Antimonopoly legislation in Kazakhstan

published on 29 May 2024 | reading time approx. 4 minutes

In the realm of business transactions, the purchase of shares or the complete acquisition of another company is a prevalent practice. Nevertheless, it is imperative to recognize that these sale and purchase agreements may fall under antitrust legislation, particularly concerning the formation of economic concentrations.

Economic concentration refers to the consolidation of market power through mergers, acquisitions, or other means. To safeguard fair competition and prevent the formation of monopolies, the Republic of Kazakhstan has established a regulatory framework overseen by the antimonopoly authority. To prevent monopolies and limit competition, market entities must obtain prior consent from the antimonopoly authority before engaging in certain transactions or actions as outlined in Article 201 of the Entrepreneurial Code of the Republic of Kazakhstan (hereinafter – “Code”), as these actions are categorized as “economic concentrations” and are subject to regulatory restrictions.

The definition of economic concentration includes the reorganization of a market entity through merger or acquisition, the acquisition of voting shares by a person or group granting them control over more than 50 percent of the shares, the acquisition of ownership and use of main production assets and intangible assets exceeding 10 percent of the alienated entity's balance sheet value, the acquisition of rights allowing control over another entity's activities, and the participation of the same individuals in governing bodies of multiple market entities where they influence entrepreneurial activities.

Market entities seeking to undertake an economic concentration must file a petition with the antimonopoly authority seeking consent for the concentration as prescribed by the Code.

Economic concentration committed without the consent of the antimonopoly authority, which resulted in the establishment of a monopoly position of a market entity or group of persons and (or) restriction of competition, may be invalidated by a court at the suit of the antimonopoly authority. Failure to comply with this requirement may also lead to an imposition of an administrative fine in the maximum amount of 1,600 MCI (approx. 12,300 EUR).

A petition for consent to economic concentration, such as the acquisition of more than 50 percent of shares in a company, is submitted to the antimonopoly authority by the person acquiring voting shares (equity interests, units), main production assets, intangible assets, or corresponding rights.

In accordance with Article 204 of the Code, the documents required to be submitted to the antimonopoly authority along with the petition for consent for economic concentration include a transaction agreement as evidence of the transaction, details of the acquirer and each market entity within the same group of persons, specifying names, legal and actual addresses, authorized capital, shareholding percentages, types of shares held, production and sales data in Kazakhstan. Additionally, information on management and board interlocking between the acquiring party and target market entity, target market entity's production and trade data, and production and trade data of affiliated entities must be provided.

Article 165 of the Code defines a “group of persons” as an aggregation of individuals and/or legal entities that meet one or more of the following criteria:

Ownership or Control: A market entity and an individual or legal entity where the latter has the authority, due to its ownership stake or powers granted by others, to dispose of more than 50 percent of the total voting shares in the market entity.
Executive Leadership: A market entity and an individual or legal entity where the latter serves as the sole executive body of the market entity.
Binding Instructions: A market entity and an individual or legal entity where the latter, based on the market entity's founding documents or a contract, has the authority to issue binding instructions to the market entity.
Interlocking Boards: Legal entities where more than 50 percent of the members of the collective executive body and/or board of directors (supervisory board, foundation board) are the same individuals.
Executive Appointment: A market entity and an individual or legal entity where the latter's proposal led to the appointment or election of the market entity's sole executive body.
Board Member Appointment: A market entity and an individual or legal entity where the latter's proposal led to the election of more than 50 percent of the members of the market entity's collective executive body or board of directors (supervisory board).
Family Ties: Individuals who are spouses, parents (including adoptive parents), children (including adopted children), full siblings, and half-siblings.
Indirect Group Ties: Individuals or legal entities who, based on any of the criteria in subparagraphs 1) to 7), form a group with the same individual, as well as other individuals who form a group with any of such individuals based on any of the criteria in subparagraphs 1) to 7).
Joint Control: A market entity, individuals, and/or legal entities who, based on any of the criteria in subparagraphs 1) to 8), form a group of persons, and who, due to their combined ownership or powers, have the authority to dispose of more than 50 percent of the voting shares in the market entity.

Navigating the process of obtaining consent for economic concentration from the antimonopoly authority involves encountering issues related to the interpretation and application of legislation concerning the identification of market entities/individuals in the “group of persons”.

The antimonopoly agency, in practice has been rejecting their consent for economic concentration, citing a lack of comprehensive information on all market entities associated with, or in the same “group of persons” as the acquirer as a key reason for the denial, clarifying that the submission lacked specific details regarding legal entities where the acquirer and its Founders/Participants hold founding or participating roles.

The antimonopoly authority often requests additional documentation, such as extracts from registers and relevant information concerning daughter and sister companies linked to the acquirer, with practical application indicating that the agency may withhold consent if such information is not provided. This discrepancy highlights a gap in the law's definition of “group of persons” and the entities encompassed within this designation, as Article 165 does not explicitly include sister and daughter companies in the delineation of a “group of persons”.

In conclusion, the interpretation and application of legislation in the context of economic concentration may vary, leading to potential complexities and challenges.