LAW OF THE KYRGYZ REPUBLIC

of February 15, 2004 No. 14

About preservation, liquidation and bankruptcy of banks

Accepted by General Court of Jogorku Kenesh of the Kyrgyz Republic on November 11, 2003

Meeting of national representatives

Jogorku Kenesh of the Kyrgyz Republic it is not considered

Approved according to item 4 of article 59 of the Constitution of the Kyrgyz Republic in edition of the laws of the Kyrgyz Republic "About modification and amendments in the Constitution of the Kyrgyz Republic" of February 16, 1996, No. 1, "About modification and amendments in the Constitution of the Kyrgyz Republic" of October 21, 1998 No. 134, "About introduction of amendments to article 5 of the Constitution of the Kyrgyz Republic" of December 24, 2001 No. 112

Section 1. General provisions

Article 1. The relations regulated by this Law

1. This Law establishes the application bases to banks of procedures of preservation (sanitation, rehabilitation), voluntary and involuntary liquidation (including, bankruptcy process), regulates procedure and conditions of their application, and also other relations resulting from inability or refusal of bank to meet requirements of creditors or violation of requirements of the legislation or as a result of the decision of shareholders of bank on the termination of its activities.

2. Operation of this Law extends to any bank, including the financial credit institutes performing the transactions with deposits operating in the territory of the Kyrgyz Republic and which are subject to licensing according to the legislation of the Kyrgyz Republic.

3. Operation of this Law extends to any bank, including branch of foreign bank, branch of financial credit institute which has licenses for acceptance of deposits, and provides the forced termination of activities of these organizations in the Kyrgyz Republic on the same bases which are provided for the banks created in the Kyrgyz Republic according to this Law.

For the purposes of this Law branches of foreign banks are considered as legal entities.

4. The regulations of regulation of process of bankruptcy of debtors containing in other laws and other regulatory legal acts of the Kyrgyz Republic are applied to banks in the part which is not contradicting this Law. In case of contradiction of other laws to requirements of this Law concerning liquidation, preservation and bankruptcy of banks and financial credit institutes - this Law is effective.

5. If the international treaty of the Kyrgyz Republic ratified in accordance with the established procedure determines other rules, than those which are provided by this Law are applied rules of the international treaty of the Kyrgyz Republic.

6. In the absence of international treaties of the Kyrgyz Republic of decision of the courts of foreign states on cases on liquidation and bankruptcy of banks are recognized in the territory of the Kyrgyz Republic if they do not contradict the legislation of the Kyrgyz Republic.

Article 2. The concepts used in this Law

For the purpose of this Law the following concepts are used:

the administrator - the conservative, the liquidator, the special administrator;

administrative expenses - the necessary costs connected with carrying out preservation, involuntary liquidation and bankruptcy;

bank - the bank or other financial credit institute which are subject to licensing of the Kyrgyz Republic by National Bank and performing banking activities with deposits according to the bank law of the Kyrgyz Republic;

the bank which is of system importance (system bank) is bank which bankruptcy can lead to failure or crash of bank and payment systems, by means of outflow of deposits, bankruptcy of legal entities (members of payment service provider) and deterioration in macroeconomic indicators.

Reference of banks to system is determined by joint regulatory legal acts of the Government of the Kyrgyz Republic and National Bank of the Kyrgyz Republic;

bankruptcy - its insolvency, i.e. inability recognized as court or announced by creditor meeting with the consent of the debtor of the legal entity in full in the terms established by the law or the agreement to meet reasonable requests of the creditors according to monetary commitments, including inability to provide obligatory payments in the budget and off-budget funds, owing to excess of the undertaken obligations over its quick assets;

the investor - person (physical or legal) who introduced the deposit in bank;

the deposit - the amount of money received by one person from other person on the terms of recoverability (irrespective of, complete or partial recoverability or recoverability of the bigger amount);

voluntary liquidation (self-liquidation) - liquidation of bank according to the decision of his founders (participants) or body of the bank authorized on that by constituent documents including in connection with the expiration on which the bank, was created by goal achievement for the sake of which it is created, or recognition of invalid registration of bank by court in connection with the violations of the law allowed during its creation which have ineradicable character;

the debtor - the bank declared in accordance with the established procedure bankrupt;

the capital - the net value or own means of bank representing difference between its assets and liabilities according to balance sheet items which reflect the established principles of financial accounting;

the conservative - the qualified specialist appointed by National Bank of the Kyrgyz Republic and who is carrying out preservation of bank and other procedures according to this Law;

preservation - the procedure according to which the National Bank of the Kyrgyz Republic appoints the conservative for the purpose of establishment of control over bank, ensuring safety of its assets, ledgers and records, and other documentation;

the creditor - any person, including the investor who has the right to demand from bank of accomplishment of obligations of any kind, including Kyrgyz and foreign legal entities and physical persons, and also the Kyrgyz Republic on behalf of authorized bodies. The National Bank of the Kyrgyz Republic is also considered the creditor of bank if the bank is debtor of National Bank of the Kyrgyz Republic, including cases when the bank does not pay the penalties imposed by National Bank of the Kyrgyz Republic according to the legislation of the Kyrgyz Republic;

the liquidator - liquidation commission (in case of voluntary liquidation) or the person authorized according to this Law having the license of state body on cases on bankruptcy on implementation of activities as the liquidator of banks and appointed by court on representation of National Bank of the Kyrgyz Republic who is responsible for involuntary liquidation of bank;

the face tied with bank - the person who is the insider or the affiliate according to the definitions given in the Law of the Kyrgyz Republic "About banks and banking activity in the Kyrgyz Republic" and regulations of National Bank of the Kyrgyz Republic, and having communication with bank in the form of the property rights, the business or family relations including heads and participants, including, if it:

- is participant or the head of bank;

- is member of the company which represents the member of bank;

- is member of subsidiary company of bank;

- is the company belonging to other company which is member of bank;

- participates in the company which participates in other company, being the member of bank; or

- is close relative (the grandfather, the grandma, the father, mother, the brother, the sister, the spouse (a), children, grandsons) of any of the participants or heads mentioned above;

National Bank - National Bank of the Kyrgyz Republic;

insolvency - condition when the bank in case of approach of payment due dates does not satisfy, refuses or is not capable to meet lawful requirements of the creditor for payment of debts and accomplishment of other obligations, or indicator of adequacy of its capital below the required level or when obligations of bank exceed its assets by calculations of banking supervisor authority;

involuntary liquidation - the procedure including:

- the procedure of involuntary liquidation of bank not on the bases of bankruptcy from which the license is revoked on one or several bases containing in the laws of the Kyrgyz Republic "About National Bank of the Kyrgyz Republic" and "About banks and banking activity in the Kyrgyz Republic". It is initiated by the judgment with appointment of the liquidator;

- the procedure of involuntary liquidation of insolvent bank (bankruptcy process) from which the license is revoked because of bankruptcy. It is initiated by the judgment with appointment of the special administrator;

the procedures applied to problem banks - procedures of preservation, sanitation, rehabilitation, voluntary and involuntary liquidation for the bases of bankruptcy and for other bases;

bankruptcy process - the process initiated by a court decision concerning the bank declared bankrupt and which is carried out by the special administrator;

problem bank - for the purposes of this Law the banks which are in financial difficulties or violating the bank law of the Kyrgyz Republic;

rehabilitation - the procedure applied in the course of bankruptcy for the purpose of bank solvency recovery. Rehabilitation is carried out in judicial or extrajudicial procedure;

restructuring - method of the procedure of special administration which provides creation of one new or several new legal entities based on assets of bank for the subsequent sale for the benefit of creditors and liquidation of bank;

the head - person designated in accordance with the established procedure for bank management (the member of supervisory, executive or auditing body, including heads and their deputies and persons, the acting as on management);

sanitation - the procedure which is carried out by the conservative for the purpose of financial improvement of bank, by a court decision in case of availability at founders and/or other investors of the money sufficient for implementation of the measures of financial and organizational nature (including recapitalization of bank) providing recovery of financial condition of bank and accomplishment of normative requirements of National Bank by it;

the special administrator - the specialized organization founded by the Government of the Kyrgyz Republic or other person authorized by this Law having the corresponding license of state body on cases on bankruptcy on implementation of activities as the liquidator of banks and responsible for carrying out process of bankruptcy of bank;

court - any judicial authority which is a part of the system of courts of the Kyrgyz Republic;

obligatory payments - taxes, charges and other compulsory contributions in the budget of appropriate level and in off-budget funds according to the procedure and on the conditions determined by the legislation of the Kyrgyz Republic;

the participant - the physical person or legal entity (including the Kyrgyz Republic on behalf of authorized state body of the Kyrgyz Republic concerning the state companies and legal entities having the state share, and his legal successor) having participation in bank (share, shares or the right caused by the agreement to give to bank orders, obligatory to execution). The National Bank is not considered the participant, though has legislative rights to make orders to banks; are not considered as members of person concerning whom the bank has debt obligation owing to what they have the right to make to bank the order about debt repayment, however have no right to make to bank any other orders.

creditor committee - the authorized body of creditor meeting performing the activities according to requirements of the legislation of the Kyrgyz Republic.

Article 3. Invalidity of decisions

The decisions made by creditor meeting, creditor committee, the conservative, the liquidator, the special administrator, and also the debtor or members of bank are considered invalid if they contradict requirements of the legislation of the Kyrgyz Republic or violate the rights of creditors.

The fact of invalidity of the made decision is determined by court.

Article 4. Appeal of decisions of National Bank in court

1. Appeal of decisions of National Bank in court can perform Bank board; in case of that absence, appeal performs the Board of directors of bank. Appeal of decisions of National Bank does not stop holding procedures. The claim shall be filed a lawsuit in accordance with the established procedure no later than 10 days from the date of adoption of the appealed decision of National Bank.

2. If the court cancels the decision of National Bank, then neither the conservative, nor the liquidator or the special administrator of bank (including their employees) bear responsibility to one head, the participant or the creditor of bank, and also to any other persons if only by court it is not determined that their actions were legally inappropriate.

Article 5. Regulatory legal acts of National Bank

The National Bank has the right to publish regulatory legal acts on the basis and according to this Law and not contradicting it and other legislation of the Kyrgyz Republic. The National Bank also has the right to publish for conservatives of the instruction and management on implementation of the procedure of preservation within the regulations established by this Law.

Article 6. Problem bank

1. The bank is considered problem (experiencing financial difficulties) from the moment of approach of any events listed in article 7 of this Law irrespective of whether there come these events to or after the beginning of the procedures provided by this Law or if the National Bank announces to it and the public it in writing after inspection of bank.

2. From the moment of giving by National Bank to bank of the status of problem bank, the free order by assets or increase in liabilities without the consent of National Bank is forbidden to it.

3. The status of problem bank stops from the moment of the announcement to bank about it National Bank, except as specified, when he did not knew of existence of the circumstances specifying financial difficulties of bank.

Article 7. Informing National Bank on the problems which had by bank

Heads or members of bank shall inform immediately National Bank if they knows of any of the following facts:

1) failure to carry out by bank of requirements of the creditor or investor about payment of its deposit, including, before maturity;

2) absence at bank of means for complete satisfaction of the obligations to any creditor (investor) if these creditors demanded payment at any time after approach of its term;

3) the insufficient level of the capital or liquidity concerning the requirements provided by the laws of the Kyrgyz Republic and regulations of National Bank;

4) violations of other economic standard rates, regulations or requirements of National Bank obligatory for banks;

5) any decision of heads, Board of directors or shareholders of bank on liquidation of bank;

6) insolvency of bank or threat that;

7) the facts of unfair actions, abuses or fraud of heads, the Board of directors or shareholders of bank which can entail financial difficulties for bank;

8) other actions, events or the facts which attract or can entail financial difficulties for bank.

Section 2. Preservation

Article 8. Bases for appointment of the conservative

1. The purpose of preservation consists in establishment of control over bank for ensuring safety of assets, ledgers and records of bank.

2. The National Bank has the right to enter preservation and to appoint in bank of the conservative:

If the capital of bank within prior 6 months constitutes 1) more 50, but less than 100 percent from capital level according to the bank law and regulations of National Bank;

2) if the bank does not fulfill the legal orders, requirements or instructions of National Bank accepted based on the laws of the Kyrgyz Republic "About National Bank of the Kyrgyz Republic" and "About banks and banking activity in the Kyrgyz Republic";

3) if there are bases to withdrawal of the banking license according to the laws of the Kyrgyz Republic "About National Bank of the Kyrgyz Republic" and "About banks and banking activity in the Kyrgyz Republic".

3. The National Bank shall enter preservation and to appoint in bank of the conservative in the presence of any of the following bases:

1) the capital of bank constitutes less than 50 percent of the capital according to regulations of National Bank;

2) the bank stopped to pay the obligations after approach of payment due dates, and on these payments there are no lawsuits;

3) in case of receipt of the notice of court on adoption by it of the statement for initiation of process of bankruptcy or liquidation procedure concerning bank;

4) completion of voluntary liquidation of bank by the conservative according to this Law is necessary;

5) concerning officials of bank criminal case (on a charge of making economic and crimes of official) in connection with execution of service duties is brought; at the same time "officials of bank" are understood as persons who have powers to participate or really participate in the main transactions of bank creating policy of bank irrespective of whether these persons carry official title or earn reward. The chairman of the board, board members, the main officials on finance, on the credits are executive officials.

4. For the purpose of this Article:

1) the National Bank determines the events specified in this Article;

2) the capital of bank is determined according to regulations of National Bank;

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