What is the position of a business going into liquidation known to be owing many people monies, for stock purchased, and perhaps in a month or later opening another business on another name? The previous director/s still live the same lifestyle and drive around in the same luxury cars. By becoming liquidated, are they absolved from paying their debts?
Almighty Allah Ta’ala states in the Noble Qur’aan ‘Oh you who believe, Do
not eat your wealth among yourselves unjustly, except that it be a
transaction with mutual happiness.’ (Sura Nisaa Aayat 29).
The prohibition
of unjustly eating the wealth of others includes dishonouring a debt. Allah
Ta’ala and Rasulullah (Sallallaahu Alayhi Wasallam) have announced serious
warnings and punishments for dishonouring debts. Consider the following
quotations.
* And whosoever does that (unjustly eats the wealth of others), We will soon
burn him in the fire (Ibid).
* Hadhrat Abdullah Ibn Umar (RA) narrates that Rasulullah (Sallallaahu
Alayhi Wasallam) said every sin of a Shaheed (martyr) is forgiven but debts.
(Mishkaat Pg. 252, Me’raaj).
* Hadhrat Abu Hurairah (RA) narrates that Rasulullah (Sallallaahu Alayhi
Wasallam) said, ‘The soul of a believer will be suspended (from entering
Jannah) due to his debt until paid.’ (Ibid).
* Hadhrat Abu Hurairah (RA) narrates that when the janaza of a deceased who
was in debts used to be brought to Rasulullah (Sallallaahu Alayhi Wasallam),
he used to enquire whether the deceased had left moneys in his estate or
not; if there were moneys (to honour the debts) then only would he perform
the janaaza (Ibid).
* Hazrat Abu Hurairah (RA) narrates that Rasulullah (Sallallaahu Alayhi
Wasallam) said, the (undue) delay of a wealthy person in paying his debts is
oppression (Mishkaat Pg. 251, Me’raaj).
In an Islamic State it is the responsibility of the ruler to secure payments
of debts. If a debtor has some wealth, the ruler will imprison him until he
sells his belongings – in order to honour his debts. (Raddul Mukhtar vol. 6
pg. 150 HM Saeed). If he refuses to sell his belongings, the ruler will then
himself sell all his belongings and distribute it to the creditors pro-rata
their debts. The ruler may leave only one set of clothing for the debtor to
cover his body (Hidaya vol. 3 – chapter of Hajr). The ruler even has the
right to take all his (debtor’s) cash and pay the creditors without the
consent of the debtor.(Ibid) According to Imaam Abu Hanifa, after the
litigation process of any possible recovery of debts, and the debtor being
declared insolvent by the ruler, then too the debtor is not absolved from
his debts. Rasulullah (Sallallaahu Alayhi Wasallam) said that the person
with the right (creditor) has a hand and tongue. (Nasbur – Raayah Zailaee
vol. 4 pg. 166 – Majlis – Ilmi). The hand and the tongue in the above hadith
refers to the constant demand of the creditor for the payment of the debt.
The creditors have the right to take the earnings of the insolvent debtor
and divide it among all creditors. (Hidaya Ibid)
From the aforegoing, it is clear that the rules and principles of insolvency
in the secular system does not corroborate with the laws and principles of
insolvency in Shariah. It is not permissible to search and create a loophole
in the legal system and declare oneself insolvent in order to avoid payments
to one’s creditors. That will be regarded as oppression and a major sin. If
the debtor still owns a house, cars, etc., according to Shariah he is not an
insolvent person. He should sell his belongings, car, house etc., and honour
his debts. However, if a person is honestly insolvent, he should seek the
forgiveness of his creditor and make every attempt to pay the debt. He
should also record the debt in his will. Rasulullah (Sallallaahu Alayhi
Wasallam) also advised the creditor to be lenient to his debtors. If
possible he should grant respite for late payments or remit the entire or
part of his debt. Rasulullah (Sallallaahu Alayhi Wasallam) informed us of a
creditor being forgiven by Allah Ta’ala for his sins due to his leniency to
his debtors.
As Muslims we should be conscious of our accountability in the court of
Allah Ta’ala and be truthful in all our dealings.
and Allah Ta’ala Knows Best
Mufti Ebrahim Desai