The UAE updated the country’s Federal Law on Commercial Transactions with several new provisions that aim to discourage criminal lawsuits against people and businesses for bouncing cheques.
The new amendments, which will come into effect in 2022, were approved by the Cabinet and “redefine” crimes involving bounced cheques and the issuance of cheques without value, according to state news agency Wam.
“The amendments will also create several mechanisms and alternatives that will ensure the collection of payments through cheque in a simple and fast way, such as obliging banks to partially pay the amount after deducting the total amount available to the beneficiary, and making bounced cheques an executive document to be executed directly by an appropriate judge in court,” it said.
“They also aim to highlight the means of avoiding criminal lawsuits and facilitating related procedures through encouraging reconciliation and urging the payment of the value of the original cheque as the main condition for the abatement of a criminal lawsuit.”
In December 2017, Dubai Attorney General Essam Al Humaidan issued a criminal order in which a range of minor offences – including bouncing cheques and failing to pay rent – are no longer put through the emirate's court system and are treated as misdemeanours subject to financial penalties.
The 2017 ruling means that those responsible for cheques bounced in the emirate of up to Dh50,000 are now fined Dh2,000, while those who bounce cheques of between Dh50,000 and Dh100,000 pay a Dh5,000 fine, with a Dh10,000 fine for bounced cheques between Dh100,000 and Dh200,000.
Musab Iftikhar, an associate at Dubai-based law firm BSA Ahmad Bin Hezeem & Associates, said the new federal amendments are a step in the right direction for the UAE to keep up with global best practices and will boost business confidence.
"One of the most important features of the new amendments is the introduction of a mechanism to ensure that banks partially pay the amount after deducting it from the available funds in the bank account of the issuer of the cheque," Mr Iftikhar said.
"For example, if a cheque for an amount of Dh10,000 was bounced because the issuer just had Dh8,000 in funds in his bank account, the bank would be required to pay Dh8,000 to the beneficiary. However, the issuer of the cheque will remain liable for the remaining Dh2,000 to the beneficiary. This is a welcome change for the beneficiaries of cheques."
New penalties were also introduced under the amendments to the Commercial Transactions law. These include the cancellation of cheque books for people who have been convicted of bouncing a cheque and banning them from obtaining new ones for a maximum period of five years, as well as halting their professional or commercial activities.
“Additional penalties for legal persons, barring banks and financial institutions, will also be introduced, including a financial fine, the suspension of licences to practice economic activities for six months and the revocation or dissolution of the licences of legal persons who repeat violations,” Wam said.
Keren Bobker, an independent financial adviser with Holborn Assets, said while cheques are an outdated method of payment, overall the amendments are positive for businesses and individuals.
“This new decree is not due to come into effect until 2022, so no doubt we will have more detail closer to implementation,” Ms Bobker said. “But this is a positive step overall, both for defaulters and those owed money. I would also like to see landlords accepting more frequent payments by bank standing orders or transfers rather than cheques, which really are an outmoded method of payment.”
However, Mr Iftikhar said it was unlikely that the practice of using cheques in the UAE will end with the new amendments.
"The banks and landlords will not stop demanding cheques from their borrowers and tenants respectively as a cheque will continue to serve as an important instrument in commercial transactions," he said.
"A cheque, as an instrument, also serves as a tool of pressure to bind the debtor to make the outstanding payments and evidence before the courts."