Commentary on Article 237. Unlawful Actions in Rehabilitation and Bankruptcy of the Criminal Code of the Republic of Kazakhstan

1. Concealment of property or property liabilities, information about property, its amount, location or other information about property; transfer of property into the possession of another person; alienation or destruction of property; as well as concealment, destruction or falsification of accounting and (or) bookkeeping documentation or other documents reflecting economic activity, if these actions are committed by an individual entrepreneur, founder (participant), a person performing managerial functions in a commercial or other organization, an official, as well as a temporary, bankruptcy or rehabilitation administrator during rehabilitation and bankruptcy proceedings, and have caused major damage, shall be punishable by a fine in an amount of up to two thousand monthly calculation indices, or corrective labor in the same amount, or community service for a period of up to six hundred hours, or restriction of liberty for a period of up to two years, or imprisonment for the same period, with deprivation of the right to hold certain positions or engage in certain activities for a period of up to three years.

2. Unlawful satisfaction of the property claims of individual creditors by an individual entrepreneur, founder (participant), a person performing managerial functions in a commercial or other organization, an official, as well as a temporary, bankruptcy or rehabilitation administrator during rehabilitation and bankruptcy proceedings, knowingly to the detriment of other creditors, if this act has caused major damage, –

shall be punishable by a fine in an amount of up to two thousand monthly calculation indices, or corrective labor in the same amount, or community service for a period of up to six hundred hours, or restriction of liberty for a period of up to two years, or imprisonment for the same period, with deprivation of the right to hold certain positions or engage in certain activities for a period of up to three years.

The public danger of the act under consideration consists in encroaching upon the established procedure for conducting bankruptcy proceedings, which is a necessary condition for economic recovery, as well as in violating the rights and legitimate interests of owners of enterprises, organizations, debtors and creditors.

The procedure for implementing rehabilitation and bankruptcy proceedings in the Republic of Kazakhstan is regulated by the provisions of the Constitution of the Republic of Kazakhstan, the Civil Code of the Republic of Kazakhstan, the Law of the Republic of Kazakhstan dated March 7, 2014, “On Rehabilitation and Bankruptcy,” and the Regulatory Resolution of the Supreme Court of the Republic of Kazakhstan dated October 2, 2015, “On the Practice of Applying Legislation on Rehabilitation and Bankruptcy.”

The Law of the Republic of Kazakhstan “On Rehabilitation and Bankruptcy” regulates public relations arising when a debtor is unable to satisfy creditors’ claims in full, establishes the grounds for applying the debt restructuring procedure, the rehabilitation procedure and declaring a debtor bankrupt, the liquidation of a debtor without initiating bankruptcy proceedings, and also determines the procedure and conditions for conducting these processes.

The main cause of bankruptcy is insolvency, which is understood as the inability of a debtor – an individual entrepreneur, a person performing managerial functions in a commercial or other organization, as well as a temporary, bankruptcy or rehabilitation administrator during rehabilitation and bankruptcy proceedings – to satisfy creditors’ claims under monetary obligations, make payments for remuneration to persons working under employment contracts, and ensure mandatory payments to the budget and extra-budgetary funds (Article 52 of the Civil Code of the Republic of Kazakhstan).

In accordance with paragraphs 1 and 2 of Article 4 of the Law of the Republic of Kazakhstan “On Rehabilitation and Bankruptcy,” bankruptcy is established voluntarily on the basis of an application submitted by the debtor to the court or compulsorily on the basis of an application submitted to the court by creditors or other persons authorized under the aforementioned Law.

The grounds for a debtor to apply to the court for recognition as bankrupt are the debtor’s insolvency (Article 5 of the Law “On Rehabilitation and Bankruptcy”).

In certain cases, where there is a possibility of restoring solvency and preventing insolvency, the debtor has the right to apply to the court for the application of an accelerated rehabilitation procedure. At the same time, the duration of the accelerated rehabilitation procedure must not exceed two years (Article 30 of the Law “On Rehabilitation and Bankruptcy”).

In accordance with Article 38 of the Law of the Republic of Kazakhstan “On Rehabilitation and Bankruptcy,” proceedings in a rehabilitation case are initiated in court on the basis of an application by the debtor or creditor(s), with the exception of a creditor in respect of taxes and customs payments, a state body or a legal entity with state participation, provided that the grounds stipulated in paragraph 1 of Article 5-1 of this Law are present.

The debtor also has the right, within a period not exceeding seven working days from the date of receipt of a copy of the court ruling on the initiation of bankruptcy proceedings, to submit an application to the court for the application of the rehabilitation procedure.

In general, all subsequent bankruptcy procedures are regulated by the remaining articles of the Law of the Republic of Kazakhstan “On Rehabilitation and Bankruptcy.”

Article 237 of the Criminal Code provides for liability for two crimes: unlawful actions in bankruptcy related to property, property liabilities, accounting and other bookkeeping documents reflecting economic activity (Part 1), and unlawful satisfaction of the property claims of individual creditors (Part 2).

The object of the crime under consideration is the property interests of creditors.

The subject matter of the crime is property, property liabilities, information about property, its amount, location, other information about property, accounting and other bookkeeping documents reflecting the economic activity of an individual entrepreneur debtor or an organization debtor.

A creditor is a person who has property claims against a debtor arising from civil-law and (or) other obligations of the debtor, including obligations relating to remuneration, payment of royalties, compensation under employment contracts, payment of social contributions to the State Social Insurance Fund, mandatory pension contributions, mandatory occupational pension contributions, deductions and (or) contributions for compulsory social health insurance, taxes, customs payments, special, anti-dumping and countervailing duties, interest and other mandatory payments to the budget (subparagraph 16) of Article 1 of the Law “On Rehabilitation and Bankruptcy”).

A bankrupt is a debtor whose insolvency has been established by a court decision that has entered into legal force (subparagraph 5) of Article 1 of the Law).

Bankruptcy is the insolvency of a debtor recognized by a court decision, which constitutes grounds for the debtor’s liquidation (subparagraph 6) of Article 1 of the Law).

Based on a systematic interpretation of the provisions of the Criminal Code, property constitutes the subject matter of this crime when it takes the form of both tangible things and property rights recorded in documents or on other media, etc., and equivalent to property.

The concept of a property obligation as the subject matter of this crime is based on the concept of an obligation formulated in Article 268 of the Civil Code of the Republic of Kazakhstan. Thus, by virtue of an obligation, one person (the debtor) is obliged to perform a certain action in favor of another person (the creditor), such as transferring property, performing work, paying money, and so on, or refrain from performing a certain action, while the creditor has the right to demand that the debtor perform the obligation. The creditor is obliged to accept performance from the debtor.

Property obligations constitute the subject matter of the crime when they are recorded in documents or on other media, etc.

Information about property, its amount, location and other information about property constitutes the subject matter of the crime under analysis when such information is recorded on any material media – in documents, on magnetic or other media, in electronic computing machines, electronic computing machine systems or their networks, etc.

Accounting and other bookkeeping documents reflecting economic activity constitute the subject matter of the crime under consideration provided that they have been falsified, that is, information that does not correspond to reality has been entered into them or, conversely, information corresponding to reality has been excluded from them, or information accurately reflecting economic activity has been distorted in some other way, or the said documents have been concealed or destroyed.

The objective elements of the crime under Part 1 of Article 237 of the Criminal Code are characterized by an act, a consequence and the time of commission of the crime.

The act is expressed alternatively in any of the following actions (omissions): 1) concealment of property or property liabilities, information about property, its amount, location or other information about property; 2) transfer of property into the possession of another person; 3) alienation or destruction of property; or 4) concealment, destruction or falsification of accounting and other bookkeeping documents reflecting economic activity.

Concealment of property or property liabilities, information about property, its amount, location or other information about property may consist of an action or omission. An action may manifest itself in moving property to another location; concealing property by changing its packaging, the labeling of which indicates that the packaging contains significantly less valuable property; transferring money to another account; communicating false information about property, its amount or location; entering distorted information about this into an electronic computing machine, etc. An omission may be expressed in failing to present existing property, failing to disclose existing property liabilities, including those secured by the debtor’s property, failing to provide information about property, in particular its amount, location, etc.

Transfer of property into the possession of another person is an action carried out for the purpose of reducing the debtor’s total assets. It may involve either the mere physical transfer of property from the debtor to another person or the legal formalization of another person’s right to possess the property, for example, by transferring money from the debtor’s bank account to another person’s bank account or concluding a lease agreement, regardless of whether the property is physically transferred from the debtor to another person.

Alienation or destruction of property are also acts committed for the purpose of reducing the debtor’s total assets. Alienation is an action consisting of the sale or donation of property, whether legally formalized or not. Destruction is a consequence expressed in rendering property into a condition in which it completely loses its qualities and value and cannot be used for its intended purpose even after repair.

Concealment, destruction and falsification of accounting and (or) bookkeeping documentation or other documents reflecting economic activity consist of the following: concealment is an action or omission, destruction is a consequence, and falsification is an action. The essence of concealment and destruction of the said documents does not differ from these acts as considered in relation to property, while falsification is described in the characterization of the listed documents as the subject matter of this crime.

The consequence, as a mandatory element of the objective elements of the crime under analysis, is the infliction of major damage. It may be expressed as damage caused to one creditor or may consist of the aggregate damage caused to several or many creditors. In accordance with subparagraph 38) of Article 3 of the Criminal Code of the Republic of Kazakhstan, major damage is recognized as damage caused to an individual in an amount exceeding two thousand times the monthly calculation index, or damage caused to an organization or the state in an amount exceeding ten thousand times the monthly calculation index. It is necessary that the consequence in the form of major damage be causally related to the unlawful actions in bankruptcy described in Part 1 of Article 237 of the Criminal Code of the Republic of Kazakhstan.

By its legal construction, the corpus delicti is material. The crime is considered completed from the moment major damage is caused to at least one creditor.

An obligatory element of the objective elements of the crime under consideration is the time of its commission – during rehabilitation or bankruptcy, or in anticipation of bankruptcy, before the court adopts a decision declaring the debtor bankrupt or refusing to declare the debtor bankrupt, or terminating proceedings in the bankruptcy case, or before the issuance of a ruling approving a settlement agreement, including one terminating proceedings in the bankruptcy case, or before the debtor voluntarily declares bankruptcy and its liquidation.

The rehabilitation procedure is a procedure applied judicially, within the framework of which the debtor is subjected to reorganization, organizational and economic, managerial, investment, technical, financial and economic, legal and other measures that do not contradict the legislation of the Republic of Kazakhstan and are aimed at restoring solvency.

The moment of anticipation of bankruptcy should be considered the moment when the debtor submits an application to the court for declaring the debtor bankrupt, as regulated by Articles 38–48 of the Law of the Republic of Kazakhstan “On Rehabilitation and Bankruptcy,” or the moment when the debtor is notified of the court’s issuance of a ruling accepting an application for declaring the debtor bankrupt submitted by a creditor, prosecutor, tax authority or other authorized persons, or by other persons. The identification of precisely these moments as the anticipation of bankruptcy is due, firstly, to the fact that from the commencement of these procedures the debtor is aware of the possibility of bankruptcy and, secondly, because these moments are legally recorded and can be precisely established and proven.

It is important to note that only during the period from the moment of anticipation of bankruptcy until the end of the bankruptcy period, that is, during the period of bankruptcy status, does the infliction of major damage as a result of unlawful actions in bankruptcy qualify under Part 1 of Article 237 of the Criminal Code. Before and after these specified moments, the infliction of major or other property damage upon the owner or another possessor of property constitutes a crime against property.

The subjective element of the crime is characterized by guilt in the form of direct or indirect intent. The perpetrator is aware that they are concealing property or property liabilities, information about property, its amount, location or other information about property; transferring property into the possession of another person; alienating or destroying property; as well as concealing, destroying or falsifying accounting and (or) bookkeeping documentation or other documents reflecting economic activity, and wishes to commit these acts or is indifferent to their consequences.

The subject of unlawful actions in bankruptcy, liability for which is established under Part 1 of Article 237 of the Criminal Code, is an individual entrepreneur, founder, a person performing managerial functions in a commercial or other organization, an official, a temporary, bankruptcy or rehabilitation administrator.

An individual who is a business entity is registered as an individual entrepreneur in accordance with the procedure stipulated by Article 30 of the Entrepreneurial Code of the Republic of Kazakhstan.

A founder (participant) found guilty of intentional bankruptcy in administrative or criminal proceedings bears subsidiary liability to creditors with their own property.

A person performing managerial functions in a commercial or other organization is a person who permanently, temporarily or under special authority performs organizational and administrative or administrative and economic duties in an organization that is not a state body, a local self-government body or an organization in which the state holds more than fifty percent of the shares.

An official is a member of the board of directors of a joint-stock company, the head (deputy head) of a legal entity debtor, as well as another person included in the collegial executive body of a legal entity and vested with permanent or temporary powers to manage the legal entity, the chief accountant of a legal entity debtor, as well as another person temporarily performing their duties (subparagraph 20) of Article 1 of the Law).

A bankruptcy administrator is a person appointed by the authorized body in the field of rehabilitation and bankruptcy to carry out bankruptcy proceedings (subparagraph 8) of Article 1 of the Law).

An interim administrator is a person with whom an agreement has been concluded or who has been appointed by the authorized body in cases established by the said Law, for the purpose of compiling the register of creditors’ claims and preparing an opinion on the debtor’s financial stability during the period when the bankruptcy case is being considered by the court, as well as conducting bankruptcy proceedings until the appointment of a bankruptcy administrator (subparagraph 30) of Article 1 of the Law).

A rehabilitation administrator is a person entrusted with the powers to manage the debtor during the rehabilitation procedure in accordance with the procedure established by law (subparagraph 23) of Article 1 of the Law).

Part 2 of Article 237 of the Criminal Code of the Republic of Kazakhstan establishes criminal liability for the unlawful satisfaction of the property claims of individual creditors by an individual entrepreneur, founder (participant), a person performing managerial functions in a commercial or other organization, an official, as well as a temporary, bankruptcy or rehabilitation administrator during rehabilitation and bankruptcy proceedings, knowingly to the detriment of other creditors, if this act has caused major damage.

Unlawful satisfaction of the property claims of individual creditors to the detriment of other creditors is an action consisting of the unlawful satisfaction of the said claims, for example, payment of a debt or repayment of a loan by a debtor to a creditor given preference, in violation of the order of priority established by the Law of the Republic of Kazakhstan “On Rehabilitation and Bankruptcy.”

Acceptance of unlawful satisfaction of property claims by a creditor who knows that an insolvent debtor has given them preference to the detriment of other creditors constitutes an action consisting, for example, of receiving a debt, loan or service from the debtor by a creditor who is aware of the preference, or the transfer by the debtor, with the consent of such creditor, of money to the latter’s bank account, that is, a violation of the provisions of the Law of the Republic of Kazakhstan “On Rehabilitation and Bankruptcy.”

According to paragraph 1 of Article 100 of the Law of the Republic of Kazakhstan “On Rehabilitation and Bankruptcy,” administrative and court expenses are covered out of turn from the property of the bankrupt.

First priority is given to claims for compensation for harm caused to life or health; for recovery of alimony; for payment of wages and compensation to persons who worked under employment contracts, together with payment of outstanding social contributions to the State Social Insurance Fund and mandatory pension contributions; and for payment of remuneration under copyright agreements (paragraph 2 of Article 100 of the Law).

Satisfaction of first-priority claims is carried out in the order of priority set out in paragraph 2 of Article 100 of the Law.

If there is insufficient property to satisfy creditors’ claims for compensation for harm, it is distributed among creditors in proportion to the amounts of their claims included in the register.

Second priority is given to creditors’ claims under obligations secured by a pledge of the bankrupt’s property, provided that the pledge obligation has been duly formalized and registered, and only to the extent secured by the pledge (paragraph 3 of Article 100 of the Law).

Third priority is given to tax debts, as well as debts relating to customs payments, special, anti-dumping and countervailing duties and interest (paragraph 4 of Article 100 of the Law).

Fourth priority is given to settlements with other creditors under civil-law and other obligations, as well as to creditors’ claims arising:

in the case provided for in the third paragraph of paragraph 6 of Article 104-1 of the Law;

from copyright agreements that are not included in the first priority;

as a result of a court decision declaring a transaction invalid and ordering the return of property to the bankrupt’s estate (paragraph 5 of Article 100 of the Law).

Fifth priority is given to creditors’ claims for compensation of losses and recovery of penalties (fines and late-payment interest), as well as for payment of wages and compensation in accordance with paragraphs 5 and 6 of Article 102 of the Law (paragraph 6).

Sixth priority is given to creditors’ claims submitted after the deadline established by subparagraph 1) of paragraph 3 of Article 90 of the Law, with the exception of claims for compensation for harm caused to life or health; for recovery of alimony; for payment of wages and compensation to persons who worked under employment contracts, together with payment of outstanding social contributions to the State Social Insurance Fund, mandatory pension contributions, mandatory occupational pension contributions, deductions and (or) contributions for compulsory social health insurance; and for payment of remuneration to authors for service inventions, utility models and industrial designs (paragraph 7 of Article 100 of the Law).

These issues have also been clarified in the Regulatory Resolution of the Supreme Court of the Republic of Kazakhstan dated October 2, 2015, “On the Practice of Applying Legislation on Rehabilitation and Bankruptcy.”

The consequence in the form of major damage does not differ from the corresponding element of the objective elements of the corpus delicti provided for in Part 1 of Article 237 of the Criminal Code, which was characterized earlier. It is necessary that this consequence be causally related to the actions described in Part 2 of the said Article.

The crime under consideration is completed from the moment major damage is caused to one or more creditors.

An obligatory element of the objective elements of the corpus delicti provided for in Part 2 of Article 237 of the Criminal Code of the Republic of Kazakhstan is the time of commission of the crime – the period from the moment of anticipation of bankruptcy until the completion of bankruptcy proceedings.

The subjective element of the corpus delicti under analysis is characterized by guilt in the form of intent (direct or indirect). The perpetrator is aware that, during bankruptcy or rehabilitation proceedings, they are unlawfully satisfying the property claims of individual creditors knowingly to the detriment of other creditors, and wishes to commit this act or is indifferent to its consequences.

The subject of the crime provided for in Part 2 of Article 237 of the Criminal Code is special, namely, an individual entrepreneur, founder (participant), a person performing managerial functions in a commercial or other organization, an official, a temporary, bankruptcy or rehabilitation administrator during rehabilitation and bankruptcy proceedings.

The acts provided for in Parts 1 and 2 of Article 237 of the Criminal Code are classified as minor crimes.

Commentary of 2021 to the Criminal Code of the Republic of Kazakhstan, by Isidor Shamilovich Borchashvili, Honored Figure of Kazakhstan, Doctor of Law, Professor, Academician of the Kazakhstan National Academy of Natural Sciences, member of the Scientific Advisory Councils under the Constitutional Council of the Republic of Kazakhstan and the Supreme Court of the Republic of Kazakhstan, member of the working group on reform of the law enforcement system under the Security Council of the Republic of Kazakhstan, Honored Employee of the Ministry of Internal Affairs of the Republic of Kazakhstan.

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