Procedure for the Liquidation of a Legal Entity

📘 Article 50 of the Civil Code of the Republic of Kazakhstan: PROCEDURE FOR THE LIQUIDATION OF A LEGAL ENTITY

🔹 1. GENERAL CHARACTERISTICS

Article 50 of the Civil Code of the Republic of Kazakhstan regulates the step-by-step procedure for the liquidation of a legal entity, both on a voluntary and compulsory basis. The purpose is to ensure:

• legal certainty in the termination of a legal entity;

• protection of creditors’ interests;

• lawful distribution of property.

The procedure consists of key stages: notification, appointment of a liquidation commission, publication, acceptance of creditors’ claims, preparation of interim and final liquidation balances, and completion of the liquidation.

🔹 2. CLAUSE-BY-CLAUSE ANALYSIS

✅ Clause 1: Notification of Authorized Bodies

“…is obliged to immediately notify in writing or through an online resource…”

📌 Addressees of the notification:

• the justice authority or the State Corporation “Government for Citizens” — the registering authority;

• the state revenue authority — the tax authority.

📘 Significance:

• initiation of the legal control mechanism over liquidation;

• restriction of transactions under the BIN (Business Identification Number);

• commencement of the time limits for creditors.

✅ Clause 2: Appointment of the Liquidation Commission

📌 Appointed by:

• the owner of the property;

• the body that adopted the decision on liquidation.

📌 Functions of the commission:

• management of the legal entity’s affairs;

• representation in court;

• acceptance of creditors’ claims;

• sale of assets and settlements.

📘 Rule: from the moment of appointment, management powers are transferred exclusively to the commission.

✅ Clause 3: Publication of Notice and Acceptance of Claims

📌 Publication requirements:

• in national mass media;

• claim submission period — not less than 2 months;

• in case of bankruptcy — 1 month.

🔔 Additionally:

• the commission must independently identify creditors and send them written notifications.

📘 Practice:

• failure to publish or violation of time limits constitutes grounds for declaring the liquidation unlawful (see judicial practice in corporate disputes).

✅ Clause 4: Interim Liquidation Balance Sheet

📌 Must contain:

• data on property;

• list of claims;

• results of their review.

📌 Approved by:

• the same body that initiated the liquidation.

🔒 Exceptions:

• assets transferred to representatives of holders of mortgage/financial bonds and Islamic companies are not included in the liquidation estate.

📘 Regulatory framework:

• Law of the Republic of Kazakhstan “On Project Financing and Securitization”;

• Law “On the Securities Market”;

• Regulatory acts of the National Bank and the Government.

✅ Clause 5: Sale of Property and Protection of Secured Creditors

📌 If assets are insufficient:

• they are sold at public auction (in accordance with enforcement procedures for court acts);

• secured creditors have priority.

📌 If proceeds from collateral are insufficient:

• the remaining debt is included in the general order of satisfaction (see Article 51 of the Civil Code).

📘 Judicial practice:

• In case No. 2-3157/2021, the court declared unlawful the satisfaction of claims out of priority order, as the liquidation commission ignored the priority of a secured creditor.

✅ Clause 6: Settlements with Creditors and In-Kind Acceptance of Collateral

📌 Settlements are carried out in the order of priority established by Article 51 of the Civil Code.

📌 A secured creditor has the right to:

• accept the pledged property in kind;

• return the difference if the value exceeds the debt;

• claim the remaining amount in the general priority order if there is a shortfall.

📘 Valuation is mandatory and must be conducted within 10 working days.

📘 Practice:

• courts verify proper notification, adequacy of valuation, and compliance with deadlines.

✅ Clause 7: Final Liquidation Balance Sheet

📌 Approved by the same body that approved the interim balance.

📌 Condition: all settlements must be completed.

📘 Significance:

• serves as the basis for removal of the legal entity from the BIN Register.

✅ Clause 8: Distribution of Remaining Property

📌 Distributed in accordance with the charter:

• among participants/shareholders;

• or for other purposes specified in the founding documents (e.g., charity).

✅ Clause 9: Liability of the Owner for the Obligations of an Institution

📌 Applies to:

• state enterprises (treasury enterprises);

• state institutions.

📌 Creditors are entitled to recover debts from the owner of the property (the state, akimat).

📘 This provision reflects the principle of subsidiary liability of the state for public legal entities (in accordance with the Budget Code and the Law “On State Property”).

✅ Clause 10: Completion of Liquidation

📌 A legal entity is considered terminated after:

• relevant information is entered into the National BIN Register.

📘 Consequences:

• termination of all rights and obligations;

• impossibility of initiating new claims;

• exclusion from the state register.

🔹 3. RELATED LEGAL ACTS

🔹 4. INTERNATIONAL STANDARDS

• OECD Corporate Governance Principles — transparency of liquidation procedures;

• UNCITRAL Legislative Guide on Insolvency Law — mechanisms for protecting creditors’ rights during business termination;

• EU Company Law Directive — requirement to publish notices and ensure creditors’ right to submit claims.

🔹 5. PRACTICAL RECOMMENDATIONS

For legal entities:

• strictly comply with notification and publication deadlines;

• appoint a qualified liquidation commission;

• ensure that the interim balance covers all creditors and assets.

For creditors:

• monitor liquidation announcements;

• submit claims on time;

• if collateral exists, initiate in-kind transfer of property or participate in auctions.

📎 CONCLUSION

Article 50 of the Civil Code of the Republic of Kazakhstan establishes a detailed, consistent, and rights-protective procedure for the liquidation of legal entities. It aims to:

• balance the interests of owners and creditors;

• protect property rights;

• prevent bad-faith practices in terminating legal entities. 

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