National Chamber of Entrepreneurs advocates of facilitating the rehabilitation and bankruptcy procedures, but the drafted amendments can harm the business.

This has been reported by the managing director and director of the Legislation Department of Atameken NCE Laura Mersalimova during a round table in the Mazhilis of the Parliament of Kazakhstan.

In particular, the draft law introduces significant changes to the Civil Code, which, on the one hand, reflect the proposed procedural changes, and, on the other hand, significantly distort key civil law institutions such as legal entity, property liability of its founders or participants and bankruptcy and insolvency.

 “For example, the draft law introduces a new definition - insolvency, which is the basis for a court to declare a debtor bankrupt that entails its liquidation. Previously, the court had to establish the inability of the debtor to fully satisfy the creditors’ claims for monetary obligations, make calculations for labor remuneration, and ensure payment of taxes and other obligatory payments to the budget, social contributions. Now, according to the bill, the court should only establish the excess of the total amount of the debtor’s liabilities over the total amount of its assets at the date of filing the application for bankruptcy,” Laura Mersalimova said.

She emphasized that the amount of the “excess” itself is not indicated in the bill. Although in practice even a minimum excess may not entail an inability to satisfy creditors' claims.

“For example, it is possible that the liabilities exceed the assets of the debtor whether there is a decrease in the market value of the collateral. However, the debtor can regularly fulfill its obligations to the creditor. In this regard, the insolvency of the debtor must be established by the court if all the evidence is provided in order to avoid abuse by the debtors. In our opinion, there should be clear quantitative and temporary criteria for the debtor’s insolvency to fulfill the obligations,” Laura Mersalimova said.

Another conceptual innovation of the draft law is the exclusion from the legal institution of bankruptcy of such definitions, such as deliberate or false bankruptcy, as well as their exclusion from the field of criminal and administrative and tort law. Instead, the developer proposes to introduce new definition “Causing property damage to creditors" by deceiving or abusing trust in the absence of signs of theft.

Experts of Atameken NCE  are sure that the objective side of the excluded definitions and their proposed substitutions are completely different. In addition, the Criminal Code contains articles with similar compositions: part 1 of Article 195 - “Infliction of property damage to the possessor or other owner of property by false pretenses or abuse of trust in the absence of signs of theft” and article 237 - “Illegal actions upon rehabilitation and bankruptcy”.

“According to the Draft law, the current civil property liability of officials is replaced by criminal and administrative liability for causing damage to creditors. We believe such criminalization of subsidiary responsibility is unacceptable,” Laura Mersalimova said.

At the same time, the draft law provides for the transfer of a number of powers from the Meeting of Creditors to the Creditors' Committee in order to shorten the terms of procedures and  the decisions be made quickly. In this case there is a risk of violating the interests of creditors, since the interests of all participants are not represented in the Committee.

Also, the draft law proposes to establish a norm according to which the creditor’s claim cannot be included in the Register of Creditor Claims in the part that would not be recoverable in accordance with the civil legislation of the Republic of Kazakhstan due to expiration of the limitation period (Article 90 of the Law).

“The limitation of actions shall be applied by the court only upon the application of the party to the dispute made before the judgment was handed down. During the bankruptcy procedure, the Register of Requirements is formed by the temporary administrator. Thus, during the formation of the Register, the application of the limitation periods will be given to the temporary administrator. In fact, the temporary administrator will "replace" the court in this matter. The statute of limitations should be applied only in litigations,” Laura Mersalimova said.

In general, according to the position of Atameken, when reviewing and finalizing the draft law the provisions of the Strategic Development Plan of the Republic of Kazakhstan until 2025 should be taken into account, such as strengthening the protection of property rights, further humanization of criminal policy, establishing clear guarantees for the owner in order to prevent raiding and rendering illegal pressure (including intention to eliminate competition).