December 8, 2020
Merges and acquisitions
2. Main forms of assets acquisition
3. Obtaining prior authorization/approval
4. Restrictions on foreign participation in legal entities
5. The procedure for obtaining prior approval (example – antimonopoly authority)
1. Terminology
As is known, the English term Mergers and Acquisitions is regulated in detail in the laws of certain countries and the corresponding legal systems. At the same time, it should be noted that Kazakhstani legislation does not yet contain special terminology and any sections of legislation related to mergers and acquisitions.
At the same time, there is a certain practice in which both the relevant legislative requirements and the practice of law enforcement and the principle of freedom of contract and expression of the will of the parties are used and taken into account, guided by which, the parties can use certain techniques and constructions that customarily used worldwide.
2. Main forms of assets acquisition
Based on the norms of legislation and established practice, the main forms of asset acquisition are the acquisition of participatory interests or shares in legal entities and the acquisition of fixed assets.
As we can see from practice, the acquisition of stakes or shares may look somewhat simpler and faster than the method of acquiring assets through the acquisition of property, due to the absence of the need to go through certain procedures and obtain new documentation (for example, obtaining a land plot and licensing and permits ).
On the other hand, it should be noted that all “historical” obligations in this case remain and, in the case of improper conduct of the seller’s activities, risks may arise subsequently, in due course. At the same time, such risks are eliminated or minimized by conducting a comprehensive prior legal assessment (Due Diligence), containing specific recommendations for eliminating the identified deficiencies, or allowing the buyer to open the issue of revising the price downward and / or even abandoning the transaction due to inexpediency.
In general, in our opinion, the method of acquiring shares is more suitable for transactions in which the state of the acquired asset is well known in advance or the buyer’s time is in priority, while the buyer understands the value of the acquired asset for its activities.
We draw your attention to the fact that the conclusions contained in this section are general, and the choice of a specific form of the transaction should be considered, taking into account the specifics of the transaction and the parties involved in it.
3. Obtaining prior authorization/approval
State control in the field of competition in relation to transactions on mergers and acquisitions of economic entities, as well as on the acquisition of shares (stakes) in their authorized capital (authorized capital) is carried out by issuing a preliminary consent.
Prior consent is issued by state authorities in the following cases:
- For financial institutions (acquiring the status of a major participant in a bank / bank holding company, obtaining permission to create an insurance (reinsurance) company, obtaining an insurance (reinsurance) company and an insurance holding company permission to create or acquire a subsidiary, obtaining a permit from the National Bank of the Republic of Kazakhstan for voluntary reorganization of an insurance (reinsurance) company)
- According to antitrust laws [1](filing a petition with the antimonopoly authority [2] on granting consent to economic concentration [3])
- According to the legislation on subsoil use (the priority right of the state to acquire the right to subsoil use (its part) and (or) objects related to the right to subsoil use in relation to subsoil plots, deposits of strategic importance, which are alienated on paid and gratuitous grounds and to submit an application for a permit to alienate the right to subsoil use and related rights)
- With respect to strategic objects (obtaining permission from the Government for encumbrance of strategic objects or their alienation and observance of the priority right to purchase a strategic object at market value)
The website of the Antimonopoly Committee of Kazakhstan contains various kinds of useful information of a practical nature, including the republican and regional State Register (s) of Natural Monopolies [4].
4. Restrictions on foreign participation in legal entities
Despite, in general, the open and stimulating investment attraction, the nature of the legislative “ecosystem”, there are certain restrictions aimed at limiting foreign participation. Often, such requirements are due to the need to comply with national security issues, the balance of economic interests and economic stability, for example, in the banking system.
For instance[5], foreign individuals and legal entities do not have the right to directly and (or) indirectly own, use, dispose and (or) manage more than 20% of shares (stakes, shares) of a legal entity – the owner of a mass media in the Republic of Kazakhstan or carrying out activities in this area.
Foreigners, stateless persons and foreign legal entities without creating a legal entity on the territory of the Republic of Kazakhstan cannot:
-manage or operate trunk communication lines
– directly and (or) indirectly own, use, dispose and (or) manage in aggregate more than 49% of voting shares, as well as shares of a legal entity operating in the field of telecommunications as an operator of long-distance and (or) international communications, owning terrestrial (cable, including fiber-optic, radio relay) communication lines without a positive decision of the Government of the Republic of Kazakhstan, based on the conclusion of the authorized body in the field of communications and information, agreed with the national security authorities.
Legal entities registered in offshore zones have no right to directly or indirectly own and (or) use and (or) dispose of voting shares of insurance (reinsurance) organizations – residents of the Republic of Kazakhstan, as well as voting shares of banks-residents of the Republic of Kazakhstan.
Foreigners, stateless persons, foreign legal entities, as well as legal entities, in whose authorized capital the share of foreigners, stateless persons, foreign legal entities is more than 50%, cannot have land plots for use until December 31, 2021 (moratorium). After withdrawal, provision of the land plots is possible for up to 25 years.
In addition to the above, there are restrictions in the field of operation of communication lines (for the purchase of more than 10% of voting shares without the consent of the authorized body in the field of communications and information, as well as national security bodies).
5. The procedure for obtaining prior approval (example – antimonopoly authority)
Let us take a closer look at the procedure for obtaining consent from the antitrust authority. In this section, we will tell you in detail about the procedure for submission and consideration, the form, the list of documents, the terms of consideration, the grounds for refusal, the conditions on which consent is given, exceptions for which consent is not required, the responsibility for making transactions without obtaining consent.
5.1. The legal basis for the prior consent procedure and the authorities responsible for the provision of the relevant service
The administrative regulations (procedure) for issuing such preliminary consents are contained in articles 202-209 of the Entrepreneurial Code of the Republic of Kazakhstan.
The public service can be obtained by submitting an application either to the office of the Committee or through the “electronic government” web portal www.egov.kz (hereinafter referred to as the “portal”), including through the Population Service Centers (PSC). However, the portal does not make a decision to issue such consent, since this is the authority of the Committee for the Protection and Development of Competition of the Ministry of National Economy of the Republic of Kazakhstan (hereinafter – the Committee). Therefore, it must be remembered that the portal and / or PSC can only suggest with respect to the required documents and help to submit an application, but cannot comment on the content of these documents.
5.2. Application form
One can apply for prior consent either explicitly or online using. electronic digital signature (EDS).
This service is provided free of charge.
The applicant (person or group of persons) can withdraw his application at any stage of its consideration.
5.3. Required documents
Applicants must provide the following documents:
1) on reorganization of a market entity by merger or acquisition:
a draft decision of a person or an authorized body on the reorganization of a market entity;
justification of the purpose of reorganization of a market entity, including planned changes in the types of activities or geography of their business operations;
approved charter and memorandum of association of the created market entity or their projects;
a list of information and conditions for the transfer of property transferred to the created market entity;
for each of the reorganized market entities, as well as for each market entity including reorganized market entities in one group of persons, the following shall be indicated:
for an individual – data of an identity document, information on citizenship, place of residence and legal address;
name, legal and actual address;
the size of the authorized capital and the share of participation in the authorized capital;
types of shares;
a list of members of the executive body, the board of directors (supervisory board) with an indication of their positions, who are also members of the executive body, the board of directors (supervisory board) of other market entities;
the volume of production and sale of goods, export and import of goods to the Republic of Kazakhstan, produced and sold by the reorganized market entities;
the volume of production and sales, export and import to the Republic of Kazakhstan of the same or interchangeable goods produced or sold by market entities that are part of the same group of persons with reorganized market entities;
forecast of production and sale of the same or interchangeable goods as a result of this transaction;
2) on the acquisition by a person (group of persons) of voting shares (stakes in the authorized capital, shares) of a market entity, in which such a person (group of persons) acquires the right to dispose of more than fifty percent of the specified shares (stakes in the authorized capital, shares), if up to such a person (group of persons) did not dispose of (did not dispose of) the shares (participatory interests in the authorized capital, shares) of this market entity or disposed of fifty or less percent of voting shares (participation interests in the authorized capital, shares) of the specified market entity:
agreement or draft agreement or other document confirming the transaction;
for the acquirer and for each market entity including ones which are in the same group of persons with the acquirer, the following shall be indicated:
for an individual – data of an identity document, information about citizenship, as well as place of residence and legal address;
name, legal and actual address;
the size of the authorized capital and the share of participation in the authorized capital;
types of shares;
the volume of production and sale, export and import to the Republic of Kazakhstan of goods similar to goods or interchangeable goods produced or sold by the market entity in relation to which the actions provided for by subparagraph 2) of this paragraph are performed;
a list of members of the executive body, the board of directors (supervisory board) with an indication of their positions, who are also members of the executive body, the board of directors (supervisory board) of other market entities;
the volume of production and sales, export and import of goods to the Republic of Kazakhstan of a market entity in relation to which the following actions are performed, provided for by subparagraph 2) of this paragraph;
the volume of production and sale, export and import to the Republic of Kazakhstan of the same or interchangeable goods produced or sold by market entities that are under the direct or indirect control of the market entity in relation to which the actions provided for by subparagraph 2) of this paragraph are performed;
information on the rights that, after the transaction is completed, the acquirer will receive in relation to the market entity and (or) its group of persons, in respect of which the actions provided for in subparagraph 2) of this paragraph are performed, including the number and price of the placement of shares (shares in the authorized capital , shares) of a market entity, which will be disposed by the acquirer after the transaction, as well as their share as a percentage of the total number of shares (stakes in the authorized capital, shares) with the right to vote of the market entity and their share as a percentage of the authorized capital of the market entity;
forecast of production and sale of the same or interchangeable goods as a result of this transaction;
3) on receipt of ownership, possession and use, including through payment (transfer) of the authorized capital, by a market entity (group of persons) of fixed production assets and (or) intangible assets of another market entity, if the book value of the property that is the subject of the transaction (interconnected transactions) exceeds ten percent of the book value of fixed production assets and intangible assets of a market entity alienating or transferring property:
agreement or draft agreement;
for the acquirer and for each market entity including ones which are with the acquirer in the same group of persons, the following shall be indicated:
for an individual – data of an identity document, information about citizenship, as well as place of residence and legal address;
name, legal and actual address;
the size of the authorized capital and the share of participation in the authorized capital;
types of shares;
the volume of production and sales, export and import to the Republic of Kazakhstan of the same or interchangeable goods that will be produced using the acquired property;
a list of the property that is the subject of the transaction, indicating the book value;
Information about the production of goods and purposes that they will be used for, indicating the types of goods;
forecast of production and sale of goods using the property received, indicating the types of goods;
forecast of production and sale of the same or interchangeable goods as a result of this transaction;
4) on the acquisition by a market entity of rights (including on the basis of an agreement on trust management, an agreement on joint activities, a contract of assignment), allowing to give binding instructions to another market entity when conducting entrepreneurial activities or to perform the functions of its executive body:
a copy of the agreement (draft agreement), certified (certified) by a legal entity, or another document confirming the completion (intention to make) a transaction (transaction);
for the acquirer and for each market entity included with the acquirer in the same group of persons, the following shall be indicated:
for an individual – data of an identity document, information about citizenship, as well as place of residence and legal address;
name, legal and actual address;
the size of the authorized capital and the share of participation;
types of shares;
the volume of production and sale, export and import to the Republic of Kazakhstan of goods similar to goods or interchangeable goods produced or sold by a market entity in relation to which the actions provided for by subparagraph 4) of this paragraph are performed;
a list of members of the executive body, the board of directors (supervisory board) with an indication of their positions, who are also members of the executive body, the board of directors (supervisory board) of other market entities;
the volume of production and sale, export and import of goods to the Republic of Kazakhstan of a market entity in relation to which the actions provided for by subparagraph 4) of this paragraph are performed;
the volume of production and sale, export and import to the Republic of Kazakhstan of the same or interchangeable goods produced or sold by market entities that are under the direct or indirect control of the market entity in relation to which the actions provided for by subparagraph 4) of this paragraph are performed;
information on the rights that, after the transaction is completed, the acquirer will receive in relation to the market entity and (or) its group of persons, in respect of whom the actions provided for by subparagraph 4) of this paragraph are performed, including the number and price of the placement of shares (shares in the authorized capital , shares) of a market entity, which will be disposed by the acquirer after the transaction, as well as their share as a percentage of the total number of shares (stakes in the authorized capital, shares) with the right to vote of the market entity and their share as a percentage of the authorized capital of the market entity;
forecast of production and sale of the same or interchangeable goods as a result of this transaction;
5) for the participation of the same individuals in executive bodies, boards of directors, supervisory boards or other governing bodies of two or more market entities, provided that the specified individuals in these entities determine the conditions for conducting their business activities:
information about an individual whose participation is supposed to be in the executive bodies, boards of directors, supervisory boards and other governing bodies of two or more market entities:
data of an identity document, information about citizenship, place of work, position held, allowing to determine the conditions for doing business in these entities, indicating the powers;
a list of legal entities in which the person sending (submitting) a notification (petition) determines the conditions for doing business with an indication of powers;
the name of the legal entity (group of persons) and the governing body to which the person sending (submitting) the notification (petition) is appointed or elected;
the name of the position in the market entities, in the executive bodies, boards of directors, supervisory boards and other management bodies of which it is planned to enter the person sending (submitting) the notification (petition);
a list of rights that allow the person sending (submitting) a notification (petition) to determine the conditions for doing business in market entities, in executive bodies, boards of directors, supervisory boards and other governing bodies of which this person is planned to enter;
for each market entity and group of persons in which the person sending (submitting) the notification (petition) determines the conditions for doing business, indicate:
name of the market entity, legal and actual address;
the volume of production, sales, export and import of goods to the Republic of Kazakhstan;
by the market entity in which the participation of the person sending (submitting) the notification (petition) is planned, as well as by the group of persons that this person belongs to, the following shall be indicated:
name of the market entity, legal and actual address; the volume of production, sale, export and import of the same or interchangeable goods to the Republic of Kazakhstan, produced and sold by a market entity and a group of persons, in which the person sending (submitting) a notification (petition) determines the conditions for doing business;
6) foreign legal entities, in addition to the information provided in accordance with this clause of the public service standard, submit:
a notarized extract from the trade register of the country of origin or another equivalent document confirming its legal status in accordance with the legislation of the country of its location;
information on the registration of the branch or representative office and a copy of the regulations on the branch or representative office, if the foreign legal entity has a branch or representative office registered in the Republic of Kazakhstan;
Information listing the types of goods produced and (or) sold in the Republic of Kazakhstan by a branch or representative office, if a foreign legal entity or a market entity with foreign participation – the acquirer has a branch or representative office in the Republic of Kazakhstan
5.4. Timing
The Committee, within 10 calendar days from the date of receipt of the application, verifies the completeness of the submitted materials and notifies about the acceptance or refusal to accept the application for consideration.
The duration for consideration of an application for consent to economic concentration should not exceed thirty calendar days from the date of acceptance of the application for consideration.
The duration for the provision of public services is suspended if it is impossible to consider the application, until a decision is made by the Committee or the court on this or another application related to it, about which the Committee notifies the applicant in writing on paper and (or) within three working days from the date of making such a decision through the portal.
For the period of submission of additional information and (or) documents, as well as during the analysis of the state of competition in the commodity markets, the period for consideration of the application is suspended, about which the Committee notifies the applicant in writing on paper and (or) within three working days from the date of such a decision. through the portal.
The duration for the provision of public services is resumed after the submission of additional information and (or) documents by the applicant and (or) state bodies, about which the Committee notifies the applicant in writing on paper and (or) through the portal within three working days.
The term established by the Committee for the submission of information and (or) documents is at least five working days.
The Committee’s act on the termination of the consideration of the petition is sent within three working days from the date of the decision.
5.5. Refusal to issue prior consent
Grounds for refusal
The Committee may refuse to issue consent to economic concentration in the event of:
1) establishing the inaccuracy of the documents submitted for obtaining public services and (or) the data (information) contained therein;
2) inconsistency of the applicant and (or) the submitted materials, objects, data and information necessary for the provision of public services, the requirements established by Chapter 18 of the Entrepreneurial Code of the Republic of Kazakhstan dated October 29, 2015;
3) a negative response from an authorized state body to a request for approval, which is required for the provision of a public service, as well as a negative conclusion of an examination, research or verification;
4) in relation to the applicant, there is a court decision that has entered into legal force, on the basis of which he is deprived of a special right related to receiving a public service.
Economic concentration must be carried out within a year from the date of the decision by the antimonopoly authority to grant consent to economic concentration. If the economic concentration has not been carried out within the established period, the participants in the economic concentration shall submit a new application for a permit for economic concentration.
5.6. Terms of consent
The consent of the antimonopoly authority to economic concentration may be conditional on the participants in the economic concentration meeting certain requirements and obligations that eliminate or mitigate the negative impact of economic concentration on competition. Such conditions and obligations may relate, inter alia, to restrictions on the management, use or disposal of property.
5.7. Exceptions
Economic concentration is not recognized in the following instances:
1) the acquisition of shares (stakes in the authorized capital, shares) of a market entity by financial organizations, if this acquisition is carried out for the purpose of their subsequent resale, provided that the specified organization does not participate in voting in the governing bodies of the market entity, as well as the acquisition or acquisition by financial institutions of property, fixed production assets and (or) intangible assets of another market entity in order to terminate the obligation of the debtor in whole or in part, if this acquisition or receipt is carried out for the purpose of their subsequent resale, provided that the specified financial organizations do not use (do not operate) such property in order to generate income for their own purposes;
2) appointment of a rehabilitation or bankruptcy manager, temporary administration (temporary administrator);
3) the execution of transactions specified in footnote 3 above, if such a transaction occurs within the same group of persons.
The consent of the antimonopoly authority to carry out transactions specified in footnote 3 of this article is not required when transactions are directly provided for by the Entrepreneurial Code, laws of the Republic of Kazakhstan, decrees of the President of the Republic of Kazakhstan and (or) decrees of the Government of the Republic of Kazakhstan
5.8. Liability
Transactions concluded without the prior consent of the Committee and leading to restriction of competition may be invalidated by the court. The Committee itself has the right to appeal to the court with a claim to invalidate such a transaction. For example, more details about the relevant procedure for recognizing transactions as violating the requirements of competition law can be found in the Resolution of the Collegium for Civil Cases of the Astana Court dated June 8, 2009 No. 2a-1415-09.
In addition, violators will be held accountable under Article 161-1 of the Administrative Code of the Republic of Kazakhstan.
[1]The consent of the antimonopoly authority and its notification is required provided that the aggregate book value of the assets of the reorganized market entities (group of persons) or the acquirer (group of persons), as well as the market entity whose shares (participatory interests in the authorized capital, shares) with the right to vote are acquired, or their aggregate volume of sales of goods for the last financial year exceeds ten million times the size of the monthly calculation index established on the date of filing the application (notification).
[2] In this case, these are the general requirements, however, for some companies, for example, holding a monopoly or dominant position in the market, financial institutions, the criteria may differ.
[3]Economic concentration is recognized in the following cases:
1) reorganization of a market entity by merger or acquisition;
2) acquisition by a person (group of persons) of voting shares (stakes in the authorized capital, shares) of a market entity, in which such a person (group of persons) acquires the right to dispose of more than fifty percent of the said shares (stakes in the authorized capital, shares), if prior to acquisition such a person (group of persons) did not dispose (did not dispose of) the shares (participatory interests in the authorized capital, shares) of this market entity or disposed of fifty or less percent of voting shares (participation interests in the authorized capital, shares) of the specified market entity.
This requirement does not apply to the founders of a legal entity when it is created;
3) obtaining ownership, possession and use, including through payment (transfer) of the authorized capital, by a market entity (group of persons) of fixed production assets and (or) intangible assets of another market entity, if the book value of the property that is the subject of the transaction (related transactions ), exceeds ten percent of the book value of fixed production assets and intangible assets of the market entity that alienates or transfers property;
[4] It should be noted that in the following cases the antimonopoly authority must be notified no later than forty-five calendar days after the date of the transaction.
– the acquisition by a market entity of rights (including on the basis of an agreement on trust management, an agreement on joint activities, an agency agreement), allowing to give binding instructions to another market entity when conducting business activities or to perform the functions of its executive body;
– participation of the same individuals in executive bodies, boards of directors, supervisory boards or other governing bodies of two or more market entities, provided that the specified individuals determine the conditions for conducting their business activities in these entities.
