By Nooshin Rahmani, Senior Associate
The UAE Cabinet approved the issuance of Federal Law No.18/1993 promulgating the UAE Commercial Code, ("the Resolution") to introduce significant amendments to provisions of existing commercial transactions, including modifications regarding bounced cheques. The decree-law is expected to come into force by the end of 2022.
The mechanisms aim to expedite and streamline recourse against dishonored cheque to ensure the collection of payments via cheque is done in a simple and efficient way.
The Resolution includes the following amendments such as defining circumstances when whether a bounced cheque will be considered a criminal offence and aims to avoid prosecution, unless bad faith is present, including the following instances:
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forgery of cheques;
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fraud committed by giving orders to the bank to cease the encashment of the cheque;
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withdrawing the full balance from the account before the date of issuing the cheque; and
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deliberately issuing a cheque or signing it in a manner that prevents its encashment.
It also adds the possibility for the beneficiary of a dishonored cheque to file a direct claim at the execution court to confiscate the assets of the issuer.
Moreover, in order to encourage alternative procedures of dispute resolution, settlement or demanding the payment of the value of the bounced cheques as the primary condition for the proportional diminution of a criminal lawsuit.
The Decree includes other legal issues such as obliging banks to pay a partial amount after deducting the full sum available to the beneficiary. Another amendment also coverscertain aspects of the provisions relating to the opening of joint accounts – in the event that one of the joint account holders passes away / loses his legal capacity, the other holder is obliged to notify the bank within 10 days from the date of death or loss of legal capacity. In turn, the bank must, from the date of notification, limit the ability to withdraw from the joint account within a party’s share of the account balance on the day of death or loss of legal capacity.
In addition, as a result of the amendments, a number of related penalties would be introduced, including withdrawing cheque books of convicted persons and the prevention of issuing new ones for a maximum period of five years;ceasing the professional or commercial activities of the convicted persons; andimposing a fine and suspension of licences for certain corporate entities to prevent them, for a period of six months, from practicing their activities.
In conclusion, it is pertinent to mention that this amendment will enhance commercial confidence and ease the enforcement options available. It is a significant development in the UAE legislation to help further support the UAE’s vision in supporting the economic and commercial sectors, maintaining the protection of the beneficiaries using cheques as a viable payment instrument.
These amendments are significant and once enacted would revoke the current offence of issuing dishonoured cheques, as outlined under the Penal Code.