Minority Shareholder Protection in Kazakhstan JSCs

: Problems and Proposals for Reform

Abstract

This thesis comprises a comparative study, focusing on the legal protection of minority shareholders in Kazakhstan. The central goal of this thesis is to develop a framework for improving the protection of minority shareholders` rights in Kazakhstan. To that end, the thesis addresses the following question: Given Kazakhstan’s ambitions for its corporate sector, and drawing on the US and the UK comparisons, how can Kazakhstan’s legal and corporate governance regime (as it affects minority shareholders) be improved?

To answer this question, this thesis begins by briefly defining the rights of minority shareholders under the Kazakh law and the obstacles they may face when exercising their ownership rights inside the company. It also briefly reviews the report made by the World Bank in 2019 on protecting the rights of minority shareholders, and discusses whether this report is accurate or not.

Defining the corporate ownership and governing structures of listed companies in Kazakhstan is of great significance for this study; it may affect the company`s performance, as well as minority shareholders. This thesis determined that most listed companies in Kazakhstan are owned by the state. The ownership control over these companies can be exercised by the state directly via the authorised bodies or indirectly via the asset management companies. In this study, we attempted to determine the responsibilities of these authorised bodies and asset management companies, and how they represent the state in the public sector.

Since it was determined that most listed companies in Kazakhstan are owned by the state, testing the implication of state ownership for the minority shareholders is also at the heart of thesis. Generally, most experts see the state ownership as a threat to minority shareholders. They argue that the company`s insiders may extract the private benefits of control at the expense of minority shareholders. This may hurt the company`s performance and affect the directors` incentives, as well as involve an interested party transaction and trade the inside information. These issues are tested in this study and recommendations to improve the protection of minority shareholders are made.

After examining the implication of state ownership for minority shareholders, it was concluded that these shareholders require additional assistance. Therefore, it is necessary to examine the effectiveness of legal remedies available to them. At present, they may challenge any decision made by the company`s bodies to the court by bringing a direct claim, or by filing a derivative lawsuit to claim a compensation for the company`s loss. Both these remedies are poorly developed. Although the legal framework for a direct claim seems in favour of minority shareholders, its application poses a threat to the company, and its members as a whole. As for a derivative claim, its application is nearly impossible since the law imposes excessive requirements for such a claim which are difficult to meet. The competence of Kazakh judiciary is another issue which is addressed in this thesis.

The final issue addressed by this thesis is whether or not the minority shareholders are able to protect themselves outside the court. Four mechanisms, allowing these shareholders to stand against the company`s insiders, are explored: Appraisal right, pre-emptive right, shareholder agreement and securities regulators. In general, all these mechanisms could protect minority shareholders effectively, if appropriate regulations existed in Kazakhstan. After examining the obstacles that currently undermine the protection of minority shareholders, we propose a comprehensive reform that ought to be implemented in Kazakhstan.

Date of Award	2023
Original language	English
Awarding Institution	University of Dundee
Supervisor	Alice Belcher (Supervisor) & Bo Xie (Supervisor)