Companies sometimes face problems and crises that force them to liquidate their operations. Undoubtedly, this is a difficult and painful choice, especially for companies that have been established for many years. However, in some situations, there may be no other solution to overcome the crisis except liquidation.

In this article, we will explore the concept of company liquidation in the Saudi system and how the Saudi business environment guarantees the rights of all parties—partners, creditors, and investors—through the company liquidation system. This system regulates the relationship between all parties and defines the legal procedures for dissolving the company and disposing of its assets in a fair and precise manner.

The Concept of Company Liquidation

Company liquidation refers to the set of procedures that follow the dissolution of a company, the cessation of its commercial activity, and the legal termination of its existence. The liquidation process includes inventorying its assets, settling its receivables, and distributing its assets to partners and shareholders according to the agreed-upon percentages, after settling its debts and obligations.

The company cannot be liquidated without legal intervention. Liquidation procedures such as valuation, settlement, and asset distribution all require an expert, known as the liquidator, who is the person responsible for managing the liquidation in a legally sound manner. This person can be from inside or outside the company, provided that they possess the necessary skills and experience to carry out this difficult task quickly and transparently.

Types of Company Liquidation in the Saudi Arabia

Company liquidation is divided into two types according to the provisions stipulated in the Companies Law: voluntary or judicial. Each case has its own specific circumstances, as follows:

First: Voluntary Liquidation:

Voluntary liquidation is carried out by a decision of the partners themselves, upon their agreement to dissolve the company. A general assembly meeting is held, and during this meeting, a resolution to liquidate the company is issued. The liquidator is also appointed, and their powers, fees, and all details of the liquidation process are determined.

Second: Judicial Liquidation:

Here, liquidation is carried out by a court order. This occurs in the event of a dispute between the partners, where any shareholder files a lawsuit demanding the company's liquidation, or in the event of the company becoming bankrupt or violating any regulations. The court issues a liquidation order, appoints the liquidator, and determines their powers, fees, and the timeframe required for the liquidation process.

Reasons for Company Liquidation

The Saudi Companies Law issued in 2022 outlines a set of administrative and legal reasons that lead companies to liquidate, as detailed in Articles 282 to 296. The most prominent of these reasons are:

A. Legal Reasons:

1. Expiration of the term specified in the company's articles of incorporation without renewal.

2. Achievement of the company's objective, or its inability to be achieved.

3. Agreement of the partners to dissolve the company and cease its operations.

4. Significant loss of capital, or the majority thereof, rendering continuation an unwise decision.

5. Issuance of a court ruling to dissolve the company or declare its bankruptcy.

B. Practical Reasons:

7. Failure of management to attract investments to the company.

8. Mismanagement, depletion of resources, and continuous exposure to losses.

9. Differences in vision among the partners, and the occurrence of disputes that hinder management and impede the achievement of objectives.

Company Liquidation Procedures

Company liquidation procedures are carried out in accordance with the provisions of the Saudi Companies Law to protect the rights of all parties. Once the liquidation decision is issued, the procedures begin as follows:

(1) Officially publishing the liquidation decision in the Commercial Register to inform all relevant parties and stakeholders.

(2) Identifying and selecting an experienced liquidator to safely liquidate the company. This liquidator is chosen by the partners or the court.

(3) Inventorying the company's assets and prioritizing its accumulated debts and receivables. Government dues are the first priority, followed by employee dues, then creditors, and finally, partners.

(4) Commencing debt repayment and addressing creditors' claims.

(5) Converting assets into cash to begin distribution.

(6) Distributing the remaining funds among the partners according to their respective shareholdings.

(7) Finally, canceling and removing the company from the Commercial Register and announcing the completion of the liquidation by publishing the announcement in an official newspaper.

At this point, the company effectively ceases to exist and disappears as if it had never existed. If you are currently undergoing liquidation and seeking an experienced liquidator to guide your company through this critical phase to safety, do not hesitate to contact Mohammed Alkhliwi Law Firm. We will handle all liquidation procedures for you in a legal, organized, and fair manner that guarantees the rights of all parties.

Disclaimer: The above content does not constitute legal advice, and the author of this article assumes no legal responsibility. For legal advice, please contact us.