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Central Asian Free Market Institute
As it is known, 2010 was a landmark for the Kyrgyz Republic. After April 7, 2010 new Kyrgyz authorities have initiated a process of nationalization of objects that, in their opinion, were related to the environment of former President Bakiev (the “Nationalized Objects”). They all were nationalized by the Decrees of the Interim Government. Shares in joint stock companies and limited liability companies, land plots, unfinished objects, vehicles, aircraft, boat, etc. are among them. In 2011, a substantial part of the republican budget shall be the proceeds from the sale of the Nationalized Objects. This article analyzes the legal loopholes of the sale of the Nationalized Objects.
1 General problems of the Nationalized Objects
1.1 The Decrees of the Interim Government are not regulatory legal acts
The Decrees of the Interim Government are not integral part of the legal system of the Kyrgyz Republic and are not listed in Article 4 of the Law of the Kyrgyz Republic dated 20 July 2009 No. 241 "On Regulatory Legal Acts of the Kyrgyz Republic" (the "Law on the RLA"). In addition, questions arise regarding: (a) whether the Interim Government was a law-making body, (b) whether it is possible to register Decrees in the State Register of Regulatory Legal Acts of the Kyrgyz Republic.
1.2 Nationalization does not comply with the institute of nationalization of the Kyrgyz Republic
Nationalization is one of the types of forced withdrawal from the owner of the property. In accordance with article 288 of the Civil Code, nationalization is only possible with the following conditions:
a. Adoption of the law, pursuant to the Constitution, on nationalization of the concrete property and
b. Compensation for the person whose property is expropriated the value of this property and other damages caused by its withdrawal.
Based on the above-mentioned article, one can conclude that nationalization carried out by the Interim Government has nothing to do with the article 288 of the Civil Code. They are just homonyms.
2 Aspects of sale of some of the Nationalized Objects
2.1 Sale of the share (-s) of participation in legal entities
2.1.1 Joint-stock companies
In accordance with the laws of the Kyrgyz Republic, the ownership of securities shall be certified in the Register of the personal accounts of the registry holder or in the case of registration of title to securities in the depository – records on securities accounts with the depositories. Creation, transfer, changes and termination of rights of ownership of securities shall be made on the basis of civil law transactions, as well as on other grounds established by the legislation of the Kyrgyz Republic.
Transactions on sale (exchange) publicly offered securities and shares of public companies are carried out on the Stock Exchange in accordance with the regulations of the authorized state body on regulation of the securities market and the rules of securities trading.
According to the Article 38 of the Law of the Kyrgyz Republic on 24 July 2009 No. 251 "On Securities Market" (the "Law on Securities Market"), the depositary or the independent registrar may make a transfer of securities rights from the account of a registered holder to the account of another person on the basis of:
- Request of the registered person;
- Documents confirming the transaction on the Stock Exchange;
- Documents confirming the succession;
- Court decision.
As shown in the article, the Decree of the Interim Government is not an instrument which is used for the transfer of rights from one person to another. In this regard, we assume that the previous shareholders shall still be in the registries of depositories or independent registrars.
This fact may be grounds for challenging the sale of stock companies.
2.1.2 Limited Liability Companies (the “LLCs”)
Article 42 of the Law of the Kyrgyz Republic dated 15 November 1996 No. 60 "On Business Partnerships and Companies" stipulates that in case of changing the membership of a limited liability corresponding changes should be made to the constituent documents.
Following the decision to nationalize LLCs, they were subject to re-register by virtue of Article 12 of the Law of the Kyrgyz Republic dated February 20, 2009 No. 57 "About the state registration of legal entities, branches (representations)" (changes of participants) within 30 calendar days with the justice authorities of the Kyrgyz Republic.
The law requires 2 cases LLC re-registration: in connection with an exit of the participant (1) with the alienation of its shares or change the size of a participant's share and (2) without alienating its share. In the first case, the registration authority is furnished with an agreement on transfer of shares, in the second - a statement to withdraw from the LLC.
It is assumed that
1. Nationalized LLC have not been with the justice authorities of the Kyrgyz Republic.
2. Absent an agreement on transfer of shares and the declaration of secession from the participants of the previous participants LLC.
3. Sale of movable and immovable property
Sale of movable and immovable property will also confront with the legal troubles. In particular, the absence by the public authority of title documents, provided by the legislation of the Kyrgyz Republic, necessary to re-register these assets. This authorizes the registration authorities to refuse registration of transactions with the Nationalized Objects.
The Sale of land
Foreign investors need to remember that foreign persons have limitation to ownership of land.
The sale of land plots and other facilities of Yssykkul recreation zone has its own peculiarities. According to the Law of the Kyrgyz Republic dated August 13, 2004 No. 115 "On the sustainable development of eco-economic system of the Issykkul”, foreign entities may not acquire the ownership of facilities for recreation, tourism infrastructure. Foreign entities can be provided on the rights for the temporary use of recreational objects and tourism infrastructure by the Government of the Kyrgyz Republic with the consent of the Parliament of the Kyrgyz Republic for a period not exceeding 49 years.
The decrees of the Interim Government could have been "legalized" by the Referendum dated June 27, 2010, if the authors of the Constitution made provision on the legality of decrees, as was done with the Decree No. 2 of the Interim Government "On the Dissolution of the Constitutional Court."
Another method of "legalizing" the decrees is its integration with the legal system of the Kyrgyz Republic by adopting a law by the Parliament of the Kyrgyz Republic and the making relevant amendments to the above regulations.
All of the above problems may adversely affect the profitability of the Nationalized Objects. Legal advisors are likely to end due diligence (due diligence) with the negative opinion, if the problems mentioned above are not solved.
 All regulations listed in this article do not contradict the Constitution in force and have legal force, as provided for by art. 1.5 of the Law of the Kyrgyz Republic dated June 27, 2010 "On Implementation of the Constitution of the Kyrgyz Republic"
 Articles 37, 38 of the Law of the Kyrgyz Republic dated 24 July 2009 No. 251 "On Securities Market"
 Practical Guide on State Registration of Rights and Encumbrances (constraints) of Real Estate Rights and Transactions (approved by order of the State Register of the Kyrgyz Republic dated 27 July 2005 No. 107), Rules for the Registration of Motor Vehicles and Trailers in the State Registration Service of the Kyrgyz Republic ( approved by the Government of the Kyrgyz Republic dated February 15, 2003 No. 65), Aviation Rules of the Kyrgyz Republic APKR-7 "Registration of Civil Aircraft" (approved by Order of the Ministry of the Transport and Communications of the Kyrgyz Republic dated January 24, 2008 No. 14)
 Foreign persons, foreign legal entities (cities, towns, villages) may be granted rights of temporary use to land within the boundaries of settlements or transferred to the property in case of mortgage lending to housing construction in accordance with the Law of the Kyrgyz Republic "On Pledge”. Foreign persons may be granted rights of temporary use to land outside settlements, except for agricultural land, by the Government of the Kyrgyz Republic.
 Art. 1.10 of the Law of the Kyrgyz Republic dated June 27, 2010 "On Implementation of the Constitution of the Kyrgyz Republic"