Bad Cheque Move Is Bad For Business

[george]

Bad cheque move is bad for business

BANGKOK: -- Much to the chagrin of businesses and banks, the Justice Ministry yesterday announced its intent to decriminalise the writing of bad cheques - in an effort to eliminate government expenditures on prosecuting cases.

Phongphat Ruangkrua, the ministry's legal office director, said the 1991 law governing cheque bouncing would be scrapped under a new bill that is ready for the Cabinet's consideration. The measure calls for civil litigation as the only recourse for recipients of bad cheques.

The changes will require businesses and commercial banks to pay more attention to the credibility and track records of cheque writers if they want to keep complications to a minimum. And many fear that it could actually increase the number of bad cheques and reduce the number of cheques used in transactions.

"The new law encourages companies and businessmen to default on their cheques and that will affect the economic system," said Thirayut Witantum, international marketing manager of Solution Corner (1988), adding that the changes to the law would force the software company to be much more careful.

Cheques are a major part of doing business. In May alone, 5.7 million cheques were written with a combined value of Bt1.8 trillion. In the month, 78,587 cheques valued at Bt6.8 billion bounced. Traditionally, companies have put their faith in the law, honouring cheques as a guarantee for credit. Even when they know the writer has no money when they stroke the cheque, they accept the draft on the belief the writer will be able to honour the obligation when the payment is due.

Thirayut believes the latest financial crisis taught Thai companies a lesson: they must adopt stricter guidelines for dealing with customers. Therefore, there should be some measures to limit the amount of bad cheques.

But the proposed law does not do that. In fact, it may have the opposite effect.

Under current law, if any person receives a cheque that bounces and goes to the state attorney, the writer will be subject to a criminal charge. Aside from being responsible for the amount on the cheque, the person is also subject to up to a year in jail.

Businesses for the most part believe the law somewhat discourages people with fraudulent intent from defaulting. But the ministry considers this as a big burden on the state prosecution system and society as a whole. It estimates each bad cheque case involves an average of 15 hearings, at a total cost of Bt40,000 on average which is sometimes above the value of cheques.

Under the new legislation, recipients of rubber cheques can pursue payment in the civil court system only. If they want the criminal court's assistance in pressing for payment, they would have to pay fees.

A source at Bangkok Bank, who asked for anonymity, said the new measure could lead to a drop in cheque transactions.

"From now on, few will be allowed to write a cheque to guarantee their borrowings and this will mainly hurt small business operators. Their access to funds will definitely be narrowed," he said. "This change will not affect us directly, but we will definitely have to be more strict when it comes to issuing chequebooks."

Phongphat said the new law could result in less trust in cheques but the authorities can help by turning to the credit information and commercial banking laws. "Any person who is found issuing a bounced cheque should not be allowed to write any new cheques," he said.

Kitipong Urapeepatanapong, an international partner of Baker & McKenzie, noted that banks should be more active in screening people eligible to write cheques.

"Those capable of writing cheques should have good debt financing track records. At the time of issuance, the writer should also have sufficient money in their checking account to cover the amount on the cheque," he said.

One thing that should change is that credit bureaus need to be more active in monitoring the credibility of cheque writers, said Thirayut: "If the bureaus come up with a more efficient monitoring system, we won't need to worry much."

--The Nation 2004-07-09