Resolution on application of bankruptcy and rehabilitation legislation by courts of Kazakhstan23 февраля 2016, 17:31
GRATA Finance & Securities Group has released a legal alert covering important legal developments in the Kazakhstani legislation that occurred in 2015.
Most of the changes were introduced in the legislation pursuant to adoption in May 2015 of a new policy document – the Plan of the Nation: 100 Steps for Implementation of 5 Institutional Reforms – governing the development of Kazakhstan in the short-term perspective.
The legal review covers the following areas:
1. Law on Corruption Countermeasures
2. New Civil Procedure Code
3. Law on Astana International Financial Center
4. Law on Judicial System
5. Law on Supreme Judicial Council
6. Resolution on Application of Bankruptcy and Rehabilitation Legislation by the Courts
7. New Commercial Code
8. PPP Law
9. Law on WTO Accession
10. Law on Special Defensive, Antidumping and Compensational Measures
11. Law on Ownership Right Further Protection
12. Law on Amendments to Electric Power Industry
13. Law on Amendments Related to Non-performing Loans, Financial Services and Financial Organisations
14. Law on Agricultural Cooperatives
15. Privatisation Decree
16. Rules of Electronic Trades
17. New Procurement Law
Each of them is addressed in a separate release on our website, whereas the today’s release deals with the Resolution on application of bankruptcy and rehabilitation legislation by the courts of Kazakhstan.
RESOLUTION ON APPLICATION OF BANKRUPTCY AND REHABILITATION LEGISLATION BY THE COURTS
The Resolution (Regulatory Resolution of the Supreme Court of the Republic of Kazakhstan no. 5 dated 2 October 2015 “On Practice of Application of Bankruptcy and Rehabilitation Legislation”) has been issued by the Supreme Court of Kazakhstan and is effective from 24 October 2015. It is aimed on consistent and correct application of rehabilitation and bankruptcy legislation by the Kazakh courts and is mandatory for all the Kazakh judges and other persons in Kazakhstan.
The Resolution reminded and clarified to the courts the following main points:
Claim for the bankruptcy shall be dismissed by the court if the amount of overdue indebtedness is less than the threshold established by law (1,000 monthly calculation indexes or approximately USD 6,000). In addition to this overdue amount threshold, the law also establishes general overdue tenor requirement to file for the bankruptcy (3 months). The Resolution, however, is silent on overdue requirement and expressly prescribes the courts to dismiss the claim only in case the amount threshold is not met.
Claim for the bankruptcy of absent debtor (Absent debtor is the debtor, the place of residence or registration or location of corporate bodies of which etc. cannot be established within 6 months) may be submitted by any creditor or prosecutor irrespective of the amount and overdue period of the debt (As compared to other debtors, bankruptcy proceedings against which can be generally initiated if (i) the amount of overdue debt is approximately USD 6,000 and (ii) such debt is overdue for 3 months);
At the moment of acceptance the claim of debtor/creditor for initiation of bankruptcy/rehabilitation proceedings, the court shall check if the claim has been duly executed by the relevant signatory in accordance with constitutional documents of the claimant. If the court decides that the claim has not been duly executed, or the claimant failed to attach the documents confirming authority of the signatory to the claim, the claim shall be dismissed by the court.
Previous court proceedings against the debtor are terminated in case of issuance of the court resolution on recognition of the debtor as bankrupt. Claims considered in such proceedings shall be filed by the creditors in the course of the debtor’s bankruptcy. Bankruptcy manager shall notify all the relevant courts that previous court proceedings considered by them shall be terminated due to issuance of the court resolution on recognition of the debtor as bankrupt.
The Resolution clarified that the court cannot apply injunctive relief measures at its own discretion and shall do so only if requested by the creditor in its claim. In application of injunctive relief measures, the court shall consider whether such measures are reasonable, provide for safety of the debtor’s property, do not interfere business activity of debtors with activities related to national security, environmental protection, life and health of people etc.
If the claim for the bankruptcy is submitted by a creditor while it has been already initiated by another creditor, the court shall merge both claims to consider them simultaneously (provided that the court has not issue the resolution on initiation of bankruptcy proceeding against the debtor).
Initiation of bankruptcy/rehabilitation proceeding does not automatically terminate other proceedings against the debtor. The question on enforcement of court resolutions on such proceedings shall be resolved in the course of bankruptcy/rehabilitation proceeding.
The ground for recognition of the debtor as bankrupt is debtor’s insolvency (inability to pay its debts). The Resolution clarified that there are different insolvency criteria for different types of debtors. For example, the insolvency of a bank can be established only based on relevant conclusion of the financial regulator – the National Bank of Kazakhstan (the “National Bank”).
The applications for initiation of bankruptcy/rehabilitation proceeding against the debtor may be generally withdrawn by the applicant creditors/prosecutor before issuance of the court resolution on recognition of the debtor as bankrupt/introduction of rehabilitation in relation to the debtor.
Temporary manager (The person appointed by the court for the purposes of collection of information on financial position of the debtor before appointment of bankruptcy manager) shall prepare analytical report on financial position of the debtor and its solvency. The Resolution clarified that such analytical report shall be considered as evidence in consideration by the court of the bankruptcy case, but such analytical report shall not prevail over other evidence presented in the proceedings.
The Resolution clarified that rehabilitation can be introduced by the court only if two conditions are simultaneously met: (i) insolvency (inability to pay its debts) or threat of insolvency of the debtor and (ii) real possibility of recovery of solvency of the debtor. The court is not entitled to introduce rehabilitation in relation to the debtor which did not prove its insolvency or threat of insolvency to avoid use of rehabilitation by debtors as a way to delay due payments to the creditors.
In rehabilitation, the management over the debtor may be kept by its management bodies upon application of its shareholders subject to consent of the creditors’ committee (otherwise, the management over the debtor in rehabilitation is executed by the rehabilitation manager which is appointed by the special state body for work with insolvent creditors from the candidates registered with such authorised body and suggested by the creditors). In case of default of debtor on payments according to schedule established in rehabilitation, the court shall put aside the management of the insolvent debtor and replace it with rehabilitation manager to be appointed as described above.
The temporary administrator (in rehabilitation) or temporary manager (in bankruptcy) are the persons appointed by the court prior to appointment of rehabilitation manager/bankruptcy manager, respectively for the purpose of, inter alia, preparation of the register of creditors claims. The creditors must file their claims to temporary administrator/temporary manager for the purpose of preparation of the register of creditors’ claims within one month from the moment of relevant publication. If the claim is filed after this deadline, it still shall be included to the register of creditors’ claims, however, the delayed creditor is deprived of the voting right at the creditors’ meeting until satisfaction of the claims of the creditors who submitted their claims in time. In bankruptcy, the claims of delayed creditors (if filed prior to approval of liquidation balance) shall be satisfied only after satisfaction of the creditors who submitted their claims in time (including secured creditors).
Further, the decision of the temporary administrator/temporary manager on inclusion/refusal of a creditor’s claim to the register of creditors’ claims can be challenged by the relevant creditor, debtor, its shareholder to the court within 10 business days from the moment of its issuance. If this deadline is missed, the decision of the temporary administrator/temporary manager cannot be challenged. If the challenge is accepted, the court shall determine the priority in which the relevant claim shall be included to the register of the creditors’ claims.
The Resolution clarified that the temporary administrator/temporary manager is not entitled to prepare register of the creditors’ claims based on balance sheet of the debtor – instead, he/she shall check the documents that do confirm the claim.
The priority of satisfaction of creditors’ claims is as follows: (i) claims for compensation of life and health damage, alimony payments, employment and social payments, pension payments, payments under copyright agreements; (ii) secured creditors’ claims; (iii) tax claims; (iv) unsecured creditors claims; (v) claims for fines and damages.
Claims of secured creditors based on improperly drafted/executed pledge agreement and in the part not covered by the pledge agreement, shall be included to the fourth priority.
The creditors’ meeting can decide to transfer the pledge property directly to the secured creditor, provided that it will satisfy the claims of all preceding creditors and expenses for maintaining of the pledged property. If the secured creditor does not show up at the relevant creditors’ meeting, it shall be considered that such creditor refused from acceptance of the pledged property (provided that it was duly notified).
Tax claims (third priority) shall include the amounts of tax deficiencies, default interest and fines.
The courts shall take into consideration that the main obligations of unsecured creditors shall be included in the fourth priority separately from claims for fines and damages under such unsecured claims that shall be included in the fifth priority.
In case of identification of deliberate bankruptcy facts in the course of bankruptcy proceeding, bankruptcy manager is obliged, and the creditors are entitled to claim from the person who committed relevant actions satisfaction of the claims of the creditors outstanding due to insufficiency of the property of the bankrupt entity.
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