INSOLVENT TRADING LAWS IN SAUDI ARABIA AND AUSTRALIA: A CRITICAL APPRAISAL

Abstract

In recent years, Saudi Arabia has been on a mission to modernise its commercial laws to develop an attractive environment for foreign investment. Even though both its company law and bankruptcy law have been updated recently, they lack clear mechanisms to prevent companies from trading while they are insolvent or on the brink of insolvency, which can expose stakeholders to a high level of risk. Reforming the law to provide protection for stakeholders would encourage investment and assist the domestic market. Creditors are generally the most vulnerable stakeholder affected by the financial distress of their debtor company. While Saudi law offers minimal protection for creditors, Australian law provides a sound model with an appreciable degree of protection. Australian law has been gradually reformed to protect creditors of distressed companies by placing a specific duty on company directors to prevent insolvent trading. This study critically examines Saudi law concerning insolvent trading in the light of its counterpart in Australia and draws on Australian law on directors’ duties to suggest reforms aimed at strengthening the law of Saudi Arabia.