92cb76f94d868210VgnVCM100000e56411acRCRDapproved/thenational/Articles/Migration/2009-Q3Don't get hit by a bouncing cheque82cb76f94d868210VgnVCM100000e56411ac____A lot has been said of late about bounced-cheque laws in the UAE, which also come with strict penalties.<p>Passing bad cheques is a crime pretty much everywhere. Sure, accidentally bounced cheques that you can make good on immediately generally won't land you in trouble. But write a big cheque against a nonexistent bank balance, and you're pretty likely to end up with a fine - if you don't wind up in the slammer first. In the US, where each of the 50 states has its own bad-cheques laws, penalties for the crime can be stiff. In Florida, writing bad cheques can put you in jail for up to five years and net you some heavy fines, provided that the phony cheque you wrote was for a large amount.</p> <p>A lot has been said of late about bounced-cheque laws in the UAE, which also come with strict penalties. Official statistics show that more than 500,000 bad cheques were written in just the first four months of this year; a staggering one in 20 cheques written during that period bounced. And many of the people who wrote those cheques are now in jail or on bail waiting for their trials to begin. As they filter through the country's legal system, cheque-bouncers have few means of paying backwhat they owe. Debts go past due, resulting in further legal action and more jail.</p> <p>Interestingly, the root of the bad-cheque problem in the UAE doesn't seem to be the fact that the laws covering them prescribe harsh penalties: tough penalties for bogus cheques exist everywhere. Rather, the trouble here involves an age-old financial culture in which writing blank and post-dated cheques is an accepted practice, even in the upper echelons of the commercial world. In the US, Europe and in most of Asia, few people would consent to a deal where they paid rent in a series of post-dated cheques. Similarly, few businesses would agree to enter commercial relationships and contracts funded with post-dated cheques. And few people would probably be willing to go to their banks for a loan and hand over a blank cheque as security. Here, though, it's another story. There are a ton of blank and post-dated cheques floating around, many of them written for thousands of dirhams. According to Central Bank data, the average amount for which a cheque was written in 2008 was Dh46,098.</p> <p>With a bunch of cheques that big, it isn't hard to imagine what might happen when the economy hits the skids. When the recession hit, many individuals and businesses in the UAE found themselves with a bunch of post-dated cheques but not enough money in their bank accounts to pay them off. Some people lost their jobs and couldn't pay. Others owned businesses that ran into a rough patch during the crisis. As weeks stretched into months, a lot of big cheques started to come due, and many of them bounced.</p> <p>So what can you do to combat the UAE's cheque conundrum? That's a complex question, as the issue in the UAE has two interrelated dimensions: the personal and the corporate.The personal angle is straightforward: if you write a cheque for more money than you have in your current account, you'll be punished. The corporate angle is trickier. People who write bad cheques at work also can face personal liability, a fact that many owners of small businesses often don't take into account. Many of the people who are now jailed for bad cheques are there because they wrote them in their capacity as executives at companies - not for themselves.</p> <p>During the economic boom that ended last year, individuals and businesses seemingly had nothing to fear from writing lots of post-dated cheques and taking out loans using cheques as security: people's jobs seemed secure, and there was no reason to believe corporate profits wouldn't continue to grow. In that economic climate, individuals made unrealistic assumptions about their financial fortunes, and they turned out to be wrong. Go-straight-to-jail wrong, in some cases.</p> <p>On the corporate side, the primary lesson to be gleaned from all this is an obvious one. If you are in a position of responsibility in a company, beware of writing cheques, because you could wind up on the wrong side of the law. Corporate directors and executives should be sure to seek legal counsel when writing big cheques. Getting lawyers involved could also help shield you from responsibility under the UAE's insolvency laws. While those laws are largely untested by the courts, lawyers say directors of companies need to be especially careful that they do not fall afoul of their responsibilities under them. The financial crisis is already changing the way business is done in the UAE, and those changes could eventually result in more insolvency cases going to court.</p> <p>"If you are a director of a joint-stock company or a manager or director of a limited liability company and your company is in financial difficulty, you need to start taking immediate steps to ensure that you minimise the risk of becoming liable for the debts of your company or even criminally liable, if your company eventually becomes bankrupt," Kuljit Ghata-Aura, a partner at Eversheds, a large international law firm with offices in Abu Dhabi, wrote in a recent legal brief.</p> <p>On a personal level, you should apply the same level of care. Make avoidance of post-dated cheques a major factor in your decision-making process when you are in the market for large purchases or signing important contracts. That way, if your relationships with people you owe money to deteriorate they can't hang your post-dated cheques over you. The UAE's bad-cheque laws also point up the necessity of having a cash reserve to tide you over in case of financial difficulty. Financial planners recommend that you have about three to six months' salary saved up in a rainy-day fund. This cushion becomes all the more important when failure to meet financial obligations comes at the pain of a jail sentence. So if you haven't started salting away money in case of a financial emergency, start now. It may sound like a tall order in these trying times, but the cost of not doing so could be monumental.</p> <p>afitch@thenational.ae</p> 554NNPERSONALFINANCE200908010000002009080100000020110607191907100ARhttp://adedit.ad.atl.publicus.com/apps/pbcs.dll/article?AID=/20090801/PERSONALFINANCE/70731988870731988820090801100000000448285ce89d07a3a68210VgnVCM100000e56411ac____82cb76f94d868210VgnVCM100000e56411ac____14117fdfa2448210VgnVCM100000e56411acRCRD