Many business owners and executives mistakenly believe that bankruptcy is an easy way to write off all company debts. However, the legislation of the Republic of Kazakhstan strictly protects creditors' rights and stops fraudulent asset stripping.
What is recognized as intentional (fraudulent) bankruptcy?
According to the Law of the Republic of Kazakhstan "On Rehabilitation and Bankruptcy," intentional bankruptcy refers to actions taken by a founder (participant), officer, or individual entrepreneur in their own personal interests or in the interests of third parties to evade obligations to creditors by alienating or concealing property within three years prior to being declared bankrupt.
Key risks and consequences for management and founders:
- Personal Subsidiary Liability: Founders and officers found guilty of intentional bankruptcy in administrative or criminal proceedings bear subsidiary liability to creditors with all their personal property. If multiple individuals are found guilty, they are jointly and severally liable to the creditors.
- Enforced Recovery Through Court: The bankruptcy trustee is required to file a lawsuit to hold the guilty parties subsidiarily liable within 10 working days from the date the judicial act bringing them to liability enters into legal force. Creditors also have the right to file such a lawsuit independently.
- Cancellation of Asset Stripping Transactions: Any transactions executed by the debtor within three years prior to the initiation of bankruptcy proceedings (sales at undervalued prices, gratuitous transfers, gift agreements, sham transactions) are declared invalid. All stripped assets must be returned to the debtor's bankruptcy estate.
- Prosecutor's Office Initiative: Detecting signs of intentional bankruptcy serves as an independent ground for the prosecutor to petition the court to declare the debtor bankrupt.
Attempting to save assets by re-registering or selling them before bankruptcy will not solve the company's problems; instead, it shifts the entire business debt directly onto the personal shoulders (and pockets) of founders and directors.