Improvement of Kazakhstan s Rank under Closing a Business indicator in the World Bank s Doing Business Rating. Almaty 2009

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Stewart Sydney Shields
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Kazakhstan s Rank under Closing a Business indicator

1 Қазақстан Республикасы Қаржы министрлігі Ministry of Finance of the Republic of Kazakhstan Improvement of Kazakhstan s Rank under Closing a Business indicator in the World Bank s Doing Business Rating Almaty 2009

2 Kazakhstan s Rank in the Doing Business Rating under the Closing a Business Indicator th 100th

3 Evaluation Criteria: 1. Time (years) duration of liquidation procedure. 2. Costs (% of estate) of liquidation procedure. 3. Recovery rate percentage of debt recovery.

3 3 Evaluation Criteria: 1. Time (years) duration of liquidation procedure. 2. Costs (% of estate) of liquidation procedure. 3. Recovery rate percentage of debt recovery. Note: World Bank takes into account data on a separate business in the form of a hotel complex, with 201 employees, and operating in the country s largest business city.

4 Kazakhstan s Rank in the Doing Business Rating under the Closing a Business Indicator 4 Indicators OECD Region Kazakhstan Time Cost Recovery rate

5 Actual Indicators in the Republic of Kazakhstan in Terms of Time (according to current legislation) 5 Procedure Time (days) - Emergence of insolvency 90 - Examination of an application for bankruptcy and initiation of a bankruptcy case 5 - Court proceedings and decision 60 - Coming of a court decision into legal force 15 - Appeal of a decision (with 3 higher authorities) 90 - Liquidation procedure (with possible extension by 3 months) 360 Total: 620 days or 1.7 years

6 6 Analysis of Current Situation in Time Indicators of Liquidation of Businesses Liquidated within the period not exceeding 12 months: in 2006 out of debtors or (76.2%); in 2007 out of debtors or (91.8%); in 2008 out of debtors or (89.6%).

7 7 Cost of liquidation procedure According to the World Bank In practice in Kazakhstan 18% of estate value 16.2% of estate value (for businesses with asset value in excess of KZT 100 million)

8 8 Calculation of the debt recovery ratio according to the World Bank Methodology Е= 100 * GC + 70 * ( 1 GC ) 100 * c t ( 1 + r ) where Е debt recovery (collection) percentage GC Business continues to operate = 1, if No, then =0 r Lending rate according to the IMF statistics for 2006 for Kazakhstan - ~15% t Time in years, according to the World Bank data years С Cost of bankruptcy procedures, according to the WB data 18% In addition, depreciation of hotel furniture should be taken into account.

9 Legislation of the Republic of Kazakhstan on Possible Continuation of Activity of an Enterprise under Liquidation 9 Article 13 of the Law of the Republic of Kazakhstan On Bankruptcy : Decision on continuation of production activity of the enterprise in the course of liquidation shall be adopted by creditors, unless this infringes their interests. Schedule of the bankruptcy estate sale shall be approved by the Committee of Creditors (creditors), I.e. decision on the sale of an enterprises as a single complex or in parts is adopted by the majority of votes of members of the Committee of Creditors.

10 10 Calculation of the debt recovery ratio by applying the data of Kazakhstan on the time and cost of liquidation procedures Е= 100 * GC + 70 * ( 1 GC ) 100 * c ( 1 + r ) t Scenario. Enterprise is sold in parts Е = (cost) 7.4 (depreciation of furniture) = (1+21%-discount rate raised to the degree of 1.7) Upon simulation modeling. With such indicator, Kazakhstan could rank the 70 th.

11 Calculation of debt recovery ratio with application of Kazakstan s data in case of continuation of activity of an enterprise under liquidation 11 Е= 100 * GC + 70 * ( 1 GC ) 100 * c ( 1 + r ) t Scenario. An enterprise continues its activity and is sold as a single complex Е = (cost) 7.4 (depreciation of furniture) = (1+21%-discount rate raised to the degree of 1.7) Upon simulation modeling. With such indicator, Kazakhstan could rank the 28 th.

12 Calculation of debt recovery ratio of the HK Premier-Medeo LLP 12 Scenario. An enterprise is sold as an existing business Е = (cost) 9 (depreciation of furniture) = (1+21%-discount rate raised to the degree of 2) Upon simulation modeling. With such indicator, Kazakhstan could rank the 30 th.

existing business is not taken into account, and time of liquidation indicators correspond

13 13 Summary: World Bank s insufficient awareness of actual state of affairs in the area of closure of businesses through bankruptcy procedures (possibility of an enterprise sale as an existing business is not taken into account, and time of liquidation indicators correspond neither to legislation nor to practices of Kazakhstan) in the course of conducting this rating.

CORRECTED OMB No For DEBTOR S name. 3 Interest if included in box 2 4

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