Cheque payable in future datecan imprison you

Dont know whether you have read about this and if it will be implemented. If so, imagine the mayhem it will cause!

Warning!

January 2009
Cheques made payable at a future date could land you in prison. As from 13th May 2010, in Qatar, cheques which are post dated may be presented for payment earlier than the date specified on the cheque.

This change will have important and far-reaching consequences in Qatar. Drawers of cheques will no longer be able to rely on their cheques being "cashed" from a future date.

They will be able to be presented for payment anytime after they are handed to the payee. The banks will be required to pay the cheques on presentment.

As a consequence, we expect that banks will need to consider implementing more widely other payment techniques and the government, further changes to the laws.

Background
In Qatar cheques are important financial instruments. They are used on a daily basis, both as a payment mechanism and as security for the payment of moneys due on an instalment basis.

The common practice is for post-dated cheques to be provided where regular payments are due over time. For example:
Landlords commonly require tenants to provide cheques, dated as of the due date for each future rent instalment.

For car loans, banks often require post dated cheques covering some or all of the instalments.

The rationale is that if funds are not available at the time the cheque is presented, the drawer may be prosecuted for a criminal offence.

While in practice, a successful prosecution is likely to be difficult, drawers of cheques which are not paid at presentment are at risk of an awkward prosecution.

The current position
In Qatar, the general position is that post-dated cheques may not be presented for payment before their date of issue. The paying bank will be responsible to the drawer for any damages the drawer may suffer because of payment before the due date.

A failure to pay on a cheque when duly presented will make the drawer liable for the value of the cheque. Further, and more importantly in this context, the drawer may be prosecuted, convicted of a penal offence, fined between QR 3,000 and QR 10,000 or imprisoned for between three months and three years.

The necessary elements of the offence are:
the drawer must act in "ill will" which we take to mean bad faith; and
in so doing, relevantly, write a cheque without having adequate funds or provisions or deliver a cheque knowing it is uncovered.

Accordingly the intent of the drawer at the time of writing the cheque is relevant. If post-dated cheques are an accepted and general business practice, it is hard to see in the normal case that a person may be successfully prosecuted if at the time the cheque was drawn, the drawer had sufficient funds to pay and fully intended that at the time of later presentment, there would be funds available.

If unforeseen events intervene and as a result the drawer cannot pay on the due date for the cheque, it can hardly be argued that the drawer acted with "ill will". Surely the penal provisions are reserved for those who write post-dated cheques in the knowledge that they will not be paid on the nominated date for presentment.

While in theory there may presently be good defences to a prosecution, a recalcitrant drawer can be very concerned about the likely outcome of a prosecution.

If bankruptcy intervenes, the cheque will become immediately payable. This then enables the drawee to claim the value of the cheque in the drawer's bankruptcy.In this case, it is hard to see how the drawee can be successfully prosecuted if at the time he wrote the cheque he was acting in good faith. Of course, if he writes a cheque, perhaps immediately before bankruptcy, knowing or not caring whether he can pay or the cheque when presented, he can justly fear the wrath of the court.

The change
As from 13th May 2010 cheques, even though post dated, will be payable on presentation.

While this no doubt is of great practical help to banks, assisting them to overcome potential liability issues on paying cheques before their date, it now creates significant difficulties for drawers.

The new law changes the fundamental nature of the cheque in Qatar. It will be seen, in conformity with western principles, strictly as a payment instrument, not also as a security.

The effect of the change
As the cheque may be presented immediately the risk to the drawer of committing an offence is significantly increased. It will be more difficult to convincingly argue that at the time he wrote the cheque that he did so in good faith. This is because, as a result of the change in the law, all his post dated cheques may be presented immediately, leaving the drawer in a difficult position. It is hard to see how any drawer might reasonably be expected to have sufficient funds to immediately cover his loan or a significant part of it or numerous lease instalments. Hence any argument that he wrote the cheques in good faith will be more difficult.

Further, even if the payee undertakes to the drawer not to present the cheques before a stated time, the drawer, in the case of an unscrupulous landlord, or in the case of bankruptcy of the payee will be left in a difficult position. The bank, on presentment will need to pay the cheque, there may not be sufficient funds to cover payment, leaving the drawer open to prosecution.

Resistance
While we do not see the practice of writing post-dated cheques stopping overnight; over time there is likely to be gradual less reliance on cheques as security.

When consumers become more aware of the risks, they will seek alternatives and reasonable counterparties are likely to want to look at other means of payment and security.

Possible alternatives

Two issues need to be addressed:
Different ways of making regular payments; and
Security for payment. In many western countries, using cheques as a means of payment is becoming less important. Over time we hope that the Qatari banks will move in that direction.

Now it is more efficient and common place for payments to be made by:
Credit card;
Automatic transfer; or
Direct debit systems.

In each case, the payment efficiencies of post dated cheques can be adequately if not more efficiently addressed. Automatic transfers or direct debit systems can assure regular payment on specific dates. If no money is available, banks can, as part of their system, check balances over a few days.

The threat of criminal prosecution is removed; however this is hardly reasonable given that the payee may present the cheques at any time.

Some attempts have already been made in the market to implement alternative payment systems. Qatari Telecom Company (QTel) launched, with the Doha Bank, the direct debt bill payment service.

Direct debit is the simplest way to pay household bills or make regular or occasional payments to any kind of organisation that accepts direct debit payments. It saves time and is more convenient. With direct debit, the customer does not have to remember payment dates, write cheques and post them. Businesses can change the amount and the payment date. Direct debit carries some dis-advantages such as money is still taken even if there is no money in the customer's account and customer may fail to check price increases and budget accordingly.

We expect that over time, with the lead of large businesses, we will see direct debit types of arrangements used more widely.

Security for payment is more difficult in Qatar. This is because, as a general proposition, the payee will need to take possession of the secured asset to ensure the security is valid.

In the case of rental payments, direct security is impractical. Already, landlords traditionally take a bond of a month's rent. Even in a tight property market, this is insufficient to cover some unpaid rent and the expenses and time of re-renting an abandoned tenancy.

There are limited options. We could see landlords requiring larger bonds, or perhaps insurers offering some kind of guarantee or bond. Irrevocable directions to deduct money from salaries are not available as effective means of security in Qatar.

Qatar needs to consider modernising its security laws to enable security to be simply taken over movable assets such as motor vehicles. Even though there is a registration system for mortgages of vehicles, this is not enough.

Summary
Overall, the position is commercially unsatisfactory. While cheques are and should be seen as purely payment instruments, there is little scope currently in Qatar to take alternate types of security. It is hoped that the government can address this issue by providing the mechanism for banks and others to more easily take and register personal property security.

Source:
http://www.zawya.com...