A multi-billion dollar dispute, Middle East family businesses, and trusting the in-laws

No one has ever suggested that family businesses in Saudi Arabia function transparently. Of course, that’s not really the point, as long as they make money for the family and their stakeholders then everyone is happy. And most of the time they do - and no one asks any questions.  

But a long-running dispute between Ahmad Hamad Algosaibi & Brothers (AHAB), one of Saudi’s oldest and most successful family businesses, and a Saudi multi-millionaire called Maan Al-Sanea, shows what happens when it doesn’t go so well.

Briefly, here’s an outline of the trial between the two parties, which is currently underway in the Cayman Islands. Those representing AHAB claim the collapse of the family business empire was a result of a fraud committed by Maan Al-Sanea. Al-Sanea set up the Saad Group in the early 1980s and in the meantime married one of the daughters of the founders of AHAB. Before the financial crisis of 2008/2009, the Saad Group was estimated to have assets worth around $30 billion.

A trusted in-law, Al-Sanea was put in charge of the AHAB’s financial-services business, the Money Exchange. But things went awry when the financial crisis hit in 2008/2009. It is alleged by the plaintiff AHAB that over a twenty-year period, Al-Sanea took out loans, most unsecured, on the strength of the AHAB name. Hit by the financial crisis, banks stopped lending and AHAB defaulted on payment to them, which led to its financial difficulties. The sums involved amount to billions of dollars.

Seven years later - things often move slowly when there’s billions of dollars in dispute - AHAB said this week that it has signed a deal with a majority of its creditor banks to restructure around $6 billion of its debt. AHAB  plans to pay more of its debt back if it wins its Cayman Islands court case against Al-Sanea. Obviously, there’s still much yet to come out involving the dispute - and the court case in the Cayman Islands has already been delayed once and could easily be delayed again. At the very least, for the rest of the world the dispute has opened up the world of Saudi family businesses - of course, not in a way that many of them would like.

 

Lessons for other family businesses?

There are many lessons for family businesses from this case, but perhaps the biggest one is the role of in-laws within the family business. The case against Al-Sanea has yet to be proved, and he of course might have been acting perfectly legally. But it might be wise for any family business that plans to bring an in-law into the business, no matter how rich and powerful they are, to try them out in a less important role before giving them too much power.

Another lesson involves borrowing. It’s often assumed that family businesses don’t borrow much, but clearly in the case of AHAB they sometimes do. When borrowing takes place without the necessary checks and balances, debt can become an existential issue for family businesses. Of course, borrowing can be good for growth of any business, but it might be a good idea to ensure adequate checks and balances are in place to ensure the debt doesn’t destroy the business - and maybe as well not to allow the son/sister in-law too much power in this respect.