Rehabilitation Procedures in Relation to a Legal Entity

📘 Article 54 of the Civil Code of the Republic of Kazakhstan: REHABILITATION PROCEDURES FOR A LEGAL ENTITY

🔹 1. GENERAL CHARACTERISTICS

Article 54 of the Civil Code of the Republic of Kazakhstan establishes a legal mechanism to prevent the bankruptcy of a legal entity through the application of rehabilitation measures aimed at restoring solvency and preserving the business entity.

🔎 In essence, rehabilitation is an alternative to liquidation. Its purpose is not to “punish” the debtor, but to give it a chance to continue its activities and settle with creditors either out of court or through judicial procedures, without liquidation.

🔹 2. THE ESSENCE OF REHABILITATION

“...any measures that do not contradict the legislation may be applied...”

📌 This is a flexible and open list of measures, including:

· debt restructuring;· deferral or installment of payments;· partial write-off of obligations;· assignment of debts or assets;· attraction of investments or introduction of external management;· sale of non-core assets, etc.

📘 Legislative framework:

· Law of the Republic of Kazakhstan dated December 30, 2022 No. 176-VII “On Restoration of Solvency and Bankruptcy” (hereinafter – the Bankruptcy Law);· Civil Code of the Republic of Kazakhstan (Articles 52–54);· Civil Procedure Code of the Republic of Kazakhstan (section on insolvency cases).

🔹 3. KEY PRINCIPLES OF REHABILITATION

Principle — Content

Business preservation— The primary goal is to provide an opportunity for recovery and continuation of activities

Coordination with creditors— The rehabilitation plan is approved by the court, taking into account the opinion of the majority of creditors

Temporary suspension of claims— A moratorium is introduced on enforcement, accrual of interest, and penalties

Court and administrator control— The procedure is carried out under the supervision of the court and an insolvency (rehabilitation) administrator

🔹 4. REHABILITATION PROCEDURE: MAIN STAGES

🔸 1. Filing an application for rehabilitation

· May be filed by the debtor, a creditor, or a state authority;· A rehabilitation plan is mandatory — economically justified and containing a mechanism for overcoming the crisis.

🔸 2. Appointment of a temporary administrator

· The court appoints a rehabilitation administrator;· The administrator is granted powers for partial management of the company and interaction with creditors.

🔸 3. Approval by creditors

· The plan is submitted to creditors;· If more than two-thirds of creditors approve it, the plan is confirmed by the court.

🔸 4. Implementation of the plan

· Duration — up to 3 years, with possible extension;· The administrator supervises implementation and reports to the court.

🔹 5. CONDITIONS FOR APPLICATION OF REHABILITATION

Bankruptcy Law, Articles 5–7:

📌 Rehabilitation is applied if:

· the debtor has a real chance to restore solvency;· assets have not been completely devalued;· participation of investors or restructuring is possible.

⚠️ Contraindications:

· assets are completely lost;· business activities have ceased;· there is no viable recovery plan.

🔹 6. PRACTICAL EXAMPLE

Case No. 2-1295/2023, KostanayAn LLP applied to the court for rehabilitation, presenting a plan to restructure debts to banks, tax authorities, and suppliers.

· The court appointed a rehabilitation administrator;· After approval by creditors, in the 27th month the LLP fully repaid its debts and exited the procedure.

🔹 7. RELATED NORMS AND ACTS

Act — Article / Section — Content

Civil Code of the RKArticles 52–53Bankruptcy, recognition

Law “On Bankruptcy”Chapter 3, Articles 19–30Conditions and procedure for rehabilitation

Civil Procedure Code of the RKArticles 148–150Procedure for filing and consideration of applications

Code of Administrative Offenses of the RKArticles 243–244Liability for abuse of bankruptcy/rehabilitation procedures

🔹 8. INTERNATIONAL CONTEXT

· The UNCITRAL Legislative Guide on Insolvency Law supports business rescue procedures;· In most jurisdictions (USA, Germany, France), rehabilitation measures are preferred over liquidation.

🔹 9. PRACTICAL RECOMMENDATIONS

For debtors:

· File for rehabilitation before being declared bankrupt;· Engage an insolvency or restructuring advisor/auditor;· Prepare a realistic plan that takes creditors’ interests into account.

For creditors:

· Critically assess the rehabilitation plan;· Support measures that ensure partial or full repayment of debts;· In case of bad faith, petition for termination of the procedure.

📎 CONCLUSION

Article 54 of the Civil Code of the Republic of Kazakhstan establishes a mechanism for rescuing a legal entity in times of crisis — the rehabilitation procedure. When properly implemented, it allows preservation of the business, jobs, and partial or full satisfaction of creditors’ claims.

This is a flexible and viable mechanism aligned with best international standards. 

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