URCP notifies the pledger of having received the pledgee’s application for registration. The URCP can decline the registration request if the pledger formally objects to it within seven days from the date of notification.

3.    The URCP continues acting on the pledgee’s registration request if the pledger approves it or does not object to it within seven days after receiving the URCP’s notification of the application.

Notifying Specialized Registries

Certain pledgeable assets require registration under other regulations besides URCP. For instance, the General Department of Traffic at the Ministry of Interior registers all vehicles in Saudi Arabia. Once the URCP completes the registration of a pledge over such an asset, it must share the contract details with the relevant specialized registry to tag the asset in question as pledged in the appropriate database.

Rules for Amending a Registered Pledge

The new CPL recognizes future assets as pledgeable, and it allows for the creation of securities over the same. What if the status of a future pledged asset changes to current? The pledger must, immediately or soon afterward, formally request the URCP to update the registry account in question with the new status of the pledged asset. The amendment request stands with or without the pledgee’s approval.

A typical case in point is when a bank creates security over future proceeds for money it lends to a business, and it registers the pledge with the URCP. In this scenario, the pledger (borrowing enterprise) must notify the URCP soon after collecting the secured or pledged receivables because they have become available movable assets.

If the pledgeable future asset is subject to pledging procedures in compliance with other relevant regulations, the URCP processes the amendment requests before sending any updates to the applicable specialized registry to capture the new asset status. The URCP notifies the pledger and the pledgee once the amendment is complete.

Criteria for Terminating Any Pledge Registration

Ways to terminate the pledge registration are:

1.    The pledgee can request termination, or a judicial body may order the cancellation;

2.    Expiry of the pledge duration, subject to condition three below;

3.    Termination can take effect 60 days after an enforcement document is issued. Nonetheless, the law permits the pledgee or enforcement agent to request the URCP to extend the pledge term by an additional 60 days.

The law requires the pledgee to end the pledge registration with the URCP not later than three days after terminating the pledge contract, or after the execution of relevant enforcement actions on the property in question.

Who Can Search the URCP Database?

Upon request, the URCP may allow the pledger and the pledgee to view all details pertinent to a registered pledge. To third parties, however, the URCP may only confirm whether an asset is the subject of a registered pledge.

For a fee and with the pledger’s consent, the URCP may provide specific details of a registered pledge to a third party. Approval is contingent on the URCP receiving the name of the individual requiring the information and the particulars that the person is requesting.

When to Commence Enforcement

The pledgee or execution agent may enforce a pledge on an asset registered by the CPL only after obtaining an enforcement document from the URCP. The regulator must not provide the requested paperwork until the pledgee has the legal right to enforce the pledge contract.

The pledgee should request and can only obtain the prerequisite enforcement paperwork before the pledge registration period with the URCP expires. The regulator cannot issue these documents for execution on a future asset. For example, the pledger must first own the pledged asset, such as a car, before the pledgee has the right to initiate the enforcement process.

Perfection and Priorities

To guarantee priority against third parties, the pledgee should complete the pledge registration process with the URCP. However, there can be multiple pledges of varying priority levels over a single movable asset. Still, the pledger may agree with the relevant pledgees to alter the pledgees’ order of precedence over the same pledged property.

Global Guide: Measure Adopted to Support Distressed Businesses Through the Covid the COVID 19 Crisis

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Hammad & Al-Mehdar’s partner Belal Hashmi authored the Saudi Chapter of the Global Guide: Measures adopted to support distressed businesses through the COVID-19 crisis, published by INSOL International – World Bank Group Global Guide.

The chapter discusses government policy responses, legislative reforms impacting stakeholders dealing with companies’ financial distress, legislative reforms for companies in financial distress, financial and regulatory measures, specific measures for micro and small businesses, measures introduced by the courts to deal with increased insolvency cases, and other pending reforms.

To read the chapter, please visit the link.

4th Edition of Fintech Law Review

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Hammad & Al-Mehdar’s partner Suhaib Hammad authored the Saudi Arabia chapter in The Financial Technology Law Review, 4th edition, published by The Law Reviews in April 2021.

This updated review tackles recent mandates by the Saudi Central Bank (SAMA). It also discusses other relevant regulations to the Fintech regime, including general licensing requirements and protection measures.

To read the chapter, please visit the link.

Saudi Arabia: Digital Business 2021

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We are pleased to share our latest Saudi chapter, Digital Business 2021, authored by Suhaib Hammad, a partner and leads the Commercial and IP practice. The chapter discusses the digital business laws and regulations in Saudi Arabia.

To read the chapter, please visit the link.

Saudi Arabia: Fintech 2021

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Hammad & Al-Mehdar’s partner Suhaib Hammad authored the Saudi Arabia chapter of the Fintech 2021 guide, published by Global Legal Group in June 2021.

This chapter discusses the Fintech laws and regulations in Saudi Arabia.

To read the chapter, please visit the link.

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