29 June 2020
Cheque Submission Periods & Bad Cheques within the Scope of COVID-19 Amendments
A significant number of commercial enterprises have suspended or slowed their activities due to the COVID -19 outbreak. As a result of the slowdown in cash flow, a number of laws that constitute economic precautions have been enacted. With the enactment of new legislation, the issue of cheque submission periods and legal ramifications of bad cheques have become a topic of discussion.
In this post, we will briefly consider the issues of cheque submission, bad cheques, and the practices of banks in the light of new legislation. For the purpose of contextualizing the context of this post, it is important to note that Turkish legislation allows for the post (future) dating of a cheque for it to be used as a deferred payment instrument.
What is Cheque Submission & What Effects Do Cheque Submissions Have?
Submission is the deposit of a cheque to the bank or clearinghouse to receive the payment. Certain periods are provided for the submission of the cheque, which are as follows:
"10 days" if the cheque will be paid in the city where it is issued;
“1 month” if the cheque will be paid in another city but in the same continent where the check is issued; and,
"3 months" if the cheque will be paid in a different continent.
In ordinary cases, the cheque should be submitted within the submission period which begins on the issue date specified on the cheque. There should be a sufficient and drawable balance for the cheque within the period of submission. In the event a sufficient and drawable balance is not present within this term, a submitted cheque will be classified as a bad cheque and processed accordingly.
Does Stopping the Submission Period Affect a Bad Cheque?
The law numbered 7226 announced on 26 March 2020 stipulates that the periods of submission and expiration, including the legal lapse of time regarding the origination, exercise or expiry of a right, will be suspended from 13 March 2020 until 30 April 2020.
There is no clear regulation on whether the submission provisions regulated under the respective legislation covers submission periods relating to cheques. However, since the term “submission” is clearly stipulated it is interpreted that this provision is also valid for cheque submission periods.
In the event the respective legislation is deemed to be applicable to cheque submission periods, it will be concluded that cheques cannot be submitted for payment between 13 March 2020 and 30 April 2020. As such, the issuer will not be required to keep a sufficient and drawable balance corresponding to the cheque value. This conclusion is especially important for determining the:
personal liability borne on the individual who has issued a bad cheque (for more information please click here); and,
liability of banks and clearinghouses for damages arising from the undue bad cheque processes.
Current Practices of Banks
Despite the legislation regarding the submission periods, in practice, cheques submissions continue to be accepted by the relevant institutions. We have observed that banks may carry out different procedures for cheques, submitted during this period, which do not have a sufficient and drawable balance.
Some banks have processed these cheques as bad cheques, while other banks have processed them as cheques with payment failure due to compelling reasons. Currently, banks have not adopted a unified practice with respect to the processing of cheques which do not have a sufficient and drawable balance.
What Should Banks Do? What are the Responsibilities of Banks?
We evaluate that since the submission periods are suspended, creditors should not be able to submit and the relevant bank should not accept the submission of cheques. Acceptance of cheque submissions and bad cheque procedures may result in the initiation of claims against the banks for the damages resulting from undue processing of cheques.
Despite the regulations regarding the suspension submissions stipulated in the relevant law, cheque submissions are still accepted by banks. The issue of whether the relevant regulations are applicable to cheques has given rise to different interpretations among legal circles and practitioners.
We expect that the confusion in the interpretation of the legislation and practice among financial institutions will result in further problems with respect to the criminal responsibility of the cheque issuer due to bad cheque procedures and the compensation liabilities of the institutions carrying out undue cheque procedures.
Content: Av. H. Şafak Varol