In the Name of Allah, the Entirely Merciful, the Especially Merciful

All praise is due to Allah, Lord of the worlds, may the blessings and peace of Allah be upon our master Muhammad, the seal of prophets, on his family, and all his companions.

Resolution No. 218 (2/23)

on

Rulings on Insolvency and Bankruptcy in Shariah and Contemporary Systems
(A Completion of the Previous Resolution)

The Council of the International Islamic Fiqh Academy of the Organization of Islamic Cooperation, held in its twenty-third Session in al-Madinah al-Munawarah on 19-23 Safar 1440, corresponding to 28 October-01 November 2018.

Having reviewed the recommendations issued from the scientific symposium: Rulings on Insolvency and Bankruptcy in Shariah and Contemporary Systems (A Completion of the Previous Resolution), held by the International Islamic Fiqh Academy in Jeddah with the cooperation of the Islamic Research and Training Institute of the Islamic Development Bank between 31 November and 1 December 2017.

Having listened to the discussions,

Resolves the following

First, confirmation of the Academy resolution no. 186 (1/20) statement on the definition of insolvency and bankruptcy while taking into account the custom practice in determining insolvency applications.

Second, confirmation of paragraph (2) of the resolution mentioned above on the criteria of bankruptcy, while taking into account the following:

1- A judicial decree should certify bankruptcy.

2-Rulings on bankruptcy apply for both the natural and legal person.

Third, confirmation of paragraphs (1), (2), and (3) in the resolution mentioned above.

Fourth, some insolvency and bankruptcy issues in Islamic financial markets are as follows:

1- If the assets owned by the institution or the company fulfil its debts, a default in payment is considered insolvency and not bankruptcy from the Shariah perspective. The creditor may recourse to justice for issuance of a bankruptcy decision or certificate. The indebting company or institution may also recourse to justice in order to obligate creditors for restructuring.

2-Some suggested solutions to solve insolvency (default/difficulty) in Islamic financial institutions and companies are as follows :

A- Submitting a particular financial asset, or a valuable item for the payment of the owed debt.

B- Transforming debts into shares (capitalization) through increasing the financial capital of the indebting company by issuing ordinary shares which the creditor contributes with his debt owed to the company. Then, he would turn into an owner of a portion in the company and its assets with the same amount he has been indebted.

3- The agreement of the company or the indebting institution with the creditor on adjournment according to how an expert and reliable authority estimates the situation of the company and it is up to them to determine the conditions of adjournment if required.

Fifth, General Recommendations:

1)The Council recommends undertaking extensive studies on the practical solutions for insolvency in financial institutions to preserve the rights of all parties.

2)The Council recommends drawing attention to introducing regulations and laws which protect crediting and debiting clients of the company while taking into account the preservation of the rights of all related parties in order to rectify their financial status.

3)The Council recommends relevant authorities, particularly judicial authorities, to draw attention to judicial principles which keep pace with contemporary developments in the field of insolvency and bankruptcy.

4)The Council recommends the Secretariat of the Academy to continue studies on the effects of insolvency and bankruptcy on limited liability companies including the case when its principal owner is still at ease.

Allah Knows Best