As part of rehabilitation procedure, work on financial and economic recovery of insolvent enterprises has been carried out.

Thanks to the rehabilitation process there is possibility to restore the solvency and to continue the activities of the company experiencing temporary financial difficulties.

What is a rehabilitation procedure and who can use it, we will tell in this material.

What is a rehabilitation procedure?

The rehabilitation procedure is a procedure applied in the court, in which the following measures applied to the debtor:

• reorganizational;
• organizational and economic;
• managerial;
• investment;
• technical;
• financial and economic;
• legal and other measures not contrary to the legislation of the Republic of Kazakhstan aimed at restoring the solvency.

The grounds for applying of a rehabilitation procedure to the debtor is his temporary insolvency when the debtor has not fulfilled obligations to creditors within 3 months from the date they fall due, liabilities to of the requirements: 

• on compensation for harm caused to life and health;
• collection of alimony;
• work pay obligations;
• liabilities to pay employment contracts;
• payment of arrears on social contributions to the State Social Insurance Fund, compulsory pension contributions and compulsory professional pension contributions;
• deductions or contributions for compulsory social health insurance;
• on remuneration to authors for service inventions, utility models, industrial designs.

In addition, the rehabilitation procedure is applied if the debtor has not fulfilled obligations to other creditors within 4 months from the date of their due date.

How the rehabilitation procedure is applied and its consequences

This procedure is introduced in court at the request of the debtor or creditor. From the day the court decision on the application of the rehabilitation procedure enters into legal force, the following consequences occur:

• it is prohibited to make transactions with property outside the framework of ordinary commercial transactions;
• the accrual of interest on received loans and issued bonds ceases;
• the execution of court decisions, arbitral awards, decisions of state revenue bodies, as well as of an individual entrepreneur - a debtor, an owner of property, founders of a legal entity - a debtor in respect of his property is suspended, except for payments to citizens to whom the debtor is responsible for causing harm to life or health without taking into account the claims for compensation for moral damage, the due date for which came after the application of the rehabilitation procedure. 

Also, from the moment the decision on the application of the rehabilitation procedure enters into force, the debtor, together with the creditors and the rehabilitation manager, must develop a rehabilitation plan within 3 months. 

What the rehabilitation plan includes

The rehabilitation plan is a set of interrelated measures aimed at the recovery of the debtor when applying the rehabilitation procedure and carried out on the basis of mutual agreement between the debtor and creditors, in order to restore the debtor's solvency and preserve jobs with an indication of the timing of implementation, including the schedule for meeting creditors' claims, as well as results achieved, resources used and possible risks.

The rehabilitation plan should contain specific measures to restore the debtor's solvency and a schedule for satisfying creditors' claims.

The standard form of the rehabilitation plan is approved by the authorized body ( Order of the First Deputy Prime Minister of the Republic of Kazakhstan - Minister of Finance of the Republic of Kazakhstan dated April 20, 2020 No. 396 "On approval of the standard form of the debtor's rehabilitation plan" ).

The developed rehabilitation plan should provide for equal conditions for satisfying the claims of creditors of the same priority. 

Rehabilitation measures consist of measures aimed at restoring the debtor's solvency, including:

• reorganization;
• sale of property through an electronic auction;
• financial leasing;
• assignment of rights of claims of the debtor;
• factoring;
• reverse factoring;
• forgiveness of part of the debt;
• writing off penalties and fines;
• exchange of debts for shares;
• conclusion of an amicable agreement and others.

What happens after the rehabilitation plan is approved

After the approval of the rehabilitation plan, the management of the debtor is carried out by a person determined by the meeting of creditors (by a rehabilitation manager or an individual entrepreneur – of the debtor or a body or person authorized by the owner of the property, the founder (participant) of the legal entity - the debtor).

Transactions with property outside the scope of ordinary commercial transactions, with the exception of those provided for by the rehabilitation plan, are made with the consent of the creditors' meeting. 

On the basis of the debtor's application and a copy of the court ruling on the approval of the rehabilitation plan, which has entered into legal force, all restrictions and encumbrances on the debtor's property (collection orders for the debtor's accounts, arrests on property, etc.) are removed without the relevant decisions of the authorities that imposed them.

In case of changes and additions to the rehabilitation plan, all changes and additions are made with the consent of the meeting of creditors and approved by the court.

After the court ruling on the approval of the rehabilitation plan comes into legal force, the rehabilitation manager is obliged to ensure the implementation of the rehabilitation plan.

For failure to ensure or improper enforcement of the rehabilitation plan in accordance with Article 181 of the Code of the Republic of Kazakhstan "On Administrative Offenses", administrative liability is provided.

On the progress of the rehabilitation procedure, the rehabilitation manager shall submit current and requested information to the territorial bodies of state revenues in regions, cities of republican significance and the capital.

The procedure and terms for providing information can be found here.

Duration of the rehabilitation procedure

The implementation period for the rehabilitation plan should not exceed five years.

The term for carrying out the rehabilitation procedure is established by the court when making a ruling on the approval of the rehabilitation plan and is calculated from the date of entry into force of such ruling. The court has the right, at the request of the rehabilitation manager, with the consent of the meeting of creditors, to extend this period once, but not more than six months, unless otherwise provided by Article 64 of the Law of the Republic of Kazakhstan "On Rehabilitation and Bankruptcy".