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Developments on Dishonored Checks Issued During Composition Proceedings

Legal Alerts
Dispute Resolution
General

Recent Development

The 19th Criminal Chamber of the Court of Cassation resolved the contradictory approach of different criminal chambers of regional appellate courts on the criminal liability of legal entity representatives for issuing checks that were dishonored during composition proceedings in its decision dated 10 June 2019 and No. 2019/23974-2019/9339 (“Decision”). In its decision, the Court of Cassation set forth the principles for courts when issuing a decision on the criminal liability of representatives of a legal entity for issuing a postdated check prior to a composition application or a court-granted temporary composition period, and the postdated check resulted to be a dishonored check while the composition proceedings was underway, despite being addressed in the composition project and recorded in the legal entity’s commercial books and records.

Present Rule Regarding Creditor’s Complaint

The creditor must file a complaint against the debtor within three months from learning that the check was dishonored, and in any event, within one year regardless of whether the creditor ever discovered that the check was dishonored. Following the creditor’s complaint, a criminal lawsuit regarding the dishonored check(s) will be filed against the legal entity’s representatives before criminal enforcement courts.

Preliminary Issue

According to the Decision, the criminal enforcement court hearing the criminal case must treat the outcome of the composition proceedings before the commercial court as a prejudicial question requiring the suspension of the criminal case.

Outcome of the Composition Proceedings

The Decision states that the criminal court must enter a decision by considering the following:

1.If the composition project is approved: The approval of the composition project finalizes the composition agreement and alters the legal consequences of dishonoring a check, causing the check to convert into an ordinary promissory note. Therefore, the criminal liability of the debtor legal entity’s representatives will be extinguished.

2.If the composition request is dismissed:

a.The criminal liability of the debtor legal entity’s representatives is removed if (i) the composition court placed the composition commissary in charge of managing the debtor legal entity’s check accounts, and also gave the power of disposal and transfer of monies in the check accounts to the commissary and (ii) the check was dishonored during the period the commissary was authorized.

b.If the court’s decision is unclear as to who wields these powers, the managers of the legal entity will be assumed to have had all powers related to payment of the checks; and therefore, they will be criminally liable.

Conclusion

The criminal liability of the representatives of a legal entity that issued a postdated check prior to the composition application or the granting of temporary period will be determined by considering the scenarios of dismissal or approval of the composition request if the check is dishonored while the composition proceedings are underway