August 29, 2019
Loans, credits and measures to secure obligations
A loan is a contract for the provision of a loan in monetary or commodity form, provided by the lender to the borrower on terms of urgency, repayment and payment (with the borrower paying interest for the use of the loan).
Loans — under the loan agreement, one party (the lender) transfers or undertakes to transfer ownership (economic management, operational management) to the other party (the borrower) money or things defined by generic characteristics, and the borrower undertakes to promptly return to the lender the same amount of money or an equal number of things of the same kind and quality.
The objectives of attracting loans and credits by the enterprise may be: replenishment of working capital; repayment of existing debt; payment of the concluded transaction; capital investments; capital repairs of fixed assets; modernization, reconstruction, rationalization of production, etc.
Loans are of the following types:
A bank loan is a loan provided by banking institutions in the form of cash loans on repayment terms and with the payment of interest;
The state is a set of credit relations in which the state acts as a lender;
An employee loan is a loan provided by an enterprise to employees for personal purposes on the terms of repayment and with the payment of interest or gratuitous;
A promissory note is a loan provided by banks to holders of promissory notes and suppliers to their customers;
Factoring is the crediting of a supplier’s factoring company by repurchasing short—term receivables, usually not exceeding 180 days;
Commercial is a loan provided by the seller of the goods to the buyer in the form of deferred payment, etc.
The procedure and conditions for issuing loans and credits are regulated by the current Civil Code of the Republic of Kazakhstan (Special Part) No. 409 of July 1, 1999, the Law of the Republic of Kazakhstan No. 2444 of August 31, 1995 “On Banks and Banking Activities” and other legislative acts.
Loans can be short-term, medium-term and long-term. Short-term loans include loans issued for a period of no more than 12 months. Medium-term loans include loans issued for a period of 1 to 5-7 years. Loans issued for a period of more than 5-7 years are long-term. Loans can be targeted and non-targeted, these conditions are stipulated in the loan agreement. If the loan is recognized as a target loan, then the lender has the right to monitor the intended use of the loan. The borrower, in turn, is obliged to ensure the possibility of exercising control in accordance with paragraph 2 of Article 720 of the Civil Code of the Republic of Kazakhstan (special part).
Obtaining loans and borrowings
When an enterprise enters into an agreement with a bank to obtain a loan for various purposes, the enterprise provides copies of the constituent documents (other documents at the request of the bank), as well as financial statements for the last period. Based on the documents provided, the bank analyzes the solvency of the enterprise and makes a decision to issue a loan. When concluding a loan agreement with the bank, the company signs a letter of guarantee or pledge. The collateral provided to the bank may be property (movable or immovable), securities and other valuables on the balance sheet of the enterprise. The agreement signed by the lender and the borrower stipulates all the conditions for granting the loan, the term for which the loan is issued, the repayment schedule, the interest rate, the amount of remuneration, etc. The company can receive not only bank loans, but also loans from the state, its founders, subsidiaries, etc. according to the legislation of the Republic of Kazakhstan. When receiving loans from the listed persons, the company enters into an agreement with this person on the condition of granting the loan, repayment terms, repayment procedure, as well as on gratuitousness or the amount of remuneration for the loan received. The loans and borrowings received relate to the obligations of the enterprise.
Loans and borrowings in foreign currency
Loans and credits can also be received by the company in foreign currency. In accordance with Article 192 of the Tax Code of the Republic of Kazakhstan, tax accounting is carried out in tenge according to the accrual method. According to IFRS (IAS) No. 21 “Effect of changes in exchange Rates”, when granting or receiving loans (credits) in foreign currency (monetary loans), exchange differences may arise, which are accounted for in accordance with this standard for accounting and tax purposes. The exchange rate difference is the difference between the valuation of monetary assets at initial recognition at the date of the transaction and the valuation at the reporting date or settlement date. The valuation of loans or loans is carried out at the exchange rate of the currency on the date of the transaction for the acquisition / issuance of the loan and on the settlement date, i.e. on the date of repayment of the obligation.
Provision of loans and borrowings
The company can act not only as a borrower, but also as a lender. For example, to provide loans to other legal entities or individuals — employees of the enterprise. An enterprise may issue loans to its employees on terms of urgency, repayment and gratuitousness, based on an employee’s application, which is considered by the management of the enterprise, or another authorized person. The terms of the loan, including the amount and repayment period, repayment schedule, payment method (withholding from wages, depositing cash by the employee to the cash register or to the settlement account of the enterprise) are established at the conclusion of the contract. The procedure for issuing and conditions for granting loans to employees are regulated by the Laws of the Republic of Kazakhstan “On Joint Stock Companies”, “On Production Cooperative”, the Civil Code of the Republic of Kazakhstan and other legislative acts. If an employee of an LLP receives a loan, according to Article 55 of the Law “On Limited and Additional Liability Partnerships”, it is prohibited to make a decision on granting a loan without the consent of the general meeting.
Features of repayment of debt on loans and borrowings
According to the general rule provided for in paragraph 2 of Article 282 of the Civil Code of the Republic of Kazakhstan, the amount of the principal debt is repaid first, and only after that — the debt on remuneration, penalties, etc. The Code introduces this approach as a general dispositive rule in relation to all monetary obligations. In turn, paragraphs 7-1 of Article 34 of the Law of the Republic of Kazakhstan dated August 31, 1995 No. 2444 “On Banks and Banking Activities” (hereinafter referred to as the Law on Banks) already contains an imperative order regarding such a priority under a bank loan agreement with an individual. At the same time , art . 34-1 of the Law on Banks, which provides for the specifics of a mortgage loan of an individual not related to entrepreneurial activity, in contradiction with the rule set out in paragraph 7-1 of Article 34 of the Law on Banks, provides that the debt on such a loan must be repaid in reverse order:
- remuneration arrears;
- arrears on commissions and other payments related to the issuance and servicing of a mortgage loan;
- penalty (fine, fine);
- remuneration accrued for the current payment period;
- commissions and other payments related to the issuance and servicing of a mortgage loan;
- costs of a bank, an organization carrying out certain types of banking operations, for obtaining execution;
- outstanding principal debt;
- the amount of the principal debt for the current payment period.
The Civil Code of the Republic of Kazakhstan provides for a number of special measures that facilitate the debtor’s fulfillment of the main obligation and encourage the debtor to behave appropriately. These measures are referred to as ways to ensure the fulfillment of the obligation and impose additional encumbrances on the debtor in case of non-fulfillment or improper fulfillment of the obligation.
As a general rule, the performance of an obligation may be secured by a penalty, pledge, retention of the debtor’s property, surety, guarantee, deposit. At the same time, the list of ways to secure obligations, unlike the previously existing Civil Code of the Kazakh SSR, is not exhaustive: legislation and the contract may provide for other ways.
According to Article 292 of the Civil Code of the Republic of Kazakhstan, the performance of an obligation may be secured by a penalty, pledge, retention of the debtor’s property, surety, guarantee, deposit, guarantee contribution and other methods provided for by law or contract.
According to paragraph 1 of Article 35 of the Law on Banks, the repayment of loans can be secured by a penalty, pledge, guarantee, surety and other means provided for by the legislation of the Republic of Kazakhstan or the contract.
Due to the fact that contractual practice is very diverse and flexible, the parties, taking into account the nuances of their relationships, often find and apply all new methods of ensuring the fulfillment of obligations, which sometimes turn out to be more effective than those clearly defined by legislation.
The methods chosen to protect the interests of the creditor in the obligation can be divided into two groups.
The first group includes traditional ways of ensuring the fulfillment of obligations provided for by law. Of these, as a rule, a penalty, a pledge, a guarantee, a surety are most often used.
The second group is formed by various insurance contracts, which, not being directly ways to ensure the fulfillment of obligations, create guarantees to satisfy the interests of creditors in case of violation of obligations by debtors. It may also include some non-standard ways to ensure the fulfillment of obligations, which include guarantee contributions, deposits, operational sanctions (termination of counter-satisfaction on mutual obligations; change in the order of settlements; self-elimination of defects in the work performed with the allocation of costs to the contractor, etc.) and others.
A penalty (fine, fine) is a pre-determined amount of money. And it is established in case of non-fulfillment or improper fulfillment of an obligation. For example, a person applied to the court for the recovery of the principal debt and the contractual penalty in the amount of 0.1 percent of the amount of the principal debt for each day of the overdue obligation. This requirement does not contradict Article 293 of the CPC, the written form of the agreement has been observed by the parties and is responsible for the violation of the debtor’s obligation to timely pay for the delivered goods.
Unlike a contractual penalty, a legal penalty does not require any formalization, although it may be provided for in the contract, it does not depend on the discretion of the parties, and its application is the right of the creditor (paragraph 1 of Article 295, paragraph 1 of Article 353).
According to the definition of paragraph 1 of Article 299 of the Civil Code of the Republic of Kazakhstan, a pledge is a method of securing the fulfillment of an obligation, by virtue of which the creditor (pledgee) has the right, in case the debtor fails to fulfill the obligation secured by the pledge, to obtain satisfaction from the value of the pledged property primarily to other creditors of the person who owns this property (pledger), with exceptions established by this Code.
Thus, the meaning of the pledge in the text of paragraph 1 of Article 299 of the Civil Code of the Republic of Kazakhstan consists in the possibility for the pledgee to obtain preferential satisfaction over other creditors from the value of the pledged property, and not in the ability to turn the property transferred to him into his own property. In this regard, the creditor under the secured obligation has the right only to receive the monetary value of the pledged property to satisfy its claims. Therefore, the only necessary condition for securing a pledge of any obligation is the possibility of expression secured in a monetary amount.
Guarantee and surety
Article 329 of the Civil Code of the Republic of Kazakhstan reveals the content of the concept of “guarantee”: by virtue of the guarantee, the guarantor is obliged to the creditor of another person (debtor) to be responsible for the fulfillment of the obligation of this person in full or in part in solidarity with the debtor, except in cases provided for by legislative acts. That is, a specific person assumes responsibility to the creditor for the violation of the contract by the main debtor.
Surety is (Article 330 of the Civil Code of the Republic of Kazakhstan) the obligation of the surety to the creditor of another person (debtor) to be responsible for the fulfillment of the obligation of this person in full or in part vicariously.
Despite the external similarity of these types of securing obligations, there are still a number of differences between them.
Thus, the guarantor is responsible to the debtor’s creditor in solidarity with the debtor. The guarantor is responsible to the creditor vicariously.
In legal theory, the concept of joint and several liability is understood as a liability in which the creditor has the right to demand from these persons, both jointly and separately, the fulfillment of obligations, both in part and in whole.
In case of joint liability of the debtor and the guarantor, the creditor has the right to demand from the debtor and the guarantor jointly and separately from each performance of the obligation secured by the guarantee.
A guarantee arises on the basis of a contract or legislation, and a guarantee only on the basis of a contract.
The guarantor is liable to the same extent as the debtor, the guarantor is responsible only for the part of the obligation to the creditor that the debtor has not fulfilled.
The following differences are that the creditor can make claims directly to the guarantor. Before submitting a claim to the guarantor, the creditor must take reasonable measures to satisfy this claim by the debtor.
The meaning of the guarantee and surety is that a certain person assumes responsibility to the creditor for the violation of the contract by the main debtor (Articles 329, 330 of the Civil Code of the Republic of Kazakhstan).
A deposit is a sum of money issued by one of the contracting parties to account for payments due from it under the contract to the other party and to ensure the conclusion and execution of the contract.
Retention of property
Also in the Civil Code, in addition to the traditional methods of securing the fulfillment of obligations, the retention of the debtor’s property is considered as a special type, the essence of which is the creditor’s right, in cases provided for by law or contract, to postpone the transfer of the property that is the subject of the transaction until the debtor fulfills the obligation or to withhold money or other property due to the creditor from the debtor from money or other property, received by the creditor at the expense of the debtor (for example, retention by the seller of the object of sale before payment of the purchase price by the buyer, the right of the commission agent to withhold remuneration under the commission agreement from the money received for the commitee, etc.).
Insurance of collateral objects
Real estate insurance acts as a guarantee for the bank (lender) in case of risks: damage, destruction, loss of real estate as a result of unforeseen events: fire, gas explosion, water damage, natural disasters and other force majeure circumstances.
Such a requirement of the bank about the need for insurance, for example, a mortgage loan of real estate is justified, since it is a guarantee of covering unforeseen risks of the bank when issuing a considerable amount of money to the borrower.
However, if the bank requires registration of an insurance contract in a certain insurance company, the borrower (pledger) has the right to reject the offer and insure the real estate object in another insurance company acceptable to itself (paragraph 11, Article 34 of the Law of the Republic of Kazakhstan “On Banks and Banking Activities in the Republic of Kazakhstan”).
The Bank may require insurance, but it cannot restrict the borrower (mortgagor) to force to insure the object in a certain insurance organization, since this would be a violation of the banking legislation of the Republic of Kazakhstan.