BANKRUPTCY
Kazakhstan law defines bankruptcy as the debtor’s insolvency determined by court and used as grounds for the dissolution of such debtor.
Declaration of Bankruptcy
Bankruptcy may be voluntary or involuntary.
A court may declare a debtor bankrupt after the latter files a voluntary bankruptcy petition.
A debtor may file for bankruptcy and liquidation when it is struggling with pervasive insolvency, where the expression “pervasive insolvency” implies that the debtor’s liability exceeds the value of their assets as at the date of the filing and at the beginning of the year preceding the year in which the filing takes place, if the debtor files for bankruptcy and liquidation in the first quarter of a calendar year.
A debtor must file a bankruptcy petition with a court when the owner of its assets, or its authorized body, or a corporate body of an entity appropriately authorized by virtue of constituent documents decides to dissolve the debtor and when its asset balance is not sufficient to fully satisfy claims of its creditors.
Involuntary bankruptcy may be declared subject to a petition from creditor(s) claiming that the debtor is insolvent and that it must be liquidated through bankruptcy proceedings. A creditor may file such petition when the debtor fails to repay its debt to the creditor in pursuance of a final and binding court order or a warrant of execution to recover the debt, or when the debtor acknowledges the debt, unless otherwise provided for by the Kazakhstan Law On Rehabilitation and Bankruptcy.
Deliberate Bankruptcy
Deliberate bankruptcy means the actions taken by a founder/participant/officer of an entity or by a sole trader, either for their personal benefit or for the benefit of third parties, in an attempt to evade their debt to creditors through the alienation or concealment of property during a 3-year period until the entity/sole trader is declared bankrupt.
The founder/participant and/or officer of an entity who is/are found to be guilty of deliberate bankruptcy through administrative or criminal proceedings shall bear subsidiary liability to creditors to the extent of their assets determined by the court order subject to which the subsidiarily liable person has been found guilty of deliberate bankruptcy through administrative or criminal proceedings.
When two or more persons are found guilty of deliberate bankruptcy through administrative or criminal proceedings, such persons shall be jointly and severally liable.
Effects of Bankruptcy Proceedings
Upon issuance of a notice of initiation of rehabilitation or bankruptcy proceedings:
1) the debtor sole trader, assets owner, founder/participant and all corporate bodies of the debtor entity shall be prohibited from using or disposing of the debtor’s assets outside the normal course of business;
2) enforcement of earlier court judgments, arbitration awards and decisions of state revenue authorities and the debtor’s owners (founders/participants) or authorised bodies thereof, or the debtor’s bodies with respect to the debtor’s assets shall be suspended, save for damages to individuals to whom the debtor may be liable for causing harm to their life or health, excluding non-pecuniary damages;
3) fine/penalty/charge accruals on any of the debtor’s liabilities shall be stopped;
4) any creditors’ actions against the debtor shall not exceed the extent of bankruptcy/rehabilitation proceedings prescribed by the Law On Rehabilitation and Bankruptcy, unless such actions relate to the performance of third party guarantees and indemnities or foreclosure on assets pledged by a third party;
5) no cash may be withdrawn from the debtor’s bank accounts at the request of a creditor or state revenue authority or another government authority responsible for the assessment and/or collection of obligatory payments to the budget, including those which must be satisfied without further notice/acceptance, and none of the debtor’s assets may be foreclosed on; and
6) none of shares/interests in the debtor may be disposed of.
A bankruptcy case must be heard in court within maximum two months from the date of its initiation.
Management of Debtor’s Assets and Affairs
Upon declaration of bankruptcy by a court, the right to manage the debtor’s assets and affairs is vested in an interim receiver.
The debtor shall, within three business days after the issuance of the bankruptcy ruling, transfer to the interim receiver all constituent documents, seals (if any) and stamps, and, within ten business days – all accounting documents and titles to the bankrupt’s assets.
The interim receiver may:
1) request from government authorities, corporations or individuals any information about the debtor and their assets, including copies of documentary evidence which must be provided free of charge within ten business days after the request filing;
2) reveal the transactions made by the debtor after their invalidation and after the reclamation of the debtor’s assets, and claim in court (also on the basis of a petition from the creditor who detected such transactions) the invalidation of such transactions and the return of assets;
3) request from creditors the documents proving the causes of action and claimed amounts; and
4) exercise any other rights provided for by the Kazakhstan Law On Rehabilitation and Bankruptcy and other laws of the Republic of Kazakhstan.
Further, upon the commencement of bankruptcy procedure, based on the resolution of a creditors’ meeting, the competent authority shall appoint a bankruptcy manager of the debtor to whom the former interim administrator shall assign all their powers.
The creditors’ meeting and creditors’ committee are also vested with considerable authority with respect to the debtor’s assets.
Settlements with creditors
Settlements with creditors are ranked, i.e. the lower-ranked claims are satisfied after the higher-ranked claims.
Those creditors’ claims which remain undischarged due to the lack of the bankrupt’s assets are deemed discharged. Such amounts are written-off by the creditor against accounts receivable subject to a court ruling on the discharge of bankruptcy.
After all creditors’ claims are discharged, the interim receiver must submit to the court the final report on his/her activity approved by the creditors’ meeting accompanied by the liquidation balance sheet and the statement on distribution of assets remaining after the settlement of liabilities to creditors. The court must approve the final report of the interim receiver and liquidation balance sheet and issue a ruling on the discharge of bankruptcy within ten business days after the submission thereof.
Debt Relief
After the final settlement with creditors, the sole trader recognized bankrupt is exempt from the performance of the remaining liabilities connected with their business, save for the claims from individuals to whom the bankrupt is liable for damages to human life or health and any other claims of a personal nature set forth in Kazakhstan laws. The bankrupt’s obligations to creditors outstanding after the completion of bankruptcy proceedings shall be performed by the person in relation to which the court issued a final judgment for recovery of such amounts in favour of the creditors (in accordance with their subordination) to the extent of the damages fixed by the judgment and subject to which such person has been adjudged guilty of deliberate bankruptcy through administrative or criminal proceedings.
Winding-up of Bankrupt Legal Entities (Liquidation)
Bankrupt liquidation is deemed to be completed and bankrupt is deemed to be wound up after the relevant entry into the state register of legal entities is made (if the bankrupt is a legal entity) or after the bankrupt is deregistered with the state registration authority (if the bankrupt is a sole trader). Orders on deregistration of a bankrupt by state registration authorities are delivered to court, competent authorities and state revenue authorities in the bankrupt’s jurisdiction.
Rehabilitation Proceedings
A rehabilitation proceeding is the legal process by which a debtor is applied reorganisation, organisation, economic, governance, investment, technical, financial, legal and other measures permitted by Kazakhstan law for the reestablishment of the debtor’s solvency.
Rehabilitation proceedings may be applied to a debtor in response to the relevant application either from the debtor itself or from a creditor.
The reason for the debtor’s/creditor’s application to court for invocation of rehabilitation process can be the debtor’s temporary insolvency.
Insolvency is deemed to be temporary when, as at the date of the application filing, one or both of the below criteria are met:
1) the creditors’ claims for compensation for damage to life and health, outstanding alimonies, unpaid wages, compensation under employment contracts, unpaid contributions to the state social security fund, pension fund and compulsory pension insurance scheme, outstanding deductions and/or contributions to the compulsory social medical insurance fund, and unpaid awards to authors of inventions, utility models or industrial designs have remained unperformed for three months after their maturity date; and/or
2) all other creditors’ claims have remained unperformed for four months after their maturity date.
Rehabilitation procedure may be applied to a debtor through legal action.
The term of rehabilitation procedure is determined by court in its ruling on the adoption of a rehabilitation plan and begins to run from the effective date of such ruling. The court may, subject to an appropriate petition from the rehabilitation manager and with consent of the creditors’ meeting, extend the term only once for maximum six months.
Kazakhstan law defines rehabilitation plan as a set of coherent measures aimed at the sanation (recovery) of a debtor through rehabilitation proceedings which are performed by mutual consent of the debtor and creditors in order to re-establish the debtor’s solvency and to retain its employees, specifying the deadlines for such plan implementation, including the schedule for discharge of creditors’ claims, as well as achievable results, used resources and potential risks. A rehabilitation plan should describe certain measures for re-establishment of the debtor’s insolvency (rehabilitation measures) and set out the schedule for discharge of liabilities to creditors.
A rehabilitation plan must be developed by the debtor together with its creditors and rehabilitation manager within three months after the effective date of the decision on invocation of rehabilitation proceedings. The adopted rehabilitation plan must ensure equal treatment of creditors’ claims of the same rank.
The right for rehabilitation must be exercised within five years. The interim receiver must submit to court their opinion on the debtor’s solvency.
The effect of rehabilitation proceedings is, to a large extent, similar to the effect of bankruptcy proceedings, with a few exceptions.
After the judgment on the application of rehabilitation procedure enters into force, the following effects will follow:
1) any transactions with assets outside the ordinary course of business will be prohibited;
2) the accrual of any interest on received loans and issued bonds will be stopped; and
3) the enforcement of any court judgments, arbitration awards or decisions adopted by state revenue authorities, as well as a debtor sole trader, owner of the debtor’s assets (or their authorized bodies) or founders/participants of a debtor entity with regard to the debtor’s assets, except for the payments to citizens to whom the debtor is liable for damages to human life or health (except for non-pecuniary damages) which matured after the application of rehabilitation procedure, will be suspended.
The rehabilitation manager must, based on the resolution of the creditors’ meeting, apply to court for the termination of rehabilitation procedure when:
1) the objective of such rehabilitation procedure is achieved; or
2) the total amount of the debtor’s liabilities arising after the application of rehabilitation procedure exceeds twenty percent of the total amount of accounts payable as at the effective date of the court’s judgment on the application of rehabilitation procedure.
The rehabilitation manager’s application must be supported by the appropriate final report.
Usually, when the objective of rehabilitation procedure remains unachieved, the debtor is applied bankruptcy procedure.