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New Commercial Mortgage Law in the Kingdom of Saudi Arabia

Published: 13/05/2018

On the 24th of April 2018, the Council of Ministers of the Kingdom of Saudi Arabia approved the Commercial Mortgage Law (the “Law”) issued by Royal Decree No. (M/86) dated 24 April 2018.

The following are the key issues covered under the Law:

  • the Law permits the creation of security over future assets, this will facilitate the creation of security over inventory and stock, cash in current accounts, future receivables and book debts etc enabling appropriate security structures for working capital financing.
  • Registration is required at the Unified Registry of Commercial Pledges (the “Registry”) in order for the pledge to be valid against third parties. If a special registry is set up for a particular type of asset (e.g. General Authority of Civil Aviation for aircraft) then registration of the pledge at that registry would satisfy the registration requirement under the Law.
  • A possessory pledge over unregistered movables (e.g. commodities) is possible. However, if the pledge is to take the form of a ‘Floating Pledge’ registration at the Registry is required. A ‘Floating Pledge’ is defined in the Law as “a pledge that is created over Movable Property without the precise elements of such Movable Property being determined.
  • It is possible to pledge bank accounts including all present and future balances in the bank account provided that the pledge contract is registered at the Registry.
  • It is possible to create more than one pledge on the same pledged asset. A registered pledgee shall have priority over an unregistered pledgee. Among unregistered pledgees, the pledgee that has possession over the pledged asset shall have priority. If there is more than one registered pledge, the pledgee with the earliest date of registration will have priority.
  • The Law introduces the concept of a pledge over a ‘Commercial Business’. This will include all elements of the business, including all movable assets (tangible and intangible) excluding inventory offered for sale by the business.
  • Summary proceedings for enforcement of the pledge are set out in the Law.

The Law has been published in the Official Gazette on the 24th of April 2018 and came into force and effect since the date of publication according to Article (47). The executive regulations of the law have been issued by the Minister of Commerce & Investment and published in the Official Gazette on the 27th of April 2018 and became into force and effect as well.

A more detailed article on the Law will be published shortly.