On 13 November 2015, the Law of the Republic of Kazakhstan “On Introduction of Amendments and Supplements to Certain Legislative Acts of the Republic of Kazakhstan on the Issues of Rehabilitation and Bankruptcy” (the “Law”) was signed and its provisions were put into effect on 29 November 2015. The Law introduces amendments into the Civil Procedure Code of the Republic of Kazakhstan, the Tax Code of the Republic of Kazakhstan, the Republic of Kazakhstan’s Law “On Rehabilitation and Bankruptcy” and the Republic of Kazakhstan’s Law “On Enforcement Proceedings and the Status of Enforcement Agents”.
Amendments to the Republic of Kazakhstan’s Law “On Rehabilitation and Bankruptcy”, introducing conceptually new means of preventing a business entity from liquidation, shall be highlighted among the amendments introduced by the Law, in particular:
- An initiation of the insolvency arrangement procedure
- A transition from the bankruptcy procedure to the rehabilitation procedure
- A sale of the bankrupt’s enterprise
- Conclusion of a settlement agreement with creditors at any stage of bankruptcy
Below, we provide a detailed review of the aforementioned amendments.
Insolvency arrangement procedure
If a debtor is subject to insolvency, prior to bringing a claim to a court for application of the rehabilitation procedure and/or recognizing him/her as a bankrupt, the debtor may initiate the insolvency arrangement procedure by filing a petition to the court and simultaneously notifying the creditors. If the court issues a decision to initiate the insolvency arrangement procedure with respect to the debtor, the following occurs from the date when such decision comes into force:
- Penalties and fines for all types of debts of the debtor are suspended
- The creditors may not file petitions to the court to recognize a debtor as a bankrupt
- The debtor may not enter into any transactions regarding alienation of the property
Insolvency arrangement agreement (the “Agreement”)
The debtor is obliged to conclude the Agreement with all creditors within two months from the date when the court decision regarding the insolvency arrangement procedure enters into force. The Agreement specifies the procedure, methods and terms of a debtor’s liability before the creditors. The Agreement can be concluded for a period of not more than three years and allows participation of third parties.
Court approval of the Agreement
The debtor appeals to a court for the approval of the Agreement no later than two months from the date when the court decision regarding the insolvency arrangement procedure enters into force. The approval of the Agreement by the court has the following consequences:
- Penalties and fines and compensation for all types of debts of the debtor are suspended
- Removal of all restrictions on debtor’s accounts, without any relevant decisions issued by the government authorities which imposed such restrictions
- Suspension of enforcement of previously adopted court decisions and arbitral tribunal decisions, except for payments to persons to whom the debtor is liable for causing harm to life and health
- Occurrence of new arrests imposed on debtor’s property and other restrictions on disposition of debtor’s property is allowed only in relation to claims against a debtor on recognition of a transaction invalid and reclamation of property from unlawful possession.
Transition from the bankruptcy procedure to the rehabilitation procedure
Prevention of a business entity already recognized as a bankrupt from liquidation is also possible by developing and approving its rehabilitation plan. If the creditors agree with the proposed rehabilitation plan and transition from the bankruptcy procedure to the rehabilitation procedure, a conclusion on its effectiveness or ineffectiveness should be prepared by the bankruptcy manager within ten working days from the day of receiving the rehabilitation plan.
Having the consent of the creditors and the conclusion on effectiveness of the rehabilitation plan, the founder (participant) of the debtor or his authorized person is eligible to file a petition to the court for suspension of the bankruptcy procedure, approval of the rehabilitation plan and initiation of the rehabilitation procedure. If such petition is satisfied by the court, the previously issued decision of the court to recognize the debtor as a bankrupt and to liquidate the debtor shall be discharged by the court which imposed such decision.
Sale of the bankrupt’s enterprise
In order to maintain the business entity that is in the process of bankruptcy, there is an option to sell its enterprise, i.e., a property complex used for business purposes and including all types of property and debts. Sale of the bankrupt’s property complex shall be the cause for the discharge of the previously issued court decision to recognize the debtor as a bankrupt and to liquidate the debtor. After the discharge of the aforementioned court decision, a legal entity or a private entrepreneur may resume its activities.
This procedure is conducted at any stage of the bankruptcy procedure by concluding a settlement agreement between the debtor and the creditors, which shall be approved by the court. Conditions for the conclusion of a settlement agreement might be the following:
- Delay and/or installment of the performance of the liabilities of the bankrupt
- Assignment of claims of the bankrupt
- Performance of the liabilities of the bankrupt by third parties
- Transfer of debt
- Exchange of creditors’ claims to the shares of the bankrupt or participatory interests in the charter capital
- Satisfaction of creditors’ claims by any other means, which do not contradict the legislation of the Republic of Kazakhstan
For the court approval of the settlement agreement, it is necessary to make a debt repayment on claims of the first-tier creditors. The approval of the settlement agreement shall suspend the bankruptcy procedure and the decision to recognize the debtor as a bankrupt and to initiate the bankruptcy procedure will not be subject to further execution. The settlement agreement may be terminated by the court decision in relation to all creditors upon the initiative of creditors who possess 25 per cent or more of claims from the total amount of claims to the debtor.