Purchasing a company that has some machinery on finance and some outstanding factory invoices
Question
I am in the process of considering acquiring a company worth £10 million which otherwise risks liquidation. If I proceed, it will be purchased for less than £1 million. The company makes plastic related items. I have two specific questions:
(1) Approximately £3 million worth of machinery was re-financed by the current owners with an agreed repayment plan in instalments. The company thus owes money to a finance company. My intention, if it is permissible to proceed, is to sit with the finance company and fix the repayment plan, for example, that the company will repay in 12 months and fix the repayment amount. There is no reason why the finance company will not agree on this. Is this permissible?
(2) The company was involved in invoice factoring also known as invoice discounting. This simply means that it would sell an invoice at a cheaper cost to a third-party company to get immediate cash to ease the cashflow. For example, if a customer owed £10,000 to the company, this invoice would be sold to a factory company that would provide £9000 immediately and thereafter the factory company would recover the full balance of £10,000 within the 90-day payment period for example. I am aware that invoice factoring is not Islamically permissible, and if I was to acquire the company, I would not use this model at all. However, there are some outstanding invoices to be paid to the factory invoicing corporation by the customers of the company and if I acquire the company, my staff would have to be chase up the customers, and as a result, the company will receive 30% of the difference, so £300 commission in the £10,000 example above. Is this commission permissible for the company once I acquire it?
بسم الله الرحمن الرحیم
Answer
(1) If you acquire the company, you should agree and fix the payment amount and terms with the finance company. All elements of interest must be removed. The payment amount must be fixed, and there should be no clause of discounts for early repayments, or interest on late payments. You should honour what is agreed and ensure that all repayments are made as per the revised terms. If this is possible, then you can proceed with the acquisition.
(2) Invoice factoring is not allowed in Islam because it is based on interest. You must therefore ensure that the practice is stopped if you acquire the company.
In relation to the outstanding invoices based on the actions of the current owners, it will be permissible for you as the new owner to chase those customers and also receive the 30% commission. This is because Islamically, the company is entitled to the full amount of the invoice, and the invoice discount arrangement via the third party is Islamically invalid. As such, the company can receive the 30% commission and thereby recover the loss albeit partially. You will not be responsible for the actions of the current owners and will be Islamically entitled to the 30% commission as that is in reality part of the original invoice owed to the company. To use the £10,000 invoice example stated in the question, the company is entitled to £10,000 from an Islamic perspective. The company has only received £9000 and with the commission it will receive £9300 in total, so this is permissible.
قال الله تعالى: أحل الله البيع وحرم الربا. وعن أبي هريرة قال: نهى رسول الله صلى الله عليه وسلم عن بيعتين في بيعة، رواه النسائي (٤٦٣٢) وصححه الترمذي (١٢٣١) ونقل عن بعض أهل العلم قالوا: بيعتين في بيعة أن يقول: أبيعك هذا الثوب بنقد بعشرة وبنسيئة بعشرين، ولا يفارقه على أحد البيعين، فإذا فارقه على أحدهما فلا بأس إذا كانت العقدة على أحد منهما، انتهى۔
وقال الله تعالى: إن الله يأمركم أن تؤدوا الأمانات إلى أهلها. وقال السرخسي في شرح السير الكبير (ص ١١١٦): وما حصل بسبب خبيث فالسبيل رده، انتهى. وقال في المبسوط (٢٢/٦١): فإن ربح في ذلك، رد الربح على من أخذه منه إن كان يعرفه، لأنه أخذه منه بسبب فاسد، فيستحق رده عليه، وإن كان لا يعرفه تصدق به، لأنه حصل له بكسب خبيث، انتهى۔
Allah knows best
Yusuf Shabbir
7 Rabīʿ al-Thānī 1447 / 30 September 2025
Approved by: Mufti Shabbir Ahmed and Mufti Muhammad Tahir
