• Kazakh law provides for several methods of securing obligation. Obligations could be secured by penalty, pledge, surety, guarantee, deposit, withholding the debtor's property, guarantee deposit, and other methods stipulated by legislation or agreement (see article 292 of the Civil Code)1. Invalidity of a security agreement does not invalidate the main obligation. In contrast, invalidity of the main obligation would invalidate the obligation under security agreement, for security is an accessory obligation under Kazakh law.
  • The most commonly used forms of security in Kazakhstan are pledges and guarantees.
  • Though assignment is not strictly speaking a type of security under Kazakh law, it is quite often a part of a standard security package in international finance transactions.
  • Also, in a typical project finance deal creditors require so-called "step-in" rights that enable them to appoint a nominee to undertake the project company rights together with the project company itself (with the project company remaining liable for all the obligations) or appoint a new obligor in the place of the project company to repay the amounts due to the lenders. These "step-in" rights enable the lenders to take over control of the project and implement the project by finding a long-term buyer, thus ensuring that the project continues generating revenues. It should be noted that Kazakh law does not recognise concept of "step-in rights".


  • Pledge is a type of security under which the creditor (the pledgee) has the right, in the event of failure by the debtor to perform obligation secured by the pledge, to receive satisfaction from the value of the pledged property, in a priority procedure before other creditors of the person to whom that property belongs (the pledgor), subject to exceptions stipulated by the Civil Code.
  • As a rule pledge secures performance of obligations by the debtor up to their full performance. If the principal (secured) obligation is extended for the new tenor, correspondent amendments shall be made to the relevant pledge and, if such pledge was initially registered with the authorised state body, such amendments shall be registered as well.
  • Under Kazakh law, pledges can be of two types: (1) mortgages; and (2) possessory charges. A mortgage is a type of pledge when the collateral remains in the possession of the pledgor or a third party.  A possessory charge is a type of pledge when the collateral is transferred to the possession of the pledgee.
  • An agreement governing creation of an asset security interest must contain a subject of the collateral, its value, nature, scope and maturity period of the obligation secured by such collateral. Agreement must also clearly identify a party which retains the collateral. The value of the collateral shall be indicated in national currency.

Types of collateral and secured debt

  • In general, there are no restrictions as to the type of debts that can be secured. Also, it is possible to secure debts not yet existing (future or conditional), debts expressed in foreign currency, and even fluctuating debt.
  • With limited exceptions, law does not limit the types of property that can be pledged. After-acquired assets may be pledged, as well as goods in turnover, such as inventories, raw material, semi-finished goods, and finished products.

Creation and registration formalities

  • A pledge may be created by contract, either by a separate pledge agreement or through a clause in the agreement, which creates the secured debt. The pledge agreement must be in writing and must contain certain information prescribed by the law. Failure to observe the legislative requirements results in invalidity of the pledge agreement.
  • Registration of a pledge over most types of movable assets is not required for the pledge to be effective. In contrast, security over immovable assets and certain registered movable assets (e.g., vehicles, aircraft and registered securities) must be registered in order to be effective. A pledge of other movable property is subject to mandatory registration only if the further pledge of such movable property is prohibited by the pledge agreement. 
  • While it is not obligatory to register pledges in relation to most movable assets, such registration grants the creditor priority right in the collateral. If two or more creditors obtain security interests in the same collateral (whether movable or immovable), law gives priority to security interests in the order in which they are registered and registered pledges generally have priority over unregistered ones regardless of the time of creation. Unregistered pledges generally have priority in the order in which they are created. Generally, it is possible to check registered pledges – for this purpose, the extract from the relevant register shall be requested.
  • Accordingly, it will be necessary for the lenders to procure that the pledge/mortgage is registered with the relevant registration authorities to ensure that they have first priority security interest in the collateral. No further steps for perfection of security interest will be necessary. Any subsequent registered or unregistered pledge (or any prior unregistered pledge) by any third party pledgee over the same collateral will rank lower than the lenders' perfected security interest in the collateral. Registration of a pledge does not need to be renewed (unless either secured obligation or composition of collateral is amended).
  • Registration authorities at the Ministry of Justice register pledge over most movable and all immovable assets. Depending on the type of pledged property, some authorities also register security (e.g. traffic police register pledges over vehicles, the Ministry of Agriculture registers pledges over tractors and certain other agricultural machinery, and an independent securities registrar registers pledges over registered securities).
  • Under the law, registration of movables pledge should not take more than 2 working days from the moment required documents are submitted to the registration authority. In relation to pledge of immovable property, the registration authority has to register security within 15 working days.
  • In general, no governmental or regulatory consents are required for granting security (except for pledges over subsoil use rights, strategic assets and certain other specific classes of assets).
  • Registrations fees for the registration of pledges over movable and immovable property are payable by the pledgor who normally is the party responsible for the registration of the relevant pledge agreement.
  • Registration of the movable property pledge (including such movable property as equipment, goods, money on bank account, participatory interests in a company) requires 1 monthly calculation index from physical persons (approx. USD 10) and 5 monthly calculation indexes from legal entities (approx. USD 50).
  • Registration fees on the immovable pledge property vary depending on the kind of the immovable property.

Enforcement of pledge

  • Under the Civil Code, a secured creditor cannot simply take possession of the collateral (except for cash and receivables, as discussed below). The creditor must seek to sell the collateral through a public auction and recover the debt from the sale proceeds. The sale proceeds will be used first to cover expenses incurred in connection with the enforcement and sale (including any fines imposed on the debtor by a court marshal during the enforcement). After that the proceeds will be used to repay the debts. The remainder, if any, will be returned to the debtor. Enforcement may take up to 6 months from the moment of default to the sale of the pledged property. It may take longer if the pledgor contests the underlying default.
  • A pledge agreement may be enforced either through a court-supervised judicial procedure or through an out-of-court procedure. The relevant pledge agreement must specify the mode of enforcement (i.e. through the courts or without court involvement). We outline those in more details below.
  • Out-of-Court Enforcement. In the out-of-court enforcement procedure, the pledgee (its representative) will organize and carry out the enforcement procedure, including the sale of the collateral. For this, it will be necessary for the pledgee's representative to carry out a number of procedural steps, including preparing and registering a default notice, publishing an auction notice in mass media, and conducting the auction.
  • In case the auction fails for the reason of being attended by less than two bidders, the pledgee will have the option to either take possession of the collateral at its estimated value determined by a licensed appraiser or to conduct a new auction.
  • If the pledge agreement provides for out-of-court pledge enforcement procedure, the lenders will be able to enforce the pledge by selling the collateral without the need to pay the court fee or any other State fee. However, if the local borrower refuses to co-operate with the lenders in selling the collateral or otherwise obstructs the enforcement of the pledge, the lenders will have no other recourse but to apply to a Kazakhstani court seeking judicial enforcement of the pledge. In such case, it will be necessary for the lenders to pay a court fee in the amount of 3% of the value of the collateral (if the lenders are successful in their litigation, the court would require the customer to reimburse the lenders for the paid court fee).
  • Enforcement may take up to 6 months from the moment of default to the sale of the pledged property. It may take longer if the pledgor contests the underlying default. The enforcement costs should be in a range of several thousand U.S. dollars (without taking into account the court fee).The law, however, provides that expenses incurred by the pledgee are recoverable from the sale proceeds, and the court fees are to be reimbursed by the pledgor.
  • Judicial Enforcement. If the lender enforces the pledge through a court-supervised procedure, it will be necessary for the lender to pay a court fee in the amount of 3% of the value of the collateral. If the lender is successful in its court action seeking pledge enforcement, the court will order the customer to reimburse the lenders for the court fees paid by the lender in commencing the court action.
  • In case of enforcement through judicial action, the court marshal is obliged under the law to conduct the auction and sell the collateral within four months after he received the relevant court order. This term may be extended in certain circumstances.

Use of security trustee

  • Kazakhstan does not recognise trusts and accordingly, security must be granted to the actual creditor, i.e. the creditor which advances the loan. Accordingly, as a matter of Kazakhstan law, a security trustee (who is not the actual creditor) cannot hold security and act as a pledgee on behalf of the creditors. Thus, if loan participation is transferred, any pledge or mortgage for that loan must be re-registered in the name of the new creditor.
  • Accordingly, it is uncertain whether any security arrangement whereby a security trustee actsas a holder of security on behalf of the creditors would be enforceable in Kazakhstan. Parallel debt structure seems to address above issue and shall be enforceable under Kazakh law.  It shall be noted, however, that it has not been tested in the Kazakh courts and there is a theoretical risk that parallel debt structure may be challenged as sham transaction for the purposes of Kazakh law.

Pledge of shares/participatory interest

  • Holders of shares of a Kazakh joint-stock company (hereinafter the "JSC") and participatory interests of a Kazakh limited liability partnership (hereinafter the "LLP") have the right to pledge all or part of such shares or participatory interests respectively in favour of creditors (including foreign creditors). The major shortcoming of such a pledge is that the creditors would not be entitled to take possession of the shares but must instead seek to sell the shares through a public auction, as discussed in the preceding section.
  • A pledge over shares of the JSC must be registered with the Central Registrar, which will make an entry regarding the pledge in the system of registers of security holders. Such pledge is only valid upon its registration.
  • Another form of commercial legal entity under Kazakh law is a LLP which has participatory interests as opposed to shares. A pledge over participatory interests of the LLP are, generally, can be registered with relevant department of Ministry of Justice, unless a Central Registrar is provided under the corporate documents of the LLP and in this case pledge over participatory interests must be registered with the Central Registrar.
  • There are no restrictions on the creditors' right to enforce pledge over shares, subject to their compliance with local procedural rules for such enforcement.
  • It should be noted that a purchaser of more than 25% of shares in a Kazakh company may be required to obtain approval of such purchase from the Competition Agency. If the purchase is subject to antimonopoly approval (this will depend on the combined asset value or annual turnover of the purchaser and the Kazakh entity), then the purchaser will be required to apply for approval within 30 days after the public auction at which it acquired the shares. If the pledge provides for a transfer of voting rights in the event of default over more than 25% of shares, such transfer may be a subject of separate approval of the Competition Agency.

Pledge of money on Kazakh bank account

  • Under Kazakh law, strictly speaking pledge of bank account is not possible. The law allows though pledging money on bank account of a Kazakh pledgor.
  • It is important to note that the pledge of money on bank account recommended to be executed among three parties: the pledgee, the pledgor and the local account bank, which maintains the pledgor's accounts. Such structure allows to the parties to incorporate into the pledge agreement specific wording on direct debiting, allowing the pledgee to debit the pledgor's accounts without its consent and making the local account bank to acknowledge such pledgee's right upon serving of notice of default.
  • On a contractual basis the parties may agree that certain amount shall not to be withdrawn by the pledger.
  • here are certain risks related to the money pledged in a bank account. Under Kazakh law, if an entity has debts on taxes or customs payments, tax and customs authorities may suspend transfer of funds from such bank accounts. Moreover, tax and customs authorities may withdraw money from such entity's bank accounts without such entity's consent, prior to any other creditors (except for cases of liquidation and bankruptcy when debts are repaid in accordance with a legislatively established priority).

Pledge of Foreign Bank Accounts

  • The Company will have the right to open account(s) with foreign banks, subject to subsequent notification of the National Bank of Kazakhstan regarding such accounts. Subsequently, the Company can grant a security interest to the lenders over such foreign bank account, which will be created and enforced under the relevant foreign law.
  • It should be noted, however, that the Company will not be generally permitted to keep its money in its foreign bank account. Payments from local purchaser(s) under the sale and purchase agreements must be deposited into a local bank account. The law does not provide for any legal ground for depositing such payments into a foreign bank account.
  • The Company may use a foreign bank account only for limited purposes. However, the law permits a local company to keep its export proceeds at a foreign bank account to secure loans received from foreign lenders. Thus, if the proposed structure would involve export of the Company's goods from Kazakhstan, the Company would have the right to establish a foreign currency revenue account in a foreign bank and grant security over such account to the lenders.

Pledge over plant and machinery

  • The pledgor can pledge its plant and machinery in favour of creditors, including foreign creditors.
  • If the relevant plant and machinery is deemed to be immovable property (i.e., inseparable from the land or building at which it is installed), pledge must be registered with the Ministry of Justice to be valid. If plant and machinery is not deemed to be immovable property, security interest (pledge) will be created by means of the pledge agreement. However, to ensure priority of creditors' security interest, the pledge should be registered with the registration authorities of the Ministry of Justice as discussed above.

Pledge of Receivables

  • It is possible for a company to pledge its monetary claims under a contract (e.g. insurance agreement or off take agreements) provided that such claims are assignable. Where rights to receivables are pledged, the enforcement will be carried out by way of assignment of the relevant rights to the pledgee (i.e. without the public auction as it is with most other types of collateral).

Pledge of Non-monetary Rights under Contracts

  • It is possible for a company to pledge its non-monetary rights under a contract. This form of security, however, has a major drawback: as with most other types of collateral, the secured creditor cannot simply take possession of the collateral (i.e. to have the relevant rights assigned to it). The creditor must seek to sell the collateral (i.e. the pledged rights) through a public auction and recover the debt from the sale proceeds. This makes pledging non-monetary rights under a contract impracticable.
  • Accordingly, while a company can pledge its non-monetary rights and benefits under the project agreements in favor of the lenders, such form of security is not practicable. The lenders (or a company appointed by them) would not be able to enforce the pledge by stepping in but will be required to seek to sell the pledged rights through a public auction.

Pledge of property complex

  • It is possible to register a plant with registration authorities at the Ministry of Justice as a "property complex" (i.e. as a going concern, consisting of all assets and liabilities which comprises it, i.e. land, buildings, plant and machinery, intellectual property, goods in stock and other relevant property and assets). Once registered as a property complex, it may be pledged as such in favour of creditors. This possibility, however, will be only available after the plant is constructed and commissioned.

Mortgage over land

  • Land plots owned or leased for a long-term period may be mortgaged2 in favour of creditors. As mentioned above, title to a land plot is inseparable from the title to immovable property. Therefore, a mortgage of a building means that the underlying land plot will also become the subject of the same mortgage.
  • Mortgage must be registered with the Ministry of Justice via making application to a Centre of Service for the Population.

Construction in progress

  • As a matter of Kazakh law, construction in progress constitutes movable property (not real estate) until construction is finished, commissioned by the State and registered by the registration authorities of the Ministry of Justice as a unit of immovable property. Thus, construction in progress can be pledged as movable property, but not as immovable property. Pledge over construction in progress does not automatically convert into pledge over immovable property after completion and registration of construction. Accordingly, after the plant is commissioned, it will be necessary for the pledgor to execute a new pledge agreement in respect of the plant, replacing the earlier agreement in respect of construction in progress.
  • Please also note that, taking into consideration that some time is required for registration of the immovable property after its construction, there is a time period between the date of completion of construction and the date when the immovable property is mortgaged. During this period, the loan agreement will not be properly secured by an immovable property mortgage (other than by the land plot) because at that time the construction in progress will no longer exist and the immovable property will not yet be registered. This risk is mitigated to a certain extent by the fact that the creditor will in any case keep hold a mortgage over the land, and according to Kazakhstani Land Code the title to a land plot is inseparable from the title to immovable property located on such land plot. However, even so it may be argued that until a new mortgage agreement is entered into, the creditor has security only in respect of the land plot.
  • This circumstance has been highly criticised in Kazakhstan. However, it remains the position and is a matter of certain risk to a creditor. We normally recommend that creditor adds an additional clause to a loan agreement obliging the pledgor to promptly grant a new mortgage in relation to the immovable property (on substantially the same terms as the terms of the mortgage agreement) once it is accepted and registered.

Pledge of Subsoil Use Right

  • In accordance with the Subsoil Law, pledge of subsoil use right (its part), 'objects associated with subsoil use right' shall be conducted with permission (consent) of the competent body.
  • Subsoil Law contains definition of the "object associated with subsoil use right" which means – participation shares (share holding) in subsoil user incorporated in Kazakhstan, which possesses a subsoil use right and also in the legal entity which may directly and (or) indirectly determine decisions and (or) has an influence on the decisions to be taken by the subsoil user if the principal activity of such legal entity is related to subsoil use in the Republic of Kazakhstan.
  • Notwithstanding 20 working days tenor established by law for obtaining the permission, in practice it takes approximately 2 - 4 months from the moment of filing the relevant application.

Floating Charge

  • Current Kazakhstan law does not specifically recognise a concept of 'floating charge', however, there is close equivalent of the 'pledge of assets in turnover' under article 327 of the Civil Code (i.e. the pledgor has the right to change the pool of assets, provided that the total value of pledged assets is not decreased).
  • It should be noted that under Kazakhstan law and court practice, a pledge agreement must refer to the individual identifying features of the pledged property, or, in the case of property that is not unique, its generic features.

Bankruptcy and the lender's ability to enforce security

  • Final liquidation of a Kazakh legal entity upon bankruptcy involves a disposal of the debtor's assets and distribution of the proceeds to creditors in the payment order established in the Law on Bankruptcy. A pledge would effectively be terminated in the event of bankruptcy of the pledgor. Creditors secured by a pledge become creditors of the 'second priority' and unsecured creditors become creditors of the fifth (last) priority and their claims are satisfied only after settlement of all other claims in a lengthy and not transparent liquidation process. Note that creditors having security other than a pledge would be considered unsecured creditors in bankruptcy proceedings.


  • The Civil Code of Kazakhstan mandates that a policy holder or a beneficiary under an insurance policy must have insurable interest in the insured property. Accordingly, where the lender has insurable interest in the insured property, the lender may be named as the beneficiary in the relevant insurance policy. However, where the lender does not have such interest, it may not be named as the beneficiary.
  • Accordingly, Kazakh legislation provides a pledgee with a priority right to receive insurance proceeds under an insurance contract relating to the pledged property. The pledgor will be entitled to the insurance proceeds only if the pledgee waives its priority rights to such insurance proceeds. Thus, where the insured property is pledged in favor of the lenders, the lenders will have priority right to the insurance proceeds in respect of such property.


Corporate and personal guarantees

  • Guarantee is a type of security that can be given either by the borrower himself or by the third party. If two or more persons provide guarantee, the general position is that they bear joint and several liability in the event of guarantee call.
  • The guarantee shall be executed in writing. This requirement is deemed satisfied when the guarantor notifies the creditor of its liability to perform obligations by the borrower and the creditor does not reject the offer within reasonable time.
  • The guarantor bears liability within the same scope as the borrower, including payment of fines, interest, court disbursements for debt recovery and other disbursements of the creditor, resulting from non-performance or improper execution of obligations by the borrower, if otherwise is not provided in the guarantee agreement.
  • Due to limitations of Kazakh law, if there is a foreign lender involved, it is common and recommended to have an English law guarantee instead of a Kazakh law guarantee or surety.


  • Unless otherwise required under Kazakhstan law, we generally recommend using foreign law assignment. However, it worth mentioning that pursuant to the Civil Code, an assignment of rights under a contract must be governed by the law governing the contract. Accordingly, where the project agreement is governed by Kazakh law, the relevant assignment should also be governed by Kazakh law.
  • Assignment is not a type of security under Kazakh law. Thus, it cannot be registered with the authorities to provide for priority and it does not give preferential treatment to assignee upon insolvency of the borrower. If the creditor wants to have priority and preferential treatment upon insolvency, it is worth taking pledge over rights (receivables), which can be registered with the relevant authorities. However, for the benefit of completeness, please see below an overview of major features of a Kazakh law assignment,
  • It is possible under Kazakh law to assign the rights of a person which belong to him under the contract with its obligor. It is not necessary to obtain the obligor's consent in order to effect the assignment, if otherwise is not specified by the contract with obligor. However, the written notification of the obligor of the proposed assignment is needed, otherwise the obligor is entitled to continue payment under the underlying contract to original creditor (assignor) and such payments will be considered as made properly.
  • Provided the assignment agreement or law do not stipulate otherwise, the assignee receives the rights of the same scope and on the same terms that existed at the moment of the assignment.
  • The assignee shall present evidence to the obligor that relevant rights have been assigned. Assignor shall provide assignee with the documents that evidence the right to claim and inform the assignee of the details material for execution of the assigned right.
  • It is not permitted to assign the rights without the obligor's consent if the identity of the creditor is materially important to the obligor.
  • Assignment agreement shall be in the same format as the underlying contract. For example, if the underlying contract is notarised/registered with state authority, the assignment agreement shall also be notarised/registered with the same authority.
  • Assignor is liable for invalidity of the assigned right, but does not bear responsibility for performance of the assigned right by the obligor. Exception to this rule is the case when the assignor acts as surety for the obligor before the assignee. Other exceptions may also be provided by the legislation or assignment agreement.


1. The Civil Code (General Part) of the Republic of Kazakhstan dated 27 December 1994 (together with the Special Part, the "Civil Code").

2. As discussed above, mortgage is defined as a type of pledge where the pledged property remains with the pledgor or third party (see article 303.1 of the Civil Code). Mortgage can be created over, for instance, enterprises, buildings, apartments, vehicles, space objects and goods in trade.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.