Is it permissible for a merchant to pay off the debts of insolvent debtors from his zakat money, with the intention of it being both zakat and a recovery of the debt at the same time?

The prevalent scholarly opinion is that it is not permissible for a creditor to waive a debt owed to him by a debtor in exchange for Zakat (definition). Similarly, it is not valid to give Zakat to a debtor on the condition that he uses it to repay his debt. However, if the debtor is given ownership of the Zakat money and can dispose of it as he wishes, and then, without any prior condition, he returns it to the creditor to settle his debt, there is no harm in that.