The Companies Law, issued by Royal Decree No. M/132 dated 1/12/1443 AH corresponding to 4/7/2022 CE, published in the Official Gazette (Umm Al-Qura), provides a comprehensive regulatory framework for the dissolution and liquidation of a company in Part Twelve (Dissolution and Liquidation of the Company) under Articles 242 to 259. Article 242 (Examination of the Financial Position of the Company) establishes the mandatory requirement to examine the financial position before a resolution to dissolve is adopted. Article 243 (General Grounds for the Dissolution of the Company) sets out the three general grounds for dissolution. Article 244 (Liquidation of the Company) provides for the company's entry into the liquidation stage while retaining its legal personality. Articles 245 to 259 then set out how liquidation is conducted and how the company is managed during it, the number of liquidators and the liquidation period, the resolution appointing the liquidator and its recording and publication, his removal and plurality, his powers and the inventory of assets and liabilities, the insufficiency of assets, the settlement of debts, the return of contributions, and the distribution of surplus, the disposal of the assets of a non-profit company, the completion of liquidation and the deregistration of the company, the liability of the liquidator, and the barring of liability claims after five (5) years. The Executive Bylaw of the Companies Law, published in the Official Gazette on 25/6/1444 AH, sets out the provisions on resolving a company that has not carried out its activity in Part Seven thereof (Transitional Provisions), under Article 93 (The Company Not Carrying Out Its Activity), making the joint and several undertaking of the partners or shareholders serve as a report on the completion of the liquidation procedures and a request for the deregistration of the company from the commercial register. The rules on dissolution and liquidation are thus fully developed and divided between the substantive provisions in the Law itself and the procedural details in the implementing regulations.
This article focuses on the dissolution and liquidation of the company: the examination of the company's financial position before a resolution to dissolve, the content and time limit of the statement, and joint and several liability for its violation; the three general grounds for the dissolution of the company; the company's entry into the liquidation stage, its scope, and the retention of legal personality to the extent necessary for liquidation; how liquidation is conducted and how the company is managed during it, and the termination of the authority of the company's manager or board of directors; the appointment of the liquidator, the appointment resolution, the sixty-day deadline, and its recording and publication at the commercial register; the removal of the liquidator, the plurality of liquidators, and joint action by consensus; the powers of the liquidator, his representation of the company, the conversion of assets into cash, and the sale of assets in bulk; the inventory of assets and liabilities within ninety days; the insufficiency of assets and the application to the competent court to commence liquidation procedures under the Bankruptcy Law; the settlement of debts according to priority, the setting aside of amounts for contingent debts, the return of the value of contributions, the distribution of surplus, and the allocation of losses; the disposal of the assets of a non-profit company; the completion of liquidation upon the approval of the authority that appointed the liquidator of his financial report and the deregistration of the company from the commercial register; the liability of the liquidator and the barring of liability claims after five years except in the cases of forgery and fraud; and the resolution of a company that has not carried out any activity by unanimous decision. All texts and figures are reproduced verbatim from the official texts published in the Official Gazette (Umm Al-Qura), with precise reference to the scope of application and the degree of legal binding for each provision.
The preliminary answer can be summarised in a single sentence: the managers of the company or the members of its board of directors must, before a resolution to dissolve is adopted, prepare a statement confirming that they have examined the company's circumstances and affirming that its assets are sufficient to settle its debts by the end of the proposed liquidation period and that it is not insolvent under the Bankruptcy Law, and this statement must be presented within thirty (30) days to the partners, the general assembly, or the shareholders to adopt a resolution to dissolve the company. If it appears that the assets are not sufficient or that the company is insolvent, a resolution to dissolve may not be adopted, otherwise those concerned shall be jointly and severally liable for any debt remaining in its name. The company is dissolved by the expiry of its specified term unless extended in accordance with the provisions of the Law, or by the agreement of the partners or shareholders to dissolve it, or by a final judicial ruling dissolving it or declaring its invalidity. Upon dissolution, the company enters the liquidation stage and retains its legal personality to the extent necessary for liquidation. The liquidator is appointed by a resolution of the partners, the general assembly, or the shareholders within a period not exceeding sixty (60) days from the date of dissolution, and if his appointment is not possible within that period he is appointed by a resolution of the competent court upon the application of any partner or shareholder or interested party. His appointment resolution is recorded and published at the commercial register and may not be relied upon against third parties except from the date of recording and publication. The liquidation period must not exceed three (3) years and may only be extended by an order of the competent court. The liquidator prepares, within ninety (90) days of commencing his work, an inventory of all the company's assets, its rights, and its obligations. If he finds at any time that the assets are not sufficient to settle its debts, he must immediately notify the partners, shareholders, and creditors of the company and apply to the competent court to commence any of the liquidation procedures under the Bankruptcy Law. The liquidator settles the due debts of the company according to priority, with debts arising from the liquidation having priority over other debts, then returns to the partners or shareholders the value of their contributions or shares and distributes the surplus among them. Liquidation is completed upon the approval of the authority that appointed the liquidator of his financial report, and its recording and publication at the commercial register, and it is not binding against third parties except from the date of the deregistration of the company. No claim may be heard against the liquidator after five (5) years from the date of the deregistration of the company, except in the cases of forgery and fraud, as will be detailed below with official figures and texts in the following sections.
The Regulatory Framework for the Dissolution and Liquidation of the Company
The rules governing the dissolution and liquidation of the company are set out in the Companies Law in Part Twelve (Dissolution and Liquidation of the Company) under Articles 242 to 259. Article 242 (Examination of the Financial Position of the Company) establishes the mandatory requirement to examine the financial position before a resolution to dissolve is adopted. Article 243 (General Grounds for the Dissolution of the Company) sets out the three general grounds for dissolution. Article 244 (Liquidation of the Company) provides for the company's entry into the liquidation stage and the retention of legal personality to the extent necessary for liquidation. Articles 245 to 259 set out the provisions on liquidation in detail. Article 245 (How Liquidation Is Conducted) establishes the reference rules. Article 246 (Management of the Company During the Liquidation Period) governs the authority of management and general assemblies. Article 247 (Number of Liquidators and the Liquidation Period) sets out the number of liquidators and the liquidation period. Article 248 (Resolution Appointing the Liquidator) governs the rules of appointment and its content. Article 249 (Recording and Publication of the Resolution Appointing the Liquidator) requires its recording and publication. Article 250 (Removal of the Liquidator) sets out the rules of removal. Article 251 (Plurality of Liquidators) governs joint action by consensus. Article 252 (Powers of the Liquidator) determines the scope of his representation and his acts. Article 253 (Inventory of Assets and Liabilities) requires a comprehensive inventory. Article 254 (Insufficiency of Assets) establishes the duty to have recourse to the court. Article 255 (Settlement of Debts) governs priorities, the return of contributions, and the distribution of surplus. Article 256 (Disposal of the Assets of a Non-Profit Company) determines the destination of its net assets. Article 257 (Completion of Liquidation) governs its closure and the deregistration of the company. Article 258 (Liability of the Liquidator) establishes his liability for damage. Article 259 (Claims for Liability Not Heard) provides that claims shall not be heard after five (5) years except in the cases of forgery and fraud. The Executive Bylaw of the Companies Law, published in the Official Gazette on 25/6/1444 AH, sets out the provisions on resolving a company that has not carried out any activity under Article 93 (The Company Not Carrying Out Its Activity), providing that the joint and several undertaking of the partners or shareholders serves as a report on the completion of the liquidation procedures, a financial statement, and a request for the deregistration of the company from the commercial register. The rules on dissolution and liquidation are thus fully developed and divided between the substantive provisions in the Law itself and the procedural details in the implementing regulations.
The provisions of the Law and the Executive Bylaw must be read as complementary: the Law sets out the general rules on dissolution and liquidation, while the Bylaw sets out the procedural details and specific requirements, and the provisions of the Law connect to one another in a close sequence. Article 244 refers back to the statement provided for in Article 242. Article 248 links the resolution appointing the liquidator to the same statement. Articles 244 and 254 refer to the Bankruptcy Law for the commencement of liquidation procedures in cases of insufficiency of assets or insolvency. Article 258 links the joint liability of the liquidator to the provision of Article 251. Article 93 of the Executive Bylaw applies the provisions of Article 257 regarding the completion of liquidation. The two documents are thus complementary in establishing the substantive legal principles and the procedural details.
Examination of the Financial Position Before the Resolution to Dissolve and the General Grounds for Dissolution
Article 242 of the Companies Law (Examination of the Financial Position of the Company) establishes the mandatory requirement to examine the financial position before a resolution to dissolve is adopted: "1. The managers of the company or the members of its board of directors must, before the partners, the general assembly, or the shareholders adopt a resolution to dissolve the company, prepare a statement confirming that they have examined the company's circumstances, and affirming that the company's assets are sufficient to settle its debts by the end of the proposed liquidation period and that the company is not insolvent under the Bankruptcy Law. This statement must be presented within thirty (30) days from the date of its preparation to the partners, the general assembly, or the shareholders to adopt a resolution to dissolve the company. 2. If it appears from the statement referred to in paragraph (1) of this Article that the company's assets are not sufficient to settle its debts or that the company is insolvent under the Bankruptcy Law, the partners, the general assembly, or the shareholders may not adopt a resolution to dissolve the company, otherwise they shall be jointly and severally liable for any debt remaining in its name." Before any resolution to dissolve is adopted, a statement must therefore be prepared by the management confirming that the company's circumstances have been examined and affirming the sufficiency of its assets to settle its debts by the end of the proposed liquidation period and the absence of insolvency under the Bankruptcy Law. The statement is presented within thirty (30) days from the date of its preparation. If insufficiency or insolvency appears, a resolution to dissolve may not be adopted, otherwise those responsible shall be jointly and severally liable for any debt remaining in the company's name. This rule is thus an obligatory gateway that prevents the free resolution to dissolve from becoming a means of evading obligations.
Article 243 of the Companies Law (General Grounds for the Dissolution of the Company) sets out the general grounds for dissolution: "Subject to the special grounds for dissolution specific to each form of company, a company shall be dissolved for one of the following grounds: (a) the expiry of its specified term if it is of a specified duration, unless extended in accordance with the provisions of the Law; (b) the agreement of the partners or shareholders to dissolve it; or (c) the issuance of a final judicial ruling dissolving it or declaring its invalidity." The general grounds for dissolution are thus organised into three grounds: the expiry of the specified term of a company of specified duration unless extended; the agreement of the partners or shareholders on dissolution; and the issuance of a final judicial ruling of dissolution or invalidity, while leaving intact the special grounds for dissolution specific to each form of company that supplement these general grounds without prejudice to them.
Entry of the Company into the Liquidation Stage: Legal Personality and Procedures
Article 244 of the Companies Law (Liquidation of the Company) establishes the principle of the company's entry into the liquidation stage: "Upon its dissolution, the company enters the liquidation stage in accordance with the provisions of the Law, and the partners, the general assembly, or the shareholders must undertake the liquidation procedures. The company retains its legal personality to the extent necessary for liquidation." Upon the company's entry into the liquidation stage, the partners, the general assembly, or the shareholders must therefore undertake the liquidation procedures, and the company retains its legal personality to the extent necessary for liquidation. The dissolution of the company is thus a legal turning point that does not bring its legal existence to an end at once but rather confines it to a specific purpose, namely the fulfilment of the liquidation procedures.
The same Article establishes the linkage rule with the Bankruptcy Law: "3. If the company is dissolved while its assets are not sufficient to settle its debts or it is insolvent under the Bankruptcy Law, it must apply to the competent court to commence any of the liquidation procedures under the Bankruptcy Law." It also establishes the effect of violating the provision: "4. If the company is liquidated in violation of the provision of this Article, the partners, the shareholders, the manager of the company, or the members of its board of directors, as the case may be, shall be jointly and severally liable for any debt remaining in its name." It also establishes a specific restriction for non-profit public companies: "5. A non-profit public company may not be liquidated except after obtaining the approval of the Ministry." If the company is dissolved while its assets are not sufficient to settle its debts or it is insolvent, it must apply to the competent court to commence any of the liquidation procedures under the Bankruptcy Law. Joint and several liability for any debt remaining in the company's name arises if it is liquidated in violation of the provision, and the approval of the Ministry is required for the liquidation of a non-profit public company.
How Liquidation Is Conducted and the Management of the Company During It
Article 245 of the Companies Law (How Liquidation Is Conducted) establishes the reference rules for liquidation: "Unless the company's memorandum of association or its articles of association provide, or the partners, the general assembly, or the shareholders agree, as the case may be, on how the company is to be liquidated upon its dissolution, the liquidation shall be carried out in accordance with the provisions set out in the Law." The company's memorandum of association or its articles of association, or the agreement of the partners, the general assembly, or the shareholders, may therefore specify how liquidation is to be conducted upon dissolution. If no such agreement exists, liquidation is carried out in accordance with the provisions of the Law, so that the statutory provision applies in cases of omission or agreement.
Article 246 of the Companies Law (Management of the Company During the Liquidation Period) governs the authority of management and general assemblies: "1. The authority of the manager of the company or its board of directors terminates upon its dissolution. Nevertheless, they remain in charge of the management of the company and shall, in relation to third parties, be deemed to be liquidators until a liquidator is appointed. 2. The general assemblies of the company remain in existence during the liquidation period, and their role is limited to exercising their competences that do not conflict with the competences of the liquidator." The authority of the manager of the company or its board of directors terminates upon its dissolution, but they remain in charge of the management of the company and are, in relation to third parties, deemed to be liquidators until a liquidator is appointed. The general assemblies of the company remain in existence during the liquidation period, exercising their competences that do not conflict with the competences of the liquidator. This provision thus covers the transitional management vacuum between dissolution and the appointment of the liquidator.
Appointment of the Liquidator: The Resolution of Appointment and Its Recording and Publication
Article 247 of the Companies Law (Number of Liquidators and the Liquidation Period) sets out the number of liquidators and the liquidation period: "1. One or more liquidators shall carry out the liquidation, whether from among the partners, the shareholders, or others. 2. The liquidation period under the Law must not exceed three (3) years and may only be extended by an order of the competent court." One or more liquidators, from among the partners, the shareholders, or others, shall carry out the liquidation. The liquidation period under the Law is three (3) years, which may only be extended by an order of the competent court, thereby regulating the period within which the company is closed.
Article 248 of the Companies Law (Resolution Appointing the Liquidator) governs the rules of appointment: "1. The liquidator shall be appointed by a resolution of the partners, the general assembly, or the shareholders, in accordance with the procedures prescribed for amending the company's memorandum of association or its articles of association depending on the form of the company, within a period not exceeding sixty (60) days from the date of the company's dissolution. If his appointment is not possible within that period, he shall be appointed by a resolution of the competent court upon an application submitted by any partner, shareholder, or interested party." The same Article provides: "2. Notwithstanding the provision of paragraph (1) of this Article, if the company's dissolution results from its resolution or invalidity by a final judicial ruling, the liquidator shall be appointed by a resolution of the court that issued that ruling." It also sets out the content of the resolution: "4. In all cases, the resolution appointing the liquidator must specify his powers and fees, any restrictions imposed on him, and the period necessary for the liquidation." Appointment is thus made by a resolution of the partners, the general assembly, or the shareholders within sixty (60) days from the date of the company's dissolution. If appointment is not possible within that period, the liquidator is appointed by a resolution of the competent court upon an application submitted by any partner, shareholder, or interested party. Excluded from this is the dissolution of the company by resolution or invalidity by a final judicial ruling, in which case the liquidator is appointed by a resolution of the court that issued the ruling. In all cases, the resolution appointing the liquidator includes a specification of his powers, fees, any restrictions imposed on him, and the period necessary for the liquidation. Article 249 of the Companies Law (Recording and Publication of the Resolution Appointing the Liquidator) requires the recording and publication: "The liquidator must record and publish his appointment resolution at the commercial register, and his appointment or the liquidation procedures may not be relied upon against third parties except from the date of recording and publication." The liquidator is therefore required to record and publish his appointment resolution at the commercial register, and his appointment or the liquidation procedures may not be relied upon against third parties except from the date of recording and publication.
Removal of the Liquidator and Plurality of Liquidators
Article 250 of the Companies Law (Removal of the Liquidator) sets out the rules of removal: "1. The liquidator shall be removed in the same manner in which he was appointed. In all cases, the competent court may, upon the application of any partner, shareholder, or creditor of the company for acceptable reasons, order his removal. 2. The resolution or ruling removing the liquidator must include the appointment of his replacement and the specification of his powers and fees." The liquidator is therefore removed in the same manner in which he was appointed, and in all cases the competent court may order his removal upon the application of any partner, shareholder, or creditor of the company for acceptable reasons. The resolution or ruling removing the liquidator must include the appointment of his replacement and the specification of his powers and fees.
Article 251 of the Companies Law (Plurality of Liquidators) governs joint action: "If there are multiple liquidators, they must act jointly, and their acts shall only be valid if carried out by their consensus, unless the resolution appointing them provides otherwise or the authority that appointed them authorises them otherwise." If there are multiple liquidators, they must therefore act jointly, and their acts are valid only if carried out by their consensus, unless the resolution appointing them provides otherwise or the authority that appointed them authorises them otherwise. The principle in the case of plurality is thus joint action by consensus, with the possibility of agreeing otherwise.
The Powers of the Liquidator and the Inventory of Assets and Liabilities
Article 252 of the Companies Law (Powers of the Liquidator) determines the scope of the liquidator's representation: "1. Subject to the restrictions set out in the resolution appointing the liquidator, the liquidator shall represent the company before the judiciary, arbitration tribunals, and third parties, and shall carry out all acts required by the liquidation, in particular the conversion of the company's assets into cash, including the sale of movable or immovable property by auction or by any other method that ensures obtaining the best possible price." The same Article provides: "2. The liquidator may sell the company's assets in bulk, or contribute them as a share in another company, if the authority that appointed him so authorises." It also provides: "3. The liquidator may not commence new business except where necessary to complete previous business." It also establishes the end of the powers: "5. The powers of the liquidator terminate upon the completion of the liquidation procedures or the expiry of the liquidation period, whichever occurs first, unless extended in accordance with the provisions of the Law." The liquidator therefore represents the company before the judiciary, arbitration tribunals, and third parties, subject to the restrictions set out in his appointment resolution, and carries out all acts required by the liquidation, in particular the conversion of the company's assets into cash, including the sale of movable or immovable property by auction or by any other method that ensures obtaining the best possible price. He may sell the company's assets in bulk or contribute them as a share in another company if the authority that appointed him so authorises. He may not commence new business except where necessary to complete previous business. His powers terminate upon the completion of the liquidation procedures or the expiry of the liquidation period, whichever occurs first, unless extended.
Article 253 of the Companies Law (Inventory of Assets and Liabilities) requires a comprehensive inventory: "1. The manager of the company or the members of its board of directors must provide to the liquidator, upon his appointment, the company's records and documents and the explanations and data that he requests. 2. The liquidator shall, within ninety (90) days from commencing his work, prepare an inventory of all the company's assets, its rights, and its obligations, and shall request the company's external auditor, if any, to issue a report on that inventory. The authority that appointed the liquidator may extend this period when necessary." The manager of the company or its board of directors therefore provides to the liquidator, upon his appointment, the company's records and documents and the explanations and data that he requests. The liquidator prepares, within ninety (90) days from commencing his work, an inventory of all the company's assets, its rights, and its obligations, and requests the company's external auditor, if any, to issue a report on that inventory, with the possibility of the appointing authority extending the period when necessary. Liquidation is thus governed by a comprehensive inventory that forms the basis for settlement and distribution decisions.
Insufficiency of Assets, Settlement of Debts, and Distribution of Surplus
Article 254 of the Companies Law (Insufficiency of Assets) establishes the duty to have recourse to the court: "If the liquidator finds at any time during the liquidation that the company's assets are not sufficient to settle its debts, he must immediately notify the partners, shareholders, and creditors of the company and apply to the competent court to commence any of the liquidation procedures under the Bankruptcy Law." If the liquidator finds at any time during the liquidation that the company's assets are not sufficient to settle its debts, he must immediately notify the partners, shareholders, and creditors of the company and apply to the competent court to commence any of the liquidation procedures under the Bankruptcy Law. The transfer of the company from voluntary liquidation to the procedures of the Bankruptcy Law is thus a legal obligation that is not subject to the liquidator's discretion.
Article 255 of the Companies Law (Settlement of Debts) governs priorities, the return of contributions, and the distribution of surplus: "1. The liquidator must settle the company's debts, if due, according to priority, and set aside the amounts necessary for their settlement if they are contingent or disputed. 2. Debts arising from the liquidation shall have priority over other debts. 3. After settling the debts, the liquidator must return to the partners or shareholders the value of their contributions or shares in the capital and then distribute the surplus among them in accordance with the provisions of the company's memorandum of association or its articles of association. If the memorandum of association or the articles of association contain no provisions in this regard, the surplus shall be distributed among the partners or shareholders in proportion to their contributions or shares in the capital. 4. If the company's net assets are not sufficient to satisfy the value of the partners' contributions or the shareholders' shares, the loss shall be allocated among them in accordance with the proportion prescribed for the allocation of losses." The liquidator therefore settles the company's due debts according to priority and sets aside the amounts necessary for their settlement if they are contingent or disputed. Debts arising from the liquidation have priority over other debts. After settling the debts, he returns to the partners or shareholders the value of their contributions or shares in the capital and then distributes the surplus among them in accordance with the memorandum of association or the articles of association. If these contain no provisions in this regard, the surplus is distributed in proportion to the contributions or shares. If the net assets are not sufficient to satisfy the value of the contributions, the loss is allocated in accordance with the proportion prescribed for the allocation of losses.
Completion of Liquidation, Liability of the Liquidator, and the Assets of a Non-Profit Company
Article 257 of the Companies Law (Completion of Liquidation) governs the closure of liquidation: "2. The liquidator must record and publish the completion of the liquidation at the commercial register. The completion of the liquidation may not be relied upon against third parties except from the date of the deregistration of the company from the commercial register." At the end of the liquidation procedures, the liquidator submits a financial report on the acts he has carried out, and the liquidation is completed upon the approval of the authority that appointed him of this report. The liquidator then records and publishes the completion of the liquidation at the commercial register, and the completion of the liquidation may not be relied upon against third parties except from the date of the deregistration of the company from the commercial register. Article 93 of the Executive Bylaw (The Company Not Carrying Out Its Activity) sets out a simplified path for resolving a company that has not carried out any activity, whereby the partners, the general assembly, or the shareholders may issue a unanimous resolution to dissolve the company if it has not carried out any activity and has not undertaken any act. The resolution is submitted to the Ministry, including an acknowledgment that the company has not carried out any activity and has no assets or property, that no debts or obligations have arisen against it, and a joint and several undertaking by all partners or shareholders to pay, from their own funds, any debts or obligations that may appear against the company vis-à-vis third parties. The statutory provision establishes the effect of this undertaking: "This undertaking shall be deemed a report on the completion of the liquidation procedures, a financial report for its final account, and a request for the deregistration of the company from the commercial register in application of the provisions of Article 257 of the Law." The joint and several undertaking thus dispenses with the full liquidation procedures in a simplified path that closes an inactive company by deregistering it from the commercial register.
Article 258 of the Companies Law (Liability of the Liquidator) establishes the liquidator's liability for damage: "1. The liquidator shall be liable to compensate the damage caused to the company, the partners, the shareholders, or third parties as a result of his exceeding the limits of his powers or as a result of errors he commits in the performance of his work." Article 259 of the Companies Law (Claims for Liability Not Heard) imposes a time limitation on the claim: "Except in the cases of forgery and fraud, no claim may be heard against the liquidator after five (5) years from the date of the deregistration of the company at the commercial register." The liquidator is therefore liable to compensate the damage caused to the company, the partners, the shareholders, or third parties as a result of his exceeding the limits of his powers or as a result of errors he commits in the performance of his work. Liability is personal or joint for all liquidators if there are multiple liquidators and the decision was issued by their consensus, and no claim may be heard against the liquidator after five (5) years from the date of the deregistration of the company at the commercial register, except in the cases of forgery and fraud.
Article 256 of the Companies Law (Disposal of the Assets of a Non-Profit Company) determines the destination of the net assets of a non-profit company upon liquidation: "1. The net assets of a non-profit company upon its liquidation shall pass to the non-profit persons or entities specified in the memorandum of association of the non-profit company or its articles of association." The same Article also provides: "3. If the memorandum of association or the articles of association of the company do not specify the non-profit persons or entities to which its assets pass, and the donor, the testator, or the founder has not specified them, the assets shall pass, after obtaining the approval of the Ministry, to non-profit persons or entities whose purpose is to achieve purposes and fields similar or analogous to the purposes and fields specified for those assets." The net assets of a non-profit company upon its liquidation therefore pass to the non-profit persons or entities specified in its memorandum of association or its articles of association. If its net assets arise from a donation, bequest, or endowment, they pass to the non-profit persons or entities specified by the donor, the testator, or the founder. If none of these has specified them, the assets pass, after obtaining the approval of the Ministry, to non-profit persons or entities whose purpose is to achieve purposes and fields similar or analogous to the purposes and fields specified for those assets. Non-profit assets are thus safeguarded from loss upon liquidation by restricting them to similar destinations.
Official Sources and References
This article is based on the following official legal sources, which are the authoritative reference for all figures, dates, and provisions set out in the sections above. It is always advisable to consult these official links for the complete texts and any subsequent updates:
- Companies Law issued by Royal Decree No. M/132 dated 1/12/1443 AH – Full text in the Official Gazette (Umm Al-Qura)
- Executive Bylaw of the Companies Law issued on 25/6/1444 AH – Full text in the Official Gazette (Umm Al-Qura)
- New Companies Law – Ministry of Commerce (Regulatory overview and practical applications)
- Governance Code for Unlisted Joint Stock Companies – Ministry of Commerce (Applies to unlisted joint stock companies)
Methodological note: All figures, dates, competences, and degrees of legal binding reproduced in this article have been taken verbatim from the official texts cited above and published in the Official Gazette (Umm Al-Qura). The statutory provisions are reproduced as they appear in their original legal source without alteration. Readers are advised to consult these sources to verify any subsequent updates to the texts and their effect on the resulting obligations.
Frequently Asked Questions on the Dissolution and Liquidation of the Company
We set out below answers to the most commonly discussed questions among company owners, advisors, and legal departments regarding the dissolution and liquidation of the company under the Companies Law and the Executive Bylaw:
What are the general grounds for the dissolution of a company under the Companies Law?
Subject to the special grounds for dissolution specific to each form of company, a company shall be dissolved for one of the following grounds: the expiry of its specified term if it is of a specified duration, unless extended in accordance with the provisions of the Law; or the agreement of the partners or shareholders to dissolve it; or the issuance of a final judicial ruling dissolving it or declaring its invalidity. In addition, before a resolution to dissolve is adopted, the company's management must prepare a statement confirming that the company's circumstances have been examined and affirming that its assets are sufficient to settle its debts by the end of the proposed liquidation period and that it is not insolvent under the Bankruptcy Law, pursuant to Articles 242 and 243 of the Companies Law.
When must the liquidator be appointed and who appoints him?
The liquidator shall be appointed by a resolution of the partners, the general assembly, or the shareholders, in accordance with the procedures prescribed for amending the company's memorandum of association or its articles of association, within a period not exceeding sixty (60) days from the date of the company's dissolution. If his appointment is not possible within that period, he shall be appointed by a resolution of the competent court upon an application submitted by any partner, shareholder, or interested party. If the dissolution results from a resolution or invalidity by a final judicial ruling, the liquidator shall be appointed by a resolution of the court that issued the ruling, pursuant to Article 248 of the Companies Law.
What is the liquidation period and what are the requirements for appointing the liquidator?
One or more liquidators, from among the partners, the shareholders, or others, shall carry out the liquidation. The liquidation period under the Law must not exceed three (3) years and may only be extended by an order of the competent court. The resolution appointing the liquidator must specify his powers and fees, any restrictions imposed on him, and the period necessary for the liquidation. His appointment resolution is recorded and published at the commercial register and may not be relied upon against third parties except from the date of recording and publication, pursuant to Articles 247 and 249 of the Companies Law.
What are the powers of the liquidator and his duty to inventory the assets?
The liquidator represents the company before the judiciary, arbitration tribunals, and third parties and carries out all acts required by the liquidation, in particular the conversion of the company's assets into cash, including the sale of movable or immovable property by auction or by any other method that ensures obtaining the best possible price. He may not commence new business except where necessary to complete previous business. He shall, within ninety (90) days from commencing his work, prepare an inventory of all the company's assets, its rights, and its obligations, and request the company's external auditor, if any, to issue a report on that inventory, pursuant to Articles 252 and 253 of the Companies Law.
What does the liquidator do if the company's assets are found to be insufficient to settle its debts?
If the liquidator finds at any time during the liquidation that the company's assets are not sufficient to settle its debts, he must immediately notify the partners, shareholders, and creditors of the company and apply to the competent court to commence any of the liquidation procedures under the Bankruptcy Law. This is also an obligation of the company if it is dissolved while its assets are not sufficient to settle its debts or it is insolvent under the Bankruptcy Law. If the company is liquidated in violation of this, the partners, the shareholders, the manager of the company, or the members of its board of directors shall be jointly and severally liable for any debt remaining in its name, pursuant to Articles 244 and 254 of the Companies Law.
How are the debts settled and the liquidation completed?
The liquidator must settle the company's debts, if due, according to priority, and set aside the amounts necessary for their settlement if they are contingent or disputed. Debts arising from the liquidation have priority over other debts. After settling the debts, he returns to the partners or shareholders the value of their contributions or shares in the capital and distributes the surplus among them in accordance with the memorandum of association or the articles of association. The liquidation is completed upon the approval of the authority that appointed the liquidator of his financial report. The liquidator must record and publish the completion of the liquidation at the commercial register, and it may not be relied upon against third parties except from the date of the deregistration of the company from the commercial register. No claim may be heard against the liquidator after five (5) years from the date of the deregistration of the company, except in the cases of forgery and fraud, pursuant to Articles 255, 257, and 259 of the Companies Law.
Conclusion: A Regulated Liquidation Preserving the Rights of Creditors and Shareholders
The rules governing the dissolution and liquidation of the company under the Saudi Companies Law can be summarised in three pillars: dissolution preceded by examination and confined to specified grounds, based on a mandatory statement from the management confirming that the company's circumstances have been examined and affirming the sufficiency of its assets to settle its debts by the end of the proposed liquidation period and the absence of insolvency under the Bankruptcy Law, with its presentation within thirty (30) days and joint and several liability if a resolution to dissolve is adopted despite insufficiency or insolvency, and the dissolution of the company by the expiry of its term, the agreement of the partners or shareholders on dissolution, or a final judicial ruling of dissolution or invalidity; liquidation governed by time limits, recording, and publication, based on the appointment of one or more liquidators within sixty (60) days of the dissolution or by a resolution of the competent court if appointment is not possible, the recording and publication of his appointment resolution at the commercial register and the inability to rely on it against third parties except from the date of recording and publication, a liquidation period not exceeding three (3) years that may only be extended by an order of the competent court, a comprehensive inventory of assets, rights, and obligations within ninety (90) days, and the conversion of the company's assets into cash at the best possible price without commencing new business; and fair closure preserving the rights of creditors and shareholders, based on the settlement of due debts according to priority, the setting aside of amounts for contingent or disputed debts, the priority of debts arising from the liquidation, the return of the value of contributions or shares in the capital and the subsequent distribution of surplus in proportion to the contributions when no provision exists, the insufficiency of assets requiring the application to the competent court to commence liquidation procedures under the Bankruptcy Law, the completion of liquidation upon the approval of the appointing authority of the financial report and its recording and publication, with no reliance upon it against third parties except from the date of the deregistration of the company from the commercial register, and the liability of the liquidator for damage with no claim heard after five (5) years from the date of deregistration except in the cases of forgery and fraud. At Novalegal for Legal Consultancy and Advisory Services, we provide our specialised consultancy on the paths of company dissolution and liquidation in accordance with the provisions of the Companies Law and the Executive Bylaw, assisting you in preparing the financial position examination statement before the resolution to dissolve, the procedures for appointing, recording, and publishing the liquidator, the inventory of assets, the settlement of debts, and the distribution of surplus, and dealing with cases of insufficiency of assets before the competent courts and under the Bankruptcy Law, and we are pleased to accompany you towards a regulated liquidation that preserves the rights of all parties.