The best way to close a company
THE BEST WAY TO CLOSE A COMPANY
We would like to point out liquidation process main features by using Limited Liability Company (1) (further-Company) example. In this case, there are following options:
1. Shareholders initiate liquidation in the reason of impossibility to satisfy company’s debts. (2) It is applicable, when company’s assets are not enough to cover all debts. For instance, a company assets amount is around 1 million tenge when debt’s cost is almost 900 hundred tenge.
2. Company stops its operation. (3) This option has a temporary character in the reason of impossibility to close the company. When suspension happens, company operates without any functioning power. If the suspension process ends successfully, there is no obligation to pay and report taxes.
3. Company starting bankruptcy procedures. Company sells all assets to cover debt obligations. More about bankruptcy procedure is explained further:
The Kazakhstan Bankruptcy Act determines the bankruptcy procedure proceeding. (4)
There are two bankruptcy types according to The Kazakhstan Bankruptcy Act (5):
1. The choice to file bankruptcy, company applies to the court and requests about bankruptcy recognition.
2. Compulsory bankruptcy, creditor files a petition to the court to force company into bankruptcy.
We would like to explain more about the choice to file bankruptcy process.
The choice to file bankruptcy requires certain conditions:
• Company assets shortage, disability to cover the debts (6).
• Company persistent insolvency, disability to be responsible for its debts during the following terms (7):
1) Creditor court application date;
2) Creditor petition on the beginning of application year;
3) Creditor petition on last year beginning.
The main condition to recognize company bankruptcy is terms verification.
The bankruptcy procedure main stages:
1. Corporate decision
Shareholders resolve corporate decision on bankruptcy recognition according to the statute and other inner documentation.
2. Temporary director appointment
Shareholders appoint temporary director and accept the agreement. Only special registry included individuals are able to act as temporary director. (8)
Company guarantees an accounting documents access to the temporary director. (9)
3. Document submission to the Court
Company collects and submits documents to the Court. (10)
Documents should contain all information, established by the Bankruptcy and Rehabilitation Act. (11)
4. The Court bankruptcy proceeding
The Court proceeds judicial actions and publishes the bankruptcy commencement act. (12)
5. Temporary director financial stability analysis
Temporary director learns all financial and economic operations, documentation and gives financial stability conclusion, which could have one of further conditions: (13)
1. Not reasoned Bankruptcy recognition claim - financial unsteadiness first class,
2. Not reasoned bankruptcy recognition, however, the rehabilitation procedure is applicable - financial unsteadiness second class,
3. Reasoned bankruptcy- financial unsteadiness third class.
Additionally: In compulsory bankruptcy cases, when companies do not allow temporary directors an access to accounting documents. Therefore, the temporary director could not indicate financial stability and publishes an appropriate act. (14)
1. Court bankruptcy consideration
Court considers the bankruptcy case (15). This procedure could take approximately 2 months (16) or more.
On the final stage court gives the judicial act regarding bankruptcy recognition. (17)
2. Company documentation and values transmission
Documentation list: (18)
1) All accounting documents, seals and stamps in 3 working days after the trial;
2) Accounting documentation, company property establishing documents in 10 working days after the trial;
3) Company tangible and other values in 20 working days after the trial.
3. Authority notification
Temporary director sends the bankruptcy recognition notification, then the authority posts information on its web resource. (19)
The tax authority officially regulates bankruptcy sector. (20)
4. Judicial act and bankruptcy process main consequences
Company bankruptcy recognition judicial act comes into force. (21) Bankruptcy main consequences: (22)
1. Debts cover, obligations, company property realization and usage by company’s shareholders are strictly prohibited;
2. All obligatory debts cover dates are expired;
3. Forfeit and reward calculation are stopped;
4. Company participating trials are stopped, excepting not recognized court decisions;
5. Requirements are applicable only in bankruptcy procedure;
6. Company property restrictions and encumbrances are removing without authority permission;
7. Company property seizure and other property disposal restrictions are acceptable in transaction invalidation and illegal property reclaiming claims conduct.
5. Bankruptcy procedure
The bankruptcy recognition proceeds to bankruptcy procedure.
The bankruptcy procedure includes following actions: creditors’ claims satisfactions, company property assessment and realization. Temporary and bankrupt director, creditors, court, authority and other bodies participate in the bankruptcy procedure. (23)
The bankruptcy procedure occupies from 9 month to approximately 5 years. (24) Terms depend on appropriate company.
6. Bankruptcy and liquidation completion
Bankrupt director submits final reports and balances to the court. According to the Bankruptcy and Rehabilitation Act a court approves such reports and decides about bankruptcy process completion. (25)
Final stage is company liquidation document application to registrar. (26)
After company liquidation registration the bankruptcy is completed.
Conclusions
This article reviews bankruptcy procedure in general proceedings. However, details related to bankruptcy procedures depend on each situation and company’s profile and details. We recommend use professional consulting regarding any bankruptcy procedures.
Please note that Kazakhstan legislation is subject of permanent changes and updates. Therefore we recommend to clarify any details before using this article.
Synergy Partners lawyers participating in this material: Symbat Tursyngali, Anar Dautalinova
_____________________(1) The legislation of Kazakhstan on bankruptcy applies not only to Companies, but also to JSCs and other forms of legal entity. In this article, we took LLC as an example, since it is the most common type of legal entity in Kazakhstan.
(2) Article 49.1 of the Civil Code of Kazakhstan
(3) Article 213 of the Tax Code of Kazakhstan
(4) Article 1.6 of the Bankruptcy and Rehabilitation Act , Article 52 of the Civil Code of Kazakhstan
(5) Articles 4.1 and 4.2 of the Bankruptcy and Rehabilitation Act , Article 53 of the Civil Code of Kazakhstan
(6) Article 11.2.1 of the Bankruptcy and Rehabilitation Act
(7) Article 5.1 of the Bankruptcy and Rehabilitation Act
(8) Article 11.2.4 of the Bankruptcy and Rehabilitation Act
(9) Article 11.2.8 of the Bankruptcy and Rehabilitation Act
(10) Article 42.2.1 of the Bankruptcy and Rehabilitation Act
(11) Article 41 of the Bankruptcy and Rehabilitation Act
(12) Article 38.1 of the Bankruptcy and Rehabilitation Act
(13) Article 49.1 of the Bankruptcy and Rehabilitation Act
(14) Article 49.2.2 of the Bankruptcy and Rehabilitation Act
(15) Article 52 of the Bankruptcy and Rehabilitation Act
(16) Article 54.1.1 of the Bankruptcy and Rehabilitation Act
(17) Article 55.1 of the Bankruptcy and Rehabilitation Act
(18) Article 56.2.4 of the Bankruptcy and Rehabilitation Act
(19) Article 56.3 of the Bankruptcy and Rehabilitation Act
(20) As of April 13, 2020, the State Revenue Committee of the Ministry of Finance of the Republic of Kazakhstan is the authorized body in the field of rehabilitation and bankruptcy.
(21) Article 61.1, 62 of the Bankruptcy and Rehabilitation Act
(22) Article 87 of the Bankruptcy and Rehabilitation Act
(23) Article 85 of the Bankruptcy and Rehabilitation Act
(24) Article 84 of the Bankruptcy and Rehabilitation Act
(25) Article 110.3 of the Bankruptcy and Rehabilitation Act
(26) Article 112.1 of the Bankruptcy and Rehabilitation Act