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Enforcement Against Holding and Subsidiary Companies: When Can Debt Extend to the Assets of Other Companies Within a Corporate Group?

Introduction

A commercial group may own several companies operating under one trade name, managed through a centralized structure, or divided among different business activities, assets, and contractual arrangements. A creditor may deal with one of these companies and later discover, when seeking payment of outstanding dues, that the debtor company does not have sufficient assets to settle its obligations, while other companies within the same group own valuable real estate, funds, equipment, and other assets.

This raises an important legal question: Can a creditor enforce a debt against the assets of the holding company or other subsidiary companies merely because they belong to the same corporate group? Is common management, a shared brand, or common ownership sufficient to make all companies within the group liable for the same debt?

The answer does not depend solely on the group’s structure or management arrangements. Rather, it depends on each company’s separate legal personality, the nature of the obligation, the guarantees provided, the contracts entered into, and whether there is a legal basis allowing the creditor to pursue another company.

Addressing this issue requires an understanding of the provisions governing holding and subsidiary companies under the Saudi Companies Law, distinguishing the debtor company’s liability from that of its shareholders or affiliated companies, and understanding the enforcement procedures available to creditors to recover their rights.

This article explains when enforcement may extend to the assets of companies within a corporate group, the circumstances in which liability may extend to another company, how creditors can protect their rights, and the measures companies should take to avoid confusion between financial liabilities and obligations.

First: What Are Holding Companies and Subsidiary Companies?

Some corporate groups consist of a parent company that owns shares or interests in other companies, or establishes specialized entities to conduct different business activities. In this structure, the parent entity is known as the holding company, while the companies under its control are known as subsidiary companies.

The Saudi Companies Law regulates this type of corporate structure under Chapter Nine, which addresses holding and subsidiary companies.

Article 216 defines a holding company as a joint-stock company, a simplified joint-stock company, or a limited liability company that establishes other companies or owns shares or interests in existing companies that consequently become its subsidiaries.

Article 217 identifies the circumstances in which a company is considered a subsidiary. These include the holding company’s ownership of a majority of voting rights in another company, its ability to appoint or remove the manager or a majority of the board members, and other forms of control agreed upon with the remaining partners or shareholders. A company may also be considered a subsidiary if it is itself controlled by another subsidiary of the holding company.

Accordingly, the relationship between a holding company and its subsidiaries is not necessarily based on similar names, a shared headquarters, or the use of a common trademark. Instead, it is determined by the ownership and control criteria established by law.

Why Do Companies Establish Corporate Groups?

Investors may distribute their business activities among several companies for various reasons, including:

Separating business activities to simplify management.
Establishing an independent company for each project or business sector.
Managing investments and assets through a separate legal entity.
Expanding into new markets by establishing subsidiaries.
Organizing ownership and governance within family-owned groups.
Distributing operational and contractual responsibilities according to the nature of each activity.

However, having multiple companies within the same group does not necessarily mean that they all bear the same obligations. Each company retains its own legal status, rights, and liabilities unless a legal or contractual basis establishes otherwise.

Second: Can the Assets of a Holding Company Be Used to Enforce a Debt Owed by a Subsidiary?

The general rule is that each company has a separate legal personality and independent financial liability. Consequently, the debtor company is responsible for its own debts and obligations. This liability does not automatically extend to the holding company merely because it owns shares or interests in the subsidiary.

For example, if a subsidiary enters into a contract with a supplier, receives the goods, and then fails to pay their value, the supplier must claim payment from the company in whose financial liability the obligation arose and pursue enforcement against its assets in accordance with the enforceable instrument and applicable legal procedures.

The fact that the holding company owns the subsidiary or exercises administrative control over it is not, by itself, sufficient to make the holding company liable for that debt.

However, there are circumstances in which the holding company may be pursued if independent grounds for liability exist, such as:

The holding company has provided a guarantee or surety for the debt.
It is a principal party to the contract from which the obligation arose.
It has undertaken to pay the debt under a binding agreement.
It has entered into a joint obligation with the subsidiary.
An unlawful act giving rise to independent liability under applicable law has been established.

It is important to distinguish between the holding company’s ownership of the subsidiary and its obligation to pay the subsidiary’s debts. The former is a relationship of ownership and control, while the latter requires a legal or contractual basis.

Third: Can the Assets of a Subsidiary Be Used to Enforce a Debt Owed by the Holding Company?

The same principle applies in the opposite direction. If the holding company is the debtor under a contract or enforceable instrument, this does not mean that all its subsidiaries automatically become liable for its debt.

Each subsidiary has an independent financial liability, and its assets cannot be treated as assets of the holding company merely because it is subject to the holding company’s control.

For example, if a holding company obtains bank financing and fails to pay the due installments, the financing institution must pursue the guarantees and assets that may legally be enforced against the debtor and the guaranteeing parties. It cannot assume that real estate owned by one of the subsidiaries is subject to attachment merely because it belongs to the same corporate group.

The outcome may differ if the subsidiary has provided a guarantee for the debt, pledged assets that it owns, signed an agreement making it responsible for payment, or if an independent legal ground permits recourse against it.

This highlights the importance of reviewing contracts, guarantees, and pledges before determining which assets may be subject to enforcement.

Fourth: When Can Enforcement Extend to the Assets of Another Company Within the Group?

The existence of common ownership or management between companies is not sufficient, by itself, to extend liability from one company to another. However, certain circumstances and facts may make it possible to pursue another company, depending on the applicable legal basis and available evidence.

The following circumstances are particularly important to examine:

1. A Guarantee or Surety Provided by Another Company

If the holding company provides a surety or guarantee for a subsidiary’s debt, or if a subsidiary guarantees financing obtained by the holding company, the guaranteeing company’s liability arises from its contractual commitment, not merely from its membership in the same corporate group.

The guarantee must be reviewed carefully, including its wording, scope, value, duration, conditions for making a claim, and whether it provides for joint liability with the original debtor.

The Saudi Civil Transactions Law regulates the effects of surety obligations, including the circumstances in which a creditor may pursue the guarantor and the applicable conditions. The legal effects of a guarantee may also differ depending on whether joint liability exists.

2. Pledging Assets Owned by Another Company

A company within the group may provide an asset it owns as security for another company’s debt, such as pledging real estate, equipment, or movable assets.

In such circumstances, the creditor may have the right to enforce against the pledged asset in accordance with the pledge agreement and applicable law, even if the company owning the asset is not the original debtor.

However, enforcement is limited to the security provided and its terms. Pledging a specific asset does not grant the creditor the right to enforce against all the assets of the pledging company.

It is necessary to verify the validity of the pledge, completion of the required registration and enforceability procedures, and identification of the secured debt and the asset covered by the security.

3. A Joint Contractual Obligation

Two or more companies may enter into the same contract, one company may sign an undertaking to assume part of an obligation, or the companies may agree to joint liability within certain limits.

In such cases, the relationship between the companies is not merely one of ownership. Rather, there is a contractual obligation that may allow the creditor to pursue the party that undertook to pay, subject to the scope of the agreement and relevant legal provisions.

Accordingly, creditors should review the identities of the signing parties, their legal capacities, and the nature of the obligations each party accepted.

4. Commingling of Funds and Financial Liabilities Between Companies

One risk that may give rise to legal disputes is the existence of poorly regulated financial dealings between companies within a group. Examples include repeatedly using one company’s accounts to pay another company’s expenses, transferring assets without clear consideration, or failing to maintain documents explaining financial transfers.

Not every financial transaction between companies creates joint liability. Such transactions may represent legitimate and properly documented loans, services, or internal dealings.

However, if these transactions are associated with facts indicating sham arrangements, fraud, harm to creditors, or the use of one company as a front to conceal funds, legal liabilities may arise that require examination of the facts and evidence.

It is important not to assume that the mere commingling of accounts automatically removes the separate legal personality of each company. Such a conclusion requires an appropriate legal basis and sufficient evidence, and must be assessed according to the circumstances of each case.

5. Transferring Assets with the Intention of Harming Creditors

A problem may arise when a debtor company transfers valuable assets to another company within the same group, particularly after the debt has arisen or when a payment claim is approaching.

Examples include transferring real estate, equipment, inventory, or financial rights to another entity without genuine consideration or through sham transactions.

A transfer does not become unlawful merely because it takes place between affiliated companies. However, its timing, nature, financial consideration, and surrounding circumstances may be important factors when assessing its legality and its impact on creditors’ rights.

If evidence establishes that such transactions were used to circumvent the law, conceal or divert assets, or obstruct the recovery of debts, the creditor may take appropriate legal action to challenge the transaction or claim the rights arising from it under the applicable legal basis.

Fifth: What Is the Difference Between a Subsidiary, a Sister Company, and a Branch?

One common mistake is confusing these entities when determining which assets may be subject to enforcement.

Subsidiary Company

A subsidiary is a company with a separate legal personality that is controlled by a holding company under the circumstances specified in the Saudi Companies Law.

Accordingly, its debts do not automatically transfer to the holding company or other subsidiaries.

Sister Company

A sister company is an entity connected to another company through common ownership or because both are controlled by the same holding company.

Nevertheless, common ownership or management does not automatically make one sister company liable for the debts of another.

If one sister company owes money to a supplier, it cannot be assumed that the assets of another sister company are subject to enforcement merely because both belong to the same group.

Branch

A branch differs from a subsidiary because it is not an independent company and does not have a separate financial liability from the company to which it belongs.

If a debt is owed by the company, the assets of its branches form part of the debtor company’s assets, subject to the applicable legal provisions and procedures.

This highlights the importance of identifying the entity that actually entered into the contract, rather than relying solely on the trade name or the sign displayed at the business premises.

Sixth: Can a Company Manager or Partner Be Held Personally Liable for the Debt?

As a general rule, the liability of a manager or partner is distinct from that of the company. A manager does not become liable for all the company’s debts merely because they hold a management position.

However, personal liability may arise if the grounds established by law are met.

Liability of Managers and Board Members

Article 28 of the Saudi Companies Law provides for the liability of managers and board members to compensate the company, partners, shareholders, or third parties for damages resulting from violations of the law, the company’s articles of incorporation or bylaws, or from errors, negligence, or failure to perform their duties properly.

This liability differs from the company’s responsibility for its commercial debts. A claim for compensation arising from managerial misconduct requires proof of the wrongful act, the damage, and the causal relationship between them, in accordance with the applicable provisions.

Liability of a Partner in a Limited Liability Company

Article 156 of the Saudi Companies Law establishes that a limited liability company has an independent financial liability separate from the financial liability of each partner or owner. The company alone is responsible for its debts and obligations, and a partner is not liable for them beyond the value of their share in the capital, subject to statutory exceptions.

Liability of a General Partner

The rules differ in partnerships, particularly general partnerships, where a general partner bears personal and joint liability for the company’s debts and obligations in accordance with the law.

Therefore, not all company structures should be treated in the same way when examining whether enforcement may extend to the personal assets of partners or managers.

Seventh: How Can a Creditor Prove That Another Company Is Liable for the Debt?

It is not sufficient for a creditor to establish that the company against which enforcement is sought belongs to the same corporate group. The creditor must provide the legal basis supporting the claim against that company.

The required evidence varies depending on the relationship between the companies and the grounds for pursuing the other entity.

Important documents may include:

The financing, supply, or other agreement from which the debt arose.
The surety or guarantee agreement.
The pledge agreement and documents establishing its enforceability.
Correspondence containing an undertaking to pay or assume the obligation.
Financial transfers between companies and supporting documents.
Internal agreements explaining the nature of transactions between entities.
Documents relating to asset transfers, including transaction dates and financial consideration.
Accounting records showing the movement of funds.
Relevant management or shareholder resolutions relating to the disputed transaction.
Documents establishing damage or an attempt to harm creditors’ rights, where applicable.

The evidence must relate directly to the grounds for liability being established, rather than merely proving the existence of an ownership or management relationship between the companies.

Eighth: What Measures Can a Creditor Take to Recover Outstanding Dues?

If a creditor holds an established right under an enforceable instrument, the creditor should identify the debtor named in that instrument, verify the assets and guarantees available for enforcement, and then take the appropriate legal measures.

1. Identify the Debtor Named in the Enforceable Instrument

The debtor company’s name and legal details must be reviewed to ensure that the party against which enforcement is sought matches the debtor identified in the enforceable instrument.

If the instrument is issued against a subsidiary, an enforcement application cannot be submitted against the holding company merely because of their ownership relationship, unless there is a separate legal basis or enforceable instrument.

2. Verify the Guarantees

The creditor should review any sureties, pledges, and guarantees provided by other companies and determine whether they grant the creditor a right to pursue their assets.

3. Identify Assets Subject to Enforcement

The debtor company’s assets may include bank accounts, property, receivables from third parties, financial rights, and other assets that may legally be subject to enforcement.

It must be ensured that attachment is imposed only on the assets of the person or entity against which enforcement is legally permitted, and within the limits of the debt and prescribed procedures.

4. Examine Transactions That May Harm the Creditor

If there are indications that assets have been transferred or concealed to obstruct enforcement, the creditor should document these transactions and examine the legal remedies available to challenge them or claim the rights arising from them.

5. Initiate Appropriate Judicial Proceedings

If a dispute arises concerning another company’s liability, the validity of a guarantee, or the enforceability of a transaction, the creditor may need to file a separate claim or take an appropriate judicial action to establish their rights, depending on the nature of the dispute.

A distinction must be made between seeking enforcement under an existing enforceable instrument and filing a substantive legal claim to establish the liability of a person or company that is not named in that instrument.

Ninth: What Is the Importance of the New Enforcement Law for Companies and Creditors?

The new Enforcement Law in the Kingdom of Saudi Arabia entered into force in late October 2026, replacing the previous Enforcement Law and introducing updated regulations governing the recovery of financial rights, disclosure of assets, and enforcement attachment procedures.

The importance of the new law for companies lies in its enhanced clarity regarding enforcement procedures and related time limits, as well as its regulation of assets that may be subject to enforcement, including assets that may become available to the debtor in the future, subject to statutory requirements.

Companies and creditors should pay particular attention to the following matters:

Regulation of enforcement application registration and issuance of enforcement orders.
Determination of time limits relating to notification and compulsory enforcement.
Regulation of disclosure of the judgment debtor’s assets.
Establishment of rules governing attachment of assets.
Regulation of enforcement disputes and objections to enforcement procedures.
Addressing transactions intended to conceal assets or obstruct the recovery of rights.

It should be noted that the new law does not mean that enforcement may be pursued against every company within a corporate group merely because of its affiliation with other companies. Enforcement remains linked to the debtor, the parties legally obligated to pay, and the guarantees that may be pursued under the enforceable instrument and applicable legal basis.

Therefore, identifying the debtor’s separate legal personality remains an essential step before initiating any enforcement procedure.

Tenth: How Can Holding and Subsidiary Companies Protect Themselves Against Risks of Mutual Liability?

Maintaining separate financial liabilities does not only protect companies against unjustified claims. It also helps establish an organized corporate structure that is easier to manage and review.

The following best practices may help:

1. Separate Bank Accounts

Each company should maintain its own bank accounts, and financial transactions should be conducted in the name of the entity responsible for the obligation.

If one company requires financing from another company within the group, the arrangement should be documented through a clear agreement specifying the amount, purpose, and repayment terms.

2. Document Transactions Between Companies

Loans, administrative services, supplies, leases, and other transactions between companies within the group should be supported by clear agreements and documentation.

Accounting records should accurately reflect the nature of these transactions, without creating confusion between the companies’ separate financial liabilities.

3. Define Each Company’s Responsibilities in Contracts

When signing a commercial agreement, the contracting company’s name, commercial registration number, and the legal capacity of its representative should be clearly identified. The party responsible for financial and operational obligations should also be specified.

Companies should avoid using the group’s name in general terms without identifying the legal entity assuming the contractual responsibility.

4. Regulate Guarantees and Sureties

If one company decides to guarantee another company’s obligation, the guarantee should be issued in accordance with the required authorities and resolutions, with its value, duration, and scope clearly specified.

5. Comply with Corporate Governance Requirements

Clear policies governing conflicts of interest, related-party transactions, and internal approvals help reduce disputes and make financial and administrative decisions easier to review and substantiate.

6. Review Asset Transfers Between Companies

Any sale, transfer of an asset, or assignment of a right between companies within the group should be documented, including the financial consideration and commercial basis of the transaction.

Companies should also ensure that such transactions are not used to harm creditors’ rights or circumvent existing obligations.

Eleventh: Common Mistakes When Dealing with Debts Within Corporate Groups

Several mistakes are frequently made by creditors and companies, potentially delaying debt recovery or creating additional legal disputes.

The most common include:

Assuming that the holding company is automatically liable for all debts of its subsidiaries.
Filing an enforcement application against a company that is not a party to the enforceable instrument without an independent legal basis.
Confusing a branch with a subsidiary.
Treating a shared brand as sufficient evidence of a single financial liability.
Failing to review guarantees and sureties before granting financing.
Transferring funds between companies without clear contracts or accounting documents.
Using one company’s accounts to pay another company’s obligations without proper documentation.
Failing to verify the authority of a manager or company representative when signing contracts.
Neglecting to document related-party transactions.
Delaying necessary action when indications of asset diversion or concealment arise.

Properly addressing these matters begins with identifying the legally responsible entity, examining the contractual relationship, guarantees, and available evidence, and then selecting the appropriate legal procedure.

Twelfth: Frequently Asked Questions About Enforcement Against Holding and Subsidiary Companies

Can the assets of a holding company be attached because of a debt owed by a subsidiary?

As a general rule, no, because each company has an independent financial liability. However, the holding company may be pursued if it is obligated under a surety, guarantee, or contract, or if an independent legal basis for liability exists.

Is a subsidiary responsible for the debts of its holding company?

A subsidiary is not automatically responsible for the holding company’s debts merely because it is a subsidiary. Liability may arise if it provides a guarantee, enters into a contractual obligation, or if a statutory circumstance permitting recourse against it exists.

Can enforcement be pursued against a sister company?

As a general rule, a sister company is independent of the debtor company, and its assets cannot be subject to enforcement merely because of common ownership or membership in the same group. Pursuing it requires an independent legal or contractual basis.

Can enforcement be pursued against the branches of the debtor company?

Yes, in principle, because a branch does not have a separate legal personality or independent financial liability from the company to which it belongs. Its assets are considered part of the company’s assets, subject to the applicable legal provisions and procedures.

Is a shared bank account sufficient to establish that companies are liable for one another’s debts?

No. A shared bank account alone is not sufficient to establish that one company is liable for another company’s debts. However, it may be one of the circumstances requiring an examination of the nature of the transactions, transfers, and related documents, particularly if accompanied by indications of sham arrangements or harm to creditors.

Can a creditor demand that a company manager pay the debt from personal assets?

A manager is not personally liable for the company’s debt merely because of their managerial position. However, personal liability for compensation may arise if the grounds for liability established under the Companies Law or other relevant legislation are met.

What is the difference between a guarantee, a surety, and a pledge?

A surety is an obligation undertaken by a person or company to secure the debtor’s performance of an obligation, in accordance with the applicable rules. A pledge, on the other hand, grants the creditor security over a specific asset or defined assets under the law. The legal effects and conditions for recourse and enforcement differ according to the agreement and applicable legislation.

Conclusion: Corporate Independence Does Not Prevent the Protection of Creditors’ Rights

Having a holding company and several subsidiaries gives a corporate group flexibility in distributing business activities and managing investments. However, it does not eliminate the need to respect the separate legal personality and independent financial liability of each company.

As a general rule, each company is responsible for its own debts, and liability does not automatically extend to other companies merely because of common ownership or management. Nevertheless, the law may permit recourse against another company if it has undertaken the debt under a guarantee, surety, or contract, or if facts and evidence establish an independent basis for liability under applicable legal provisions.

Protecting commercial rights therefore requires accurately identifying the debtor, reviewing contracts and guarantees, documenting transactions between companies, and examining any transactions that may affect the debtor’s assets or creditors’ rights.

Whether you are a creditor seeking to recover outstanding dues from a company within a corporate group or managing a holding or subsidiary company and seeking to protect its legal structure, early legal review can help identify responsibilities, select appropriate procedures, and avoid disputes that may affect your commercial interests.

Suleiman Al-Omari Law Office

Lawyers and Legal and Sharia Consultants

Suleiman Al-Omari Law Office provides legal advisory services in commercial and enforcement matters, reviews corporate contracts, guarantees, and surety agreements, examines the legal liabilities of holding and subsidiary companies, and handles disputes relating to debts and commercial rights. These services help companies and creditors protect their interests and take appropriate legal action.

📞 Contact:

+966537778130

This article is for educational and informational purposes only and does not replace specialized legal advice.

Legal References

Saudi Companies Law – Chapter Nine concerning holding and subsidiary companies, and the provisions relating to separate financial liability and management liability:
https://laws.boe.gov.sa/BoeLaws/Laws/LawDetails/a8376aea-1bc3-49d4-9027-aed900b555af/1
Saudi Civil Transactions Law – Provisions concerning surety and its legal effects:
https://laws.boe.gov.sa/BoeLaws/Laws/LawDetails/655fdb42-8c96-422b-b8c4-b04f0095c94c/1
New Saudi Enforcement Law – Provisions concerning enforceable instruments, enforcement procedures, attachment, and enforcement disputes:
https://laws.boe.gov.sa/BoeLaws/Laws/LawDetails/67dd54bc-c33a-48c8-8356-b44700a9ab55/1
Commercial Pledge Law – Provisions concerning pledging assets and rights and enforcing against pledged property:
https://laws.boe.gov.sa/BoeLaws/Laws/LawDetails/e7bd6fcc-c29c-4696-8032-aae9009b113a/1