LAW OF THE REPUBLIC OF KAZAKHSTAN

of January 21, 1997 No. 67-I

About bankruptcy

This Law determines conditions and procedure for holding procedures of the accelerated rehabilitation, rehabilitations, recognitions of the debtor by the bankrupt and his liquidations, and also the procedure of external observation.

Chapter 1. GENERAL PROVISIONS

Article 1. The basic concepts used in this Law

In this Law the following basic concepts are used:

1) monetary commitment - obligation of the debtor to pay cost delivered (transferred) creditors goods (the performed works, the rendered services), to return loan amount with payment of remuneration (interest) for its use, and also to perform payments for other requirements of cash nature;

2) agricultural organization - the organization making agricultural products with use of the earth; making agricultural products of livestock production, poultry farming (including breeding with complete cycle, since cultivation of young growth), beekeepings if the income from realization of these products including processed constitutes more than fifty percent from the total amount of annual earnings;

3) deliberate bankruptcy - the intentional creation or increase in insolvency made by the head or the owner of the commercial organization, and equally individual entrepreneur in private interests or for the benefit of other persons;

4) administrative expenses – the expenses connected with initiation and holding procedure of external observation, the rehabilitation procedure, procedure of bankruptcy proceedings, liquidation procedure of the debtor without initiation of bankruptcy proceedings recognized by creditors in the procedure established by this Law including costs on fee of the involved specialists, the amounts of the current payments to rehabilitation and competitive managing directors, and also the administrator of external observation which obligation on payment arose since the moment and during the period after initiation of proceedings about bankruptcy, rehabilitation or the procedure of external observation.

The taxes and other obligatory payments in the budget estimated in the taxpayer according to tax statements, added by body of Tax Service by results of tax audits for the tax periods following tax period in which the rehabilitation procedure, the procedure of bankruptcy proceedings is applied also belong to administrative expenses;

5) the bankrupt - the debtor whose insolvency is established by court;

6) bankruptcy - the insolvency of the debtor recognized as the judgment which is the basis for its liquidation;

7) authorized body in the field of bankruptcy (further - authorized body) - the state body performing state regulation in the field of bankruptcy (except for banks, the insurance (reinsurance) organizations and the Voluntary accumulation pension funds);

8) the debtor – the individual entrepreneur or the legal entity, insolvency or insolvency of which is the basis of application to it of the procedures provided by this Law;

9) involuntary liquidation of the debtor - the termination of activities of the poor debtor performed by a court decision based on statements of creditors, the prosecutor;

9-1) group of homogeneous creditors – group of the creditors having identical requirements to the debtor and not having before each other advantage in receipt of their satisfaction.

Groups of homogeneous creditors can constitute:

creditors according to requirements about indemnification of life or health;

creditors on compensation and payment of compensations for employment contracts, and also debts on social contributions to the State Social Insurance Fund and the compulsory pension contributions withheld from the salary;

creditors according to the obligations provided with pledge;

creditors on taxes and other obligatory payments in the budget;

creditors according to the requirements following from delivery agreements of goods, works and services;

creditors – financial institutions according to the requirements following from agreements on receipt of the credit (microcredit), unsecured pledge;

10) insolvency - the inability of the debtor established by court in full to meet requirements of creditors for monetary commitments, to make calculations for compensation with persons working according to the employment contract, to provide tax payment and other obligatory payments in the budget, social contributions to the State Social Insurance Fund, and also compulsory pension contributions;

11) false bankruptcy - obviously false announcement the head or the owner of the commercial organization, and equally individual entrepreneur about the insolvency for the purpose of false representation of creditors for receipt of delay or payment by installments of the payments which are due to creditors or discount from debts, and is equal for failure to pay debts;

11-1) accelerated rehabilitation procedure – the judicial process applied to the debtor based on the plan of rehabilitation approved with creditors in pre-judicial procedure;

12) the absent debtor - the debtor whose residence or the location of its standing body, and also founders, participants, managers and officials without whom the legal entity cannot perform the activities cannot be established within six months;

13) the mortgage creditor - the creditor according to obligations whose requirements are provided with pledge of property of the debtor;

14) the receiver - person designated in accordance with the established procedure for implementation of bankruptcy proceedings;

15) the competitive creditor - the creditor who does not have advantages in receipt of satisfaction of the property requirements neither owing to the legislation, nor owing to the pledge agreement;

16) competitive weight - property of the debtor on which collection in the course of bankruptcy proceedings, and also property of other persons in the cases provided by this Law can be turned;

17) bankruptcy proceedings - the procedure performed for the purpose of satisfaction of requirements of creditors and the announcement of the bankrupt (poor debtor) free from debts;

18) the creditor - person having to the debtor the property requirements arising from civil and other its obligations including obligations on compensation, payment of social contributions to the State Social Insurance Fund, payment of award, taxes and other obligatory payments in the budget;

18-1) regular commercial transactions – the actions connected with turnover of goods, works, services, made for the purpose of maintenance of daily functioning of the debtor which have regular character;

19) the official - the head (deputy manager) of the legal entity - the poor debtor, and also the other person entering into collegiate executive body of the legal entity, given authority on management of the legal entity;

19-1) measures of the state support – the measures applied concerning the organization directed to financial improvement, according to the procedure, determined by the Government of the Republic of Kazakhstan;

20) monitoring - complex of the actions directed to collection, information processing and carrying out the analysis of financial and economic condition of the insolvent and insolvent organizations for the purpose of timeliness of application of measures of financial and economic improvement to them and protection of interests of creditors;

21) the rehabilitation managing director - person to whom are transferred according to the procedure, established by this Law, powers on property management and cases of the poor debtor for the rehabilitation procedure;

21-1) plans of rehabilitation – complex of the interconnected actions directed to improvement of the debtor in case of application of the rehabilitation procedure, the accelerated rehabilitation procedure and performed on the basis of mutual consent between the debtor and creditors, group of homogeneous creditors for the purpose of recovery of solvency of operating plant and jobs preservation with indication of realization terms including the repayment schedule of requirements of creditors, and also the achieved results, the used resources and possible risks;

22) the rehabilitation procedure – judicial process within which the reorganization, organizational and economic, managerial, investment, technical, financial and economic, legal and other not contradicting the legislation of the Republic of Kazakhstan measures directed to recovery of solvency of the debtor for the purpose of prevention of its liquidation are applied to the insolvent debtor;

23) sanitation - the rehabilitation measure during which the owner of property of the debtor (authorized by it body), by creditors or other persons to the poor debtor provides financial aid and also is implemented other package of measures for mobilization of reserves of the debtor and improvement of its financial and economic provision;

24) external observation - the procedure entered by court before initiation of proceedings about bankruptcy for the purpose of ensuring safety of property of the debtor, identification of signs of deliberate and false bankruptcy, carrying out financial analysis, determination of opportunity or impossibility of recovery of solvency of the debtor, and also actions (failure to act) for evasion from obligation fulfillment before creditors, control from creditors of condition of financial and economic activities of the debtor, carrying out reorganization by it, transactions on alienation of fixed assets, cession of property into pledge or lease and also is much lower than other transactions on the prices market or without good causes which execution can entail losses for the debtor;

25) the administrator of external observation - person designated in accordance with the established procedure for holding procedure of external observation;

25-1) correspondence voting – method of vote, in case of which the participant of the meeting of creditors who is during creditor meeting out of the place of its carrying out having the right to vote in writing on case in point (questions) by means of exchange of letters, facsimile or electronic messages, or with use of other means of communication providing authenticity of the transferred messages;

26) insolvency - inability of the debtor to fulfill monetary commitments and other requirements of cash nature within three months from the moment of approach of term of their execution.

Article 1-1. Legislation of the Republic of Kazakhstan on bankruptcy

The legislation of the Republic of Kazakhstan on bankruptcy is based on the Constitution of the Republic of Kazakhstan and consists of this Law and other regulatory legal acts of the Republic of Kazakhstan.

Article 2. Features of application of the Law

1. This Law is applied to cases on bankruptcy, the accelerated rehabilitation and rehabilitation of legal entities, except the state companies and organizations, the Voluntary accumulation pension funds, banks, the insurance (reinsurance) organizations.

Features of application of the insolvency proceedings provided by this Law or rehabilitations concerning the organizations with continuous cycle of production, and also the organizations which are subjects of natural monopoly or subjects of the market, holding the dominating (exclusive) position in the goods market can be established by the legislation of the Republic of Kazakhstan.

By legal acts of the Republic of Kazakhstan features of application of the insolvency proceedings provided by this Law concerning the Voluntary accumulation pension funds, banks, the insurance (reinsurance) organizations and some other legal entities can be established.

In case of adoption by court of the decision on recognition of bank by the bankrupt its liquidation is performed according to the bank law.

In case of adoption by court of the decision on recognition of the insurance (reinsurance) organization by the bankrupt its liquidation is performed according to the legislation on insurance and insurance activity.

2. This Law extends to bankruptcy of individual entrepreneurs in the part which is not settled by the legislation of the Republic of Kazakhstan on private entrepreneurship.

3. Cases on bankruptcy, rehabilitation or the accelerated rehabilitation are considered by court on general civil procedure rules with the features established by the legislation on bankruptcy.

4. In case of bankruptcy of the organizations which are subjects of natural monopoly or subjects of the market, holding the dominating (exclusive) position in the goods market or having important strategic importance for economy of the republic capable to exert impact on life, health of the citizens, homeland security or the environment and also declared bankrupt at the initiative of the state, the Government of the Republic of Kazakhstan for the purpose of protection of interests of citizens and the state has the right to establish special conditions and procedure for realization of competitive weight and additional requirements to buyers of objects of competitive weight, and also to make the decision on acquisition by the national managing director of holding of competitive weight in case of bankruptcy of the organizations which blocks of shares (shares) are carried to strategic objects according to the legislation of the Republic of Kazakhstan, or the organizations having important strategic importance for Republic economy.

5. In case of bankruptcy of the legal entities performing ecologically dangerous types of economic and other activity statutory environmental audit of their activities according to the Ecological code of the Republic of Kazakhstan is booked.

Article 3. Composition in bankruptcy

1. Bankruptcy is established by court based on the statement of the debtor in court.

2. Bankruptcy is established compulsorily based on the lawsuit to the court of creditors or other representatives by this Law of persons.

3. In the cases established by this Law, the debtor shall take a legal action with the statement for recognition by his bankrupt.

4. Cases on bankruptcy are considered by court if requirements;

the creditor on taxes and other obligatory payments in the budget for tax debt, including debt of branches and representations of the debtor, at least hundred fifty monthly settlement indicators established by the law on the republican budget for the corresponding financial year constitute the amount;

other creditors to the debtor at least three hundred monthly settlement indicators established by the law on the republican budget - for individual entrepreneurs, at least one thousand monthly settlement indicators established by the law on the republican budget - for legal entities in total constitute the amount.

Requirements of this Item do not extend to cases, the stipulated in Article 94 presents of the Law.

5. If the property value of the legal entity concerning whom according to the procedure, stipulated in Item 1 Article 49 of the Civil code of the Republic of Kazakhstan (General part), the decision on liquidation is made is insufficient for satisfaction of requirements of creditors, such legal entity shall be liquidated judicially by rules, the established this Law.

6. Not filing of application by the debtor in cases, stipulated in Item 2 articles 17 of this Law, attracts application to the head of the debtor of subsidiary responsibility according to obligations of the debtor to creditors.

7. The basis for the announcement of the debtor the bankrupt judicially is its insolvency.

In case of factual determination of insolvency obligations of the debtor which completion date came, and also accepted and (or) being performed by shall be considered.

Article 4. Bases of application of insolvency proceedings or rehabilitation

1. The basis for the address of the creditor with the petition about recognition of the debtor by the bankrupt is insolvency of the debtor.

The debtor is considered insolvent if he did not fulfill the obligation within three months from the moment of approach of term of its execution.

2. The basis for the address of the debtor with the petition about recognition by his bankrupt is its insolvency in the absence of possibility of its recovery.

3. The basis for the address of the debtor with the petition about application of the rehabilitation procedure is its insolvency or threat of insolvency when the debtor is not able to fulfill monetary commitments in case of approach of term of their execution in the next twelve months, in the presence of possibility of its recovery.

Article 5. Deliberate and false bankruptcy

1. The owner of property of the debtor (authorized by it body), the founder (participant) and (or) officials of legal person debtor bear subsidiary responsibility to creditors of the poor debtor the property belonging to them for deliberate reduction of the debtor to insolvency (deliberate bankruptcy).

The official of legal bankrupt person pays damages to the owner of its property for deliberate reduction of the debtor to insolvency.

2. If the statement for recognition by the bankrupt is filed a lawsuit by the debtor in the presence of opportunity to meet requirements of creditors in full (false bankruptcy), creditors have the right to demand from the debtor of compensation of the losses caused to these.

3. In case of detection by the receiver of signs of deliberate or false bankruptcy he shall address to law enforcement agencies for involvement of officials to the responsibility provided by the laws of the Republic of Kazakhstan.

Article 6. Return of property and recognition invalid transactions of the debtor

1. The transactions made by the debtor before recognition by his bankrupt shall be recognized as invalid:

1) in the presence of the bases provided by the civil legislation of the Republic of Kazakhstan;

2) according to the statement of authorized body, creditors, rehabilitation or the receiver if the transaction made by the debtor with the certain creditor or the other person after initiation of proceedings about bankruptcy attracts preferable satisfaction of requirements of one creditors before others;

3) it is excluded

Requirements of this Item do not belong to transactions of project financing and securitization.

2. The rehabilitation managing director, the participant of sanitation shall submit, including cases of submission of the petition by the creditor (creditors) or authorized body, the petition about recognition of transactions invalid, and also about return of the property given by the debtor including to lease or to ensuring execution according to earlier concluded bargains, for the period within three years before initiation of proceedings about rehabilitation, from persons who received this property is non-paid, at the prices below market or without availability of the bases to the detriment of interests of creditors.

2-1. The receiver shall submit, including cases of submission of the petition by the creditor (creditors) or authorized body, the petition about recognition of transactions invalid, and also about return of property for the period within three years before initiation of proceedings about bankruptcy and rehabilitation from persons who received this property is non-paid, at the prices below market or without availability of the bases to the detriment of interests of creditors.

3. Competitive and rehabilitation managing directors, the participant of sanitation shall demand, including cases of submission of the petition by the creditor (creditors) or authorized body, return of property of the debtor judicially transferred to them for the period up to three years before initiation of proceedings about bankruptcy and (or) rehabilitation from creditors, obligations to whom were fulfilled before the term of their execution to the detriment of interests of other creditors. In this case the rights of creditors are provided by rules of this Law.

4. On the bases provided by Items 2 and 3 of this Article the property transferred within three years before initiation of proceedings about bankruptcy to serving (workers), participants of economic partnership, the head of the poor debtor can be requested.

The rules about reclamation of property established by this Item extend also to cases of cession of property to the spouse, relatives on straight line to the descending and ascending lines.

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