In Kazakhstan, the current law "on rehabilitation and bankruptcy" was adopted on March 7, 2014. On January 10, 2020, changes made to the Law that transformed the criteria for applying to the court and the mechanism of bankruptcy procedure came into force.
Grounds for bankruptcy
Debtor company: the basis for the debtor's appeal to the court for its own bankruptcy is a sustainable insolvency. Insolvency is considered sustainable if the total amount of the company's liabilities exceeds the total value of its assets in each of the following periods:
- on the date of filing for bankruptcy in court;
- at the beginning of the calendar year in which the application was submitted;
- if the application was submitted in the 1st quarter of the year, then at the beginning of the year preceding the year of application.
For example, if a company plans to file for bankruptcy on January 31, 2020, its liabilities must exceed the value of the property as of January 31, 2020, as of January 01, 2020, and as of January 01, 2019. Property in this case should be understood as money, accounts receivable, inventory, fixed assets, intangible, biological assets and any other assets of the company.
Creditor: Any creditor other than tax and customs payment creditor may apply to the court for bankruptcy of the debtor in one of the following cases:
- there is a valid judicial act on recovery;
- there is an writ of execution;
- there is a document confirming the recognition of the debt by the debtor.
Creditor for taxes and customs payments: In the event of a tax debt or customs payment arrears, the state revenue authority is obliged to apply enforcement measures against the taxpayer: collection from the money held in Bank accounts and from the accounts of debtors; sale of property; compulsory issue of declared shares; inclusion in the list of taxpayers with tax arrears, and its publication in the media.
The state revenue authority has the right to apply to the court for bankruptcy of the taxpayer only after taking all the listed measures of compulsory recovery.
Court review of a bankruptcy application
The selection of a temporary Manager. Before filing for bankruptcy, the applicant (debtor or creditor) must select a temporary Manager who will appear before the court as a specialist, and enter into an agreement with him to exercise the powers of the temporary Manager. If the application is filed by a state revenue agency, other state organization or quasi-state enterprise, the temporary Manager Is appointed by the the Department of State Revenue of the relevant region no later than 2 working days from the date of initiation of the civil case. The main task of the temporary Manager at this stage is to collect information, as well as to provide the court with an opinion on the financial stability of the debtor. The register of persons who can act as a temporary Manager (administrator) is published on the website of the Department of State Revenue of the Republic of Kazakhstan.
Within 5 business days from the date of filing the bankruptcy application, the court initiates the case, or returns the application in case of non-compliance with its form and filing procedure.
Restrictions for the debtor and creditors. An important task of the bankruptcy procedure is to prevent the withdrawal of assets by the debtor or one of the creditors to the detriment of other creditors. Therefore, from the moment of initiation of bankruptcy proceedings by the court:
- individual entrepreneurs, founders, owners and bodies of a legal entity are prohibited from using and selling the debtor's property. The exception is the usual commercial operations that are necessary to maintain the company's operations (rent and utility payments, equipment maintenance, sales of finished products, etc.);
- the execution of previously issued judicial acts in respect of the debtor's property, debiting money from the debtor's Bank accounts and foreclosing on the property is suspended. Creditors can only claim any property claims as part of the bankruptcy procedure;
- participants and shareholders are prohibited from alienating shares and shares in the authorized capital of the debtor;
- the accrual of a penalty by creditors is suspended.
The temporary Manager conducts an analysis and, based on the data obtained, submits to the court an opinion on the financial stability of the debtor, which indicates one of the following conclusions:
- there are grounds for declaring the debtor bankrupt;
- there are no grounds for declaring the debtor bankrupt, but there are grounds for applying the rehabilitation procedure;
- the application for recognition as a bankrupt is unfounded.
It is important to know for the Director. The debtor must provide the temporary Manager with access to accounting documents, as well as provide detailed information about financial and economic activities (the temporary Manager requires access to 1C, primary documents on transactions, Bank statements and tax returns of the debtor for the last 3 years). This responsibility is assigned to the Director of the company, unless otherwise stipulated in the company's internal documents. In case of failure to provide information within 3 business days from the date of appointment of the temporary Manager, the Director may be held subsidiary liable, that is, to answer with all his property for the debts of the bankrupt company.
The court considers all the evidence in the case, as well as the conclusion of the temporary Manager as one of the evidence, within 2 months from the date of initiation and makes a decision:
- about recognition of the debtor as bankrupt and its liquidation with initiation of bankruptcy proceedings. From this moment, the debtor's bankruptcy procedure begins.
- about refusal to recognize the debtor as bankrupt. In case of refusal, all restrictions imposed are removed, and the debtor is returned to its original position before submitting the application. The debtor has the right to file for bankruptcy again at any time. The creditor has the right to file for bankruptcy of the debtor again if the circumstances change.
The existence of formal grounds for filing an application does not guarantee that the court will decide on bankruptcy. In practice, it is important for the court to examine all aspects of the company's activities, make sure that the business is conducted in good faith and legally, and get real evidence that the company is insolvent and it is impossible to restore its activities.
Bankruptcy procedure and liquidation of the debtor
The term of the bankruptcy procedure is 9 months and, if there are grounds, can be extended to two years. If necessary, the term can be extended again. The law does not limit the number of extensions, but the total term of the bankruptcy procedure should not exceed 5 years.
Restrictions for the debtor. From the moment the court announces the decision to declare the debtor bankrupt, all its bodies are removed, and the management of the debtor's affairs and property passes to the temporary Manager, who forms the register of creditors ' claims, conducts an inventory of property and the first meeting of creditors, at which creditors choose the candidate of the bankrupt Manager.
The bankruptcy manager searches for, returns to the estate, takes inventory and evaluates the property, sells it, and makes settlements with creditors. The bankrupt Manager is authorized to file claims with any claims in favor of the bankrupt, and is exempt from paying state fees. Separately, the law provides for the powers of a bankrupt Manager:
- make claims to debtors of a bankrupt in pre-trial and judicial proceedings;
- identify the debtor's transactions made in the period before the initiation of bankruptcy proceedings, and recognize them as invalid in court;
- bring officials of the bankrupt, its participants and other persons to vicarious liability in court.
Based on the results of settlements with creditors, the bankruptcy Manager makes a final report on its activities, which is approved by the creditors and submitted to the court for approval. The court shall approve the final report and the liquidation balance sheet no later than 15 calendar days and issue a ruling on the termination of the bankruptcy procedure. The bankrupt is considered to be released from debt, and the bankruptcy procedure is completed.