SIGNUM successfully recovered leased assets seized in a criminal case

Recently, our litigation practice handled a rare and noteworthy case in the area of financial leasing.

A leasing company approached SIGNUM after eight units of special-purpose machinery, with a total value exceeding KZT 450 million, were seized and placed under arrest within a criminal investigation against the director of the lessee company. The investigative authorities classified the machinery as an instrument of crime in connection with alleged illegal mining activities.

At the same time, the lessee had significantly defaulted on its lease payments. As a result, the financial leasing agreement was unilaterally terminated. The Client took steps to return the leased assets following termination, only to discover that the machinery had been recognized as physical evidence and arrested by the investigative authorities as a security measure.

In response, we filed a motion with the criminal court seeking (i) recognition of the Client as an injured party and (ii) return of the machinery to its lawful owner. Our position was based on Article 5-1 of the Law of the Republic of Kazakhstan “On Financial Leasing”, which provides that ownership of leased property remains with the lessor throughout the entire lease term. Furthermore, Article 5-2 of the same Law expressly prohibits seizure and confiscation of leased assets.

Given that the lease agreement had been terminated, the Client was the lawful and full owner of the machinery.

Unfortunately, the investigative authorities failed to give proper legal assessment to these circumstances. Moreover, the Client was never summoned for questioning to clarify the legal basis on which the lessee possessed the machinery.

The criminal court ruled that the issue of physical evidence would be resolved at the time of sentencing. We additionally pointed out that the machinery had also been arrested as a security measure, which should have been lifted, since the property belonged to a third party that bore no material liability for the actions of the accused.

Given the risk of prolonged criminal proceedings, we initiated a separate civil claim seeking return of the leased assets. However, courts at all three instances dismissed the claim, holding that repossession was not possible until the issue of physical evidence was resolved within the criminal proceedings.

Following completion of the criminal case, the court issued a conviction ordering the return of the seized and arrested machinery to our Client as the lawful owner.

Nevertheless, the prolonged arrest of the assets had serious negative consequences for the Client. For over a year, the company was unable to lease the equipment to other parties, resulting in lost profits. In addition, long-term storage in open areas and exposure to environmental conditions led to deterioration of the machinery, reducing its market value and liquidity.

At present, the total amount of damage is being assessed. Upon completion of the assessment, the Client may pursue a claim against the lessee for recovery of losses and lost profits.