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UAE: Criminalisation of bounced cheques to be replaced by preventive measures

Amendments will help maintain cash flow for small and medium businesses, say experts

Experts have welcomed the UAE Central Bank’s announcement to amend the Commercial Transactions Law which will force banks to be creative when seeking guarantees while giving out loans to customers in the UAE.

They believe that new amendments will help maintain cash flow for small and medium businesses in the country.

In addition to the decriminalisation of cheques issued without funds, the new amendment also made a partial payment of cheque mandatory for banks, unless the drawee rejects it.

The amendments replace criminalisation with preventive measures such as withdrawal of chequebook from the transgressor, denying him/her the right to receive a new chequebook for up to 5 years and suspending the professional or commercial activity of the violator among others.

Anurag Chaturvedi, CEO of Chartered House, said a partial cheque payment system will enable SMEs to grow without much worrying about legal disputes.

“Businesses will not stop because of liquidity challenges as partial payment will not only satisfy suppliers but also increase customer confidence in taking up assignments for companies which are under distress because of liquidity crunch. This amendment will also help banks recover their partial dues to the extent of the fund available in the company. The new decision will enable distress service providers to recover their partial dues to boost liquidity,” said Chaturvedi.

Mazen Boustany, partner-head of UAE Financial Regulatory at Baker McKenzie Habib Al Mulla, said the UAE economic system has relied on the post-dated cheque (PDC) setup for a very long time, since Article 617 of the Commercial Transactions Code was issued in 1993.

“The criminal impact of bounced cheques had a lot of pernicious effects on the UAE economical system; stifled innovation and somehow paralysed the bankruptcy law. As of 2022, the UAE will follow the lead of major economies that had decriminalised cheques since the 1970s and sanctioned the issuance of bounced cheques by minor fines or the suspension of delivery of cheque books to the issuer of bad cheques,” he said.

He pointed out that the new amendments made to cheque’ provisions in the Commercial Transactions Code will have a lot of beneficial effects on the economic system as it will force lenders and other service providers to be innovative and seek other types of guarantees.

Priyasha Corrie, partner, Keystone Law Middle East, said the amendments to the UAE Civil Code will enhance the ease of doing business as well as lighten the load of cases on the UAE’s judicial system.

“There are numerous alternatives to criminal sanctions which have proven to be effective. One of the significant steps taken by the UAE in this regard is the establishment of the Al Etihad Credit Bureau (AECB) which issues credit scores for all UAE residents and companies - persistent defaulters can easily be tracked under this system,” she said.