The Financial Distress of Corporate Personality: A Perspective from Fiqh

Abstract

Oriental scholars discuss the concept of corporate personality
without any reference to Islamic law. A leading proponent of this view is
Joseph Schacht; a western scholar of jurisprudence who contended that Islamic
jurisprudence is limited to individual personality and devoid of corporate laws,
hence, contractual agreements between corporations has no basis in Islamic
law. Several scholars and researcher have responded with sufficient literature
on the status of an artificial person in Islamic law, but there are still issues with
the legal implication of corporate personality in the event of financial distress.
This study aims to explore Islamic threshold on fundamental principles of
corporate personalities and its contemporary applications in the situation of
financial trouble. The study will employ the analytical approach in describing
the essential characteristics of a corporation as inherent in Islamic law through
interpolation from the natural person and the possibility of adapting the existing
conventional bankruptcy laws. This study employs an analytical approach to Islamic literature and regular related works. The study found out that even
though the concept of financial distress has basis in Islamic law, it remains
complicated as it entails insolvency, bankruptcy and interdiction in a debtorcreditor
relationship. Overall, further efforts need to be done to put these
concepts into contemporary and applicable perspectives without violating
Islamic fundamental principle of justice and fair dealings.