Restoration of Solvency and Bankruptcy of Citizens
Courts should verify the financial administrator’s conclusion as to whether the information concerning the debtor’s financial condition has been collected in full.
Kazbekova Zh.S. applied to the court for the application of the judicial bankruptcy procedure, citing indebtedness to banks and collection agencies in the total amount of KZT 10,783,211.28, which had arisen due to the failure to perform obligations under bank loan agreements concluded in 2021.
The financial administrator issued a conclusion confirming the debtor’s insolvency and the existence of grounds for applying the judicial bankruptcy procedure.
The court of first instance granted the application.
The court of appeal disagreed with the decision of the court of first instance, having established that the applicant owned a 1/3 share in a land plot with a residential house in the village of Tulkuli, Akmola Region.
Financial administrator Tapaev K.A. acknowledged this omission before the court, explaining that the said structure and land plot had not been appraised.
The form and requirements for the financial administrator’s conclusion are approved by Order No. 219 of the Minister of Finance of the Republic of Kazakhstan dated 28 February 2023, “On Approval of the Forms of Conclusions of the Financial Administrator.” Pursuant to this Order, the conclusion must be accompanied by a list of documents confirming the findings set out in the conclusion.
Pursuant to Article 25 of the Law, the financial administrator shall conduct an inventory of the debtor’s property within ten working days from the date on which the court issues a ruling initiating proceedings concerning the application of the solvency restoration or judicial bankruptcy procedure, with an inventory report of the debtor’s property being prepared.
However, a review of civil cases has shown that not all conclusions of financial administrators contain information and requests concerning certain types of potential income of the debtor as required by the approved form. When preparing conclusions, financial administrators do not always conduct an inventory of the property in order to identify the debtor’s assets and limit themselves to stating that the debtor has no property.
Courts should treat such conclusions critically, determine at the court hearing the reasons for the absence of complete information in the conclusion confirming the citizen’s insolvency and the existence of grounds for applying judicial bankruptcy.
The financial administrator’s conclusion constitutes one of the pieces of evidence in the case and shall be assessed by the court pursuant to Articles 64, 65, and 67 of the CPC, together with other evidence in the case, taking into account its relevance, admissibility, and reliability. Such conclusion does not have precedence over other evidence for the court.
Jurisdiction
Pursuant to Article 302 of the CPC, cases concerning restoration of solvency and judicial bankruptcy of citizens of the Republic of Kazakhstan shall be considered under the procedure of special proceedings.
Pursuant to paragraph 2 of Article 20 of the Law, an application for the application of the solvency restoration or judicial bankruptcy procedure shall be submitted by the debtor to the court in writing or in the form of an electronic document at the debtor’s place of residence.
Pursuant to paragraph 1 of Article 16 of the CC, the place of residence is the populated locality where a citizen permanently or predominantly resides.
Cases in this category shall be considered by district (city) courts.
Pursuant to paragraph 3 of Article 3 of the Law, the court shall consider applications for the application of the solvency restoration procedure and the judicial bankruptcy procedure in accordance with the general rules of civil proceedings, subject to the specific features established by this Law.
State Duty
Pursuant to Article 103 of the CPC, the procedure and amount of payment of the state duty, as well as the grounds for exemption from payment thereof or granting a deferral of payment, shall be determined by the Code of the Republic of Kazakhstan “On Taxes and Other Obligatory Payments to the Budget” (hereinafter, the Tax Code).
Payment of the state duty to the budget shall be confirmed by payment or cash documents, and where payments are made through ATMs, electronic terminals, remote communication channels, and the “electronic government” payment gateway, by paper or electronic receipts and vouchers.
Pursuant to subparagraph 13-1) of Article 610 of the Tax Code, the rate of the state duty for applications for the application of the solvency restoration procedure or judicial bankruptcy procedure shall be 0.3 MCI.
Issues Concerning the Remuneration of the Financial Administrator
The remuneration of the financial administrator in the solvency restoration or judicial bankruptcy procedure shall be paid from the debtor’s funds. The amount of remuneration shall be one minimum monthly wage established by Article 23 of the Law of the Republic of Kazakhstan “On the Republican Budget.”
In their reviews, local courts raise the issue that, in practice, financial administrators do not commence performing their duties due to the debtors’ lack of funds to pay for their activities, as well as the absence of assets of the debtors from which the costs of conducting the judicial procedure could be covered.
The position of financial administrators who do not commence performing their duties without advance payment for their activities is contrary to the Law.
The remuneration of the financial administrator constitutes current expenses and shall be paid out of the debtor’s property on a priority basis. If the debtor fails to pay the remuneration in full, such obligation shall not terminate upon completion of the bankruptcy procedure.
Furthermore, paragraph 2 of Article 44 of the Law provides for the possibility of paying the financial administrator’s remuneration from budgetary funds if, during the judicial bankruptcy procedure, the following circumstances are established cumulatively:
- the debtor belongs to the socially vulnerable population groups in accordance with the housing legislation of the Republic of Kazakhstan;
- there is no property against which enforcement may be levied in accordance with the legislation of the Republic of Kazakhstan on enforcement proceedings and the status of enforcement officers.
In this regard, courts should require financial administrators to perform their duties and explain the procedure for reimbursement of expenses in accordance with the provisions of the Law.
Contrary to the above requirements of the Law, the report of the courts of the city of Almaty states that judicial practice in the city of Almaty has been forced to follow the approach of deferring the financial issue until a decision is rendered in the case, with the remuneration of the financial administrator being recognized by the courts as court costs.
Regulatory and Legal Framework
The principal regulatory legal acts are:
- Constitution of the Republic of Kazakhstan;
- Civil Code of the Republic of Kazakhstan (hereinafter, the CC);
- Civil Procedure Code of the Republic of Kazakhstan (hereinafter, the CPC);
- Law of the Republic of Kazakhstan “On Restoration of Solvency and Bankruptcy of Citizens of the Republic of Kazakhstan” dated 30 December 2022;
- Law of the Republic of Kazakhstan “On Banks and Banking Activities in the Republic of Kazakhstan”;
- Law of the Republic of Kazakhstan “On Microfinance Activities”;
- Law of the Republic of Kazakhstan “On Credit Bureaus and Formation of Credit Histories in the Republic of Kazakhstan”;
- Law of the Republic of Kazakhstan “On Enforcement Proceedings and the Status of Enforcement Officers”;
- Law of the Republic of Kazakhstan “On Payments and Payment Systems”;
- Law of the Republic of Kazakhstan “On Collection Activities”;
- Regulatory Resolution No. 1 of the Supreme Court of the Republic of Kazakhstan dated 31 March 2017, “On Application by Courts of Certain Provisions of the Legislation on Enforcement Proceedings”;
- Regulatory Resolution No. 7 of the Supreme Court of the Republic of Kazakhstan dated 25 November 2016, “On Judicial Practice in Consideration of Civil Cases Concerning Disputes Arising from Bank Loan Agreements.”
Courts should bear in mind that substantial amendments have been introduced into the Law of the Republic of Kazakhstan “On Restoration of Solvency and Bankruptcy of Citizens of the Republic of Kazakhstan” dated 30 December 2022 (hereinafter, the Law), which consist of the following.
Initially, the Law established unified grounds for applying the solvency restoration and judicial bankruptcy procedures, which included the existence of obligations exceeding 1,600 times the monthly calculation index (MCI), as well as compliance with the following conditions:
- absence of repayment of obligations to creditors for twelve consecutive months as of the date of filing the application;
- completion of procedures for settlement and/or collection of indebtedness under bank loan agreements and/or microloan agreements within a period not exceeding eighteen months from the date the overdue indebtedness arose;
- absence, as of the date of filing the application, of the application of an out-of-court or judicial bankruptcy procedure within the preceding seven years.
At the same time, the requirements concerning the amount of obligations did not apply where the creditor was an individual or a legal entity, including a creditor under a judicial bankruptcy procedure, provided that the debtor owned property, including property held in common ownership.
The Law of the Republic of Kazakhstan dated 19 June 2024 No. 97-VIII ZRK, “On Amendments and Additions to Certain Legislative Acts of the Republic of Kazakhstan on Issues of Minimizing Risks in Lending, Protecting the Rights of Borrowers, Improving Regulation of the Financial Market and Enforcement Proceedings,” introduced the following amendments.
The grounds for applying the solvency restoration procedure and judicial bankruptcy procedure were separated.
The grounds for filing an application with the court for the application of the solvency restoration procedure are that the value of the property owned by the debtor exceeds the amount of all of the debtor’s obligations (including obligations whose due date has not yet occurred) and/or the debtor has a stable income.
The grounds for filing an application with the court for the application of the judicial bankruptcy procedure are set out in paragraph 2 of Article 6 of the Law.
A definition was provided of what constitutes repayment of obligations to creditors.
The period for conducting procedures for settlement and/or collection of indebtedness under a bank loan agreement and a microloan agreement was reduced from eighteen months to twelve months from the date the overdue indebtedness arose.
The Law of the Republic of Kazakhstan dated 30 June 2025 No. 205-VIII ZRK, “On Amendments and Additions to Certain Legislative Acts of the Republic of Kazakhstan on Issues of Development of the Financial Market, Protection of the Rights of Consumers of Financial Services, Communications and Exclusion of Excessive Legislative Regulation,” abolished the requirement to submit a copy of a document confirming that the debtor had taken measures to settle indebtedness under a bank loan agreement and/or a microloan agreement where:
- the bank loan agreement and/or microloan agreement was concluded before 1 January 2025;
- twelve months have elapsed from the date the overdue indebtedness arose.
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