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

  1. Civil Code1;
  2. Mortgage Law2;
  3. Immovable Property State Registration Law3;
  4. Movable Property Pledge Registration Law4;
  5. 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.


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

  1. Penalties;
  2. Pledge;
  3. Retention of debtor's property;
  4. Surety;
  5. Guarantee;
  6. Earnest money; and
  7. 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 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 which are classified as moveable are equipment, machinery, money, securities and other intangibles (such as contract rights). For the avoidance of doubt, "pledge" and "mortgage" are referred to herein as "pledge".

Oral pledge agreements are considered as null and void. Pledge over certain types of property (immovable, vehicles, shares, etc.) requires registration with the relevant registration authorities and will be deemed non-created without such registration.


Guarantee is a type of security by virtue of which guarantor becomes jointly liable before a creditor of another person (debtor) for a duly performance of obligations in full or in part by a debtor to its creditor. Surety is a type of security pursuant to which a surety provider becomes subsidiary liable with a debtor before its creditor. Both guarantee and surety agreements must be made in writing. Otherwise, they will be deemed null and void.

Currently there are no specific requirements for the establishment and perfection of a guarantee and surety, except for the written form thereof. However, in the event of enforcement of the guarantee and surety prior to funds' transfer the registration of the relevant agreement/letter of guarantee with a relevant territorial branch of the National Bank of Kazakhstan may be required, provided that the amount of the funds exceeds certain limits as established by applicable laws from time to time.


Penalty (fine, default interest) is an amount of money determined by the law or agreement between the parties which must be paid by a debtor to a creditor as a result of non-performance or improper performance by the former of its obligations under certain agreement. In particular, penalty may apply in case of late payment by a debtor. Penalty must be determined either as a fixed amount or as a percentage of the amount of non-performed (improper performed) payment obligations. However, if a penalty payable by the debtor is excessively high as opposed to the creditor's losses, Kazakhstan court may decrease the amount of such penalty, depending on the part of performed obligations and both parties' interests. Agreement on penalties must be made in a written form. In practice, penalty provisions are usually included into a loan agreement.


Since no specific formal requirements to creation of a security in the form of penalties, guarantee and surety are established under Kazakhstan law (except for the written form), we consider in more detail legal requirements to creation of a security in the form of a pledge.

Under Kazakhstan law, almost all types of property9 including money, goods and property rights (claims) can be made the subject of pledge. Further, the Civil Code specifically provides that property that will come into the ownership of a pledgor in the future may be the subject of pledge with the consent of the parties. However, the validity of the pledge would be affected if such future obligations are not explicitly stated in the pledge agreement. Pledged money must be deposited with a bank. Therefore, under Kazakhstan law, pledge would be created over money on a bank account as opposed to a bank account itself. In addition, instead of creation of pledge over insurance rights, in practice, a contractual obligation of a borrower to determine its lenders as beneficiaries (loss payees) in all insurance policies and agreements of the borrower (to the extent permitted under the law) is included into underlying loan/transaction documentation. Therefore, practice of creation of pledge over insurance rights is not well developed in Kazakhstan.

Only the owner of property or property rights may pledge such property or rights. A pledge by a third party (who is not an actual borrower) is also permissible under Kazakhstan law.

As a general rule, pledge rights are deemed to be created from the moment of:

  1. Registration of pledge - for the pledge which is subject to mandatory registration;
  2. Transfer of pledged property to a pledge holder - under the possessory pledge; and
  3. Execution of the pledge agreement - for all other types of pledge, unless otherwise is set forth in the pledge agreement.

However, given that the possessory pledge is not commonly used in practice, the general approach is that the pledge is deemed effective upon execution of the respective pledge agreement (unless such pledge is subject to the mandatory registration). Transfer of the assets to another owner generally does not affect the pledge rights of a pledge holder. However, certain procedural steps reflecting change of the owner should be taken.

The Civil Code establishes formal requirements which must be complied with to validly create a pledge/security interest and failure to comply with such requirements would render such pledge agreement/security interest null and void. Particularly, a pledge agreement shall explicitly indicate:

  1. Subject-matter of the pledge (description of the pledged assets and their specifications/characteristics);
  2. Value of pledge;
  3. The nature, value and term of performance of the obligation secured by the pledge;
  4. A party which is in possession of the pledged property; and
  5. Whether the party in possession of the pledged property is allowed to use that property and to what extent.

The above requirements generally apply to pledge over all types of property. The registration authorities would not register (perfect) a security interest created unless those requirements are complied with. Such compliance is needed for both the registration of a security interest (i.e. establishment of prior ranking of the pledge holder vis-à-vis other creditors or pledge holders) and for enforcing such a pledge/security interest in front of Kazakh courts.


Perfection of a pledge is performed through the registration of the respective pledge agreement with the registration authorities. Mandatory registration of a pledge is established by law in relation to a pledge of immoveable property and subsoil use rights.

In relation to the pledge of moveable, there is mandatory and non-mandatory registration. The law establishes mandatory registration in relation to a pledge over the following moveable property: (i) shares and other securities; (ii) intellectual property; (iii) transport vehicles; (iv) property mortgaged by mortgage certificate (negotiable instrument); and (v) machinery and equipment specifically designed for use in agriculture, railway/airway/shipment and construction activities (i.e. for the equipment which is initially subject to the state registration).

When registration is mandatory, a pledge is not valid until it is registered. Pledge registration procedure varies depending on the types of pledged assets.

With regard to other moveable property, no registration is required by law. In the meantime, Kazakhstan laws provide that any claims under registered security interests take precedence over those made under unregistered security interests regardless of execution dates of the relevant collateral agreements. On this basis, registration of the relevant collateral agreement is highly recommended for establishing a priority over other creditors regardless of the absence of the registration requirements in the law. For instance, a failure to register a pledge of cash collateral will not invalidate the pledge and such pledge will simply lack priority over any other registered pledges.

The Civil Code generally permits creation of a further pledge (i.e. second-tier or third-tier pledge), unless such further pledge is not restricted by the first ranking pledge or other negative-pledge contractual obligations of a borrower. Claims of a second-tier or third-tier pledge holder would be satisfied upon satisfaction of claims of preceding pledge holders. Pledgor must notify all subsequent pledge holders on all already existing pledges over its property and rights and shall be liable for all damages to pledge holders resulted from failure to make such notification.


Kazakhstan law provides for two ways of enforcement of the collateral: (i) through a court; or (ii) without recourse to a court (i.e. out-of-court proceedings); or (iii) addressing to the property of a mortgaged property in case of the announcement of the auction cancelled. Enforcement of pledges must be made through the courts unless otherwise provided for in an agreement between the pledge holder and the pledgor.

A pledge can be enforced following an event of non-performance or improper performance by a debtor of the secured obligations. However, a Kazakhstan court may refuse to enforce a pledge if it determines that the non-performance is "extremely insignificant" and the pledge holder's claim is "manifestly disproportionate" to the value of the pledged property. The above rule should not apply, however, in case of enforcement of the pledge without recourse to a court.

Whichever provision the parties have agreed upon, the subject matter of a pledge may only be sold through a public auction. Kazakhstan law, therefore, does not contemplate the transfer of ownership rights in relation to almost all types of pledged property upon a default by a debtor as some Western jurisdictions do. Rather, the discharge of secured obligation shall be made at the expense of proceeds received from the sale of the pledged property. The rights to a pledged property, however, can be transferred to a pledge holder in case of the missed public sale. The foregoing is not applicable to the enforcement of the pledge over money on bank account and contractual rights which should be performed through the transfer of those money or rights to a pledge holder.

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Based upon above, preferred security structure should be considered and adapted for a particular financing on a case-by case basis, depending on the parties involved, available assets of a debtor, its activities and other circumstances which may have influence on the financing/security structure.


1 Civil Code of the Republic of Kazakhstan dated 27 December 1994

2 Law of the Republic of Kazakhstan "On mortgage of real estate" #2723 dated 23 December 1995

3 Law of the Republic of Kazakhstan "On state registration of rights to immovable property" # 310 dated 26 July 2007

4 Law of the Republic of Kazakhstan "On registration of pledge of movable property" # 254 dated 30 June 1998

5 Land Code of the Republic of Kazakhstan # 442 dated 20 June 2003

6 Law of the Republic of Kazakhstan "On subsoil and subsoil use" # 291-IV dated 24 June 2010

7 Law of the Republic of Kazakhstan "On the securities market" # 461 dated 2 July 2003

8 Marks here means any print/signs (in any form) confirming and evidencing that the item which bears such print/sign is the subject of the pledge. Generally, it may be applied as an inscription stamp or seal.

9 Exceptions relate to things withdrawn from the turnover (i.e. things deemed illegal under the law, e.g. drugs, guns etc.) and claims inextricably related to the personality of a grantor of the security (e.g. alimonies, compensation for harm/damage caused to life or health etc.).

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.