When is a commercial dispute a corporate dispute? - International Law Office

The concept of a 'corporate dispute' is relatively new to Kazakh law, having been introduced on July 5 2008 by amendments to the Civil Procedural Code. A dispute is deemed to be a corporate dispute if it:

• involves the reorganisation or liquidation of a legal entity;
• arises out of a claim by a legal entity's shareholders which:
  • challenges a decision, action or failure to act by one of the entity's constituent bodies;
  • affects shareholders' interests; or
  • involves breaches of transaction procedures;
• arises out of activities of securities trades that involve the registration of rights to stock or other securities; or
• involves the invalidation of state registration of share issues and transactions closed in the course of the issuer's placement, acquisition or redemption of such shares.

Corporate disputes occur either between commercial legal entities, such as limited liability partnerships and joint stock companies, or between a commercial legal entity and its shareholders. Disputes between non-commercial organisations or between a non-commercial organisation and its shareholders are not considered corporate disputes.

Early in 2011 the list of corporate disputes was expanded to include disputes that:

• involve the establishment of a legal entity;
• involve title to stocks, the establishment of encumbrances over stocks or the exercise of rights therein;
• arise out of claims by a legal entity's shareholders for recovery of damages caused to the entity;
• involve the designation or election of current or former members of a legal entity's management bodies, or the termination or suspension of such members' authorities and responsibilities;
• involve the issuance of securities; or
• relate to the convention of a general meeting of shareholders.

All commercial disputes that are deemed to be corporate disputes must be resolved in the commercial courts. Shareholders of joint stock companies and limited liability partnerships must be notified in writing of all corporate disputes within seven business days of receipt of a court summons.

Although corporate disputes arise for various reasons, they can nominally be grouped into two categories, based on the goals of the parties in conflict.

First, there are disputes between minority shareholders and the legal entity itself. As a rule, such conflicts are not about gaining control of the entity; rather, they tend to involve enforcement of the shareholders' basic statutory rights, such as the right to dividends and the right to information about the entity's activities. Such disputes may also arise from a minority shareholder's desire to force the entity to buy out its shareholding at a higher price. In such cases the shareholder may try to gain a strategic advantage by creating various corporate complications that require significant time and money to resolve.

Second, corporate disputes may involve an attempt to gain control of the entity by exerting influence on its operational management and gaining control of its flow of funds. In this case the conflict may take the form of a struggle for charter capital or certain key assets (or the entity's debts, potentially giving the acquirer the power to bankrupt the entity).

For further information on this topic please contact Yerzhan Kumarov at Macleod Dixon ELP by telephone (+7 727 311 24 80 88), fax (+7 727 311 24 89) or email (yerzhan.kumarov@macleoddixon.com).