26 November, 2018

Government of Kazakhstan approves draft law on improvement of rehabilitation and bankruptcy procedures

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At the Government meeting chaired by the Prime Minister Bakytzhan Sagintayev, the draft Law “On Amendments to Some Legislative Acts of the Republic of Kazakhstan on Improving Rehabilitation and Bankruptcy Procedures” was approved.

According to the Minister of Finance Alikhan Smailov, today about 4,000 business entities are undergoing the bankruptcy procedure, 400 enterprises are in the rehabilitation stage. The main directions of the draft law are the simplification of conditions for the application of rehabilitation and bankruptcy procedures, the reduction of the terms of procedures and the simplified liquidation of inactive debtors.

According to Smailov, when applying the rehabilitation procedure, today the court should establish not only the fact of the payments termination, but also the fact that the debtor has the opportunity to restore solvency.

“The bill proposes to facilitate this task: the court records the presence of unfulfilled obligations over three months and the fact of a ‘positive’ balance. This confirms the company's ability to restore its financial position. Similarly it works in bankruptcy,” said the minister.

Thus, the draft law provides for the specification of the input criteria for opening the bankruptcy process. The court will need to establish the fact of a “negative” balance on the date of filing the application for declaring the debtor bankrupt, as evidence of the insolvency of the entity. Thus, according to Smailov, the bill eliminates uncertainty and simplifies entry into rehabilitation and bankruptcy procedures.

In addition, it will be possible to rehabilitate individual entrepreneurs, who today can not apply the rehabilitation procedure and are forced to go bankrupt.

“It is proposed to cancel all arrests on the debtor’s accounts and property since the court approved the rehabilitation plan. This will enable the company to proceed with the implementation of planned activities, without being distracted by litigation,” said Smailov.

However, in order to prevent the use of rehabilitation by unscrupulous subjects, the draft law provides for restrictive measures. In particular, a ban has been established for the use of rehabilitation, if six months have not expired from the day the court decided to refuse to use such a procedure.

In order to reduce the time of the bankruptcy procedure, the leading role in the procedures is assigned to creditors, since they are persons directly interested in the outcome of the process. Lenders exercise their powers through a meeting of creditors and a committee of creditors. However, the meeting of creditors is time-consuming and financial and involves the participation of all creditors, which can be dozens, and sometimes hundreds. On average, according to the Ministry of Finance, one bankrupt spends up to 7.5 months to convene all creditors' meetings

“It is proposed to transfer a number of powers of the meeting of creditors to a more mobile committee of creditors. After this, a significant optimization of the terms of the bankruptcy procedure is expected,” said Smailov. The committee, in turn, is elected by the assembly, is its representative body, but it is small in number, and the procedure for its convocation is simpler.

However, the bill requires creditors to file their claims for bankruptcy only within the expiration period.

It should be noted that the current legislation provides for liability for intentional and false bankruptcy. However, for the further improvement the Ministry of Finance proposed to specify the corpus delicti of bankrupt officials as causing property damage to the legitimate rights and interests of creditors. That is, it will be sufficient to establish the fact that the official removed the property before bankruptcy and caused damage to the interests of the creditors.

Changes are also provided to establish the responsibility of the actual beneficiaries of bankruptcy, that is, directly those persons as a result of whose actions the company went bankrupt.

In addition, it is proposed to introduce a simplified procedure for bankruptcy of debtors without the involvement of the administrator. This will allow quickly and without unnecessary costs to eliminate debtors who actually ceased business.

“It is expected that the proposed initiatives will allow a 32% increase in the use of rehabilitation and bankruptcy procedures by business entities, reduce the time to 25% and the cost of their implementation to 40%, which will positively affect Kazakhstan’s position on the ‘Insolvency Resolution’ indicator in the World Bank’s Doing Business ranking,” Smailov summarized.

Chairman of the Board of Atameken NCE Ablay Myrzakhmetov noted that the amendments to the bill will have a positive impact on conducting bankruptcy and rehabilitation procedures. The National Chamber supports this bill and its amendments.

Recall, the Head of State in September 2017 at the opening of the third session of the sixth convocation of Parliament noted the need to improve rehabilitation and bankruptcy procedures.

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