Russia proposes joint bankruptcy agreement to Kazakhstan

Russia’s Ministry of Economic Development proposes that the Commonwealth of Independent States (CIS), of which Kazakhstan is a member, conclude an agreement on cross-border bankruptcy. This would allow any CIS country to initiate bankruptcy proceedings by court order against citizens and legal entities that have a significant portion of their assets and creditors in that country, regardless of their place of residence or registration.

The draft agreement has been prepared to «establish legal certainty in cross-border bankruptcy relations.» It outlines a bankruptcy process involving international elements, such as when a company has foreign debtors, creditors or assets in multiple countries.

The agreement would apply to all citizens and companies, excluding banks, government authorities and defense industry companies. It would define the jurisdiction of CIS courts, the applicable law for bankruptcy proceedings, the management of foreign assets and the procedure for recognizing foreign court rulings and processes.

The draft specifies that courts will apply the law of the country where the bankruptcy is being processed. For assets, the law of the state where the property is registered will govern its handling.

The insolvency process can be initiated in multiple countries simultaneously, but the primary jurisdiction will be where the debtor’s interests are truly centered. Furthermore, only a court can determine if this center is in a country other than the debtor’s place of residence or registration. The agreement will enable courts in CIS countries to collaborate, allowing bankruptcy administrators to coordinate asset sales and creditors to participate in bankruptcy proceedings across multiple countries. The draft agreement has been sent to member states for feedback and comments.

Russia claims that adopting a unified approach to cross-border bankruptcy «will create conditions for further economic integration within the Commonwealth.»

In an interview with Kommersant magazine, Ivan Stasyuk, an advisor at RKT Consulting, said the agreement would provide creditors with greater protection and allow them to pursue assets in other countries. Elena Mokhova, deputy head of the School of Legal Regulation of Business at the Higher School of Economics (HSE), noted that this need has been growing for some time and the geopolitical situation has only «amplified this demand.»

Vladimir Efremov, a partner at BGP Litigation, confirmed that «the degree of financial and corporate integration among CIS countries is increasing in response to sanctions pressure on Russia.» He added that it has become common for Russian companies to establish representative offices or related entities in CIS countries and vice versa.

In February 2024, Russia’s Supreme Court recognized the possibility of initiating bankruptcy proceedings in Russia for foreigners with close ties to the country. This ruling followed the insolvency case of Westwalk Projects, a Cypriot company, where another company, AMN Commercial Property Advisors, sought to bankrupt it. At the time, the process was ultimately not initiated, as the court concluded that such proceedings were not possible in Russia. This decision was upheld by all levels of the judiciary, including the Supreme Court.

Last spring, individuals in Kazakhstan were granted the right to file for bankruptcy, allowing them to terminate their obligations to creditors.