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V,—AMENDMENT OF THE BANKRUPTCY ACT (1869).
THE last nine years have disclosed many defects in the present Bankruptcy Act (I869). How far these defects can be remedied will be considered in this article.
The Statute of 1869 is primarily applicable to England, and not to Scotland or Ireland. No doubt the Scotch or Irish property of an English bankrupt may be dealt with under the Act; but, considering the very intimate commercial relations of the United Kingdom, the time has arrived for making one bankruptcy law applicable to the whole of Britain and Ireland, and also to India, and also all those Colonies which have no independent Legislatures of their own. To have different statutes for the three kingdoms is as inconvenient and absurd as if there were different acts for Liverpool, Manchester, and London. To provide for the difference in procedure under an act for the United Kingdom would not involve any insurmountable obstacles.
Sections 6th and 7th lay down the grounds for an adjudication in bankruptcy, and specify the acts or defaults which are to be deemed acts of bankruptcy. These sections, and the corresponding sections of previous acts, have caused much needless litigation and useless expense to creditors on bankrupt estates. These sections ought to be repealed, and adjudication in bankruptcy should be allowed in all cases where the bankrupt himself, or one or more of his creditors, could show to the Court that the debtor’s estate was insuflicient to pay all the debts in full. Conveyances or assignments by a debtor of his whole property for behoof of his creditors, and fraudulent preferences, might then, as from a certain number of days—say 60 days, or 3 monthsbefore the adjudication, be declared null and void. The law as to fraudulent preference has been the subject of much recent discussion; and, in particular, was elaborately considered by Mr. Daniel, Q.C., in a paper which he read at the meeting of the Social Science Association held at Liverpool in I876. This point, from the almost utter impossibility of proving fraud, is beset with serious practical difficulties. Mr. Daniel appears to suppose that the Legislature should hinder an insolvent debtor from paying a friend to whom he owed a sum of money; but I do not believe that any good purpose would be served by such an investigation of the debtor’s affairs as Mr. Daniel’s proposal involves. Unless the bankrupt estate, or a portion of it, has been made over to a friend, or a person in the debtor’s confidence, who really holds it in trust for the bankrupt himself, the best thing which can happen for the creditors, is a speedy realisation of the assets belonging to and in the possession of the bankrupt as at the date of the adjudication, and then an equal division of the proceeds amongst them. Fraud, and every other form of dishonesty, can be better dealt with by the Criminal than the Civil laws. Fraudulent preferences are specifically treated in Section 92nd; but with no beneficial results as regards creditor. Looking at that section, with its elaborate enumeration of instances of fraudulent preferences, which are illegal and void as against the trustee in bankruptcy, one might almost suppose that the Legislature had become virtuously indignant at the dishonesty of paying or giving security, within three months of bankruptcy, for debts previously incurred; but the last three lines of the section at once dissipate such a transcendental notion, and protect purchasers, payees and incumbrancers acting in good faith, and who are creditors for valuable consideration. The section is neither more nor less than absolutely useless, and ought to be repealed. Some have thought that our commercial morality would be raised and purified by more stringent regulations against preferences being given to some creditors ; but, until all payments or securities granted within a certain period of bankruptcy are illegal, the law of fraudulent preference will be a dead letter. This sweeping amendment is neither just nor politic.
The 8th Section treats of proceedings in bankruptcy. Bearing in mind what has been already suggested as to the grounds of bankruptcy, the proceedings on the petition would be proof of a debt to the extent of £50, and of the debtor’s inability to make payment. If a debtor can, and does prove these two things, he should at once be adjudicated a bankrupt on his own petition; and, if a creditor can and does prove them, adjudication in bankruptcy should be awarded after the lapse of a sufficient number of days subsequent to the service of the petition on the debtor personally, or at his last or best known place of business or dwelling-house, or of service in such manner as the Court may authorise. Whether an insolvent person is a trader or not, ought not to affect the right of the insolvent to be relieved of his debts, or of the creditors to insist upon an equal division of the insolvent’s estate. As a protection against the malicious presentation of a petition of bankruptcy, the law as to maliciously taking legal proceedings should be strictly enforced. Taking the number of bankruptcies wound up in 1876 as a criterion, there cannot be much doubt as to the propriety of winding-up all insolvent estates where a creditor cannot get payment of a just debt, and the debtor refuses, or is unable to show that an adjudication of bankruptcy ought not to be awarded against him.
Section 1o.—The appearance of a notice of adjudication in bankruptcy is conclusive evidence of bankruptcy. There must be some general test of the adjudication, and the one long ago adopted, and consecrated by time, is as good as, if not better than, any other that can be substituted in its place. As a matter of fact, however, this notice never comes to the knowledge of many of the creditors till they have received numerous communications from those who wish to be appointed trustees on the bankrupt estate ; and, therefore, a useful provision would be to compel the debtor, at as early a date as possible, to communicate the adjudication to all the creditors and also to intimate the probable amount of liabilities and assets. It is desirable that this intimation should be given on the day when the notice of adjudication appears in the Gazette.
Section rr.—The nth Section defines the commencement of bankruptcy, and contains the doctrine of relation. It involves some of the most vital points in the whole law of bankruptcy. Having already proposed the abolition of all acts of bankruptcy, unless the adjudication itself, the necessary logical consequence is that the commencement of the bankruptcy should be the date of the adjudication, and the doctrine of relation back should be abrogated. This doctrine is important in regard to the law of fraudulent preference, and so far as that doctrine ought to be maintained, the Legislature should simply declare that, within a fixed period, all fraudulent preferences should be null and void. This section is practically useless. It is simply a remnant of the old statute law of Elizabeth’s reign, to the effect that, from any act of bankruptcy, the bankrupt was absolutely deprived of all power to charge or dispose of his property to the prejudice of his creditors.
Section I4.—The rules for the appointments of trustees are here laid down. Much controversy has arisen on these subjects amongst ofiicial persons and commercial men. The former propose to place all bankruptcies under official management, and would abolish the ofiice of trustee as useless. There cannot be the slightest doubt that, at first sight, a system of pure official administration would be the best and most economical; but a highly organised system of State management would be sure to engender, as formerly, many huge abuses. Therefore it is not strange that mercantile men, who have by far the greater stake in the law of bankruptcy, do not appear to approve of this opinion. Numerous resolutions are to be proposed for the consideration of the Association of the Chambers of Commerce of the United Kingdom for this year; but not one of them has reference to the abolition of trustees. More than this, it is the duty of creditors to obtain payment of their claims against debtors on their own responsibility and at their own cost, and the State should not be authorised or encouraged to undertake this duty under any circumstances. The realization of insolvent estates by means of trustees must therefore remain part of the law of bankruptcy. Connected with the appointment of trustees is the election of a committee of inspection. This election is not compulsory, and may be dispensed with ; but, as experience has shown that the duties expected to be performed by the committee of inspection are almost invariably neglected, it would be better to throw all responsibility on the trustee in realizing the bankrupt estate according to fixed rules, or in compliance with the wishes of the creditors themselves. Payment to committees of inspection for every attendance at a meeting would not be a sufficiently strong inducement to committees to give much more regular attendance than at present. The auditing of the trustees’ accounts, supposed to be made by the committee of inspection, would be much better done by properly qualified accountants appointed and acting as the assistants of the head of the department for the administration of bankruptcy proceedings. The duty of these inspectors would be analagous to those performed by the inspectors of bank agencies ; and full power should be given them to examine, audit, and report upon all accounts in bankruptcies of every kind, and without any exception. If committees of inspection ought to be maintained, the appointment of ofiicial inspectors is still required, and would greatly diminish the extravagant costs of realizing and administering all insolvent estates. These costs are a real blot in the administration of the law of bankruptcy, and will never be materially diminished till the whole costs and expenses in the management of estates which come before the Court are all placed