Management Buyouts in the Language of Georgian Law
A management buyout — the purchase of their own company’s shares by the management team — is a deal type shaped in United States and British financial practice, typically financed by sponsors. Georgian law has no special regime for it: its construction is written with the ordinary instruments of the Civil Code — the sale of a right, a loan or bank-credit contract, a conditional transaction and the right of redemption. These four layers are the legal skeleton of the deal.
Foreign leveraged-buyout machinery does not transfer automatically into Georgian law: where a licensed lender or a public company is involved, additional regulation may attach, but the primary legal foundation remains the Civil Code.
Buying the Shares: the Rules on Transfer of a Right
Under Article 498 of the Civil Code, the rules governing the sale of a thing apply correspondingly to the sale of a right or other property. A participating interest is precisely such a right: its sale follows the rules of sale. The seller bears the burden of substantiating the authenticity of the right sold and the costs of its transfer; and where the right sold gives the possibility of possessing a thing, the seller must deliver to the buyer a thing free of defects both in fact and in law.
In a management buyout this means the management team, as buyer, relies on the full framework of sale: responsibility for the authenticity of the transferred right lies with the seller-founder, and transfer costs are likewise allocated to that party. The registration formalities for transferring a specific share are defined by separate legislation and must be planned in advance.
The allocation written into Article 498 is a matter of practical planning as much as of law: leaving the transfer costs with the seller lightens the buyout budget, while the duty to substantiate the right's authenticity obliges the seller to prepare the documentary basis of the transferred interest in advance. It is in the manager-buyers' interest to record in the contract exactly which right is transferred and on which evidence its authenticity rests: in a future dispute the parties' positions will then be defined by the document, not by recollection.
The Financing Layer: Loan and Bank Credit
Financing is the driving question. Under Article 623 of the Civil Code, under a loan contract the lender transfers into the borrower’s ownership money or other generic things, and the borrower undertakes to return things of the same kind, quality and quantity. The financing of a management buyout is written in exactly this construction — even where the lender is a fund or another non-bank institution.
Where the financier is a commercial bank, the bank-credit contract applies: under Article 867, under it the credit grantor gives or undertakes to give the borrower an interest-bearing credit in the form of a loan. In the bank case the obligation to extend the credit may already exist under a concluded contract, which demands additional precision in planning.
Both norms can work in layers within one transaction: part of the financing is closed as a loan, part as bank credit, and the documents of each layer must obey their own norm. In the bank-credit case the obligation to extend still exists under the concluded contract, so the moment of disbursement and the share transfer tied to it must be scheduled in the timetable of the deal with precision.
The Conditional Transaction and Redemption
Management-buyout agreements are almost always conditional: closing is tied to financing, consents or other events. Under Article 90 of the Civil Code, a transaction is conditional where it depends on a future and uncertain event, in that either performance of the transaction is postponed until the event occurs, or the transaction terminates upon its occurrence. This is precisely the mechanism by which the purchase waits until the credit or the consents exist.
The second mechanism is redemption: under Article 509, where the seller has a right of redemption under the sale contract, the exercise of that right depends on the seller’s will. In an unplanned collapse of a buyout, this instrument works as a structural safety valve: the scenario of unwinding or revising the deal can be embedded in advance in exactly this right.
Frequently Asked Questions
Below are the most frequent questions about management buyouts.
Is there a separate Georgian law on management buyouts?
No. The deal is constructed with the Civil Code’s ordinary instruments: sale, loan, bank credit, conditional transaction and the right of redemption.
Under which rules is a share purchased?
Under the rules of sale: Article 498 equates the sale of a right with the sale of a thing, and the seller bears substantiation of the right’s authenticity and the transfer costs.
Can closing be tied to the credit?
Yes. Under Article 90 a conditional transaction postpones performance until a future, uncertain event — financing is exactly such an event.
How does the right of redemption work?
Under Article 509 its exercise depends on the seller’s will, which gives the unwind scenario a documentary foundation in advance.
What is the difference between a loan and bank credit?
Under Article 623 the lender already transfers money or generic things into the borrower's ownership; under Article 867 the credit grantor gives or undertakes to give interest-bearing credit in the form of a loan — the obligation to extend is itself contractual.
How We Help on Legal.ge
The lawyers of Legal.ge help you structure a management buyout: we assemble the share-transfer agreement, the financing documents and the conditionality and redemption mechanisms into a single transaction. Contact us before negotiations begin — properly ordered terms reduce the risk of collapse many times over.