Kazakhstan Introduces New 'Squeeze-Out' Mechanism For Major Shareholders

August 2018 - On 2 July 2018, Kazakhstan adopted the Law No. 166-VI "On amendments and changes to certain legislative acts of the Republic of Kazakhstan on Insurance and Insurance Activities, the Securities Market" (the "Law"). The Law entered into force on 15 July 2018 (with the exception of certain provisions, which will come into force later).

Among other things, the Law introduces a squeeze-out concept by the addition of a new Article 25-1 into the Law of the Republic of Kazakhstan "On Joint-Stock Companies" dated 13 May 2003 (the "JSC Law"). The new Article 25-1 effectively provides for the possibility of acquisition of the voting shares of a joint stock company by an acquirer of 95 or more percent of the voting shares of the company (the "Squeeze-Out").

We note that the current legislation does not provide for a possibility to squeeze-out minority shareholders of a joint stock company. The existing mechanism of the mandatory tender offer provides for the right (but not the obligation) of minority shareholders to sell their shares to the acquirer of 30 or more percent of the voting shares pursuant to the acquirer's tender offer.

Below is a brief description of the Squeeze-Out procedure under the new Article 25-1.

Application of Squeeze-Out to JSCs only

The Squeeze-Out mechanism will apply to companies established in the form of a joint stock company (JSC) only, i.e., it will not apply to limited liability partnerships (LLPs).

The right to demand the sale of shares

The Squeeze-Out right is triggered if a person, individually or together with its affiliated persons (the "Acquirer"), purchases in the secondary securities market1 either:

95 or more percent of the company's voting shares; or a different number of the company's voting shares amounting to at least 10 percent of the company's voting shares, as a result of which such person becomes the owner of 95 or more percent of the company's voting shares. The Acquirer will have the right, within 60 business days after the acquisition date, to demand that the other remaining shareholders of the company (i.e., the minority shareholders) sell their voting shares in the company to the Acquirer (the "Request").

Definition of voting share

The JSC Law definition of a "voting share":

includes: common shares; and preferred shares which have acquired voting rights (by law, preferred shares do not have voting rights except for specific circumstances set out in the JSC Law, such as (i) when the...