Satisfaction of Creditors’ Claims

📘 Article 51 of the Civil Code of the Republic of Kazakhstan: SATISFACTION OF CREDITORS’ CLAIMS

🔹 1. GENERAL CHARACTERISTICS

Article 51 of the Civil Code of the Republic of Kazakhstan establishes the order of satisfaction of creditors’ claims during the liquidation of a legal entity outside bankruptcy proceedings. This ensures a fair distribution of property among different categories of creditors, taking into account the social and legal significance of their claims.

If the legal entity’s property is insufficient to satisfy all claims in full, the principle of proportionality within the same priority rank applies.

🔹 2. ANALYSIS BY PARAGRAPHS

✅ Paragraph 1: Priority Order of Satisfaction of Claims

The order of priority is based on the principles of social importance and secured obligations.

🔸 First Priority

Alimony and compensation for harm to life and health

• Alimony — withheld amounts that were not transferred to recipients;
• Compensation for harm — in the form of capitalization of periodic payments (i.e., a lump-sum payment taking into account the expected payment period).

📘 Judicial practice:The court satisfied the claims of a former employee awarded compensation for an occupational disease (case No. 2-5043/2023, Aktobe Region) — the compensation was classified as a first-priority claim.

🔸 Second Priority

Settlements with employees and mandatory contributions

Includes:

• Salaries and compensation under employment contracts;
• Social contributions;
• Pension contributions;
• Mandatory health insurance contributions;
• Authors’ royalties.

📘 Comment:This category does NOT include administrative fines, compensation for moral damages, or other non-property claims — these belong to the fifth priority.

🔸 Third Priority

Secured creditors within the value of the collateral

⚠️ Exceptions:

• Creditors holding mortgage-backed bonds secured by claims under mortgage loans are satisfied outside the general order; their claims are regulated by special legislation (Law of the Republic of Kazakhstan “On Project Financing and Securitization”);
• Persons who have already received property in kind are also excluded (see paragraphs 5 and 6 of Article 50 of the Civil Code).

📘 Important nuance:This applies not to the entire debt amount, but only within the value of the collateral. The remaining unpaid debt is satisfied in the fifth priority.

🔸 Fourth Priority

Obligations to the state budget

• Taxes, duties, fees, and penalties payable to the state;
• Payments to budgetary funds if they are not included in social contributions (second priority).

📘 Judicial practice:The State Revenue Committee attempted to recover VAT before satisfaction of employees’ claims, but the court rejected the claim (case No. 3-2891/2022).

🔸 Fifth Priority

Other creditors

Includes:

• Commercial suppliers;
• Contractors;
• Banks under unsecured agreements;
• Claims of secured creditors for the portion of debt not covered by collateral.

📘 Important nuance:If an obligation does not fall under a higher-priority category, it is included in the fifth priority — even if judicial recovery proceedings are pending.

✅ Paragraph 2: Principle of Priority

“...after full satisfaction of the previous priority...”

📌 This rule prevents partial satisfaction of lower-priority claims until higher-priority claims have been fully settled.

✅ Paragraph 3: Proportionality

“...proportionally within the relevant priority...”

📘 Example:If a legal entity has KZT 1 million, while second-priority claims amount to KZT 2 million, each employee will receive 50% of the amount owed.

📘 Exception:If a special procedure is established by law — for example, the Law of the Republic of Kazakhstan “On Insurance” regulates compensation payments through a compensation fund.

✅ Paragraph 4: Challenging Actions of the Liquidation Commission

📌 If:

• The commission refuses a claim;
• Or evades its consideration;

— the creditor may file a lawsuit before approval of the liquidation balance sheet.

📘 Important:

• After approval of the balance sheet, the possibility of appeal becomes limited;
• The court may recognize the claim as subject to satisfaction from the remaining property.

✅ Paragraph 5: Transfer of Remaining Property

📌 After settlements are completed:

• The remaining property is transferred to founders/owners holding proprietary or contractual rights.

📘 Important nuance:If the constituent documents provide for other purposes (for example, charitable purposes), the specified mechanism shall apply.

✅ Paragraph 6: Claims Considered Extinguished

📌 The following claims are deemed extinguished:

• Claims unpaid due to insufficiency of property;
• Claims not submitted before approval of the liquidation balance sheet;
• Claims not recognized by the commission where the creditor failed to file a lawsuit;
• Claims denied by the court.

📘 This excludes any subsequent claims against the liquidated legal entity, even if additional property is discovered later.

🔹 3. RELATED LEGAL PROVISIONS AND ACTS

🔹 4. INTERNATIONAL STANDARDS

• UNCITRAL Legislative Guide on Insolvency Law — supports prioritization based on the social and economic significance of claims;
• OECD Guidelines on Corporate Governance — recommend a fair procedure for satisfying creditors’ claims during liquidation.

🔹 5. PRACTICAL RECOMMENDATIONS

For the liquidation commission:

• Maintain records of all submitted claims;
• Strictly comply with the priority order established by the Civil Code;
• Document all actions in writing;
• Publish interim and final liquidation balance sheets.

For creditors:

• Submit claims within the prescribed period (usually 2 months);
• In case of refusal — apply to court before approval of the balance sheet;
• Monitor publications regarding liquidation and follow the stages of the procedure.

📎 CONCLUSION

Article 51 of the Civil Code of the Republic of Kazakhstan establishes a clear, hierarchical, and fair system for satisfying creditors’ claims, giving priority to socially significant obligations (alimony, harm to health, wages), followed by secured creditors, the state, and finally other participants in commerce.

This article plays a key role in protecting the interests of all participants in liquidation proceedings and maintaining confidence in the institution of legal entities. 

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