Introduction 

In Kazakhstan, funding secured by rolling stock is gaining popularity.  Moreover, rail cars are provided by some companies as security for  bonds issued by them.

The legislative framework governing this type of pledge is well-developed and well-established.

Rolling stock in the legislation of the Republic of Kazakhstan is defined as "traction vehicles (locomotives), rail cars, self-moving and other vehicles designed for rail way transportation of passengers, baggage, cargo, cargo luggage and mail".

Registration of the Pledge of Rolling Stock 

Pursuant to Article 9 of the Law of the Republic of Kazakhstan 'On Railway Transport', dated 8 December 2001 No. 266-II, it is obligatory to register rolling stock..

According to Article 308 of the Civil Code of the Republic of Kazakhstan (General Part), dated 27 December 1994 (hereinafter – the 'Civil Code'), a pledge of property to be registered shall be registered with the authority that has made the registration of this property.

Therefore, the pledge of rolling stock must undergo state registration.

Under the Rules for the Registration of Rolling Stock, dated 17 November 2011 No. 1351 (hereinafter – the 'Rules'), the registration of the pledge of rolling stock shall be made by territorial authorities of the Committee of Transport Control of the Ministry of Transport and Communications of the Republic of Kazakhstan ('Registering Authority').

The Registering Authority for registering a pledge of rolling stock shall maintain a register of pledges of rolling stock and take steps to protect the interests of pledge holders and prevent disposal of the pledged rolling stock without the consent of the pledge holder (Section 19 of the Rules).

An applicant can carry out registration by applying directly to the Registering Authority, and through the Public Service Centre RSE of the Committee for Control over the Automation of Public Services and Coordination of Public Service Centres of the Ministry of Transport and Communications of the Republic of Kazakhstan (hereinafter - the 'PSC') 1) at the location where that legal entity is situated, if the applicant is a legal entity; or 2) at the place where the applicant is  registered as a tax payer, if the applicant is an individual or individual entrepreneur.

The registration fee for the state registration of the pledge of rolling stock for 2013  for individuals is 1 MCI (about 12 US dollars), and for legal entities - 5 MCI (about 58 US dollars) and is paid by the applicant.

In accordance with the legislation of the Republic of Kazakhstan, the applicant may be either a pledger (often the borrower is the pledger , although it  it may be another person providing the property in the pledge as security for the obligations of the borrower of the loan) and the pledge holder.

In practice, borrowers/pledgers register the pledge of rolling stock independently and the financing banks (pledge holders, including foreign ones) are not required to perform any actions or payment of any fees.

However, it should be noted that in practice the Registering Authority may request copies of foundation documents of the pledge holders in order to reflect the correct information in the register of pledges of rolling stock.

The Registering Authority shall register a pledge within 2 business days of accepting  the documents and issue the original pledge agreement with the mark of the Registering Authority and, upon the request of the applicant, the state registration certificate for the pledge of rolling stock in the prescribed form (hereinafter - the 'Certificate').

In practice, as a proof of proper registration of a pledge of rolling stock, the borrower/pledger gives the pledge holder the original pledge agreement with the mark of the Registering Authority or the original or a certified copy of the Certificate.

Please note that the right of pledge of rolling stock becomes operative once the pledge has been registered of pledge with the Registering Authority, unless a later date is provided by the pledge agreement (or other agreement containing the conditions of pledge) (Article 8.2 of the Registration Law).

Registration of the pledge of rolling stock sets out the priority (date) for meeting the requirements of the pledge holder (bank) in relation to the requirements of other pledge holders claiming the property of the pledger.  Each preceding registered pledge holder has  priority over all subsequent registered pledge holders when enforcing obligations, and over all non-registered pledge holders of the property (Article 8.1 of the Registration Law).

According to Article 1109 of the Civil Code, proprietary rights to vehicles and other property that are subject to  state registration, shall be determined according to the law of country where the vehicles or property have been registered.

Therefore, if the rolling stock to be pledged is included in the State Register of the Republic of Kazakhstan, the pledge agreement shall therefore be governed by the law of Kazakhstan.  It should be remembered that the pledge agreement governed by the law of the Republic of Kazakhstan must contain certain provisions, without which the pledge agreement shall be considered  invalid  (Article 307 of the Civil Code).

Levy of Execution 

Levy of execution on the rolling stock is made in accordance with the general procedure specified by the legislation of Kazakhstan.

Unless otherwise provided by the agreement, the execution on the pledged property is performed by judicial procedure.  Thus, the levy of execution on the pledged property is also possible by court sale, if provided for by the agreement (Article 318 of the Civil Code).

According to Article 317 of the Civil Code, execution on the pledged property to satisfy the requirements of the pledge holder (lender) may be levied in the event of non-performance or improper performance by the debtor of the secured obligation, which it is liable for.

Please note that according to the general rule, the law of the Republic of Kazakhstan does not specify the way execution is to be performed, such as conversion of the pledged property into the ownership of a pledge holder. Both in judicial and extrajudicial sale, the pledge holder must sell the pledged property through public bidding (auction) and has the right to meet its requirements from the proceeds of sale of the pledged property at the auction.

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.