The Impact of Bankruptcy on Creditors Rights in Cases of Multiple Debtors under the Saudi Bankruptcy Law: A Comparative Analytical Study 10.35781/1637-000-164-004

Abstract

Abstract

This study, examines the effect of bankruptcy in cases involving multiple debtors on creditors’ rights through an analysis of the consequences of commencing bankruptcy proceedings against one or more obligors in respect of the same debt, and the extent to which this affects the creditor’s right of recourse, the legal position of the paying obligor, and the limits of claims in cases of multiple bankruptcy estates. The research problem arises from the fact that the plurality of debtors or obligors provides the creditor with more than one source of payment; however, the commencement of bankruptcy proceedings requires that this right be regulated in a manner that prevents double recovery and preserves fairness of distribution within the bankruptcy estate.

The study aims to clarify the effect of the bankruptcy of one obligor on the creditor’s right of recourse against the remaining obligors, to analyze the legal position of the paying obligor when seeking recourse against the bankruptcy estate of the debtor subject to the proceedings, to determine the limits of the creditor’s right to claim where multiple bankruptcy estates exist in relation to the same debt, and to explain how the rule prohibiting double recovery is regulated under Saudi law. The study adopts a comparative analytical methodology through an examination of the provisions of the Saudi Bankruptcy Law and the Saudi Civil Transactions Law relating to multiple obligors, guarantee, joint and several liability, subrogation, and recourse, with reference to comparative legal systems that have addressed the effects of bankruptcy on guarantors, joint obligors, and multiple bankruptcy estates.

The study concludes that the bankruptcy of one obligor does not extinguish the creditor’s right of recourse against the remaining obligors; rather, it reorganizes the exercise of that right in light of the effects of the commenced proceedings, particularly the stay of claims. It further concludes that the multiplicity of obligors expands the sources of payment without affecting the unity of the debt, and that payment made by one obligor requires deduction of the amount received by the creditor from the total claim, while preserving the paying obligor’s right of recourse within the bankruptcy estate to the extent of what has been paid. The study also concludes that multiple bankruptcy estates permit multiple claims, but not multiple recoveries, making the rule against double recovery a fundamental safeguard for the protection of the body of creditors and the achievement of equitable distribution.

Keywords: Bankruptcy, Multiple Debtors, Creditors’ Rights, Guarantee, Joint and Several Liability, Subrogation, Recourse, Multiple Bankruptcy Estates, Prohibition of Double Recovery.