Adequacy of creditor’s demands for recovery of losses against the pledged property

Pursuant to Law of the Republic of Kazakhstan No.333-V of 17 July, 2015 “On amendments and additions into the certain legal acts of the Republic of Kazakhstan pertaining increase of protection of property right, securing performance of contractual obligations and strengthening of liability for violation of them” the Civil Code, Law on registration of mortgage of immovable property and Law on Banks and Banking Activity have been amended.

We would like to point out to the amendments into article 317, Civil Code, as now the law-makers clearly specified when a pledge-holder can recover its losses against the pledged property for satisfaction of its demands. Before amending, the article had the following content:

1. In order to satisfy demands of a creditor, the losses of a creditor can be recovered against the mortgaged property of failure or improper fulfillment of obligations by a debtor, secured by the mortgaged, for which the debtor is liable.

  1. A recovery claim can be rejected, when:
  2. the default of obligation of a debtor is extremely minor and
  3. size of demands of a pledge-holder are consequently inadequate

As it can be seen from the above, the concept of “extremely minor” or the threshold of adequacy.

Now, the amended article contains clear ascertaining of adequacy of creditor’s demands against the pledged property. The article was added with the following wording:

“Default of an obligation, secured with the pledged  shall be deemed extremely minor and  the demands of a creditor are consequently inadequate in relation to the pledged property,  when:

  1. The amount of default obligation (excluding fine and penalties) is less than 10% of cost of the pledged property indicated in the pledged agreement; and
  2. The default (delay) period of an obligation, secured with the pledge, is less than 3 months.

The amendments were also made into article 20 “Law on Mortgage of Real Property.” Pursuant to the earlier version, a pledge-holder could satisfy demands in case of default of main obligation by a debtor.

As per the amended article, recovery against the mortgaged property could be done in case of a default of obligation for which a debtor is liable and which is secured with a mortgage.

Alida Tuyebekova

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