Civil cases on corporate disputes related to allocation of shares and compulsory purchase of property

          Previously, the legislation of the Republic of Kazakhstan did not contain a definition of corporate disputes. However, intensively developing modern economic relations and issues of realization and protection of the rights and freedoms of their participants required the adoption of adequate legal measures.

For the first time, such a concept was introduced by the Law of the Republic of Kazakhstan No. 58- IV dated July 05, 2008 "On Amendments and Additions to Certain Legislative Acts of the Republic of Kazakhstan on corporate Dispute Resolution".

The said Law amended article 24 of the Civil Procedure Code of the Republic of Kazakhstan (hereinafter referred to as the CPC). According to part 2 of this rule, corporate disputes include disputes between legal entities (with the exception of disputes between non-profit organizations), as well as disputes to which the legal entity and (or) its shareholders (participants, members) are parties:

1) related to the reorganization or liquidation of a legal entity;

2) arising from the claims of shareholders (participants, members) of a legal entity to challenge decisions, actions (inaction) of the bodies of the legal entity affecting the interests of shareholders (participants, members), as well as related to violations of the transaction procedure established by the legislative acts of the Republic of Kazakhstan and (or) the constituent documents of the legal entity;

3) arising from the activities of professional participants in the securities market related to the rights to shares and other securities;

4) related to the invalidation of the state registration of the issue of shares, as well as transactions made during the placement, acquisition, and repurchase of shares by the issuer.

The following types of corporate disputes can be distinguished:

– compulsory purchase of a share from a participant in a business partnership;

–allocation of a share of a participant in a business partnership and assignment to the business partnership of the obligation to acquire this share from the allocated participant;

–an appeal by a participant in a business partnership against the decision of the general meeting of the management body on the compulsory purchase of his share.

Over the past 20 years, legal entities and individuals have not attended general meetings, and have not fulfilled their responsibilities for managing the partnership provided for by laws and the LLP Charter. Because of this, the LLP suffers losses and incurs material costs during the preparation and convening of annual and extraordinary general meetings of participants, including the maintenance of the register.

The said Partnership annually spends 90,000 tenge on maintaining the register of participants, and from 2006 to 2013, the LLP paid 804,689 tenge to the registrar. A total of 2,014,689 tenge was spent for these purposes.

According to the plaintiff, these expenses are detrimental to the LLP, since the convening of the general meeting requires the placement of an advertisement in a newspaper in Kazakh and Russian, and services are paid annually to the registrar. The participants, individuals do not show interest in the activities of the LLP, have withdrawn themselves from the management of the partnership and their assets in the Authorized Capital. Banks refuse to issue a loan without the consent of all participants to pledge the property of the partnership. Such consent can be obtained only by holding a general meeting, if there is a 100% quorum.

the mind. In the current situation, at the repeated general meeting of Kyzylorda Zholdary LLP, the participants present at it decided to consent to the executive body to file a lawsuit to forcibly buy out the shares of 1,507 participants, and to exclude these participants from the membership of the LLP.

Since May 13, 2013, the Partnership has convened 4 extraordinary general meetings of participants to resolve the issue of repurchasing the share of participants. However, the invited participants did not attend these meetings.

Then, on June 27, 2013, during the repeated general meeting, the participants present at the meeting decided: taking into account the evasion of the LLP participants from the responsibilities of managing the partnership and causing significant harm, to give consent to the executive body to file a lawsuit for the compulsory purchase of shares of 1,507 participants of legal entities and individuals with their exclusion from the membership of the partnership. This decision of the general meeting was not challenged by the participants of the Partnership in court.

 

There are also other examples of the correct approach of the courts when considering cases of corporate disputes related to the allocation and purchase of shares of participants in joint ownership.

Thus, the plaintiff Zhusupov K.Zh.– a member of Arman LLP, filed a lawsuit against Arman LLP for the allocation of a land plot at the expense of existing shares in the amount of 0.187% (206 ha), with withdrawal from the partnership, and the issuance of a decision of the general meeting of the partnership's participants regarding the allocation of a land plot in kind, indicating its borders.

It follows from the explanation of the parties that the general meeting of the partnership participants was not held. According to paragraph 7 of Article 23 of the Law "On Limited and Additional Liability Partnerships", the allocation of a land plot in kind, to which the right has been transferred as a contribution to the authorized capital of the partnership, is carried out in accordance with the land legislation of the Republic of Kazakhstan.

Clause 2.3 of the Arman LLP Charter stipulates that a participant in the partnership has the right to sell or otherwise cede his share in the partnership's property or part of it to one or more participants of this partnership at his choice. At the same time, in the constituent documents of Arman LLP there is no procedure for withdrawal from the partnership, allocation of land.

According to the current land legislation, citizens who are participants in shared land use have the unconditional right to withdraw from the partnership by decision of the general meeting. In this regard, when resolving this dispute, one should be guided by the Land Code (as amended at the time of the legal relationship).

In accordance with paragraph 3 of Article 101 of the Land Code of the Republic of Kazakhstan (hereinafter – Land Code), citizens who have transferred their rights to land plots, including the rights to conditional land shares as a contribution to the authorized capital of business partnerships or as a contribution to production cooperatives, upon leaving the membership (members) for the organization of peasant or farm or commercial agricultural production, have the right, by decision of the general meeting of participants (members) for the allocation (division) of a share or unit in kind, including a land plot, or for the payment of the value of the share or unit.

An application for withdrawal from the membership (members) and for the allocation of a land plot is submitted to an agricultural organization.

According to paragraph 4 of Article 101 of the Land Code, citizens who are participants in shared ownership (shared land use) and are leaving the participants for farming or commercial agricultural production, land plots are provided in accordance with the procedure for the use of land owned (shared land use), approved by the general meeting of participants in shared ownership (shared land use), in accordance with Article 54 of this Code.

In the absence of a procedure for the use of a land plot, the interested participant in shared ownership (shared land use) is obliged to notify the other participants in shared ownership (shared land use) of their intention to allocate the land plot to the account of the land share (land shares) in writing, indicating its intended location. The issue of the location of a land plot may be resolved through conciliation procedures or on the basis of a decision of the general meeting of participants in common ownership (common land use) or their representatives.

The meeting must take place within one month from the date of notification and is considered valid with the participation of at least 50% of the participants in common ownership (common land use) or their representatives. The decision is made by a simple majority of the votes of the participants in shared ownership (shared land use) or their representatives present at the meeting and is formalized in the minutes.

The protocol is signed by all the participants of shared ownership (shared land use) or their representatives present. If no objections are received from the participants of shared ownership (shared land use) within one month from the date of proper notification, the proposal on the location of the land plot is considered agreed.

It follows from the content of these norms of the Land Code that a participant withdrawing from membership is obliged to submit to an agricultural organization an application for his withdrawal and for the allocation of a land plot to him. Notify all other participants in writing about the allocation of the land plot to the account of the land share, indicating the intended location.

The location of the allocated land plot is determined in two ways, in accordance with the procedure provided for in the constituent documents of the partnership or by agreement of the parties.

In this case, the issue of determining the location of the land plot is resolved through a conciliation procedure with the participation of all other participants or on the basis of a decision of the general meeting of participants in the partnership with the participation of at least half of the participants in common ownership (common land use) or their representatives.

According to the court, the conciliation procedure must be followed in respect of all participants in the partnership. Partial approval is unacceptable. A general meeting of participants may also be held if a result is not achieved through a conciliation procedure.

The arguments of the defendant A.G. Tsygankov that he has been the founder since 2002 are refuted by the following. So, on August 06, 2010, a donation agreement was signed for a 3% share in the authorized capital of Karaungur LLP between A.A. Tsygankova (the donor) on the one hand and A.G. Tsygankov (the donee) on the other hand.

In accordance with article 18 of the Law of the Republic of Kazakhstan "On State Registration of Legal Entities and Registration of Branches and representative Offices", failure to provide information on changes in the data of a legal entity within one month, leading to its state re-registration in accordance with the procedure established by law, is responsible in accordance with the laws of the Republic of Kazakhstan.

However, the documents for the re-registration of the LLP in connection with the change in the membership of the Partnership, which included Tsygankov A.G., Grishin V.V., Galstyan T.M., were submitted only on October 04, 2011. It can be seen from the case file that Karaungur LLP was registered by the Department of Justice of East Kazakhstan Region on October 17, 2011 and its state re-registration was carried out, the certificate of state re-registration of the legal entity 13751-1917-LLP/IU/ BIN020140017734. Thus, Karaungur LLP violated the norms of current legislation, carried out activities without state re-registration.

On October 06, 2011, the Director of Karaungur LLP, E.G. Surov, was brought to administrative responsibility under part 1 of Article 357-4 of the Code of Administrative Offenses of the Republic of Kazakhstan. Amendments made to the constituent documents on the above grounds without re-registration of the legal entity are invalid. With

pursuant to paragraph 4 of Article 24 of the Law of April 22, 1998 "On Limited and Additional Liability Partnerships", by decision of the general meeting of the partnership, the share or part thereof not contributed by the participant within the prescribed period may be distributed among the remaining participants in accordance with the procedure provided for in paragraph 1 of Article 31 of this Law or the constituent documents of the partnership, or proposed for purchase by third parties. If it is impossible to sell the unpaid part of the contribution within the period specified in paragraph 2 of this article, the authorized capital of the partnership shall be reduced by this amount and the shares of the participants in the authorized capital shall be changed accordingly.

In accordance with article 218 of the CPC, the court bases its decision only on the evidence that was examined at the court session. Since the decision of the general meeting removed the defendants from the founders of the LLP on the basis of Article 45 of the Law "On Limited and Additional Liability Partnerships", and their share was redistributed to other founders, the claims for the withdrawal of Tsygankov A.G., Grishin V.V., Galstyan T.M. from the founders of Karaungur LLP are reasonable and must be satisfied..

By the decision of the Council of Economic Cooperation of the East Kazakhstan region dated June 23, 2015, the claim of Karaungur LLP was satisfied, Grishina V.V., Galstyan T.M., Tsygankov A.G., shares of Grishin V.V. in the amount of 15%, Galstyan T.M. in the amount of 15%, Tsygankova A.G. in the amount of 3.6% were forcibly withdrawn from the founders. sold to the founders of Karaungur LLP.

And the following example shows that sometimes there are various kinds of misunderstandings between the participants of partnerships and actions are committed that ignore the rights of other participants.

           Thus, Cha-KUR Medical Farm LLP filed a lawsuit, stating that on April 15, 2009, a founding agreement was signed on the establishment and establishment of Cha-KUR Medical Farm LLP. According to the founding agreement and the Charter, the amount of the authorized capital is 130,000 tenge, the amount of participation shares in the authorized capital of the Partnership: Kurmanova S. has 43,420 tenge, that is, 33.4%, Mashtakova S.H. – 43,290 tenge (33.3%), Tleukulova S.K. – 43,290 tenge (33.3%).

In June 2010, the members of the Partnership decided to increase the size of the authorized capital by accepting a new participant, Firm Chak-Kur LLP.

The latter transferred property in the amount of 319,733,410 tenge to the authorized capital, in this regard, the amount of the Authorized Capital of the Partnership increased to 319,863,410 tenge and the amount of participation in the authorized capital was 5% for S. Mashtakova, 5% for S. Kurmanova, 5% for S. Tleukulov, 5% for Firm Cha–Kur LLP 85%. During the entry of a new participant and the state re-registration of the Partnership, the value of deposits and the size of the participants' shares in the authorized capital were mistakenly and incorrectly determined.

Cha-KUR Medical Farm LLP, considering that these circumstances violate its rights and legitimate interests, asked to determine the size and shares of the Partnership's participants.: Mashtakova S.H. has 43.290 tenge (0.013%), Kurmanova S. – 43.420 tenge (0.014%), Tleukulov S.K. – 0.013%, Firm Chakur LLP has 319.733.410 tenge (99.96%) in the authorized capital. It can be seen from the case file that on April 15, 2009, Mashtakova S., Kurmanova S. and Tleukulov S. signed a founding agreement on the establishment of Cha-KUR Medical Farm LLP. According to the founding agreement and the Charter, the amount of the authorized capital is 130,000 tenge, the amount of shares in the authorized capital of the Partnership is 43,420 tenge (33.4%) for Kurmanova S., 43,290 tenge (33.3%) for Mashtakova S., 43,290 tenge (33.3%) for Tleukulov S..K. 43,290 tenge (33.3%). In June 2010, the members of the Partnership decided to increase the size of the authorized capital by accepting a new participant, Firm Chakur LLP. The latter transferred property in the amount of 319,733,410 tenge to the authorized capital.

The minutes of the general meeting of the Partnership's participants dated June 23, 2010 decided to change the composition of the Partnership's founders. In connection with the transfer to the authorized capital of the Partnership of the property contribution of Firm Cha-Kur LLP in the total amount of 319,733,410 tenge, the amount of the authorized capital of the Partnership formed at the expense of the property contribution was increased from 130,000 tenge to 319,863,410 tenge.

The shares of the Partnership's participants in the amount of 319,863,410 tenge were redistributed as follows: 5% each for S. Mashtakova, S. Kurmanova, S. Tleukulov, and 85% for "Firm Cha-Kur" LLP. A commission has been established to accept the unfinished construction of the specified property transferred to the authorized capital of the Partnership.

             On August 02, 2010, the Commission recorded on the Partnership's balance sheet the unfinished construction of a pharmaceutical complex for the production of infusion solutions for a total amount of KZT 319,733,410 transferred to the authorized capital. On the basis of these documents, upon the application of the Partnership, on August 04, 2010, the Department of Justice for the Mangystau region re-registered the Partnership.

It was established at the trial that indeed Kurmanova S., Mashtakova S.Kh. and Tleukulov S.K. had not actually made contributions to the authorized capital of the Partnership. The only participant who contributed to the authorized capital of the Partnership is Firm Cha-Kur LLP.

Paragraph 4 of Article 26 of the Law "On Limited and Additional Liability Partnerships" clarifies that when the authorized capital is increased by making an additional contribution by one of the participants in the partnership, or by a newly accepted participant (subitems 4) and 5) of paragraph 2 of this Article), the amount of such contribution is determined taking into account the amount of their previous contribution to the partnership's own capital and the need to recalculate the shares of all participants in the authorized capital. The decision is made by common consent of all participants.

Indeed, the authorized capital of the Partnership was increased by making an additional contribution by the newly accepted participant of Firm Cha-Kur LLP, and by a decision of the general meeting of participants, the authorized capital of the Partnership was increased and the shares of its participants in the authorized capital were redistributed.

The Partnership's claim indicates that an error was made when increasing the authorized capital and redistributing the shares of the Partnership's participants, and at the court hearing Mashtakova S.Kh. and Tleukulov S.K. explained that this was not an error, but an agreement between the Partnership's participants when accepting the fourth participant of Firm Cha-Kur LLP. According to paragraph 6 of Article 23 of the Law "On Partnerships ...", unless otherwise provided by the founding agreement, the ratio of each participant's contribution to the total amount of the authorized capital is the participant's share in the authorized capital.

The decision of the general meeting of participants dated October 23, 2010 is not considered illegal and has legal force. The arguments of the plaintiff and the defendant, S. Kurmanova, that an error had been made in increasing the authorized capital and redistributing the shares of the Partnership's participants, were declared untenable by the court.

The defendants, Firm Cha-Kur LLP, Kurmanova S., Mashtakova S.H., admitted the claim, but they cannot be accepted by the court, since this affects the rights of the other participants in the Partnership.

             By the decision of the Council of Ministers of the Mangystau region dated July 20, 2015, the lawsuit filed by Medicalpharm Cha-KUR LLP was dismissed. A selective analysis of judicial acts posted in the Classifier indicates that the common causes of disputes are different and diverse, but the main one is the economic interests of its participants and when the balance of interests of corporate entities is disrupted.

As you know, the property transferred by the participant to pay for the fixed capital of the corporation becomes its property. The participant is deprived of the real right to such property and receives in exchange for it binding rights to the corporation in accordance with the law and constituent documents. The minimum set of participant's rights is guaranteed by law and cannot vary depending on the size of the share in the fixed capital.

In addition, the legislation grants participants other rights that are granted in connection with obtaining a certain amount of a share in the fixed capital. Ownership of a certain proportion of the number of shares or other instruments determines the ability to influence the corporation's business activities and manage its property. A share, a share, in addition to the property value may have additional value. This, in turn, contributes to the desire to concentrate the bulk of the authorized capital or one hundred percent of the shares in the hands of one person or an affiliated group of persons.

In practice, such owners benefit from their property by holding senior positions in Partnerships (Corporations, Joint-stock companies), thereby uniting owners and managers in one person. It is precisely this situation that contributes to the emergence of various kinds of conflicts between owners who simultaneously perform managerial functions, during which one owner seeks to deprive the other of corporate control.

It is interesting to note here that according to various publications in most foreign countries, it is common to separate management from owners.

When considering cases of this category, the courts are guided by the norms of the Civil Code of the Republic of Kazakhstan (hereinafter referred to as the Civil Code), the Law of the Republic of Kazakhstan "On Limited and Additional Liability Partnerships", the Law of the Republic of Kazakhstan "On Production Cooperatives", the Law of the Republic of Kazakhstan "On Business Partnerships", etc.

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