Bolstering Commercial Integrity: Major Overhaul of Cheque Regulations in Bahrain's Commercial Law (Law No. 23 of 2025)

Bolstering Commercial Integrity: Major Overhaul of Cheque Regulations in Bahrain's Commercial Law (Law No. 23 of 2025)

In a significant move to enhance financial stability and commercial trust, Bahrain has enacted Law No. (23) of 2025, introducing substantial amendments to the Commercial Law of 1987. These changes focus particularly on modernizing the regulations surrounding checks and other commercial instruments.

What is the Law About?

Law No. (23) of 2025 aims to:

• Clarify procedures for the partial payment of checks.
• Establish a clear legal framework for handling checks with insufficient funds.
• Strengthen the enforceability of checks as executive instruments.
• Prohibit the issuance of blank checks for credit or guarantee purposes and impose penalties.
• Enhance consumer protection in commercial transactions.

These amendments are critical for updating Bahrain's economic legislation to reflect contemporary commercial practices. They are expected to increase trust in financial instruments, reduce commercial disputes, improve the business environment, attract investment, and grant the Central Bank of Bahrain (CBB) an enhanced regulatory role.

Key Changes and Practical Implications:

The law amends Decree-Law No. (7) of 1987, with several impactful changes:

• Partial Payment of Checks (New Art. 465 bis): If available funds are less than the check's value, the bank must make partial payment unless the holder refuses. The drawer's credit record will be annotated for insufficient funds or partial payment, regulated by the CBB.
• Enforceability of Checks (New Art. 465 bis 1): Checks endorsed for insufficient funds or partial payment are now considered executive instruments, directly enforceable under the Enforcement Law.
• Blank Checks (Art. 491 & New Art. 491 bis):
  • Issuing blank checks for credit/guarantee is prohibited.
  • Penalties for Issuers: Fine of BD 200 - BD 2,000.
  • Penalties for Holders Filling/Presenting Blank Checks: Fine of 10%-200% of the check's value (min BD 500, max BD 10,000).
• Check Certification (Art. 451): Banks may certify checks fully or partially if funds are available, and certified funds are frozen for the holder.

What This Means:

• For Check Holders: Clearer right to partial payment; easier and faster debt recovery as bounced/partially paid checks become directly enforceable.
• For Drawers (Check Issuers): Increased responsibility to ensure funds. Issuing blank checks for credit/guarantee is now illegal with significant fines, and their credit record will be affected by returned checks.
• For Banks: New mandatory obligations regarding partial payment, endorsement, and CBB compliance on these matters and credit reporting.
• For Businesses: Enhanced legal certainty and reduced risks in commercial dealings involving checks.
• For Regulators (CBB, Ministry of Consumer Protection): Expanded powers to issue regulations and enforce new provisions.

Key Takeaways:

• Major update to Commercial Law, especially check transactions.
• Partial payment of checks generally mandatory if funds available.
• Insufficient funds/partially paid checks are direct executive instruments.
• Issuance/use of blank checks for credit/guarantee prohibited with substantial fines.
• CBB gets significant new regulatory powers over checks.

(Source: Official Gazette No. 3810, May 15, 2025. Law No. (23) of 2025)

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