Current Status Of Bounced Cheques

Current-status-of-bounced-cheques

Current Status Of Bounced Cheques

Mazen Boustany, a partner at Baker McKenzie Habib Al Mulla, says the UAE economy has been dependent on the post-dated cheque system for a long time. He estimates this has been in place ever since Article 617 of the Commercial Transactions Code came into being in 1993.

Post-dated cheques are often issued by companies, and because issuing a cheque that cannot be cleared in full can put an end to the commercial activity of the organization issuing such a cheque, as well as take away its ability to issue any more cheques for up to five years, companies will be extra vigilant about issuing post-dated cheques that cannot be cleared in full. This weeds out companies with low liquidity from the economic system.

Not only is this beneficial for the economy, it is a good thing for those who are issued cheques, as they are less likely to be cheated. Boustany adds that those receiving cheques may have to seek alternative guarantees following the decriminalization of the offence.

Priyasha Corrie, a partner with Keystone Middle East, adds that the Al Etihad Credit Bureau or AECB, which is fully owned by the UAE Federal Government and issues credit scores to both individuals and companies, will have greater relevance. A company or individual’s credit standing may now be consulted before a cheque is accepted from them or him/her. The better a company or individual’s track record of repaying what it or he/she owes to others, the higher will be its or his/her score.

This may improve things for small and medium-sized businesses, who offer products and/or services to other companies, and are dependent on the cheques they receive from their clients being cleared in full to ensure their own liquidity and strong financial position. They can choose not to do business with clients that have poor credit scores, as it points to the probability of cheques not being cleared in full or on time.

With the deterrent penalties effectively removing from the system those with poor liquidity or weak financial standing, it is believed that the economy will be left stronger. Banks will also be able to recover dues from defaulters to the extent of the funds available without seeking recourse to extensive legal action. This simplifies the process greatly.

The changes are aimed at increasing the ease of doing business in the United Arab Emirates, to ensure that the national economy of the United Arab Emirates is based on international best practices, to reduce the number of cheque cases before criminal and civil courts in the United Arab Emirates, and to improve the ranking of the United Arab Emirates in the Global Competitiveness Index. It is believed that these changes will make the national economy of the United Arab Emirates more competitive and sustainable.

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