Mandatory Buyout of the Participating Interest in LLP

Pursuant to the laws of Kazakhstan, a limited liability partnership is granted a mandatory buyout right with respect to participant’s interest in this partnership. In order for the partnership to enjoy a mandatory buyout right, a partnership must experience a material damage caused by a participant.

Court practice review demonstrates that along with the foregoing condition, certain additional requirements must be met in order for the partnership to exercise a mandatory buyout right.

1. A mandatory buyout must comply with LLP Law procedures on LLP decision making process.

2. It should be evident that a participant’s actions caused a material damage or real threat of such damage to the partnership.

3. In order for the partnership to mandatory buyout the participating interest, the damage, caused by a participant’s actions or threat of causing such damage must be ascertained as material and having an impact on the LLP’s activity in the future.

Pursuant to Article 82 of the Civil Code of the RK, a partnership is entitled to require a mandatory buyout in case a participant violates its obligations under the laws or constitutional documents of the partnership.

The partnership must inform the participants on the general meeting of participants in writing and have them all being present at the partnership’s general meeting on mandatory buyout of the participating interest (including the participant whose participating interest is being bought out). However, the participant whose participating interest is being bought out withholds his/her vote.

Valuation of damage caused

Pursuant to the civil laws damage must be caused by unlawful actions since the damage caused by lawful actions does not constitute a civil obligation from causing damage. Based on the foregoing, in order for the mandatory buyout of the participating interest takes place, the participant’s actions need to be clarified as unlawful and causing damage to the partnership’s activities.

Assessment of the participating interest

Pursuant to Article 34 of the LLP Law, in case the participants cannot reach an agreement with respect to the cost of the participating interest, the court must estimate such cost based on the market price given by independent appraiser.

Pursuant to Clause 11 of the Regulatory Resolution of the Supreme Court of the RK dated 20.06.2005 “On Certain Issues of Application by the Courts of the Law on Enforcement Proceedings”, “market price” is the most probable price under which the property may be alienated in competitive environment when all available information on the property is presented to the potential buyers.

Information contained in this Client Update is of general nature and cannot be used as legal advice or recommendation. 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.