Recent developments in the Kazakh corporate legislation

This note is of general information nature and is not purported to be a legal opinion.

On 10 February 2011, the President of Kazakhstan has signed the Law ‘On the Introduction of Amendments to Certain Legislative Acts of the Republic of Kazakhstan on Mortgage Financing and Protection of the Rights of Financial Services Consumers and Investors’ (hereinafter - the ‘Law’) that, inter alia, introduces the new basic principles that should guide officials of Kazakh joint stock companies when performing their duties.

The New Law strengthens the liability of officials of the joint stock companies, which comprise both members of a board of directors and executive body, by setting forth their personal responsibility for entering into the major and/or related party transactions. The shareholder (shareholders), holding (in aggregate) five or more percents of all voting shares, is (are) entitled to bring a court claim against officials of the company for recovery to the company of losses resulted from entering into the said transactions, if the official has acted in bad faith. Moreover, these shareholders or the joint stock company has the right to sue a third party for the losses incurred by the company and entailed by the said transactions with that third party, if an official of the company, according to an agreement with such third party, has acted in breach of the Kazakh laws, articles of association and internal documents of the company or his employment contract.

Pursuant to the New Law, the board of directors of the Kazakh JSC’s should monitor and, if applicable, eliminate potential conflicts of interests at the level of the officials and shareholders, including misuse of the company’s property and abuse of authorities in related party transactions, as well as to monitor efficiency of a corporate governance practice in the company. Furthermore, the board of directors in public companies has to provide to the annual shareholders meeting a relevant performance report.

The New Law promulgated liability of officials for misleading financial statements if this caused material damages to third parties and also amended the current requirements relating to release of the annual consolidated financial statements and disclosure of major and related party transaction information.

We suppose that the considered changes in the legislation implies the revise of internal policies of the Kazakh joint-stock companies governing matters of the board of directors or the management board for setting forth of new explicit and thorough principles of their affairs.

Corporate Law Department

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