x Abu Dhabi, UAESaturday 22 July 2017

Debt-ridden developers face prison or flight

Insight Developers are in jail over cheques they wrote in the normal course of doing business before the booming property market collapsed.

Sharjah House of Justice, where Mr Sassen's case was heard.
Sharjah House of Justice, where Mr Sassen's case was heard.

Room 145 at the Sharjah House of Justice is crowded with lawyers, clerks and the friends and relatives of the those about to appear before the elderly judge. In the back row, Elena Sassen, an elegant Russian, is quietly waiting for her husband, Dirk, a 44-year-old German, who once oversaw plans for a multimillion-dollar project as a property developer in Ajman. Now he is sharing a 40-square-metre cell with 27 other inmates, sleeping on the floor with only a woollen blanket. Like many of his cellmates, Mr Sassen is in jail because he wrote a cheque without sufficient funds to cover it. When two guards bring him into a glass partitioned platform adjoining the court with about a dozen other prisoners, his appearance has changed dramatically since he entered Sharjah's Al Gharb jail four months earlier. He has lost about 10 kilograms and his head is shaved. "At least he has his own clothes and not this blue prison jumpsuit like his cellmates," says Mrs Sassen. "I bring him new clothes every week." The guards remove Mr Sassen's handcuffs, but after two hours time has run out for his case to be heard this day. "We did not have time to read through his file," the judge tells Mrs Sassen in a soft voice. "Don't worry, we will reschedule it." Two weeks later the same judge found Mr Sassen not guilty of one of his charges. Two remaining charges have been transferred to the Dubai courts. "I am very happy because he will now be transferred to Dubai for his two other bounced cheques," Mrs Sassen says. "I have heard that the new regulations now in Dubai will make bounced cheques no longer criminal cases and are being transferred to a committee. Maybe he will be able to get out of jail." But, even if he is freed, his future is not clear. Whatever the amount, bouncing a cheque becomes a criminal offence in the Emirates if the payee files a case with the police, says David Nunn, a partner with the law firm Simmons and Simmons. Each offence carries a sentence of up to three years' jail. A bounced cheque is always considered to be fraud no matter the circumstances. The system dates back to the early days of trading on Dubai Creek, when sellers of spices and garments had no security for payment other than a signed cheque. More than 500,000 cheques bounced in the first four months of this year, Central Bank data show. That represents about 5.6 per cent of almost 10 million cheques issued during the period. Last month, Sheikh Mohammed bin Rashid, the Vice President of the UAE and Ruler of Dubai, issued a decree to form a new judicial committee that will examine cases of bounced cheques relating to property purchases and leases in Dubai. Instead of being investigated by police or prosecuted, tenants and homeowners will first be referred to the committee. For prisoners such as Mr Sassen, the committee remains a hope. Thousands of people who invested in property during the boom are at risk of losing their money because many developers have been unable to proceed with their projects. In some cases, developers made promises of huge financial returns using postdated cheques as ­guarantees. Developers also write postdated cheques for land. Investors also use postdated cheques, most commonly as a guarantee to banks and other lenders that mortgage repayments would be made. But when there are no funds to cover them, the consequences can be serious. "We are sleeping here directly on the floor with just a wool blanket," Mr Sassen tells The National in a telephone interview from prison. He can make one telephone call a day. "There are no chairs to sit on and we have to eat with our fingers. We can go out in the prison yard only once a week for 10 to 40 minutes." Mr Sassen says he is not the type to run away: "I wanted to face it because I am not a criminal. But they just saw the bounced cheque and that was it." There are plenty of other examples. The wife of an Indian developer based in Dubai says: "My husband is sitting in Al Aweer jail and is having hearings for different cheque cases almost every day." Peter Margetts, a British property developer with a project in the Jumeirah Village development Dubai, was arrested in January and sentenced to 20 years' jail over several bounced cheques. In Ras al Khaimah, Frank Khoie, the chief executive of Khoie Properties, the developer behind the La Hoya Bay project, was sentenced to three years in jail for bouncing a Dh57 million (US$15.5m) cheque that was issued to a unit of the RAK Government. The collapse of property prices has had a severe impact on Ajman, where many developments were launched just before the market started to tumble. As a consequence, many developers have been arrested over bad cheques. "Everybody is now playing against each other. They all used to be such good friends," says Jayaid Malik, an architect based in Ajman. "Many of my 60 to 70 clients are now either in jail or have just ran away. They owe me about Dh60m in total. But thank God I have no bounced cheque myself and I am not in jail. "Once I visited one of my clients in a Dubai jail," he says. "There were all kinds of beautiful sports cars parked outside. I was thinking these people made so much money and now they are sitting together with criminals. It is a very bad situation." Others have fled the country to avoid answering charges over cheques they had written. Sam Rasool, the founder of PIR Developers, another Ajman-based broker, left the country after launching five towers and bouncing several cheques. He says he has opened a new business in Islamabad where he now lives and he hopes to raise enough money to repay his debts. "My master developer asked me to come back to try and help them solve the problem," he says. "But unless the criminal offences are turned to civil litigation, I just cannot." Such cases prompted the decree creating the special committee on the issue. Ahmed Ibrahim Saif, the chief justice of the Dubai Criminal Courts, says the committee to be created will look into cheque cases related to property transactions. The decree restricts the cases to property buyers and tenants. Some cases have already been transferred to the entity even before it has been formed. Shariq Imran Khan, the Pakistani developer behind what was intended to be the tallest tower in Ajman, is in the Dubai Central Jail awaiting a hearing for charges relating to bounced cheques and has had one of his cases transferred to this new committee, says Yasir al Naqbi, his lawyer from Excel Advocates and Legal Consultants. The surge in official complaints against developers and property brokers has meant that some police stations are already refusing to take criminal claims for property issues, local lawyers say. "Some prosecutors are also refusing the claims," says Maroun Saab, a lawyer at Habib Al Mulla in Dubai. While the new committee may help remove the bottleneck in the court system it is unlikely to represent a quick fix for developers who have written cheques that have bounced, says Karim Nassif, a partner at Habid Al Mulla. He says the committee will be able to do only one of three things. "Either they will invalidate the cheque or they will order the purchaser to issue new cheques, for instance if there is a construction but there is a delay or a new payment schedule linked to construction; or they will simply send it back to the competing jurisdiction which is normally the criminal one." "People are asking me when they will be able to get out of jail," says Ingvild Moritsch, an Austrian lawyer based in Dubai. "But things do not happen like that. Nobody in fact has a clear idea yet of how the new entity will work." ngillet@thenational.ae