Students name/

Khalidah Alsharief

Haifa al Angari

Bashayer Madani

Course\ Negotiable instruments and bankruptcy

Instructor\ Ms. Sairah al Qasem

Research topic\

Negotiable Instruments and Bankruptcy Under

Saudi Law and Netherlands Law

1

Negotiable Instruments and Bankruptcy under Saudi Law and

Netherlands Law

Since the production of the Kingdom of Saudi Arabia on 23rd

September 1932 has been the legislature's express arrangement

that the nation is legislated by the Islamic Law. This was

affirmed by the Basic Law of Rule, Royal Order No. A/90 of 27th

Sha'ban\ 1412 Hejra. Islamic Law keeps on evolving; its key

standards were created between the seventh and tenth hundreds of

years of the Gregorian timetable. There is no codification of

these guidelines, nor is there an arrangement of legal point of

reference. To find out the guidelines of Islamic Law that

administer a given issue one must allude to messages composed by

legal advisers whose works are viewed as definitive by the

individuals who decipher and apply Islamic Law in a given ward.

There are a few schools of Islamic Law, whose sentiments can

contrast in regards to particular issues of law. This was

affirmed by a Royal order of 1928, which set out that judges

2

needed to apply the standards set out in pointed out Islamic Law

writings of the Hanbali school. Nonetheless, this position was

weakened to a degree by the sanctioning of the Basic Law of Rule

in 1992, in light of the fact this expresses that the Saudi

Arabian courts must issue decisions as per the Qur'an and the

Sunna, the essential wellsprings of Islamic Law, without

determining a specific school of law whose principles are tying.

In practice the Saudi Arabian courts still have a tendency to

apply Hanbali law, despite the fact that they have some

attentiveness in this admiration. Under Islamic Law and,

accordingly, Saudi Arabian law, an administration may issue

regulations gave that these don't clash with created standards of

Islamic Law. There is an impressive assemblage of regulations in

energy in Saudi Arabia, especially in ranges of regulatory and

business law. In principle, Islamic Law is intended to be widely

inclusive, and, accordingly, all enactment is expected to

supplement Islamic Law. In practice, there are various ranges of

law where Islamic Law offers few or no rules, and where

government-made enactment is, in this way, the main law. Then

again, where a given topic is secured in some point of interest

3

in the legitimate Islamic Law messages, the Saudi Arabian

government tends not to administer in those territories.1

Commercial law is important these days because it saves the

individuals rights. One of the most important laws is the

negotiable instrument law which is the law under commercial law;

negotiable instrument is a document ensuring the payment of a

specific amount of money, either on request, or at a specific

time, with the payer named on the paper.2 As negotiable

instrument plays a vital role in todays trade and commerce field

and it’s a substantial ground of the expansion of the commerce

area. The source of those instruments was generated from china in

the 8th century later on such documents were used by Arab and

Italian traders then it split into today’s world. Another topic

which is important too is bankruptcy, which is an adjustment of

the debts of someone who is entirely or incompletely incapable to

pay their debts, and the aim of bankruptcy is to distribute the

debtor properties justly among the creditor and protect him from

1 Saudilegal.com, (2014). Saudilegal :: Islamic Law. [online] Available at: http://www.saudilegal.com/saudilaw/01_law.html [Accessed 14 Oct. 2014].2 "NEGOTIABLE INSTRUMENT." LII / Legal Information Institute. N.p., n.d. Web. 18 Oct. 2014.

4

these creditors. The distribution is done within a court

authoritative. Negotiable instrument and Bankruptcy are the main

factors for an active commerce and business world, this research

shows the differences between negotiable instrument concept,

types and punishments in Saudi and Netherland Law, as well as the

differences between bankruptcies in each laws.

First topic: Negotiable instrument in Saudi Arabia

Section one: definition

The statement negotiable means transferable by delivery and

the saying instruments means a composed report by which a right

is made for an individual. Therefore, the term negotiable

instruments actually allude to a record containing rights that

can be exchanged by convey.3 All countries have the same

3 insurance-banking-and-negotiable-instruments. (2014). [online] Available at: http://insurance-banking-and-negotiable-instruments.pdf [Accessed 14 Oct. 2014].

5

definition of a negotiable instrument; negotiable instrument is a

record ensuring the installment of a particular measure of cash,

either on interest, or at a set time, with the payer named on the

report. All the more particularly, it is a report mulled over by

or comprising of an agreement, which guarantees the installment

of cash without condition, which may be paid either on interest

or at a future date. The term can have diverse implications,

contingent upon what law is continuously connected and what

nation it is utilized within and what setting it is utilized as a

part of.4 Negotiable Instruments Regulations (1963) this law

covers the legal treatment of various payment instruments such as

bills of exchange, checks and drafts.5

Section two: types of negotiable instrument First type: bill of exchangean unrestricted request in composing, tended to by one

individual to an alternate, marked by the individual providing

for it, obliging the individual to whom it is tended to pay on

interest, or at a settled or definite future time, an entirety

4Wikipedia, (2014). Negotiable instrument. [online] Available at:http://en.wikipedia.org/wiki/Negotiable_instrument.5Mci.gov.sa, (2014). Home. [online] Available at: http://www.mci.gov.sa

6

sure in cash to or to the request of an indicated individual, or

to bearer.6

-The bill of exchange incorporates the accompanying

information:

Both countries Saudi Arabia and Netherlands they both share

some similarities in each topic under the law of negotiable

instrument, because negotiable instrument is an international law

which some differences in each country. Therefore, The term bill

of exchange embedded in the collection of the instrument and

communicated in the dialect utilized in drawing up the

instrument,an unqualified request to pay a determinate total of

cash, the name of the individual who is to pay (drawee) , an

announcement of the time of installment, an announcement of the

spot where installment is to be made, The name of the individual

to whom or to whose request installment is to be made, An

announcement of the date and of the spot where the bill is

6 Wikipedia, (2014). Negotiable instrument. [online] Available at:http://en.wikipedia.org/wiki/Negotiable_instrument

7

issued, the signature of the individual who issues the bill

(drawer).

Second type: Promissory NoteA promissory note is a legitimate instrument, a budgetary

instrument in which one gathering (the creator or guarantor)

guarantees in keeping in touch with pay a determinate entirety of

cash to the next (the payee), either at a settled or definite

future time or on interest of the payee, under particular terms.

On the off chance that the promissory note is unqualified and

promptly attractive.

-The promissory note incorporates the accompanying information:

The request term or the expression "Promissory Note" composed

on the substance of the note and in the dialect in which it was

composed, unlimited promise to pay a particular total of cash,

the name for whom the installment might happen or for his

request, Date and spot of making the Promissory Note and

Signature of the manager.7

7 Article (87)under commercial paper law

8

-The Promissory Note, in absence of the said information on the

past article, is not viewed as a promissory note just in the

accompanying circumstances:

If the promissory note was in absence of the development

date, it would be viewed as payable when seen, In the event that

it was in absence of the spot of installment or the residence of

the guarantor, then where the promissory note was made would be

viewed as a spot for installment and the backer, and in the event

that it was in absence of the spot of creation, it would be

viewed as made in the spot indicated adjacent to the name of the

guarantor.8

Third type: Check

- Issuance of the Check, the check incorporates theaccompanying information:

The expression "check" is composed on the substance of the

instrument in the dialect in which it was composed, an

unqualified request to pay a particular whole of cash, the name

of the gathering subject to pay (the drawee), Spot of

8 Article (88)under commercial paper law

9

installment, the date and spot of the check issuance and

Signature of the check backer (the drawer). 9

-the instrument in absence of some information there will be twocases in order for the check to be valid:

First, In the event that the check is absence of the datum

of its installment place, it should be considered due-paid in the

spot indicated close to the name of the drawee. What's more if

the spots indicated adjacent to the name of the drawee

reproduced, the check might be considered due-paid in any case

thereof. What's more if the weigh is in absence of these

information or some other datum, it might be considered due-paid

in the spot where the fundamental staying of the drawee is found.

Second, on the off chance that the check is absence of the datum

of the issuance place, it should be viewed as issued in the spot

demonstrated close to the name of the drawer.10 Under article

(93) it is not permitted to draw the checks issued in the

Kingdom, and because of be paid in it just to a bank, and the

instruments attracted the type of checks, not to a bank, are not

viewed as legitimate checks.11

9 Article (91) under commercial paper law10 Article (92)under commercial paper law11 article (93) under commercial paper law

10

Section three: punishments

Whoever issues, with bad intention, a ricocheted check and

not payable, or that has a simultaneous attention short of what

the estimation of the check; and whoever badly intentioned takes

once more in the wake of rendering the check payable or some

thereof such that the rest of been rendered insufficient to cover

the estimation of the check; or whoever requests poorly

intentioned the drawee not to pay its esteem, should be fined

from one hundred Saudi Riyals to two thousands Saudi Riyals and

be sentenced to jail for no short of what fifteen days and close

to six months, or any of these two punishments. Furthermore these

punishments might be connected to the beneficiary or the bearer

who gets not well intentioned a ricocheted check; and these said

punishments should be connected considering what the Islamic law

decisions could give. 12

Under Islamic law decisions considered, any drawee not well

intentioned declined to money a watch that is truly drawn and has

a simultaneous attention, and no dissent has been recorded

thereof; without bias of the payment because of the drawer about

12 Article (118) under commercial paper law

11

what they support of damage as an aftereffect of the none-

installment should be fined no short of what a hundred Saudi

Riyals and close to two thousands Saudi Riyals.

These punishments should be connected to each drawee

intentionally signs a check with a simultaneous attention short

of what he as of now has. 13

Under Islamic law, it is fined with close to five hundred Saudi

Riyals whoever, issues a watch that is dateless or is

inaccurately dated , Attracts a check to wherever instead of a

bank , pays a dateless check, and who got this check as a

clearing. 14

Second topic: bankruptcy under Saudi law

Section one: what is bankruptcy?

Bankruptcy is a legitimate status of an individual or other

substance that can't reimburse the obligations it owes to loan

bosses. In many locales, insolvency is forced by a court request,

frequently launched by the debt holder.15

13 Article (119) under commercial paper law14 Article (120) under commercial paper law15 awad, A. and Michael, R. (2014). Iflas and Chapter 11: Classical Islamic Law and Modern Bankruptcy. 1st ed. [ebook] COOPERATION. [Accessed 14 Oct. 2014].

12

Islamic law characterized an individual to be a Muflis as

one whose obligations surpass his advantages and/or an individual

whose current consumptions surpass his current incomes.16 The

Arabic word Iflas implies bankruptcy. It covers both the current

faculties .First, monetary record bankruptcy, when a substance's

benefits are not exactly its liabilities; and salary proclamation

or money stream bankruptcy, when a substance has deficient fluid

or resources for pay it is astoundingly due. The Arabic word

Muflis implies a bankrupt substance, whether male or female or

business enterprise. And once one is a Muflis, there are just two

ways that status closures: full reimbursement of all unforgiving

obligations or demise.17

The essential literary power for the Islamic law is in a

definitive source of Shari'a, the Quran, at verse 2:280. It is

commonly translated as: “If a person is in difficulties, let

there be respite until a time of ease. And if you give freely

16 See previous source17 See previous source

13

[i.e., if you forgive the debt voluntarily] it would be better

for you, if only you knew.18

Third topic: Negotiable instrument in Netherlands

Section one: definition

A negotiable instrument is a document in writing that

guarantees to pay a certain amount of money on demand or at a set

of time19. Also, negotiable instruments can be transferred from

one person to another in easy and swift procedures20. In

Netherlands, negotiable instruments follow Geneva Conventions and

Uniform Law 1930.

Section two: types of negotiable instrument

This research will discuss three types of negotiable

instruments; bill of exchange, promissory note, and cheque. We

have to mention that cheques or promissory notes go under

commercial papers or bills of exchange21.

18 Quran 2:280. All translations of the Quran are from Tarif Khalidi’s recent translation: The Quran(Penguin Classics, 2008). Unless otherwise noted, all other translations from Arabic to English here are byAbed Awad.19 http://www.arazzaqlaw.com/implication-of-negotiable-instruments-under-kuwaiti-law20 http://www.arazzaqlaw.com/implication-of-negotiable-instruments-under-kuwaiti-law21 http://www.arazzaqlaw.com/implication-of-negotiable-instruments-under-kuwaiti-law

14

First type: bill of exchange

“A bill of exchange: is a written order by the drawer to

the drawee to pay money to the payee”22. Moreover, it can be

payable on demand or later on; if it will be paid in the

future, the actual due date should be mentioned. According

to article 1 from Geneva Convention, a bill of exchange must

contain23: An unconditional order to pay, determinate sum of

money, the name of the payer, mentioned the payment is on

demand or at set of time, mentioned where payment’s place,

the name of the payee, the date and the place where the bill

is issued, and the signature of the payer.

Second type: Check

The check: is a written document payable upon reading it24.

Third type: Promissory Notes

Promissory note: is a written document that includes a

promise from the payer to pay a certain sum of money at a future

22 http://www.arazzaqlaw.com/implication-of-negotiable-instruments-under-kuwaiti-law23 http://www.aibtradefinance.com/tf/FrontBoEPAge1.asp24 http://www.arazzaqlaw.com/implication-of-negotiable-instruments-under-kuwaiti-law

15

time25. According to article 76 from Geneva Convention, if the

time of payment is not specified in a promissory note, it is

deemed to be payable at sight. Also, place of payment of a

promissory note is a place where the instrument is made and where

the maker lives26. According to article 1 from Geneva Convention,

a promissory note must contain27:

o The term `promissory note' within the language that the

instrument is written with.

o An unconditional promise to pay an exact sum of money.

o The time of payment.

o The place where payment will be made.

o The name of the person to whom order payment is to be

made.

o The date and the place where the promissory notes are

issued.

o The signature of the person who created the instrument.

Section three: conditions relating to negotiable instruments

25 http://www.arazzaqlaw.com/implication-of-negotiable-instruments-under-kuwaiti-law26 http://www.jus.uio.no/lm/bills.of.exchange.and.promissory.notes.convention.1930/portrait.pdf27 http://www.aibtradefinance.com/tf/FrontBoEPAge1.asp

16

1. All negotiable instruments should be within an authorized

depositary28.

2. 10 EUR is the tax to accept cheques29.

3. Cheques are valid for one year from date of issue30.

4. Banks should be agents to collect the bills of exchange31.

5. According to article 2 from Geneva Convention, if the time

of payment is not specified, a bill of exchange is deemed to

be payable at sight32.

6. According to article 2 from Geneva Convention, the place

mentioned beside the name of the drawee is the place of

payment, which is also the place where the drawee lives33.

28 http://www.legislation.gov.uk/uksro/1947/2088/pdfs/uksro_19472088_en.pdf29 https://www.pacnetservices.com/wpg/country.php?alpha2=NLv30 https://www.pacnetservices.com/wpg/country.php?alpha2=NL31 http://www.aibtradefinance.com/tf/frontBOEPage3.asp32 http://www.jus.uio.no/lm/bills.of.exchange.and.promissory.notes.convention.1930/portrait.pdf33 http://www.jus.uio.no/lm/bills.of.exchange.and.promissory.notes.convention.1930/portrait.pdf

17

7. According to article 2 from Geneva Convention, if the place

of a bill of exchange issue is not mentioned, it takes the

place mentioned beside the name of the drawer34.

8. According to article 4 from Geneva Convention, if a bill of

exchange is payable for third person, it may be paid where

the drawee has his domicile or in another place35.

9. According to article 3 from Geneva Convention a bill of

exchange may be drawn payable to the drawer's order, it

might be drawn on the drawer himself, or it might be drawn

for record of a third party's account36.

10. According to article 5 from Geneva Convention, if there

is any interest, the rate of the interest must be mentioned

specifically in the bill37.

34 http://www.jus.uio.no/lm/bills.of.exchange.and.promissory.notes.convention.1930/portrait.pdf35 http://www.jus.uio.no/lm/bills.of.exchange.and.promissory.notes.convention.1930/portrait.pdf36 http://www.jus.uio.no/lm/bills.of.exchange.and.promissory.notes.convention.1930/portrait.pdf37 http://www.jus.uio.no/lm/bills.of.exchange.and.promissory.notes.convention.1930/portrait.pdf

18

11. According to article 6 from Geneva Convention, if there

is any difference between words and figures in a bill of

exchange, the sum denoted by the words is the amount of

payment38.

12. “Persons sued on a bill of exchange cannot set up

against the holder defenses founded on their personal

relations with the drawer or with previous holders, unless

the holder, in acquiring the bill, has knowingly acted to

the detriment of the debtor”39.

13. According to article 78 from Geneva Convention, the

maker of a promissory note is bound in the same way as the

acceptor of a bill of exchange40.

Section Four: punishments

38 http://www.jus.uio.no/lm/bills.of.exchange.and.promissory.notes.convention.1930/portrait.pdf39 http://scholarship.law.marquette.edu/cgi/viewcontent.cgi?article=2726&context=mulr40 http://www.jus.uio.no/lm/bills.of.exchange.and.promissory.notes.convention.1930/portrait.pdf

19

1. In the past, the treasuries did authorize any exchange of a

debatable instrument issued on or after the ninth day of

July 194641.

2. According to article 7 from Geneva Convention, if incapable

people who cannot bind themselves, sign a bill of exchange,

write a false signature on a bill of exchange, or an unreal

signature, the obligations of whoever signed it are valid42.

Section Five: Exceptions in law

1. Banks stopped issuing cheques in July 2001 and terminated

processing them by the end of 201343.

2. According to article 8 from Geneva Convention, whomever

signs a bill of exchange as representing a person for whom

he had no power to act has bound himself as a party to the

bill. In addiction, a representative who has exceeded his

41 http://www.legislation.gov.uk/uksro/1946/1043/pdfs/uksro_19461043_en.pdf42 http://www.jus.uio.no/lm/bills.of.exchange.and.promissory.notes.convention.1930/portrait.pdf43 http://www.bis.org/cpmi/paysys/netherlandscomp.pdf

20

powers and has paid has the same rights as the person for

whom he purported to act44.

3. According to article 10 from Geneva Convention, if a bill of

exchange is not complete while issuing it, it will not be

set up against the holder unless he has bad faith45.

4. According to article 76 from Geneva Convention, if a

promissory note does not mention the place of its issue, the

place that is mentioned beside the name of the maker will be

the place of payment46.

Fourth topic: Bankruptcy under Netherlands law

Bankruptcy in The Netherlands goes under the Dutch

Bankruptcy Act47, which started on September 1, 189648. The act

mentions that if the petition is accepted, the district court

44 http://www.jus.uio.no/lm/bills.of.exchange.and.promissory.notes.convention.1930/portrait.pdf45 http://www.jus.uio.no/lm/bills.of.exchange.and.promissory.notes.convention.1930/portrait.pdf46 http://www.jus.uio.no/lm/bills.of.exchange.and.promissory.notes.convention.1930/portrait.pdf47 http://www.kernkamp.nl/en/services/company-and-corporate-law/netherlands-bankruptcy-law/48 www.insol-europe.org/download/file/827

21

will declare the debtor bankrupt and choose one or more

trustees49. Also, if the debtor has ceased to pay, the Court will

declare the individual or firm in a state of bankruptcy50.

Moreover, under the law there is no difference between Bankruptcy

proceedings taken against merchants or non- merchants51. Last but

not least, under The Dutch Bankruptcy Act, there are three types

of proceedings52:

1- “Bankruptcy in which the debtor's assets, including assets

which have been acquired after the declaration of

bankruptcy, are liquidated to pay the creditors’ claims;

this applies to companies, legal firms, commercial

partnerships and individuals”.

2- Suspension of installments whereby the debt holder is given

brief alleviation against their loan, so as to rearrange and

proceed with their business, and at last to fulfill some of

49http://www.kernkamp.nl/en/services/company-and-corporate-law/netherlands-bankruptcy-law/50 http://www.kernkamp.nl/en/services/company-and-corporate-law/netherlands-bankruptcy-law/51 http://www.blenheim.nl/vars/pdf/Debt%20collection%20in%20The%20Netherlands.pdf5252www.insol-europe.org/download/file/827

22

the banks' cases. This can be allowed to most organizations

and legitimate firms and to persons doing a business.

3- An obligation rescheduling plan in which the debt holder's

advantages are sold for the profit of the banks from which

the loan has been taken and the indebted person must

endeavor to produce trusts to reimburse his loan in a period

of three years, with the target to give the borrower the

likelihood of a 'new beginning'; this is just open to

individuals.

23

Conclusion

To sum up, Negotiable instruments such as cheques, bills of

exchange, promissory notes are playing a major role in today's

advancing commerce and trade. One of the purposes behind the

expanding of the trade and commerce so swiftly is also the

negotiable instrument. Negotiable instrument and bankruptcy

differs from Saudi Arabia and Netherlands but they are slightly

related to each other as all commercial documents are under

international law. In addition, Bankruptcy law is an essential

law that protects merchants, and save debtors.

24

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