John Smith

“ It is enough that the creditor is preferred. This avoids the nice questions of legal casuistry which have embarrassed the English courts, and it is the more rational rule, for creditors are not concerned with a debtor’s intention. Any person, trader or non-trader, may avail himself of the act, but, in the case of a corporation, there is this peculiarity: it may be petitioned against but cannot petition.
Insolvency is construed in a practical sense; that is, a person is insolvent where the aggregate of his property, at a fair valuation, is insufficient to pay his debts ”

“ The debtor’s property was naturally regarded as belonging to the creditors, but it could not be distributed among them until it was realized, and until their respective right and interests were determined by competent authority. In some cases claims to rank as creditors are of doubtful validity. In others the creditor holds securities, the value of which requires investigation, or he claims a preference to which he may or may not be legally entitled. Creditors have thus conflicting interests as between themselves, and are therefore incapable of acting together as a homogeneous body. ”

“ Only a trader can become bankrupt. The debt, too, for obtaining adjudication must be a commercial debt, the laws regulating bankruptcy being designed exclusively for the protection of commerce. To be made a bankrupt a trader need not be insolvent: it is sufficient that he has suspended payment. Commercial companies of all kinds are liable to be declared bankrupt in the same manner as individual traders. A trader-debtor can be adjudicated bankrupt upon his own petition, or upon the petition of a creditor, or by the court itself proprio motu. ”

“ A bankruptcy terminates by an ordinary composition (concordat) , a sale of the debtor’s assets (union) , or a composition by relinquishment of assets. It is a striking feature of the French system, and highly creditable to French commercial integrity, that a discharge in bankruptcy, even when accompanied by a declaration d'excusabilité, leaves the unpaid balance a debt of honour. At the time of the French Revolution the National Convention passed a resolution that any man who contracted a debt should never be free from liability to pay it. ”

“ Hence the necessity of devising some system which is just to creditors while not unduly harsh upon debtors, which discriminates between involuntary inability to meet obligations and wilful refusal or neglect, and which secures to creditors as between themselves an equitable share of such of the debtor’s assets as may be available for the payment of his liabilites. ”

“ In the distribution of the debtor’s property certain claims are entitled to priority over others. Thus the landlord, although not entitled to a preference out of the funds in the hands of the trustee, can distrain for unpaid rent on the goods and effects of the debtor remaining on the landlord’s premises, but where the distraint is levied after the commencement of the bankruptcy this right is limited by the act of 1890 to six months’ rent due before adjudication, the remainder of his claim ranking for dividend with the claims of other creditors. ”

“ On the other hand remedies against a debtor’s person, and still more against the persons of his family, are not only inconsistent with the growth of opinion among civilized communities, but are in themselves worse than futile, inasmuch as they strike at the root of all personal effort on the part of a debtor to retrieve his position and render a return to solvency impossible. ”

“ After payment of the costs of administration it is his duty to distribute the estate in dividends as speedily as possible. He may also, and with the sanction of the committee, or, where there is none, with that of the Board of Trade, carry on the business so far as is necessary to a beneficial winding-up, institute or defend legal proceedings, employ a solicitor to do any business previously sanctioned by the same authority, compromise debts and claims, raise money on mortgage, sell property on credit, or divide the estate where practicable among the creditors in its existing form. ”

“ Bankruptcy proceedings may be taken either by the debtor or by a creditor for a commercial debt, or may be ordered by the court. The amount of the debt is immaterial: a small sum will suffice, provided its non-payment is proof of insolvency. Bankruptcy can only be declared where there is insolvency. The judgment adjudicating a debtor bankrupt deprives the bankrupt of the right to administer his affairs, and nominates a trustee to realize the property under the superintendence of a judge and a commission of creditors. ”

“ A debtor may thus be insolvent without becoming bankrupt, but he cannot be a bankrupt without being insolvent, for bankruptcy is a legal declaration of his insolvency and operates as a statutory system for the administration of his property, which is thereby taken out of his personal control.
In primitive communities bankruptcy systems were unknown. Individual creditors were left to pursue their remedies by such means as the law or practice of the community might sanction, and these were generally of a very drastic character. ”

“ So far, therefore, as the act was concerned, every inducement was held out to the adoption of a course which took the examination of the debtor, the conditions of his discharge and the audit of the trustee’s accounts, out of the control of the court.
The establishment of a bankruptcy court, with its searching powers of investigation and its power of enforcing penalties on misconduct, can only be defended on the ground that the administration of justice is a matter affecting the interests of the community at large. ”

“ Creditors who fail to prove before the declaration of a dividend are entitled to receive their dividends on proving before any subsequent dividend is declared, but cannot disturb the distribution of any dividend already declared. Before distributing a final dividend notice is sent to every creditor whose claim has been notified to the trustee, but not finally established, with an intimation that unless so established within a specified period he will be excluded from participation in the estate. ”

“ Orders of cessio are only made in the sheriff courts, and when made, the court also appoints a trustee, who conducts the proceedings without the control exercised by the creditors in a sequestration. Under these conditions it will be seen that the original purpose and constitution of the process of cessio has entirely disappeared, and it has now become a modified form of official bankruptcy procedure, with a less elaborate routine than in the case of sequestration, and one perhaps more suitable to the smaller class of cases, to which in practice it is limited. ”

“ Where there is an estate or business to be managed the official receiver may appoint a special manager, who receives such remuneration as the creditors, or failing them the Board of Trade, may determine. As a consequence of the order the following obligations are imposed upon the debtor:—He must make out and submit to the official receiver within a prescribed period a statement of his affairs, containing the names and addresses of his creditors, the amount of their claims and the securities held by them, and the nature and value of his assets ”

“ Both kinds of bankruptcy are punishable, fraudulent bankruptcy by penal servitude, or in case of mitigating circumstances, by imprisonment for not less than three months. Accessories in fraudulent bankruptcies are liable to penal servitude—for instance, a creditor who conspires with the debtor to secure an advantage to the prejudice of the other debtors. The creditors are called together within one month from the date of adjudication, and at their meeting they may appoint a committee of their number to advise with the trustee. ”

“ Disqualifications.—A bankrupt cannot during his bankruptcy or until five years after his discharge, unless the bankruptcy is annulled or he obtains his discharge with a certificate by the court that the bankruptcy was caused by misfortune without misconduct, act as a member of the legislature, or as a justice of the peace, mayor, alderman, councillor, guardian or overseer of the poor, member of a sanitary authority, school, highway or burial board, or select vestry in any part of the United Kingdom. ”

“ Under the English acts a bankrupt is under no obligation to apply for his discharge. The result is that the United Kingdom contains a population of 70,000 undischarged bankrupts—a manifest danger to the trading community. Under the bankruptcy systems of New South Wales, Victoria and New Zealand, a bankrupt is bound to apply for his discharge within a fixed period, otherwise he is guilty of a contempt of court. ”

“ An independent official, the comptroller in bankruptcy, was appointed, whose duty it was to examine the accounts of trustees, call them to account for any misfeasance, neglect or omission, and refer the matter to the court for the exercise of disciplinary powers where necessary. These provisions were well calculated to promote sound administration, but they were, unfortunately, rendered nugatory by provisions relating to what were practically private arrangements on similar lines to those which had rendered previous legislation ineffective. ”

“ Votes may be given in person or by proxy, and stringent regulations are laid down with the view of preventing the abuse of proxies. General proxies entitling the holder to exercise all the powers which the creditor could exercise if present may be given to the official receiver or to any person in the regular employment of the creditor. Special proxies may be given to any person to vote for specified resolutions, or for the appointment of specified persons as trustee and committee. ”

“ The most prominent of these delinquencies which were brought to the notice of the committee were—failure by a debtor to keep any books or any proper or adequate books of account in his business; trading with knowledge of insolvency; gambling and speculation leading to, or contributing to, the debtor’s insolvency or bankruptcy; failure properly to account for any substantial deficiency of assets. The committee received a large body of evidence in favour of making delinquencies such as have been described punishable by imprisonment. ”

“ Only persons who have proved their debts are entitled to vote, and detailed regulations respecting proofs and the valuation of securities are laid down in the first and second schedules to the act of 1883. One of the chief alterations in the law on this point is the condition imposed on creditors on bills of exchange to deduct from their claims the value of the liability of prior obligants before voting, thus cancelling the power of controlling the proceedings previously possessed by persons who had no real interest in the estate. ”

“ The approval of a composition or scheme does not release the debtor from his liabilities under the criminal law, nor from the necessity of undergoing a public examination which must, in fact, be held and concluded before the approval of the court is applied for. ”

“ Notour bankruptcy continues, in cases of sequestration, until the debtor has obtained his discharge and in other cases until insolvency ceases. Sequestration may be awarded of the estate of any person in the following cases:—
1. Living debtor subject to jurisdiction of Scottish courts— (a) on his own petition with concurrence of qualified creditors, or (b) on petition of qualified creditors, provided he be a notour bankrupt, and have had a dwelling-house or place of business in Scotland within the previous year. ”

“ Estates are liquidated with great rapidity. In order that the creditors may receive dividends at the earliest moment, it is customary to sell the assets by auction. The creditors by a majority in number and three-fourths in value may accept a composition, but such an arrangement must have the approval of the court. The fees are very moderate: in an ordinary bankruptcy the attorney’s fees do not, it is said, exceed £5.
Italy.—Bankruptcy in Italy is regulated by the Commercial Code of 1883 (Part III.) . Only merchants can pass through the bankruptcy court. ”

“ A secured creditor if he proves must either surrender his security, or value the security and prove for the balance; and the trustee can thereupon, subject to the creditor’s power in certain circumstances to amend the valuation, take over the security by paying the amount of the valuation, or may require it to be realized. ”