Liquidation of Companies in Saudi Arabia – Legal Procedures and Complete Steps

Companies go through various stages from their inception until they cease operations. Sometimes, a decision may be required to terminate the company's activities and legal existence, known as "liquidation." Liquidation is a delicate legal and regulatory procedure in the Kingdom of Saudi Arabia, as it relates to the rights of partners, creditors, and official bodies. Therefore, a precise understanding of its steps is crucial for business owners and investors.

What is meant by liquidation?

Liquidation of companies refers to the set of legal procedures taken to terminate a company's existence as a legal entity. This involves selling its assets, paying its debts, and distributing the remaining funds to partners or shareholders, in accordance with the provisions of the company's articles of association or the applicable companies' system in the Kingdom.

After the liquidation process is completed, the commercial register is delisted, and the company loses its legal personality and all its legal and commercial relationships are terminated.

Common Reasons for Liquidating Companies

There are many reasons that can lead to the liquidation of a company, some of which are at the will of the partners or shareholders, and some are the result of a legal or judicial obligation. The most prominent of these reasons are:

The purpose for which the company was established has expired and there is no alternative activity.
The term specified in the company's articles of association has expired without a desire to renew.
Significant losses exceeding half of the company's capital have been incurred, without a decision being made to continue.
Ongoing disputes between partners or shareholders that impede business continuity.
A decision by the partners or the general assembly not to continue the business.
A court ruling to dissolve the company at the request of one of the partners or creditors.
The company's bankruptcy or complete inability to pay its debts.

Types of Company Liquidation in Saudi Arabia

1. Voluntary Liquidation

This is liquidation carried out based on a decision by the partners or the company's extraordinary general assembly, carried out of their own free will when there are sufficient reasons to close the company, whether financial, administrative, or strategic.

2. Compulsory (Judicial) Liquidation

This is the result of a ruling issued by the competent court based on a lawsuit filed by one of the partners, official bodies, or a creditor. This is often due to a legal violation or serious financial distress.

When should a company liquidation begin?

The partners or board of directors should decide to liquidate immediately upon the occurrence of one of the aforementioned substantial reasons, especially in cases where the company is subject to legal liability or affects the rights of third parties. Delaying the liquidation decision may result in legal liability in some cases, especially if losses escalate or creditors' rights are squandered.

Legal Steps for Liquidating Companies in Saudi Arabia

Companies are liquidated according to clear procedures stipulated in the Saudi Companies Law, which must be followed carefully. The complete steps for liquidating a company are as follows:

1. Issuing the Liquidation Decision

The process begins with an official liquidation decision from the partners or the extraordinary general assembly. The decision must be documented, depending on the type of company. The reasons must be stated, the type of liquidation (voluntary or compulsory), and the name of the liquidator must be specified.

2. Appointing the Liquidator and Defining His Powers

The liquidator is the person responsible for implementing the entire liquidation process. This may be one of the partners or a competent external entity. Their powers and term are clearly defined, either in the founding resolution or by court order.

The liquidator must be registered in the commercial register and the company's data must be updated on the Ministry of Commerce platform.

3. Document the decision and notify the Ministry of Commerce

After the decision is made, it must be submitted to the Ministry of Commerce via the electronic platform, along with completing the liquidation form and recording all data related to the liquidator and the company.

4. Publish the liquidation announcement

The company must publish an official announcement in a widely circulated daily newspaper announcing the commencement of liquidation and specifying a deadline of no less than 60 days for creditors to submit claims, in accordance with the Companies Law. This is intended to protect the rights of third parties and give them an opportunity to claim their rights.

5. Inventory of assets and liabilities

The liquidator prepares a complete inventory of all the company's assets, both cash and in-kind, and collects all outstanding liabilities and debts. A detailed financial statement is prepared, including:

Fixed and movable assets.
Real estate and investments.
Obligations to suppliers and official bodies.
Employee salaries and benefits. 6. Debt Settlement According to Regulatory Priority

Obligations are settled according to the priority determined by the system, which typically begins with:

Employee and worker benefits.
Social insurance dues.
Taxes and zakat due to the General Authority of Zakat, Tax, and Customs.
Debts to creditors and suppliers.

If assets are insufficient to cover all debts, judicial procedures are resorted to to fairly distribute assets.

7. Sale of Remaining Assets

If non-cash assets exist, they are sold according to a clear and transparent mechanism, whether through a public auction or market valuation, with the proceeds used to complete the settlement of obligations or distribute them.

8. Distribution of Remaining Funds

After all obligations have been settled, the remaining funds are distributed to partners or shareholders, each proportionate to their stake or shares in the company, as stipulated in the articles of association or bylaws.

9. Preparing the Final Liquidation Report

The liquidator prepares a final report that includes all stages of the liquidation process, the results reached, and details of the sale of assets, debt repayment, and distribution. This report is submitted to the partners or the general assembly for approval.

10. Deleting the Commercial Register

Once the final report is approved, a request to delete the company's commercial register must be submitted electronically to the Ministry of Commerce. This is the final step in the liquidation process, as it terminates the company's legal personality.

Important Notes When Liquidating Companies
The company's records and books must be retained for five years after liquidation, in accordance with accounting and tax regulations.
The liquidator may not engage in any commercial activity.

I see the company's name after the liquidation announcement.
If the company continues its operations after the liquidation decision is issued, it bears double legal responsibility.
It is important to notify all government agencies (such as insurance, zakat, and tax) of the commencement of liquidation to avoid accumulating liabilities.
It is advisable to document all liquidation procedures and correspondence, whether with partners, creditors, or official bodies.
What is the difference between liquidation and dissolution of companies?

The two concepts are sometimes confused, but:

Dissolution is a decision to terminate the company's existence and initiate liquidation procedures.
Liquidation is the actual implementation of that decision through the sale of assets, the settlement of liabilities, and the deletion of the company.

In other words, dissolution is the decision, and liquidation is the implementation.

Who is the liquidator? What are their duties?

The liquidator is the person entrusted with managing the process of winding up the company's operations and acts as the management and board of directors during this period. Their most prominent duties include:

Gathering financial information.
Settling debts and disputes.
Legal sale of assets.
Representing the company before official bodies. Submitting the necessary reports during liquidation.

The liquidator must be honest, competent, and impartial, as they play a pivotal role in protecting rights and ensuring fairness in the proceedings.

Judicial Liquidation: When Should You Resort to It?

In the event of a dispute between partners, a failure to make a liquidation decision, or financial evasion or negligence, any aggrieved party may file a lawsuit with the Commercial Court requesting the dissolution and liquidation of the company. The court will appoint an independent judicial liquidator and supervise the implementation of the procedures in accordance with the law.

Professional Legal Services for Company Liquidation

Because liquidation procedures require strict adherence to regulations and instructions, hiring a lawyer specializing in commercial law is crucial to avoid legal errors that could expose partners or managers to liability or losses.

Batek Law Firm and Legal Consultations is one of the leading legal firms in the Kingdom that provides company liquidation services, whether voluntary or judicial. The office comprises a team of lawyers and legal consultants with extensive experience in corporate regulations, offering comprehensive services including:

Preparing liquidation decisions and following up on registration.
Representing companies before official and judicial authorities.
Following up on the sale of assets and debt repayment.
Ensuring full compliance with all regulatory requirements.

If you are seeking a legal and safe termination of your company, BATIC's legal team is ready to support you every step of the way, with the highest levels of professionalism and precision.