Bankruptcy of business partner
Fatwa No: 349405

Question

Assalaamu alaykum. I have a quick question that I was hoping to get a ruling on. My father had his own car dealership and, unfortunately, it recently went bankrupt. He had a business partner who would give my father money to purchase cars for him and export them to him. Since he is a car dealer, after he files for them, the taxes paid on the cars are returned to him and he returns the taxes that the man initially paid to him. They did this multiple times until my father had to file for bankruptcy. When this happened, the man had made an investment and was waiting on the tax of the cars that he purchased to be returned. Unfortunately, the money was not returned as the company went bankrupt. Now, legally, there is no debt owed to this man, and that is my question today. Sharia-wise, does my father have to pay back this 'investment' even though the company went bankrupt, or is he free of it? This is the money that should have been returned to him for the tax payed on the cars, and not the cars purchased with the money. Thank you very much. Assalaamu alaykum.

Answer

All perfect praise be to Allah, The Lord of the worlds. I testify that there is none worthy of worship except Allah and that Muhammad  sallallaahu  `alayhi  wa  sallam ( may  Allaah exalt his mention ) is His slave and Messenger.

If by the partnership between your father and the person you mentioned, you mean a wakaalah relationship (contract of agency); i.e. your father is just an agent who pays those taxes on his behalf, and if it is returned to your father, he would return it to him, then there is no guarantee on your father if those taxes were not returned to him, because an agent (representative) does not have to guarantee something unless he is negligent or he transgresses.

However, if there is a real partnership between your father and that man and those taxes are from the company's money, then the loss will be borne by both of them together, according to the capital of each one of them in the company.

Ibn Qudaamah  may  Allaah  have  mercy  upon  him said in Al-Mughni, “The loss in the company is to be borne by each of them (the two partners) according to the capital money of each. If they contributed with an equal amount of money, then the loss is divided between them equally, and if one of them contributed two-thirds of the capital and the other contributed the one-third, then the loss is borne in the same manner. There is no difference of opinion among the scholars on this issue. This is also the view of Abu Haneefah, Ash-Shaafi’i, and others.” 

Nonetheless, it is more appropriate to ask the scholars in your country about this issue in person.

Allah knows best.

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