What you need to know about rehabilitation procedure

The rehabilitation plan is the principal document of the rehabilitation procedure. It is prepared jointly by the debtor, the creditors, and the rehabilitation manager, approved by the meeting of creditors, and subsequently confirmed by the court.

The plan includes:

• measures aimed at restoring solvency;
• implementation timelines;
• a schedule for satisfying creditors’ claims;
• expected outcomes;
• required resources;
• potential risks.

The plan must ensure equal conditions for the satisfaction of claims of creditors within the same priority ranking.

The rehabilitation procedure is a court-supervised procedure established under the Law of the Republic of Kazakhstan “On Rehabilitation and Bankruptcy.” It is applied to a temporarily insolvent debtor for the purpose of restoring its solvency and preserving the operation of the enterprise.

Unlike bankruptcy proceedings, the primary objective of rehabilitation is not to terminate the debtor's activities but to improve its financial condition, preserve the business and jobs, and maximize the satisfaction of creditors' claims.

As part of the procedure, the debtor may be subject to organizational, economic, financial, investment, managerial, technical, and other measures that do not contradict the legislation of the Republic of Kazakhstan.

Who May Use the Rehabilitation Procedure

The rehabilitation procedure may be applied to legal entities and individual entrepreneurs that are temporarily insolvent but have a realistic opportunity to restore their solvency.

A court application may be filed if there is overdue debt as follows:

• claims of employees, alimony obligations, compensation for harm to life and health, mandatory pension contributions, social contributions, mandatory social health insurance contributions, and other obligations established by law remain unpaid for more than three months from the due date;
• obligations to other creditors remain unpaid for more than four months from the due date.

Who May Initiate the Procedure

An application for the application of the rehabilitation procedure may be filed by:

• the debtor;
• a creditor.

The decision to apply the rehabilitation procedure is made by the court.

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What Happens After the Procedure Is Introduced

From the moment the rehabilitation procedure is applied, the legal consequences established by law take effect.

In particular:

• the enforcement of certain court judgments and other decisions aimed at recovering the debtor’s property is suspended, except in cases provided for by law;
• the accrual of interest on loans received and bonds issued is terminated;
• restrictions are imposed on transactions involving the debtor’s property outside the ordinary course of business unless the requirements established by law are met;
• the development of a rehabilitation plan begins.

What Measures May Be Included in the Rehabilitation Plan

The legislation provides for a wide range of measures aimed at improving the debtor’s financial condition. Depending on the financial situation of the enterprise, the rehabilitation plan may include:

• financial rehabilitation (sanation);
• debt restructuring;
• sale of assets through an electronic auction;
• financial leasing;
• assignment of claims;
• factoring and reverse factoring;
• partial debt forgiveness;
• write-off of fines and penalties;
• debt-to-equity conversion;
• conclusion of an amicable settlement agreement;
• other measures aimed at restoring solvency.

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Who Manages the Debtor

After the rehabilitation plan is approved, the management of the debtor is carried out by the person determined by the meeting of creditors.

This may be:

• the debtor itself (in the case of an individual entrepreneur);
• the head or authorized body of a legal entity;
• a rehabilitation manager.

If management is transferred to a rehabilitation manager, the candidate is elected by the meeting of creditors from among persons authorized to perform the activities of an insolvency administrator.

Duration of the Rehabilitation Plan

As a general rule, the implementation period of a rehabilitation plan must not exceed five years.

Where grounds provided by law exist, the court may extend the implementation period of the plan.

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When the Procedure Ends

The rehabilitation procedure is completed once the court-approved rehabilitation plan has been fully implemented and the debtor’s solvency has been restored.

If the debtor’s solvency cannot be restored, the court may decide to commence bankruptcy proceedings in accordance with the legislation of the Republic of Kazakhstan.

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Why It Is Important to Use the Procedure in a Timely Manner

Timely application for a rehabilitation procedure makes it possible to:

• preserve an operating business;
• restore the enterprise’s solvency;
• retain jobs;
• settle relations with creditors;
• avoid the liquidation of the enterprise where there is a possibility of financial recovery.