Checking a counterparty before a transaction: a step-by-step guide for business in Kazakhstan

You are about to sign a contract with a new company or sole trader. The partner seems reliable: an office, a website, recommendations. But behind the facade there may be a shell company, a persistent non-payer or a company on the brink of bankruptcy. Checking a counterparty before a transaction is not a formality, but a way to protect your money and your nerves.

Many entrepreneurs neglect checks, relying on intuition or urgency. As a result, they face non-performance of obligations, additional tax assessments and litigation. Gathering open data and analysing documents helps to avoid this. Below are concrete steps and sources available in Kazakhstan.

Checking a counterparty before a transaction: what you risk and what to check

Checking a counterparty is not bureaucracy, but a way not to lose money and time. If a company or sole trader is not actually operating, has debts or is preparing to close, the transaction will end in courts and enforcement proceedings. You can check a counterparty through official sources: egov.kz, the State Revenue Committee, court registers.

A counterparty company check includes analysis of constituent documents, financial statements, court cases, tax arrears and enforcement proceedings. The situation is especially dangerous when a company is registered but does not carry on any activity, has no assets and pays no taxes. A company check and a partner check help to spot such signs before signing a contract and transferring money.

• The company is registered but does not actually operate
• There are tax arrears or debts under enforcement proceedings
• The founders or the director are preparing liquidation or bankruptcy
• There are no assets sufficient to perform obligations

Counterparty check by IIN and BIN: what data is publicly available in Kazakhstan

A BIN or IIN in the public registers shows the basics: when the company or sole trader was registered, who the first director is, what declared type of activity and address it has, whether the counterparty is registered for VAT and whether it has any tax arrears. That is enough to screen out shell companies and to see whether the business in the contract matches what is declared in the database.

At the same time, you can check a counterparty online on the official resources of the State Revenue Committee and in the services of court enforcement officers: they disclose information on tax arrears and enforcement proceedings. Such a counterparty check is free and does not require the consent of the person being checked, whereas commercial databases offer extended reports — these are paid for and draw on closed sources. Before trusting the figures, read the date on which they were updated: an outdated extract is more dangerous than no extract at all.

• a BIN is used to check a legal entity, an IIN — a sole trader and an individual
• look at the date of the extract, not just the company's status
• verify the director and the address against the data in the contract
• check tax debt and enforcement proceedings separately

Counterparty check before a contract: which documents to request

A counterparty check before a contract starts with a basic package of documents confirming that the company exists and that the signatory is acting lawfully. Request a certificate of state registration (re-registration) of the legal entity, the charter, the decision on the appointment of the director and the ID of the signatory. These papers remove the main risk — that someone without authority signs on behalf of the company.

If the contract is signed not by the director, a power of attorney is needed with clearly stated powers: what exactly he is authorised to do, whether he has the right to sign and up to what amount. Without this, a counterparty check when concluding a contract is incomplete: the powers may be limited and the transaction may prove disputable.

• Certificate of state registration
• Charter
• Decision on the appointment of the director
• Power of attorney for the signatory
• ID of the signatory

Information on the absence (presence) of tax debt from the state revenue authority helps assess solvency. To check a counterparty, documents should be requested before signing the contract.

Checking a counterparty in court and with the court enforcement officer: debts and seizures

Before a transaction, it is worth checking whether the counterparty is involved in court disputes. Kazakhstan's court registers contain information on civil, administrative and criminal cases: they show who files claims, under which contracts and for what amount. If a company or sole trader regularly acts as a defendant, this is a signal of problems with performing obligations.

Debts are also checked separately through the register of debtors and enforcement proceedings. The unified register of debtors is maintained by the justice authorities, and entries are made by private and state court enforcement officers; those who have not paid under a court decision are included there. Debt and enforcement proceedings found mean risk: money under your transaction may go towards repaying old debts. The presence of large claims or seizures of property may make the transaction pointless.

• We search for the counterparty in court registers: role in the case, amounts, subject of the dispute
• We check the register of debtors and open enforcement proceedings
• We check seizures of property and accounts at the time of the transaction
• We compare what we find with the amount and terms of your contract

Checking a counterparty for bankruptcy and liquidation: how not to lose money

A transaction with a company that is preparing for liquidation or bankruptcy almost always ends in losses: performance of obligations becomes impossible, and the contract may be challenged. Checking a counterparty for bankruptcy and liquidation starts with indirect signs: mass layoffs, a change of director, a sharp drop in turnover, publication of liquidation notices.

In addition, check the register of bankrupts and information on liquidation on the website of the State Revenue Committee, as well as media reports. If a company is already in the process of liquidation, it will be extremely difficult to recover money or goods. Here is what to look at first:

• Liquidation notices on the State Revenue Committee website and in the press
• Mass layoffs and frequent changes of management
• Falling turnover and delays in payments to counterparties
• Bankruptcy lawsuits in open sources

Checking a counterparty's real estate and assets: what the company owns

To understand what a counterparty will use to meet its obligations, its assets are checked. Information on registered rights to real estate is publicly available through the egov.kz portal and Public Service Centres: it shows whether the company owns any property and whether it is encumbered. Checking a counterparty's real estate reveals the actual asset base that enforcement can be directed against.

Vehicles and other movable property are more difficult: information on vehicles is available in specialised databases, but can only be obtained if there is a legitimate interest. Checking property and assets in general is needed to assess whether they will cover the debt. A counterparty having no assets is a risk of not obtaining performance even under a court decision, so such transactions need additional guarantees.

• A certificate of registered rights to real estate from the Legal Cadastre via egov.kz or a Public Service Centre.
• Documents on rights to property that the counterparty provides itself.
• Information on vehicles — only where there is a legitimate interest.
• Checking for pledges, arrests and other encumbrances on property.

Information about vehicles is provided only upon confirmation of a legitimate interest.

Counterparty checks by a lawyer: typical mistakes and what to do when in doubt

A do-it-yourself check most often fails on four mistakes: the company is looked up by name only without verifying the BIN, court cases are not opened, the signatory's authority is not analysed, and one-off transactions are checked without any follow-up monitoring. By name alone you can find a company with the same name and sign a contract with someone other than the party named in the documents, while a signatory acting without a power of attorney or with an expired term of authority voids the entire transaction.

When doubts remain, it is sensible to instruct a lawyer to check the counterparty: they prepare a report with a risk assessment and recommendations on the terms of the contract. The contract can include representations and warranties and liability for inaccurate information — this provides a protection mechanism if the counterparty has concealed debts, arrests or connections.

Reasons to instruct a lawyer to analyse the risks:

• The counterparty is new or changed its name, address or director shortly before the transaction.
• The transaction amount or prepayment is large for your turnover.
• The signatory acts under a power of attorney or is not the company's first officer.
• Court cases, enforcement proceedings or signs of a change of participants have been found.

Do not start cooperation until you have seen the official documents and checked the partner in open registers. Even one missed detail can result in losses running into millions.