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Cash and credit price, liquidation of business and debts

Fatwaa ID: 550

Assalamu Alaikum Warahmatullahi Wabaraktuh.

  1. There are some businesses that offer cash price (lower) and credit price (higher) which has a time frame (fixed or flexible) within which to make payment. Is this allowed?
  2. A business goes into liquidation/receivership. There are creditors that are owed. Do the directors/shareholders become personally liable to settle outstanding monies owed to suppliers? Legally, in our jurisdiction, as far as I am aware, it’s a no. But Islamically?

In the Name of Allaah, the Most Gracious, the Most Merciful.
As-salaamu ‘alaykum wa-rahmatullaahi wa-barakaatuh.

  1. It is permissible to offer two different prices for cash and credit sales. However, the choice must be agreed on from the very beginning as well as the total price. The payment due date should also be agreed on. A person cannot be charged a late fee or similar related fees.
  2. When a business goes into liquidation or a receivership, the creditors are paid out first. If the monies are exhausted, then the creditors will simply write it off as a loss and thus settled. It usually does not extend to one’s personal liability as the business is regarded to be a juridical person. Islam recognizes the concept of this. Furthermore, with the mutually agreed terms and conditions, claim on one’s personal property are mitigated. Thus, it will not be necessary as shareholders or even directors to pay back from one’s personal wealth. If the creditor or supplier, however, is a private individual and not a business, then the shareholders should try to settle this personally as well.

And Allaah Ta’aala knows best.
Mufti Muajul I. Chowdhury
Darul Iftaa New York

07/17/1444 AH – 02/08/2023 CE | AMG3-3312

وصل اللهم وسلم وبارك على سيدنا محمد وعلى ءاله وصحبه أجمعين


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