Board approval of a related-party depot lease
Alatau Logistics JSC has 40% state ownership, a nine-member board with three independent directors, and a charter that sets a board quorum at five and requires decisions by a simple majority of directors present. Six directors attend a board meeting; three are absent. The agenda includes a three-year depot lease from a company owned by the CEO's spouse for 1.28 billion KZT, equal to 14% of Alatau's total assets. The CEO attends as an invited executive but is not a board member. Two independent directors ask whether the board can approve the lease and whether shareholder approval is required. The chair wants an immediate vote because the current depot lease expires in ten days. No written conflict-of-interest disclosures were circulated before the meeting. Alatau is not a financial organization and its shares are not listed on a stock exchange.
1. Is the board quorate, and who may vote on the depot lease?
Read the worked answer
The meeting is quorate: six directors are present and the charter requires five. Quorum alone, however, does not make the related-party lease valid. The CEO's spouse owns the counterparty, so the CEO is an interested person even though he is not a director. The board must obtain a written disclosure, identify any directors affiliated with the CEO or the counterparty, and ensure that only disinterested directors vote. If a director is interested, that director is excluded from the majority calculation. Because the CEO is not a board member, he may present the business case but should leave the room for deliberation and voting. The minutes should record the disclosure, the recusal, the valuation materials, and the exact vote. The ten-day deadline is a commercial pressure, not a legal basis to skip these steps.
2. Does the 14% asset test require shareholder approval as a major transaction?
Read the worked answer
A transaction equal to 14% of total assets does not normally cross the major-transaction threshold, which is generally tied to 25% of total assets. So the size alone does not automatically require a shareholders' meeting. That conclusion must be checked against the charter, any cumulative-transaction aggregation rule, and whether the lease is part of a series with the same counterparty. The decisive issue is the related-party character: it requires board approval by disinterested directors and full disclosure, regardless of being below the major-transaction threshold. If no disinterested majority can be formed, or if the charter reserves related-party approvals to shareholders, the matter must go to the general meeting. The chair should obtain a legal opinion before the vote.
3. What should the chair do before putting the lease to a vote?
Read the worked answer
The chair should require written conflict disclosures, an independent valuation or market comparables for the depot rent, and a legal memo on related-party and major-transaction rules. The CEO should not chair or influence the vote. The board should consider alternatives, including a short extension of the existing lease, because approving a three-year related-party deal under deadline pressure weakens the company's position in any later challenge. If the disclosures reveal that a director is affiliated with the counterparty, that director must recuse. The chair should also confirm that the counterparty was not pre-selected without competition and that the rent is at arm's length. The resolution and minutes should state the disclosed interest, the recusals, the valuation basis, and the disinterested vote.