Consensual restructuring: Out-of-court bankruptcy settlement legislation

In a move aimed at enhancing the resilience of the investment environment and protecting economic entities, recent regulatory amendments have emerged that legitimize the concept of “mutual restructuring,” thus opening the door wide to “settlement bankruptcy” procedures outside of courtrooms. This development comes as part of a series of legislative reforms aimed at modernizing the commercial and financial system, in line with global best practices in addressing financial distress.

The concept of consensual structuring and its importance

Amicable restructuring is an advanced legal mechanism that allows debtors and creditors to reach settlement agreements for distressed debts without having to engage in lengthy and complex litigation procedures from the outset. The significance of these amendments lies in the fact that they formalize and regulate these amicable agreements, giving them enforceability and protecting the rights of all parties. This shift reduces the burden on commercial courts and accelerates the financial restructuring of distressed companies, giving them a genuine chance of survival instead of liquidation.

General context and legislative background

These amendments complement the ongoing development of the bankruptcy system, which has been implemented in recent years to empower insolvent or struggling debtors to reorganize their finances. Prior to the introduction of modern bankruptcy laws in the region, liquidation was the inevitable fate of most struggling companies, leading to significant economic losses and job losses. With the launch of ambitious economic visions, such as the Kingdom's Vision 2030, it has become essential to create a supportive legislative environment that fosters business and provides a safety net enabling investors to restructure when faced with unforeseen financial difficulties.

Expected economic impact

These amendments are expected to have a tangible positive impact on the local economy and investment climate:

• Boosting confidence: Investors and creditors feel more secure when there are clear and quick mechanisms for recovering rights or rescheduling debts.
• Business continuity: Consensual restructuring helps maintain the operating assets of companies, ensuring continued production and job preservation, which is in the interest of the macroeconomy.
• Improving the business environment ranking: These laws contribute to raising the country's ranking in international ease of doing business indicators, as an effective bankruptcy system is one of the key criteria in evaluating global economies.

In conclusion, the legitimization of “settlement bankruptcy” through consensual restructuring represents a qualitative shift in economic legal thought, as the view of bankruptcy is transformed from a stigma and the end of the project to a therapeutic tool aimed at reform and sustainability, which enhances the strength of the economy and its ability to face financial challenges.