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Modernizing Kazakhstan’s Insolvency Legislation

April 15, 2014


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As a result of the World Bank’s technical assistance, there is currently better protection for creditors and for debtors’ assets in Kazakhstan. In addition, access to insolvency proceedings—rehabilitation or liquidation—has been accelerated, which in turn, results in substantial job savings and more debt repayments.

Challenge

Before the reform process began, Kazakhstan’s Law on Bankruptcy was characterized by strict piecemeal liquidation—assets were frequently undervalued and sold individually. Procedures for rehabilitating distressed enterprises were rarely used. There were only 14 rehabilitation cases in 2009 (representing 0.6 percent of bankruptcies) and 43 bankrupt companies (representing 2 percent of bankruptcies). Small and medium-sized enterprises (SMEs) have been particularly vulnerable in such circumstances. In practice, the insolvency system was insufficiently protective of companies undergoing financial difficulty, despite the fact that if rehabilitated, these companies could have contributed to preserving employment and boosting economic growth in the longer term. At the same time, most creditors did not regard insolvency proceedings as an effective method of debt collection, as returns for creditors who did use the system were very low.

Solution

As insolvency legislation in Kazakhstan did not keep pace with the evolution of international best practices and the country’s desired development objectives, significant amendments were needed to ensure its effectiveness and consistency with international standards. The World Bank’s technical assistance focused on: (i) conducting a comprehensive assessment of the effectiveness of the country’s legal framework for dealing with corporate insolvency; (ii) drafting a Concept Note for an Effective Insolvency System Framework in Kazakhstan based on comparative experience and international best practices; (iii) helping the Kazakh authorities to implement an ambitious and comprehensive plan for reforming insolvency legislation; and (iv) preparing a template of the concept as a framework for the new law on personal bankruptcy.


" Since 2010, the Ministry of Finance has been in a very close cooperation with the World Bank on improving the insolvency system in Kazakhstan. “Results of our cooperation help country move towards developing of an efficient, transparent, and predictable insolvency system, as well as promoting financial rehabilitation of businesses in the country. "
Ruslan Dalenov

Ruslan Dalenov

Vice Minister of Finance of the Republic of Kazakhstan

Results

The Joint Economic Research Program (JERP) “Improving Insolvency Framework in Kazakhstan” has helped to support improvements in several key outcomes:

  • An ICR ROSC (Insolvency and Creditor/Debtor Rights Report on the Observance of Standards and Codes) has been developed for Kazakhstan.
  • The new Law on Rehabilitation and Insolvency, developed with the active support of the World Bank and approved in March 2014, will expand on the improvements by introducing changes in the procedural structure of the insolvency system to offer more protection to creditors and to debtors’ assets and accelerate access to insolvency proceedings (rehabilitation or liquidation). It will also stimulate the expansion of access to credit at affordable rates (for SMEs in particular) and boost foreign and local investment.
  • As of January 2013, the newly introduced provisions aimed at facilitating business rehabilitation have already resulted in the rehabilitation of 131 enterprises, the preservation of more than 11,000 jobs, and the repayment of debts in the amount of KZT 1.2 billion.


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The new regulations have already resulted in the rehabilitation of 131 enterprises, the preservation of more than 11,000 jobs, and the repayment of debts in the amount of KZT 1.2 billion.


Bank Group Contribution

This technical assistance, within the framework of the Joint Economic Research Program, is funded jointly by the Government of Kazakhstan and the World Bank.

Partners

The work was closely coordinated with the Ministry of Finance.

Moving Forward

Since completing the corporate insolvency phase (albeit with continuing responses to requests for advice), the Bank’s assistance is now focused on personal insolvency. The World Bank team, together with the Ministry of Finance, is actively involved in the process of developing a legal framework for personal insolvency that will help individuals who are genuinely struggling to repay their debts, for example, due to job loss as a result of an economic crisis. The future implementation of such a framework is also expected to help reduce the number of nonperforming loans on the banks’ balance sheets. 

Beneficiaries

Although the sound insolvency system will benefit the economy as a whole, the work will mainly have an impact on SMEs and ordinary people.

11,000 jobs
were preserved in Kazakhstan thanks to the new insolvency regulations.