4 Questions-Answers on the Suspension of Payment of Cheques - The protection of non-affected CSDs

Legal Insight

April 2020

George Psarakis LL.M. (mult.), PgCert

Republished from Euro2Day.gr 

Summary: Several issues have arisen following the issuance of the 3/30/2020 PNP on the suspension of check payments. The provisions of this PNP are now well known to all stakeholders: payment of cheques is suspended for 75 days from the date of issue, only when the issuers of such cheques are companies that are included in an affected industry based on a code. This paper examines specific questions raised under this regulation.

Several issues have arisen following the issuance of the 30/3/2020 PNP on the suspension of cheque payments. The provisions of this PNP are now known to all stakeholders: the payment of cheques is suspended for 75 days from the date of issue, only when the issuers of such cheques are companies that are included in an affected sector on the basis of a code. As to the questions raised, therefore:

Α. Can the legislature intervene in such a drastic manner in the relations between the parties?

The legislature has come retrospectively to alter the maturity of the claim for reasons of public interest. The time for payment of cheques is being postponed without the parties having agreed between themselves, and this obviously constitutes a significant restriction on the constitutionally guaranteed contractual freedom of the parties to the transaction. This restriction, however, is acceptable to the legal system, as has been ruled by the courts on several occasions, provided that the principle of proportionality is respected and there are serious reasons of public interest (see, for example, the Plenary Session of the Council of State, 1909/2001: 'legislative intervention in the development of an established contractual relationship constitutes an exceptional measure and is justified on serious grounds of public interest...').

Β. What is the fate of the companies that have received these "suspended" checks (the drawees of these checks)? 

The businesses that have received cheques and still have them in their hands (the drawees) are the ones in the greatest difficulty. Because they can neither collect nor is the legislator protecting them from their own creditors when they have obtained raw materials, for example without cheques ('open' as it is usually called) or with cheques but are not themselves included in the affected CDRs. In fact, some companies (e.g. in the energy and transport sectors) have already abolished credit, while in some other sectors it never existed, so that there is an immediate need to find liquidity to pay off liabilities. A similar example is the petrol station owners' sector, where their federation (P.O.P.E.K.) has issued a notice on the impossibility of collecting the cheques in their hands and the simultaneous obligation to pay for petroleum products in cash, without the possibility of credit. Similarly, the problems are also acute for importers who pay cash for goods or raw materials to foreign suppliers. Strong reactions have also been expressed by agricultural businesses which will not be paying the cheques they hold (from traders, processing plants, etc.) but will have to pay their obligations and the cheques they have issued themselves at the same time. 

As regards the issue of businesses that are not included in the affected CDOs but a large amount of their revenues (the total value of the securities whose payment is suspended is greater than 20% of their average monthly turnover of the immediately preceding tax year) is not repaid due to the 75-day suspension in question, the legislator provides the following: these businesses can also be individually included in the protective framework of the 11/3/2020 PNE with the tax and insurance facilities provided there. However, this arrangement does not suspend their own obligations to their suppliers and, in particular, does not suspend the payment of their own cheques.

C. What is the fate of affected businesses that have simply endorsed rather than issued checks?

The way in which this particular PNR is implemented seems to protect only the issuing firms and not the endorsing firms, i.e. they have not issued the cheques but only endorsed them. In this case, if the issuer is not the affected party, the cheque is normally presented and stamped if it is found to be bounced, with the risk that legal action may also be taken against the endorsing company, even if it is active in an affected sector. There is of course a contradiction here, since although the wording of the law may support the protection of the endorser, the practice of credit institutions is to protect only the issuer. 

D. What is the fate of cheques issued by non-affected businesses under the CDD?

As stated in the relevant announcement of the Hellenic Union of Banks: "The aforementioned provisions of the PNP of 30.03.2020 do not affect the appearance/payment/stamping of securities whose payees do not fall under the above mentioned CODs". Moreover, while the fact of a pandemic is indeed a force majeure event, if it is linked to the weakness that has arisen (e.g. it is not a force majeure event for a supermarket business), it is not a reason for exemption from the obligation to pay financial obligations. The only thing that a force majeure event can in principle offer the debtor of a financial obligation is relief from interest on arrears. This is because, as it is written, a diligent debtor takes care to manage his financial resources so as to be punctual with his payments (see for example Athens Court of Appeal 39/2017 in relation to PSI: "In case the debtor is short of money, he is not relieved of his obligation to pay the monetary debt"). Therefore, even in the case of an unintentional delay in performance, the debtor still owes the overdue benefit simply without interest. Therefore, companies that are not covered by the protective measures of the above mentioned MAP are in principle obliged to pay the cheques they have issued, even in the midst of an economic crisis. 

However, in exceptional cases, the terms of a cheque, or a contract in general, can be changed by recourse to the courts. The debtor's last resort in the face of the coronavirus pandemic is to invoke the principle of good faith (Articles 288 and 388 of the Civil Code). However, apart from the cases of leasing and work contracts (where these provisions are indeed frequently used), there are not many court decisions which accept the application of these provisions to other contracts, such as the supply (sale) of goods.

The result of the use of these provisions is to alter the supply. Not only in terms of the time and manner of performance, but sometimes also in terms of the amount of the supply. The aim is to adapt the contract to the requirements of good faith in commercial transactions. However, the need to adapt the contract is not the same for each contracting party-business. For example, a large company with high reserves can cope with market shocks more easily than, for example, a sole trader. The application of the specific provisions of the Civil Code will also be determined by the individual contractual texts drawn up between the undertakings.

For example, it was ruled by the Athens Court of First Instance (in its decision No. 188/2018) that the price of the sale of medical devices must be reduced by 30% due to the financial weakness of the Hospital and the trading customs that had been formed. Another example is a 1986 Supreme Court decision (1733/1986). In this case, a contract for the manufacture and delivery of cast iron pieces had been drawn up in a time of economic stability. Eventually the cost of production changed rapidly upwards and it was therefore held that the sale price should also be adjusted, increasing by 30% from what had originally been agreed ("These events brought about a sharp and large increase in all items and in the cost of living in general and in this way the seller defendant's performance became, in so far as the part of the contract not yet performed was concerned, excessively onerous").

One situation where a suspension of a cheque payment could be judicially upheld is with respect to businesses that are individually included in the 11/3/2020 PPA for tax and insurance facilities based on turnover (see above) but not in this PPA for their own cheques. In this case, since the legislator has considered that the impact on them of the non-recovery of their claims is so severe that the 11/3/2020 CPD should apply, there is no reason why they should not be protected under this 30/4/2020 CPD for their own cheques. Especially when the amounts of the suspended checks they have in their hands are particularly high in relation to their turnover. This is because it is not in accordance with business ethics and good faith for a company to be legally prevented from collecting a large part of its revenue but at the same time to be obliged to repay debts to its own suppliers at the risk of having its cheques stamped.

Now all of the above in terms of legal action requires immediate action. Should the issuer of a non-defaulting CDO request, and if it does not come to a compromise with the bearer of the cheque, in court (with an application for an escrow injunction), that the cheque not appear and be paid until e.g. after a corresponding period of 75 days, thereby achieving a legislative suspension by court order, but this time. Similarly, the price can be adjusted in exceptional cases, as e.g. ruled in the above decisions. Obviously, few companies will be willing to take such actions, also coming into conflict with their suppliers, and thus the burden will ultimately have to be met by bank financing, if this is feasible on their own merits, and bearing, of course, the cost of this.