What you need to know about rehabilitation procedure

Rehabilitation procedure is a judicial procedure in which the debtor is applied:

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

The basis for applying a rehabilitation procedure to the debtor is his temporary insolvency, when the debtor within 3 months from the due date has not fulfilled his obligations to the creditors on the following claims related to:

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

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

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, owner of property, founders of a legal entity - a debtor in relation to its property is suspended , except for payments to the 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.

After the approval of the rehabilitation plan, the debtor is managed by a person designated by the creditors' meeting.

Management of the debtor in the rehabilitation procedure by the decision of the creditors' meeting has the right to carry out:

1) an individual entrepreneur – debtor or a body or person authorized by the owner of the property, the founder (participant) of the debtor legal entity;

2) rehabilitation manager.

If at the first creditors' meeting it was decided to assign the powers of managing the debtor to the rehabilitation manager, then the first creditors' meeting selects the candidate of the rehabilitation manager from among the persons whose notifications are included in the register of notifications of persons entitled to carry out the activities of the administrator.

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 making the appropriate decisions of the authorities that imposed them.

The plan for rehabilitation of the organizations and individual entrepreneurs who are subjects of natural monopolies or are of great strategic importance for the economy of the Republic of Kazakhstan, capable of influencing the life, health of citizens, national security or the environment, is coordinated with the relevant central executive body, the relevant territorial body of the National Security Committee of the Republic Kazakhstan, and of the city-forming legal entities - with the relevant local executive body of the region, the city of republican significance and the capital.

The submitted rehabilitation plan is considered by the approving state bodies within 10 working days from the date of its receipt.

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.

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

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 the creditors, in order to restore the debtor's solvency and preserve jobs with an indication of the timing of implementation, including the schedule for satisfying creditors' claims, as well as those achieved results, 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.

The rehabilitation procedure implementation term should not exceed 5 years.

Rehabilitation measures may include any organizational, economic, technical, financial, economic, legal and other measures that do not contradict the legislation of the Republic of Kazakhstan aimed at restoring the debtor's solvency, including

• rehabilitation,
• sale of property through an electronic auction,
• financial leasing,
• assignment of the debtor's claims,
• factoring,
• reverse factoring,
• forgiveness of part of the debt,
• write-off of penalties and fines,
• the exchange of debts for shares, the conclusion of a settlement agreement and others.

The rehabilitation plan must be developed by the debtor together with creditors and the rehabilitation manager within three months from the date of entry into force of the decision on the application of the rehabilitation procedure.

Also, the court may refuse to approve the rehabilitation plan if the creditor who voted against the rehabilitation plan submits to the court a justification that the rehabilitation plan contains measures, the implementation of which will entail satisfaction of the claim of such a creditor to a lesser extent than in the case of bankruptcy proceedings, as well as in case of non-compliance with Article 26-1 of the Law of the Republic of Kazakhstan "On Rehabilitation and bankruptcy."

Management of the debtor in the rehabilitation procedure by the decision of the creditors' meeting may be carried out by an individual entrepreneur – debtor or a body or person authorized by the owner of the property, founder, participant of the debtor legal entity, as well as the rehabilitation manager.

The management of the debtor in the rehabilitation procedure of an individual entrepreneur is understood as the management of his affairs and property. Failure to provide or improper enforcement of the rehabilitation plan according to Article 181 of the Code of the Republic of Kazakhstan "On Administrative Offenses" provides for administrative liability. After the court ruling on the approval of the rehabilitation plan comes into force, the rehabilitation manager is obliged to provide the authorized body with current and requested information on the progress of the rehabilitation procedure in the form, in the manner and within the time limits established by the authorized body (according to the order of the First Deputy Prime Minister of the Republic of Kazakhstan - the Minister of Finance of the Republic of Kazakhstan dated April 16, 2020 No. 390 "On approval of the forms of current and requested information on the progress of the rehabilitation procedure or bankruptcy procedure, as well as the Rules and Deadlines for its provision").