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Bankruptcy Law
Adopted in 1997 and based primarily on a Western model, Kazakhstan's bankruptcy law adopts the binary “liquidation or rehabilitation” options. In this approach, the courts supervise the collection of information sufficient for creditors to decide whether the company should be liquidated or rehabilitated. If the company cannot be rehabilitated within 2.5 years, it is declared bankrupt.
Filing of bankruptcy creates a moratorium on debt repayment, allowing the debtor company to attempt rehabilitation. In addition, the law permits some flexibility in negotiating by permitting extra-judicial settlements directly between the debtor and creditors, although the scope of such agreements is limited.
Creditors may initiate bankruptcy proceedings by showing that the debtor is 90 days overdue on debt of more than “150 minimum monthly salaries.” Creditors may combine their claims to meet the size-of-claim requirement. Once a proceeding has been initiated, the law prohibits the debtor from disposing of or transferring its assets. This can be an important tool for a creditor who is trying to stop the debtor from selling assets in a non-competitive sale.
Despite improvements in the law, all too often debtors succeed in defrauding shareholders and frustrating creditors’ rights. The typical pattern is for management of a large state company to file for bankruptcy after the company has been run into the ground. Although there is a voidable preference period of one year in Kazakhstan, fraudulent or illegal “anticipatory” transfers are infrequently stopped or voided. Thus theory and practice have not sufficiently intersected.
(Note: This information was taken from the Bankruptcy chapter of the 1999 Kazakhstan BizCLIR report. For more information, please see the report.)
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