In recent years, the Kingdom of Saudi Arabia (KSA) has emerged as a centre for economic and legal transformation, headed by its Vision 2030 strategy and its commitment to reduce its reliance on oil and become a major global investment destination.
Amid these changes, the KSA Bankruptcy Law was introduced in 2018 to provide guidance regarding the adoption and implementation of bankruptcy proceedings. The key aim of this law is to rescue insolvent businesses through reorganisation and financial restructuring.
The landscape of insolvency resolution is undergoing an evolution, marked by the adoption of alternative approaches such as alternative dispute resolution (ADR), mediation, and hybrid mechanisms.
In 2023, KSA issued a draft Mediation Law considering many of the practice features adopted by the UAE and Qatar. A key point of the draft law requires mediation proceedings to be kept confidential.
The above methods have the potential of changing how creditor-debtor disputes are resolved—offering efficiency, flexibility, and cost-effectiveness. Let us take a deeper dive into these methods and discover the reasons why leveraging these can be beneficial in not only resolving disputes but also providing opportunities for growth.
Streamlining creditor-debtor negotiations
The appeal of ADR is the ability to foster direct negotiations between creditors and debtors. By side-stepping the complex nature of traditional litigation, these mechanisms create a collaborative environment in which parties can explore mutually beneficial solutions. Notably, mediation enables skilled mediators to guide negotiations, ensuring open communication and balanced outcomes, as demonstrated in the US over the past four years.
This approach is especially valuable in complex insolvency cases, where prolonged court battles can erode value and strain resources. By prioritising dialogue over dispute, ADR offers a pragmatic path forward—minimising contention and maximising recovery for all stakeholders.
Minimising court intervention
Traditional insolvency proceedings are often time-consuming and have mounting legal expenses. ADR can provide a streamlined alternative, significantly reducing the need for court intervention. While judicial oversight remains essential to ensure fairness and enforceability, ADR can allow parties to resolve disputes more swiftly, freeing up judicial resources for cases that truly require formal adjudication.
In KSA, where the judiciary is undergoing transformation, ADR aligns with broader efforts to enhance efficiency and responsiveness within the legal system. By leveraging these methods, KSA can position itself as a leader in innovative dispute resolution practices.
Expediting flexible and binding solutions
One of ADR’s key strengths lies in its ability to deliver tailored solutions that are both flexible and binding. Unlike rigid court judgments, ADR outcomes can be customised to address the specific needs of the parties involved. Hybrid mechanisms, which combine mediation with arbitration, offer the best of both worlds by facilitating consensus while ensuring enforceability.
This adaptability is crucial in an era of rapid economic changes, where businesses require solutions that not only resolve disputes but also preserve ongoing relationships. For debtors seeking restructuring options and creditors aiming to recover value, ADR can provide a win-win framework.
Regional trends and practical applications
KSA, with its Vision 2030 reforms, is uniquely positioned to lead the trend of utilising ADR in insolvency. Recent updates to Saudi Arabia’s Insolvency Law emphasise the importance of negotiated solutions, paving the way for wider use of ADR mechanisms.
Practically, ADR has shown promise in resolving high-stakes disputes involving multinational corporations, financial institutions, and family-owned businesses. Training mediators with specialised expertise in insolvency and ensuring the enforceability of ADR outcomes will be critical to unlocking its full potential.
Looking ahead
As Saudi Arabia continues its economic transformation, embracing ADR and other innovative dispute resolution mechanisms will be vital to building a robust insolvency framework. One of the key challenges is educating the stakeholders involved in the insolvency process about the benefits of ADR. Further, mediation in particular is helping to achieve creditor co-ordination and consensus in cross-border settings in other parts of the world, which is of particular relevance given KSA’s ambition to encourage overseas investment. These approaches not only align with global best practices but also resonate with KSA’s vision of fostering a business-friendly environment.
By leveraging ADR to resolve complex disputes, KSA can set a new standard for efficiency, collaboration, and resilience in insolvency resolution. The time to act is now, as doing so will lay the groundwork for a future where disputes are not just resolved but transformed into opportunities for growth.
By Julian Haslam-Jones, senior director, disputes & investigations and Mohamed Rehan Arshad, senior director, restructuring & turnaround, Alvarez & Marsal.
