Navigating Directors’ Duties and Creditor Protection in the Twilight Zone: A Comparative Study of the Insolvency Frameworks of the United Kingdom and Saudi Arabia

Abstract

This article examines the legal responses to corporate distress in the United Kingdom and Saudi Arabia, focusing on directors’ duties and creditor protection within the twilight zone. The guiding research question explores how these jurisdictions regulate directors’ conduct, allocate managerial discretion, and enforce creditor-oriented standards. The study implements a doctrinal and comparative methodology, evaluating statutory legislation and judicial precedents. In the United Kingdom, insolvency law has evolved through the Insolvency Act 1986, the Companies Act 2006, and key judicial precedents. Findings reveal that the United Kingdom’s judicially driven framework emphasises directors’ fiduciary duties through case law, with West Mercia and Sequana marking key developments in the redirection of obligations. Accordingly, directors retain business discretion throughout the twilight zone and are required to consider creditor interests only as insolvency becomes foreseeable. Rescue mechanisms such as administration, company voluntary arrangement, schemes of arrangement, and restructuring plan reflect a comprehensive approach in hybridising board control under court supervision. Enforcement mechanisms are primarily compensatory and deterrent, with wrongful trading and clawback provisions addressing misconduct and facilitating creditor confidence, though evidentiary burdens and judicial reluctance limit enforcement. Saudi Arabia’s framework reflects a codified reform driven regime through the Saudi Bankruptcy Law 2018 and the Saudi Companies Law 2022. The policy orientation in Saudi encourages early rescue and proactive action through statutory thresholds and rescue mechanisms. Directors facing significant financial losses within the twilight zone trigger statutory thresholds that limit discretion and require proactive action. Primary rescue tools include the Protective Settlement Procedure and the Financial Restructuring Procedure, both of which facilitate rescue under judicial oversight while embedding strict compliance and cooperation. Enforcement imposes civil or criminal liability for misconduct and may bar entry to rescue altogether. This illustrates a legal regime that integrates enforcement into procedural prerequisites rather than relying on post-insolvency sanctions. The study concludes that the United Kingdom offers flexibility but risks legal delays, while Saudi Arabia offers certainty that may curtail entrepreneurial discretion.