Commercial Pledge Law

Purpose and scope

• Governs the pledge of movable property to secure a commercial debt, such as pledges of a business, accounts, future rights and shares, and their effect and enforcement (Article 2).
• Issued in 1439H to replace the earlier Commercial Pledge Law (Article 46); the later Movable Property Security Law applies to commercial pledges among security rights (its Article 2), so the two are read together.

Key rules, rights and obligations

• The pledgor must own the pledged property and have capacity to dispose of it when the contract is made (Article 8); a pledge may secure an uncertain or future debt (Article 3).
• A pledge is effective against third parties by registration in the unified register or by transfer of possession (Article 4); an unperfected pledge remains valid between the parties (Article 6).
• The pledge covers accessories, parts and income of the property unless agreed otherwise (Article 10); several pledges may be created over the same property, with priority to the registered pledgee (Article 11).
• The pledgee may use the property only with written consent (Article 15); the pledgor may not transfer ownership without the pledgee's consent, otherwise the pledgee may follow the property (Articles 17, 18 and 19).
• Pledged property passes by inheritance or will subject to the pledge (Article 20), and debts secured by a perfected pledge rank first in bankruptcy and liquidation (Article 26).
• A business may be pledged; for a company the pledge covers only its movable assets (Articles 33 and 34); accounts and deposits are pledged by registration or account entries (Article 36).

Violations, penalties and common problems

• On a default justifying enforcement, the pledgee may warn the pledgor and debtor to pay within at least six working days unless a longer period is agreed; if unpaid, he may ask the competent court for a sale or enforce as the law provides (Article 27).
• The enforcement extract of a registered pledge is an enforcement instrument (Article 29), and the parties may agree that the pledgee or a licensed enforcement agent enforces against the property (Articles 30 and 31).
• If the property is lost through the pledgor's fault, the debt falls due at once; if compensation is payable for the loss, the pledge passes to it unless agreed otherwise (Article 24).
• Common problems: not registering the pledge, so the creditor loses priority, and the pledgor selling the property without consent.

Procedures and key deadlines

• The pledge ends when the secured debt ends by payment, release or other causes set by the law (Article 40).
• The competent court may order sale of the property at the request of either party if it risks damage or loss of value (Article 25).
• Check the unified register before accepting any movable property as security, to see earlier pledges.

An advisory summary prepared by Al-Bayan Al-Wadih Law Firm. It is not an official text and does not replace the law, its implementing regulations, or advice from a specialised lawyer. The official published text and its amendments prevail.