3 August 2020 – This note discusses recent developments in Kazakhstan on the suspension of the initiation of bankruptcy proceedings. The proposed suspension was introduced to help businesses overcome the economic crisis caused by the COVID-19 outbreak and measures taken to slow it down. Our note is intended to be a helpful guide - it is not comprehensive and does not constitute legal advice.
(i) President's instructions (11 May 2020)
President Kassym-Jomart Tokayev first mentioned the suspension of the initiation of bankruptcy proceedings on 11 May 2020 at the final meeting of the Commission on the State Emergency. At that meeting, the president issued instructions to suspend the initiation of bankruptcy proceedings against legal entities and individual entrepreneurs until 1 October 2020, in order to prevent pressure from unscrupulous creditors.
To implement the president's instructions, the Government of Kazakhstan was assigned to develop a comprehensive plan that should contain provisions regarding how to implement the suspension of the initiation of bankruptcy proceedings in practice.
(ii) Comprehensive plan (20 May 2020)
Consequently, the Government of Kazakhstan approved a comprehensive plan for the restoration of economic growth by Resolution No. 307 dated 20 May 2020 (the “Plan” ). The Plan briefly reflects the suspension of the initiation of bankruptcy proceedings among other measures taken by state authorities to stabilize the economy. The execution of measures for the suspension of the initiation of bankruptcy proceedings was assigned to the following authorities:
(iii) The letter of the Ministry (22 June 2020)
Though the Plan reflected the suspension of bankruptcy proceedings, the details of this suspension were unclear until the Ministry of Finance of the Republic of Kazakhstan (the “Ministry”) issued a letter dated 22 June 2020 No. 003-KG / ZhT-K-603 (the “Letter”). The Letter is not binding but gives a good indication on the expected types of measures.
According to the Letter, the Ministry together with the Government of Kazakhstan are to prepare a draft resolution that clarifies how the suspension of the initiation of bankruptcy proceedings is to be implemented. The proposed draft resolution will provide a temporary prohibition for state bodies and quasi-sovereign entities to file for the recognition of legal entities and individual entrepreneurs as bankrupt until 1 October 2020. However, the approval of the draft resolution will not prohibit the initiation of bankruptcy proceedings by debtors themselves or other creditors (eg employees, commercial banks, etc.).
On that basis we understand that the Letter, and the draft resolution discussed in the Letter, are not intended to affect creditors other than state bodies or quasi-sovereign entities.
(iv) The Government Resolution (14 July 2020)
In connection with the statements above, the Government of Kazakhstan finally enacted its Resolution on the suspension of the initiation of bankruptcy proceedings dated 14 July 2020 No. 443 (the “Resolution”). The Resolution suspends the right of state bodies and quasi-sovereign entities in their role as creditors to file for recognition as bankrupt debtors (as legal entities and individual entrepreneurs) until 1 October 2020. The Resolution comes into force from 11 May 2020.
(v) Existing court practice
Based on the above, certain courts have already brought to the public's attention the suspension of the initiation of bankruptcy proceedings following the president's instructions as of 11 May 2020. Thus, we understand that existing court practice already exists where courts have refused to accept creditors' and debtors' applications to declare a debtor bankrupt. We note, however, that prior to the Resolution neither current civil procedure law nor bankruptcy law prohibited the initiation of bankruptcy proceedings. As of now, the suspension of the initiation of bankruptcy proceedings is legally established within the course of the Resolution.
This note was prepared by members of Kinstellar's Kazakhstan team: Maksim Grekov (Of Counsel), Yerlan Akhmetov (Senior Associate) and Alfiya Sharipova (Legal Assistant).