Security As A Measure Of Comfort For Creditors

LEGAL FRAMEWORK / REGULATION

The legal particulars regulating securities law system of Kazakhstan is primary based on the following legal acts:

Civil Code1; Mortgage Law2; Immovable Property State Registration Law3; Movable Property Pledge Registration Law4; Specific laws applicable to certain assets (i.e. land plots, subsoil, securities, etc.), such as: Land Code5; Subsoil Law6; Securities Law7 etc. The Civil Code is the main legislative act which provides the basic rules and general procedures regulating securities which secure underlying obligations between a lender (creditor) and a borrower (debtor). However, security over different assets is also regulated by specific laws which directly apply to such assets.

TYPES

The Civil Code provides for the following types of security for a duly performance of obligations by a debtor:

Penalties; Pledge; Retention of debtor's property; Surety; Guarantee; Earnest money; and Other security which may be provided for by applicable laws or agreement of parties. The most commonly used types of security are pledge, guarantee and surety and penalties.

PLEDGE

Pledge is a type of security by virtue of which a pledge holder is entitled to satisfy its claims in case of non-performance by a debtor of a secured obligation at the account of pledged property prior to satisfaction of claims of other creditors of that debtor.

Under the Civil Code the general definition "pledge" includes security created in a form of both mortgage and pledge.

Both possessory and non-possessory pledges exist under Kazakhstan law. Possessory pledge (pawn) is a type of a security interest created by way of a written contract over any property where a pledge holder (lender) acquires possession of it, whereas under non-possessory pledge pledged property remains in a possession of a pledgor. Therefore, in case of a possessory pledge the transfer of possession is required. Although with the consent of the pledge holder the subject of the pledge may be left at the pledgor's premises under lock and seal of the pledge holder. The subject of the pledge may also be left at the possession of the pledgor with application of the marks testifying the pledge8.

Mortgage is a type of a security interest (pledge) created by way of a written contract over property which remains under possession of a mortgagor. The mortgagor is entitled to benefit from the use of the mortgage. As such, the mortgage is deemed to be a non-possessory pledge. However, in practice, the term "mortgage" is usually attributable to a pledge over immovable property, whereas the term "pledge" is used for a security interest over all other types of property.

We distinguish herein between "moveable" and "immoveable" property that are used as collateral on the basis of the provisions of the Civil Code. Land parcels, subsoil rights, water rights and everything firmly connected to land, (i.e. objects which cannot be removed without causing a disproportionate harm to their use such as forests, perennial plantings, buildings and structures) are categorized as immovable property. Items...