Legislative News

This Client Update covers amendments to the laws of the Republic of Kazakhstan (“RK”) and various legal developments introduced in October and November 2015.

Novelties in Legislation

The laws covered by the present Client Update relate to both public and private sectors. Some of them may be of interest to you as they may affect your business activity in Kazakhstan.

We would like to draw your attention to the following legal acts.

BUSINESS CODE AND NEW CIVIL PROCEDURE CODE

On 30 and 31 October 2015, the President signed the Business Code (“BC”) and New Civil Procedure Code (“CPC”) respectively.

BC is a codified legal act which unified numerous laws of the RK, in particular, the Laws “On Investments”, “On Competition”, “On Private Enterprise”, “On Government Support of Industrial Innovation Activity” and others. BC introduces changes into regulation of investment activity, public-private partnership and cooperation.

CPC has been significantly revised. There have been a quite a few amendments related to civil trial proceedings, the value of claim, the number of instances. Also a new specialized court on investment matters and new settlement “Participative Procedure” have been introduced.

You may find more information about BC and CPC in our June edition.

We would like to kindly propose you to subscribe for our newsletters in order to receive a more detailed analysis of BC and CPC respectively. In addition, such analysis would be posted on our web-site in the nearest future.

BC and CPC will come into force on 1 January 2016.

TRADE ACTIVITY RELATED UPDATES

On 28 October 2015, the President of the RK signed the Law “On Changes and Amendments into Certain Legal Acts on Regulation of Trading Activity”.

This Law introduces a number of changes to the regulation of trading activity, in particular, to that of trading exchange.

1) Electronic stock exchange

The Law provides that the trading exchange will start operating only in an electronic form as from 1 January 2017.

2) Charter capital

The Law changes the de minimis charter capital of trading exchanges and establishes the following rates:

• 100,000 MCI starting from 1 July 2016;

• 300,000 MCI starting from 1 January 2018.

3) Volume of goods sold

The Law increased the volume of goods sold under the double counter auction regime from 15 percent to 30 percent of the quarterly products turnover of the trading exchange.

The Law came into force on 8 November 2015.

AGRICULTURAL COOPERATION

On 29 October 2015, the President of the RK signed the Law “On Agricultural Cooperation”.

You may recall from our September Edition that the aforementioned Law combines all types of agricultural cooperatives into one commercial legal entity as follows:

• Agricultural distribution partnership;

• Agricultural processing partnership;

• Agricultural procurement partnership;

• Agricultural service partnership.

Currently these types of agricultural cooperatives are non-commercial organizations carrying out business activity only to the extent of their charter requirements.

The Law came into force on 11 November 2015.

PUBLIC PRIVATE PARTNERSHIP

On 11 November 2015, the President of the RK signed the Law “On Public Private Partnership”.

We would like to note here that previously public private partnership («PPP») was regulated in the framework of the Law of the RK «On Concessions» and RK civil legislation.

1) PPP Models

The Law sets forth the extended list of PPP models:

• concession;

• trust management of state assets;

• lease of state property;

• leasing;

• contracts, concluded for development of technology, pilot production, pilot run and limited production;

• life cycle contracts;

• service contracts;

• other PPP contracts .

2) Property Matters

The Law separately regulates legal status of the property used in the PPP projects. In addition, the Law sets forth the matters on transfer of the property right, assignment and debt transfer in the PPP projects.

3) Competitive Selection

The Law sets forth the competition and the direct negotiation as two options for selection of a potential private partner for PPP projects.

Competition may take the following forms:

• fast-track competition;

• two-stage competition;

• close competition.

Direct negotiations take place either in case a potential private partner initiates a PPP project with respect to the object he/she owns or leases for a long-term or PPP project is connected with exercise of a potential private partner’s exclusive rights to intellectual creative activity.

4) PPP Participation Forms

The Law considerably extended the private partners’ and state’s participation forms in PPP projects, namely:

• PPP projects financing;

• PPP objects development, construction, creation, reconstruction, modernization and (or) exploitation;

• PPP projects management;

• assignment of exclusive rights to the objects of intellectual property;

• participation in establishment and operation of PPP company;

• other forms that are not contrary to the laws of the RK.

The Law came into force on 22 November 2015.

AMENDMENTS INTO LAND CODE

On 12 November 2015, the President of the RK signed the Law «On Changes and Amendments into Land Code of the Republic of Kazakhstan».

This Law was adopted for the purposes of enhancement of efficiency of land plots use and realization, in particular:

1) New Land Use Right Transfer Mechanism

The Law sets forth two auction methods:

• land plot’s ascending cadastral (assessed) value;

• land plot’s descending cadastral (assessed) value.

The descending cadastral (assessed) value auction takes place as a result of two previous failures to sell the land plot within the ascending cadastral (assessed) value auction.

The Law prevents the land plots to be sold at a price less than 50% from cadastral (assessed) value.

2) Leased Land Plot Favorable Buyout

The Law sets forth an option for the current landholders to privatize land plots on favorable conditions pending lease termination at the 50% of the cadastral (assessed) value with 10-year payment delay.

3) Change of Intended Purpose

The Law avoided the necessity to change the land plot’s intended purpose in case of changing form of business and construction of the object intended for farming.

4) Protection of Land Use Rights as Charter Capital Contributions

The Law sets forth protection provisions with respect to land use rights contributed into partnership’s charter capital or production co-operatives. Such provisions provide that in the event the landholder wishes to privatize land use right contributed into partnership’s charter capital or production co-operative, then a respective buyout must be subject to the partnership’s general meeting of participants or production co-operative’s members.

Provided participants or members disagree with buyout, the landholder may withdraw from the partnership along with allocating the land plot from partnership’s charter capital or contribution to production co-operative or get compensation in the amount of the land plot value.

The Law will come into force on 1 July 2016.

BANKRUPTCY AND REHABILITATION

On 17 November 2015, the President of the RK signed the Law “On Changes and Amendments into Certain Legal Acts of the Republic of Kazakhstan on Bankruptcy and Rehabilitation”.

The Law contemplates the following changes and amendments:

1) Insolvency

The Law introduced insolvency settlement procedure. Such procedure provides for a mechanism whereby a company will be prevented from going bankrupt. The procedure implies the following course of actions:

• Penalty charging with respect to all forms of indebtedness will be suspended immediately upon application of the procedure;

• Creditors will be restricted to file complaints to declare the debtor bankrupt;

• Debtor will be granted with 2 months for entering into settlement agreement with creditors (which, among others, provides for penalty and interest charge suspension, removal of restrictions imposed on the debtor’s accounts, etc.).

2) Rehabilitation

The Law also implements a new mechanism aimed at savoring the existing business which has been declared bankrupt. This particular mechanism provides for the following:

• Provided that a debtor found ways to rehabilitate the existing business during the bankruptcy procedure, the debtor must present a rehabilitation plan to be further agreed with the creditors. Bankruptcy procedure terminates upon implementation of the rehabilitation procedure;

• The parties may enter into settlement agreement at any stage of bankruptcy procedure. Settlement agreement may be concluded only subject to consent of all creditors. Settlement agreement signing is conditional upon full repayment of the wages. Once approved by the court, the judgment on recognition of the debtor as bankrupt cannot be enforced;

• Sale of the bankrupt company and change of control. To save a legal entity, the draft law suggests an option to sell the enterprise as a single entity, including the debts. The judgment on recognition of bankruptcy must be terminated.

3) Procedural Terms Reduced

For the purposes of reducing the procedural terms, the Draft Law sets forth the following:

• Assignment of the same judge for court cases on both rehabilitation and bankruptcy procedures;

• Restriction to appeal the judicial acts to the appellate court;

• Immediate enforcement of the judgment on recognition of the debtor as bankrupt and application of insolvency regulating procedure.

The Law came into force on 28 November 2015.

MANDATORY HEALTH INSURANCE

On 19 November 2015, the President of the RK signed the Law “On Mandatory Health Insurance”.

The Law establishes mandatory health insurance system (“MHI”) which contains providing healthcare and medicines coverage.

You may find more information about this Law in our September edition.

The Law will come into force on 1 March 2016.

NEW LABOR CODE

On 23 November 2015, the President of the RK signed the new Labour Code and the Law “On Changes and Amendments into Certain Legal Acts of the Republic of Kazakhstan on Labour Regulation Issues”.

Both regulatory acts have been adopted for the purposes of modernizing labour relationships in terms of realizing “100 specific steps towards the realization of five institutional reforms” national plan.

Our team on labour issues prepared a detailed update on this, which you may find following this link.

The Labour Code will come into force on 1 January 2016.

GOVERNMENT BUDGET FOR 2016

On 30 November 2015, the President of the RK signed the Law “On Government Budget for 2016-2018”.

The following benchmark rates are effective as from 1 January 2016:

• minimum wage – KZT 22,859;

• state benchmark pension payment – KZT 11,965;

• minimum pension – KZT 25,824;

• MCI for estimating allowances and other social benefits, as well as for imposing punitive sanctions, taxes and other payments in accordance with the laws of the RK – KZT 2,121;

• minimum daily allowance for calculation of benchmark social benefits – KZT 22,859.

DRAFT LAWS

PUBLIC PROCUREMENT

On 19 November 2015, the Senate of the Parliament of the RK adopted the Draft Law “On Public Procurement”.

The Draft Law proposes the following novelties:

1) New Antidumping Measures

The Draft Law allows dumping price to be applied at tender if in addition to the security deposit the potential supplier provides a sum of money equal to the decreased sum of the allowed dumping price.

2) Public Procurement Participation Restriction

The Draft Law proposes to limit participation of potential suppliers in public procurement, if their property or balance cost of the arrested property and (or) that of engaged sub-suppliers is more than 10 percent of the main assets. We note that this measure should help reduce the number of unfair suppliers in state procurement.

3) Bad Faith Suppliers Register

The Draft Law proposes empowering courts to make decision with respect to inclusion of a potential supplier into the register of bad faith participants of public procurement.

4) Security Deposit

The Draft Law proposes to establish a security deposit amount of 3% from the total amount of the public procurement contract. In case the public procurement contract requires an advance payment, the security deposit amount must be set by the organizer, which should be equal to advance payment amount, but in any case not less than 3 % of the total amount of the public procurement contract.

5) Period for Appeal

The Draft Law proposes to establish the period for appeal of action (inaction), decisions of customers, public procurement organizers, public procurement unified organizer, commissions, expert, public procurement unified operator for not later than 5 business days from the official publication of the protocol on public procurement results.

6) Preliminary Discussion

The Draft Law introduces preliminary discussion of tender documentation. This will allow potential suppliers to be aware of technical specification requirements and address their comments to the customers in order to correct the defections.

7) Contract Execution Suspension

The Draft Law proposes to suspend execution of the contract for 10 days for the period of appeal against the action (inaction), decisions of customer, public procurement organizers, public procurement unified organizer, commissions, expert, public procurement unified operator.

The Draft Law was delivered to the President of the RK for signing.

Information contained in this Client Update is of general nature and cannot be used as legal advice or recommendation. Please seek a lawyer for a specific advice. Please note that Kazakhstan is an emerging economy and its legislation and legal system are in constant development. Should you have any questions or would like to discuss matters addressed in this Client Update, please contact us.