Nothing in this article is to be construed as legal advice. This is an economic analysis of what I see as being possible rational decisions.

What are security cheques?

Let me first explain: a post-dated cheque has traditionally been used in the UAE as a last ditch guarantee in the event that a bank or other party cannot be paid by the person signing the cheque, often in the case of a loan or service rendered or goods supplied, ahead of an expectation of receiving payment in the future at some point. This is because a criminal case could be filed against that person in the event that the cheque is presented and then returned if there are insufficient funds in the account related to it. The ultimate penalty for this in the past was jail, providing a lot of leverage to the party trying to recoup their funds. There are various laws surrounding how a bounced cheque is handled by the legal system but the spirit of the law seems clear to me and that is to stop people from behaving in a fraudulent manner. However, various parties, including banks, company suppliers and vendors as well as individuals such as landlords have used the letter of the law to apply anti-fraud rules to economically distressed companies and persons.

Why do I say this? Well, think of it this way: If the intent of the law was to, for example, jail people who cannot pay back a loan then there would be a law that specifically states that. However, in the absence of a security cheque that bounces, a person who fails to pay back a debt does not necessarily face the same fate as a person who has bounced a cheque and certainly the path to the final legal judgement is much more balanced. This reasoning clearly points to the fact that the law was not meant to punish those in financial distress. It is the spirit of the law that has been twisted and put to use for purposes not intended. I am not a mind reader, but the logic certainly points to these conclusions. Continue reading →