The CBN new guidelines to all banking dishonoured or did cheques

The CBN new guidelines to all banks on dishonoured or dud cheques. It is instructive for individuals and businesses to understand these guidelines which take effect from 28th June, 2016 and the consequence of issuing dud cheques. As reported in the media, the CBN has installed additional regulatory measures against the issuance of dud cheques by individuals and corporate customers in other to strengthen the confidence and integrity of negotiable instruments issued within the country. The key points to note in the new CBN Guidelines are that all banks are mandated to; Perform status check on all potential customers to ensure they are not dud cheques issuers before granting credit facilities to them or opening an account for them, Forward the details of cheques issued by a customers and returned “insufficient funds” whether presented over the counter or through a licensed Credit Bureaux and the Credit Risk Management System (CRMS) on monthly basis, Cancel all unissued cheque books of customers who have issued dud cheques three (3) consecutive times or more across banks, and Prevent all inter-bank cheques issued by such customer for a period of five (5) years. The guidelines also provides that the details of offending customers will be listed in the database for a period of five (5) years from the date of submissions after which the name will be eligible for removal. Also subsequent default following a removal of an offenders name from the list will attract a permanent listing of such defaulter in the Credit Bureaux database and such defaulter can only be removed from the listing with the approval of the Central Bank. It is also worth noting that, the principal legislation criminalising the issuance of dud cheques is the 1977 Dishonoured Cheques (Offences) Act. The rather brief law makes it an offence for any person anywhere in Nigeria to induce the delivery of any property or to purport to settle lawful obligations by means of a cheque which when presented within a reasonable time is dishonoured on the grounds that no funds or insufficient funds were standing to the credit of the drawer of the cheque. This law has however been sparsely tested with the sad consequence that there are professional debtors who obtain services under the pretense that the cheques they issue will consequently be honoured by the banks. The crux and key provisions of the Dishonoured Cheques (Offences) Act are as follows: Section 1 of the Act makes it an offence to obtain delivery of goods or credit by means of a cheque that, when presented for payment not later than three months after the date of the cheque, is dishonoured on the ground that no funds or insufficient funds were standing to the credit of the drawer of the cheque in the bank on which the cheque was drawn; An individual found guilty of this crime is liable to imprisonment for two years, without the option of a fine; A body corporate found guilty of this crime is liable to be sentenced to a fine of not less than N5,000. Note that a minimum fine is prescribed by the law; a judge may apply discretion to increase the fine applicable on a case by case approach; and The Act in Section 2 however provides for the lifting of the corporate veil where the offence involves a body corporate. It provides that “where the offence is committed by a body corporate is proved to have been committed with the consent of or connivance of, or to be attributable to any neglect on the part of any director, manager, secretary or other similar officer, servant or agent of the body corporate (or any person purporting to act in any such capacity), he, as well as the body corporate, shall be deemed to be guilty of the offence and may be proceeded against and punished in the same manner as an individual.” For businesses in general, one of the factors considered when investors seek out promising ventures to invest in, is the creditworthiness of the business (and in some cases that of it key principal actors such as directors and principal members). What creditworthiness says about a company is a company’s ability to meet its financial obligations and pay its debts and the main way to improve on creditworthiness is to pay bills and meet financial obligations on time. Issuing a dud cheque is certainly not a way to achieving this. At a time when direct and foreign portfolio investment has plunged, importation of foreign capital declined to a low of $647.1 Million in the 2nd Quarter of 2016 (according to Financial Times) and with the country officially in a recession, it is important to note that future investments in Nigeria (when we are able to come out of this recession) will come with even tougher scrutiny and due diligence by investors, commercial banks and prospective business partners. The truth is that being a serial debtor with an open display of opulence, is fast becoming an acceptable trend. Start-ups looking to raise capital investment will among other considerations undergo even greater scrutiny; not just the business operations and financials but also its principal members to determine the viability of prospective investments. Five years is a long time to have an individual or a corporate entity listed as an issuer of dud cheques, in other words, as a person or an organisation that chronically does not honour its financial and business obligations. A lot of business goodwill and credibility can be lost within this period with deep financial consequences. Large businesses mostly have internal credit rating systems, this move will go further by providing an even larger pool of data for lenders and investors to work with. Finally, this move by the CBN, coupled with existing BVN infrastructure will ultimately help with a better enforcement of existing laws as the appropriate prosecuting agencies will have a credible list of offenders for prosecution. By Bola Oduntan