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BANKRUPTCY (from Lat. bancus or Fr. b...
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See also:BANKRUPTCY (from See also:Lat. bancus or Fr. banquet table or See also:counter, and Lat. ruptus, broken) , the status of a debtor who has been declared by judicial See also:process to be unable to pay his debts . Although the terms " See also:bankruptcy ,, See also:Definition . and " insolvency " are sometimes used indiscriminately, they have in legal and commercial usage distinct significations . When a See also:person's See also:financial liabilities are greater than his means of See also:meeting them, he is said to be " insolvent "; but he may nevertheless be able to carry on his business affairs by means of See also:credit, paying old debts by incurring new ones, and he may even, if fortunate, regain a position of solvency without his creditors ever being aware of his true See also:condition . And even when his insolvency becomes public and See also:default occurs, a debtor may still avert bankruptcy if he is able to effect a voluntary arrangement with his creditors . A debtor may thus be insolvent without becoming bankrupt, but he cannot be a bankrupt without being insolvent, for bankruptcy is a legal See also:declaration of his insolvency and operates as a statutory See also:system for the See also:administration of his See also:property, which is thereby taken out of his See also:personal See also:control . In See also:primitive communities bankruptcy systems were unknown . Individual creditors were See also:left to pursue their remedies by such means as the See also:law or practice of the community might See also:sanction, and these were generally of a very me drastic inethty ods . See also:character . Under the See also:Roman law of the Twelve Tables, the creditors might, as a last resort, cut the debtor's See also:body into pieces, each of them taking his proportionate See also:share; and although See also:Blackstone in quoting this law appears to See also:cast some doubt upon its too literal See also:interpretation, there can be no doubt that the See also:power of selling the debtor and his See also:family into See also:slavery was one which was habitually exercised in See also:Greece, See also:Rome, and generally among the nations of antiquity . Even among the See also:Jews, whose legislation was of a comparatively humane character, this practice is illustrated by the Old Testament See also:story of the woman who sought the help of See also:Elisha, saying, " Thy servant my See also:husband is dead . . and the creditor is come to take unto him my two See also:children to be bondmen." The See also:savage severity of these earlier See also:laws was, however, found to be inconsistent with the development of more humane ideas and the growth of popular rights; and tended, as in the See also:case of Greece and Rome, to create serious disturbance in See also:political relations between the See also:patricians, who generally composed the wealthier or creditor class, and the plebeians, in whose ranks the See also:majority of debtors were to be found . Later legislation consequently substituted imprisonment in a public See also:prison for the right of selling the person of the debtor . Under the feudal systems of See also:Europe the See also:state generally insisted on its subjects being left See also:free for military service, and debts could not therefore be enforced against the person of the debtor; but as See also:trade began to develop it was found necessary to provide some means of bringing personal pressure to See also:bear upon debtors for the purpose of compelling them to meet their obligations, and under the practice of the See also:English courts of law the right of a creditor to enforce his claims by the imprisonment of his debtor was gradually evolved (although no See also:express legal enactment to that effect appears at any See also:time to have existed), and this practice continued until comparatively See also:recent times . Without some system of enforcing See also:payment of debts it would have been impossible for the See also:commerce of the See also:world to have attained its See also:present proportions; for See also:modern com- merce is necessarily founded largely on credit, and cO11'" credit could not have existed without the power of See also:objects, enforcing the fulfilment of financial contracts . On the other See also:hand remedies against a debtor's person, and still more against the persons of his family, are not only inconsistent with the growth of See also:opinion among civilized communities, but are in themselves worse than futile, inasmuch as they strike at the See also:root of all personal effort on the See also:part of a debtor to retrieve his position and render a return to solvency impossible . Hence the See also: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 See also:assets as may be available for the payment of his liabilites . These are the objects which the bankruptcy laws have primarily in view . Another See also:object, which has not always been so fully recognized as it might appear to deserve, has marked the most recent legislation, namely, the fostering of a higher See also:tone of commercial morality and the See also:protection of the trading community at large from the evils arising through the reckless abuse of credit and theunnatural trade competition thereby engendered . It must be. admitted that these objects are of a somewhat conflicting character, and wherever the state has interfered with the view of securing an efficient system of bankruptcy legislation the task has been found to be extremely difficult . Not only have the conflicting interests of the debtor and his creditors to be taken into See also:account, but the method to be adopted in dealing with his property has also given rise to much conflict of opinion, and to a lack of uniformity and consistency in the legislation which dealt. with it . 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 See also: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 there-fore incapable of acting together as a homogeneous body
.
Hence the necessity for calling in the aid of professional assignees or trustees, solicitors and other agents, who made it their See also:special business to See also:deal with such matters, exercising both administrative and quasi-judicial functions, in return for the remuneration which they receive out of the property for their services
.
Professional interests, which are not always identical with the interests of the debtor or the creditors, are thus called into existence, and these interests have from time to time exercised a powerful See also:influence in shaping the course of legislation
.
While the law of bankruptcy has therefore been largely the product of commercial development, it has necessarily been of slow and See also:gradual growth, tentative in its character, and subject to oscillation between the extremes of conflicting interests according to the temporary and varying predominance of each of these interests from time to time
.
No intelligible grasp of the principles which underlie the See also:history of bankruptcy legislation in See also:England, and no satisfactory explanation of the fluctuating tendencies which have marked its progress, are possible without bearing these considerations in view
.
Bankruptcy in England
.
The subject was originally dealt with in the See also:sole See also:interest of creditors; iii was considered fraudulent for a debtor to procure
History
.
his own bankruptcy
.
Thus the earliest English See also:statute
on the subject, 34 & 35 See also: Since 1542 about See also:forty acts of See also:parliament have been passed, dealing with the many aspects of the subject, and slowly expanding, modifying and See also:building up the highly complex system of administration which now exists . The courts exercising See also:jurisdiction originally. consisted of commissioners appointed by the lord chancellor . But in 1831 See also:Court of a special court of bankruptcy was established, See also:con-1831. sisting of six commissioners with four See also:judges as a court of See also:review, and See also:official assignees attached to the court for the purpose of getting in the distributing the bankrupt's assets . Non-traders were originally excluded from thebankruptcy court, and a special court called the " court for relief of insolvent debtors " was instituted for their benefit, in which relief from the liability to imprisonment could be.obtained on surrender of their property, but they were not discharged from their debts, subsequently-acquired property remaining liable . Both of these courts were subsequently abolished, non-traders were permitted to obtain the benefit of the bankruptcy laws, including a See also:discharge, and in 1860 the system of official assignees was swept away, and a new court of bankruptcy created with one of the See also:vice-chancellors at its See also:head as See also:chief See also:judge, and a number of subordinate registrars or inferior judges under him . This court has also now been abolished, and the business is administered by a judge of the high court specially appointed for the purpose by the lord chancellor, with registrars of the high court, who deal with the See also:ordinary judicial routine of bankruptcy See also:procedure in ' the See also:London See also:district, while similar duties are performed by the See also:county-court judges throughout the See also:country . But the questions which have proved the most difficult to deal with, and which more than any others have been the cause of fluctuating and inconsistent legislation, have undoubtedly been those See also:relating to the share which the creditors. creditors ought to have in the administration of the proceedings, and to special arrangements effected between a debtor and his creditors under conditions more or less beyond the control of the court . These two questions are largely intermixed, and the history of English legislation on these points and its results throw much See also:light on the causes of the failure of the many attempts which have been made by the most eminent legal authorities to bring the law into a satisfactory condition . The right of creditors to exercise some control in bankruptcy over the realization of the debtor's property through an assignee chosen by themselves was recognized at an See also:early date, but this right was exercised subject to the supervision of the court which investigated the claims of creditors and deter-See also:mined who were entitled to take part in the proceedings .. See also:Pro-See also:vision was also made for the See also:interim protection of the debtor's property by official assignees attached to the court, who took See also:possession until the creditors could be consulted, and under the supervision of the court audited the accounts of the creditor's assignee . So See also:long as this system continued substantial See also:justice was generally secured; the claims of creditors were strictly investigated and only those who clearly proved their right before a competent court were entitled to take part in the proceedings . The bankrupt was released from his obligations, but only after strict inquiries into his conduct and under the exercise of judicial discretion . The accounts of assignees were also strictly investigated, and the See also:costs of solicitors and other agents were taxed by officers of the court . But the system was found to be cumbrous, to See also:lead to delay and too often to the absorption of a large part of the See also:estate in costs, over the incufring' of which there was a very ineffective control . Hence arose a demand for larger See also:powers on the part of creditors, and the introduction into the bankruptcy procedure of the system of " arrangements " between the debtor and his creditors, either for the payment of a See also:composition, or for the See also:liquidation of the estate free from the control of the court . At first these arrangements were carefully guarded . Under the act of 1825 a proposal for payment of a composition might be adopted only after the debtor had passed Ads his examina- 1825of , /831, tion in court, and with the consent of nine-tenths in 1842, 1849. number and value of his creditors assembled at a meeting . Upon such See also:adoption the bankruptcy proceedings were superseded . Dissenting creditors, however, were not See also:bound by the See also:resolution, but could still take See also:action against the debtor's subsequently-acquired property . These powers were not found to be sufficiently elastic and the act failed to give public See also:satisfaction . Attempts were made by the acts of 1831 and 1842 to remedy the defects complained of by a reconstitution of the bankruptcy court and its official system . But these See also:measures also failed because they were based on the See also:assumption that judicial bodies could exercise effective control over administrative action, a control for which they are naturally unsuited, and which they could only carry out by cumbrous and expensive methods of procedure . Under the act of 1849 a totally new principle was introduced by the See also:provision that a See also:deed of arrangement executed by six-sevenths in number and value of the creditors for £10 and upwards should be binding upon all the creditors without any proceedings in or supervision by the court . But the determination of the question who were or were not creditors was practically left to the debtor himself, without any opportunity for testing by See also:independent investigation the claims of those who signed the deed to control the administration of the estate .
It is not difficult to see, in the light of subsequent experience, how likely this provision was to encourage fraudulent arrangements, and to introduce laxity in the administration of debtors' estates
.
A modification of the too stringent conditions of the act of 1825, which would have enabled a bankrupt to pay a composition on his debts, with the consent of a large proportion of his See also:bona-fide creditors, and subject to the approval of the court, after See also:hearing the objections of dissenting creditors, would doubtless have proved a beneficial reform, but the act of 1849 proceeded on a very different principle
.
Instead of reforming, it practically abolished judicial control
.
By avoiding Scylla it See also:fell into Charybdis
.
To give any majority of creditors the power to See also:release a debtor from his obligations to non-assenting creditors without full disclosure of his affairs, and without any exercise of judicial discretion or any investigation into the causes of the failure, or the conduct of the debtor, would in any circumstances have been to introduce a new and mischievous principle into legislation, for it would necessarily destroy the essential feature of such arrangements, that they are voluntary contracts, the responsibility for which lies solely with the parties entering into them
.
But to give such a power to creditors whose claims were subject to no independent investigation was to invite inevitable confusion and failure
.
Yet this was the dominating principle of English bankruptcy legislation for nearly See also:thirty-five years
.
Its effect under the act 1861 of 1849 was, however, to some extent modified by
subsequent decisions of the courts that to make a composition arrangement binding it must he accompanied by a See also:complete cessio bonorum; but this qualification was removed by the act of 1861 which made such arrangements binding without a cessio and reduced the majority required to make a deed of arrangement binding on all the creditors, to a majority in number and three-fourths in value of those whose claims amounted to £10 and upwards
.
The result was an enormous increase in fraudulent arrangements
.
The See also:theft See also:attorney-See also:general, See also:Sir See also:Robert See also:Collier, in introducing an amending act in 1869, described the abuses which had grown up under the 1849 and 1861 acts, as having the effect of enabling a bankrupt to " defraud those to whom he was indebted and to set them at See also:defiance"; while Lord See also:Cairns, the lord chancellor, in the See also:House of Lords expressed the opinion that the large increase which had taken See also:place in the See also:annual insolvency of the country during the preceding years could not " be attributed to depression of trade but must be traced to the enormous facilities which are given to debtors who wish to be released from their debts on easy terms." And yet in the legislation which ensued these facts were entirely ignored or lost sight of
.
It is indeed a curious See also:illustration of the difficulties which have attended bankruptcy legislation in England that the very measure 1869
.
(the act of 1869) which was introduced to remedy this
deplorable condition of affairs, was twelve years after-wards denounced in parliament by the See also:president of the See also:Board of Trade (Mr See also:Joseph See also: Under the act of 1869, the procedure under a bankruptcy See also:petition was certainly rendered effective . Meetings of creditors were presided over and creditors' claims were, for voting purposes, adjudicated upon by the registrar of the court; the bankrupt had to pass a public examination in court, which although chiefly left to the trusteeappointed by the creditors, afforded some opportunity for investigation; and the bankrupt could not obtain his discharge without the approval of the court and in certain circumstances the consent of the creditors . An independent official, the comp-troller in bankruptcy, was appointed, whose See also:duty it was to examine the accounts of trustees, See also:call them to account for any misfeasance, neglect or omission, and refer the See also:matter to the court for the exercise of disciplinary powers where necessary . These provisions were well calculated to promote See also: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 . In some respects the evil was aggravated . Deeds of arrangements were nominally abolished, but under sections 125 and 126 of the act a debtor was empowered to present a petition to the court for liquidation of his affairs by " arrangement," or for payment of a composition, whereupon a meeting of creditors was summoned from a See also:list furnished by the debtor, and without any judicial investigation of claims, a majority in number and three-fourths in value of those who lodged proofs of See also:debt, and who were present in person or by See also:proxy at the meeting, might by resolution agree to liquidation by arrangement or to the See also:acceptance of the composition . Such resolution thereupon became binding upon all the creditors, without any act of approval by the court, any judicial examination of the debtor, or any official supervision over the trustee's accounts . The debtor was not permitted to present a bankruptcy petition against himself, and consequently his only method of procedure was that which thus removed the matter from the supervision and control of the court, and as about nine-tenths of all the proceedings under the act of 1869 were initiated by debtors, it followed that only about one. tenth was submitted to proper investigation . It is true that the creditors might refuse to assent to the debtor's proposal, and that any creditor for 50 or upwards could present a petition in bankruptcy, but even where this course was adopted, the proceedings under the petition were, as a See also:rule, stayed by the court if the debtor subsequently presented a proposal for liquidation or composition, and the creditor was left to pay the expenses of his petition if the requisite majority voted for the debtor's proposal . So far, there-fare, 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 See also:audit of the trustee's accounts, out of the control of the court . The See also: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 fai/ causes:+ue:ft. interests of the community at large . But apart from Acts. the injury done to these interests by reducing the administration of justice to a question of See also:barter and arrangement between the individuals immediately concerned, one of the chief reasons why the acts of 1849, 1861 and 1869 proved failures, lies in the obvious fact that the creditors of a particular estate are not, as appears to have been assumed, a homogeneous or organized body *capable of acting together in the administration of a bankrupt estate . In the case of a few special and highly organized trades it may be otherwise, but in the See also:great majority of cases the creditors have but little knowledge of each other or means of organized action, while they have neither the time nor the inclination to investigate the complicated questions which frequently arise, and which are therefore left in the hands of professional trustees or legal agents . But the See also:appointment of trustees under these acts, instead of being the spontaneous act of the creditors, was frequently due to touting on the part of such agents them-selves, or to individual creditors whose interests were not always identical with those of the general body . According to G . Y . See also:Robson, the author of a See also:standard. See also:work on the subject, the arbitrary powers conferred by the act of 1861 " led to great abuses, and in many cases creditors were forced to accept a composition, the approval of which had been obtained by a See also:secret understanding between the debtor and favoured creditors, and not unfrequently by the creation of fictitious debts." These evils were greatly aggravated by the decisions of the court relating to proofs on bills of See also:exchange, under which it was held that the holder of a current See also:bill could prove on the bankrupt estate of an indorser, although the bill was not yet due, and the acceptor was perfectly solvent and able to meet it at maturity . Thus in large See also:mercantile failures, bankers and other holders of first-class bills could prove and See also:vote on the estates of their customers, for whom the bills had been discounted, and thus control the entire proceedings, although they had no ultimate interest in the estate . But probably the greatest source of the abuses which arose under the act of 1869 was the proxy system established by the act and by the rules which were subsequently made to carry it out . The introduction of proxies was no doubt intended to give absent creditors an opportunity of expressing their opinions upon any question which might arise . But the system was too often used for the purpose of stifling the views of those who took an independent part in the proceedings . The See also:form of proxy prescribed by the rules contained no See also:limitation of the powers of the proxy-holder and no impression of the opinion of the creditor . It simply appointed the person named in it as " my proxy," and these magic words gave the holder power to act in the creditor's name on all questions that might be raised at any time during the bankruptcy . Hence arose a practice of canvassing for proxies, which were readily given under the influence of plausible representations, such as the holding out of the prospect of a large composition, but which, when once obtained, could be used for any purpose whatsoever except the See also:receipt of a See also:dividend . Thus it frequently happened. that the entire proceedings were controlled by professional proxy-holders, in whose hands these documents acquired a marketable value . They were not only used to vote for liquidation by arrangement instead of bankruptcy proceedings, but not infrequently the matter took the form of a bargain between an accountant and a See also:solicitor, under which the former became trustee and the latter the solicitor in the liquidation, without any provision for control over See also:expenditure or for any audit of the accounts . Even where a See also:committee of inspection was appointed to exercise functions of control and audit, they too were often appointed by the proxy-holders, and not infrequently shared in the benefits . On the other hand, where the amount of debts represented by the proxy-holder was insufficient to carry the appointment of a trustee and committee, the votes could be sold to swell the chances of some other See also:candidate . Hence ensued a system of trafficking in these See also:instruments, the cost of which had in the long run to come out of the estate . The result was that undesirable persons were too frequently appointed, whose See also:main object was to See also:extract from the estate as much as possible in the. shape of costs of administration . The debtor was practically powerless to prevent this result . If he attempted to do so he sometimes became a See also:target for the exercise of revenge . His discharge, which under liquidation by arrangement was entirely a matter for the creditors, might be refused indefinitely; and so largely and harshly was this power exercised under the proxy system, especially where it was supposed that the debtor had See also:friends who could be induced to come to his aid, that a special act of parliament was passed in 1887, authorizing the court to deal with cases where, under the act of 1869, a debtor had not been able to obtain a release from his creditors . On the other hand, the complaisant debtor, although he had incurred large obligations in the most reckless manner, often succeeded in stifling investigation and obtaining his release without difficulty as a return for his aid in carrying out the arrangement . The result of such a system could not be other than a failure . After the act of 1869 had been in operation for ten years, the See also:comptroller in bankruptcy reported that out of 13,000 annual failures in England and See also:Wales, there were only l000 cases (or about 8 %o) " to which the more important provisions of the act for preventing abuses by insolvent debtors and professional agents applied; the other 12,000 cases (or 92 %) escaping the provisions which refer to the examination and discharge of bankrupts, and to the accounts, charges and conduct of the agents employed." It is not to be supposed that all the cases in the latter class were marked by the abuses which have been here described . In a large number the proceedings were conducted by agents of high character and See also:standing, and with a due regard to the interests of the creditors . But the facilities for fraudulent and collusive arrangements afforded by the act, and the want of effective control over administration, inevitably tended to See also:lower the morale of the latter, and to throw it into the hands of the less scrupulous members of the profession . The demand for reform, therefore, came from all classes of the business community . No fewer than thirteen bills dealing with the subject were introduced into the House of See also:Commons during the ten years succeeding 1869 . At length in 1879 a memorial, which was authoritatively described as " one of the most influential memorials ever presented to any See also:government," was forwarded to the See also:prime See also:minister by a large body of bankers and merchants in the See also:city of London . The matter was then referred to the president of the Board of Trade (Mr Chamberlain), who made exhaustive inquiries, and in 1881 introduced a measure which, with some amendments, finally became law under the See also:title of the Bankruptcy Act 1883 . Hitherto the question had been dealt with as one of legal procedure ; it was now treated as an act of commercial legislation, the main object of which, while providing by carefully framed regulations for the equitable See also:distribution of a 011883 . Act debtor's assets, was to promote and enforce the prin- ciples of commercial morality in the general interests of the trading community . One of the chief features of the act of 1883 is the separation which it has effected between the judicial and the administrative functions which had previously been exercised by the court, and the See also:transfer of the latter to the Board of Trade as a public See also:department of the state directly responsible to parliament . Under the powers conferred by the act a new department was subsequently created under the title of the bankruptcy department of the Board of Trade, with an officer at its head called the inspector-general in bankruptcy . This department exercises, under the direction of the Board of Trade, a general supervision over all the administrative work arising under the act . It has extensive powers of control over the appointment of trustees, and conducts an audit of their accounts ; and it may, subject to See also:appeal to the court, remove them from See also:office for misconduct, neglect or unfitness . A See also:report upon the proceedings under the act is annually presented to parliament by the Board of Trade, and although the department is practically self-supporting, a nominal vote is each See also:year placed upon the public estimates, thus bringing the administration under See also:direct See also:parliamentary See also:criticism and control . The act also provides for the appointment and removal by the Board of Trade of a body of officers entitled official receivers, with certain prescribed duties having relation both to the conduct of bankrupts and to administration of their estates, including the interim management of the latter until the creditors can be consulted . These officers act in their respective districts under the general authority and directions of the Board of Trade, being also clothed with the status of officers of the courts to which they are attached . While effecting this supervision and control by a public department directly responsible to parliament, the main objects of the measure were to secure—(r) An independent and public investigation of the debtor's conduct; (2) The See also:punishment of commercial misconduct and See also:fraud in the interests of public morality; (3) The See also:summary and inexpensive administration of small estates where the assets do not exceed £300 by the official See also:receiver, unless a majority in number and three-fourths in value of the creditors voting resolve to appoint a trustee ; (4) Full control in other cases by a majority in value, over the appointment of a trustee and a committee of inspection; (5) Strict investigation of proofs of debt, with regulations as to proxies and votes of creditors; (6) An independent audit and general supervision of the proceedings and control of the funds in all cases . Besides amending and consolidating previous bankruptcy legislation, the measure also contains special provisions for the administration under bankruptcy law of the estates of persons dying insolvent (§See also:I25); and for enabling county courts to make administration orders for payment by instalments in lieu of immediate committal to prison, in the case of See also:judgment debtors whose See also:total indebtedness does not exceed £50 (§ 122) . It also provides for the getting in and administration by the Board of Trade of unclaimed dividends and undistributed balances on estates See also:wound up under previous bankruptcy acts (§ 162) . Lastly, it amends the procedure under the Debtors Act of 1869, dealing with criminal offences committed by bankrupts (which, See also:prior to 1869, had been treated as part of the bankruptcy law), by enacting that when the court orders a See also:prosecution of any person for an offence under that act, it shall be the duty of the director of public prosecutions to See also:institute and carry on the prosecution . An amending act, under the title of the Bankruptcy Act 1890 was passed in that year, mainly with the view of supple- menting and strengthening some of the provisions Act of 1890. of the act of 1883, more particularly with regard to the conditions under which a bankrupt should be discharged or schemes of arrangement or composition be approved by the court . It also dealt with a variety of matters of detail which experience had shown to require See also:amendment, with the view of more fully carrying out the intentions of the legislature as embodied in the See also:principal act . These two acts are fo be construed as one and may be cited collectively as the Bankruptcy Acts 1883 and 1890 . They are further supplemented by a large body of general rules made by the lord chancellor with the concurrence of the president of the Board of Trade, which may be added to, revoked or altered from time to time by the same authority . These rules are laid before parliament and have the force of law . Besides these general acts, various measures dealing with special interests connected with bankruptcy procedure have Special from time to time been passed since 1883, the chief of acts. which are as follows, viz., the Bankruptcy Appeals (County Courts) Act 1884; the Preferential Payments in Bankruptcy Act 1888, regulating the priority of the claims of workmen and clerks, &c. for See also:wages and salaries; and the Bankruptcy (Discharge and See also:Closure) Act 1887, dealing with unclosed bankruptcies under previous acts . It would be out of place in this See also:article to See also:attempt to See also:answer the question how far later legislation has solved the difficult problems which prior to 1883 were found so intractable, Inquiry of but it may be mentioned that in 1906 the Board of 1906 . Trade appointed a committee to inquire into and report upon the effect of the provisions of the laws in force at the time in the See also:United See also:Kingdom in relation to bankruptcy, deeds of arrangement and composition by insolvent debtors with their creditors, and the prevention and punishment of frauds by debtors on their creditors, and any points and matters upon which the existing laws seemed to require amendment . The committee received a vast amount of See also:evidence as well as documents and memoranda from See also:chambers of commerce, trade protection See also:societies and influential public bodies . The See also:scope of the inquiry was not limited to English law and procedure, but also embraced that of See also:Germany, See also:France, See also:Australia, See also:Scotland and See also:Ireland . The report of the committee was issued i11 1908 (Cd . 4068), and reference may be made to it for much valuable See also:information . The committee reported that the result of their inquiry did not disclose any dissatisfaction on the part of the commercial community with the main features of the existing law and procedure . But there were certain special incidents of the law and branches of its administration upon which the committee made recommendations . One was the prosecution and punishment of debtors who had committed fraud on their creditors or caused loss to them by improper and reckless trading . The existing procedure was complained of as being See also:dilatory, cumbersome and expensive, and the committee were of an opinion that where a debtor had committed an offence for which he could and ought to be prosecuted, prosecution and conviction, with adequate punishment, ought to follow speedily and decisively, and the chief recommendation of the committee was that, while the existing procedure should be left untouched, offences ought also to be punishable on summary conviction before magistrates and justices, and the provisions of the Summary Jurisdiction Acts applied to them, and that where an See also:order for a prosecution is made on an application by the official receiver of a bankruptcycourt and based on his report, that court should have power to order the official receiver to conduct the prosecution before the court of summary jurisdiction . The committee also reported that numerous delinquencies by insolvent debtors in the conduct of their affairs, or which had contributed to the losses sustained by their creditors, were not punishable or even cognizable by courts having bankruptcy jurisdiction unless or until a debtor who had a receiving order against him, or became a bankrupt, applied for an order sanctioning a composition or See also:scheme of arrangement with his creditors, or for an ordeu discharging him from his debts . The most prominent of these delinquencies which were brought to the See also: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 See also: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 . Evidence was also given as to the laws in force in Germany, France and Scotland, from which it appeared that such delinquencies, especially that of keeping no books of account, can be severely dealt with as criminal offences . After carefully weighing the evidence on both sides the committee recommended that the failure or omission by a debtor who becomes bankrupt to have kept any books of account, or proper books of account, within two years next preceding his bankruptcy, in a trade or business carried on by him, if without excuse, should be made by law an offence punishable on summary conviction by imprisonment, subject to four important limitations, namely, that the law should define what books of account a person carrying on a trade or business must keep, following in this respect the law in force in France and Germany; that failure or omission by a debtor to have kept the required books should only be punishable in the event of a debtor becoming bankrupt and of the liquidated debts proved in the bankruptcy exceeding £200 in amount; that no prosecution of a debtor for failure or omission to keep books of account should take place before the See also:lapse of two years from the passing of the law; that a debtor should not be punished if he could show that his failure or omission to keep proper books was honest and excusable and did not contribute to his insolvency, and that no prosecution should be instituted for the offence except by order of the bankruptcy court . The committee made recommendations of much the same character with regard to punishing some of the other delinquencies mentioned above . There were also recommendations by the committee as to trading b'r undischarged bankrupts, as to the realization of estate on bankruptcy, as to the operation of the law of relation back of a bankruptcy trustee's title, as to the law relating to the after-acquired property of an undischarged bankrupt, and dealings with such property, and with respect to married See also:women and their liabilities under bankruptcy law . The committee also reported on the law and practice relating to voluntary deeds of arrangement between a debtor and his creditors and on the compulsory regulation of assignments of See also:book debts, and of agreements for the hire and See also:purchase of chattels . In addition to this report the annual reports of the Board of Trade, which are accompanied by elaborate tables of See also:statistics, and by copious illustrations both of the working of the system and of the characteristic features and causes of current insolvency, are published as parliamentary papers, and may be usefully consulted by those interested in the subject . It appears from these reports that the total number of insolvencies dealt with under the bankruptcy acts during the ten years ending 31st See also:December 1905, was 43,141, involving estimated liabilities amounting to £61,685,678, and estimated assets amounting to £26,001,417 . It may also be pointed out that according to the official figures, the cost of bankruptcy administration under the present system has very considerably decreased as compared with that under the act of 1869 . Estates are also closed at much shorter intervals, and, what is more important from a public point of view, it appears Results of legislation . that while the estimated liabilities of bankrupt estates during the ten years ending 1883 amounted on an See also:average to £22,380,000 per annum, the estimated liabilities during the ten years ending 1905 only averaged £6,168,567 per annum . But during the latter See also:period there was an annual average of 3426 private arrangements involving a further estimated annual liability of £4,166,354 entered into outside of the Bankruptcy Acts by insolvent debtors . There are no means of ascertaining the corresponding amount of liabilities on private arrangements outside of the Bankruptcy Acts prior to 1883, and therefore a complete comparison is impossible; but it is evident that on any method of computation there has been a very great diminution in the trading insolvency of England and Wales, while it is also clear as a matter of general knowledge in commercial circles, that a great decrease in the proportion of fraudulent trade and reckless speculation has been a marked feature of private trading during the period in question . The cost of bankruptcy administration is provided for: (1) by fees charged to bankrupt estates, (2) by interest on balances at the credit of such estates with the bankruptcy estates account, and (3) by interest on unclaimed funds at the credit of estates under former Bankruptcy Acts . Out of this are paid the salaries of all the officers of the department, including the official receivers; the remuneration due in respect of bankruptcy services to the county court registrars; See also:pensions, &c., payable to retired officers under the present and previous Bankruptcy Acts; cost of bankruptcy prosecutions; and rents, See also:stationery, travelling and other incidental expenses . The system is self-supporting and involves no See also:charge upon the tax-payers of the country . It has been objected that inasmuch as the act professes to be based on the principle of enforcing commercial morality in the interests of the general community, the cost of administering it should not be charged entirely to the bankruptcy estates concerned . But when it is considered that a large part of the See also:revenue of the department is derived from funds to which estates administered under the present act have contributed nothing, this objection does not appear to be well founded . For the convenience of readers who may require more detailed information, the accompanying summary of some of the more important provisions of the law relating to bankruptcy procedure is submitted . It must be See also:borne in mind, however, that the subject is in some of its branches extremely intricate, and that both the law and the procedure are being constantly affected by a considerable body of judicial interpretation, while the acts also contain detailed provisions with regard to many questions incident to the ad-ministration of bankruptcy . A reference to the latest See also:text-books or competent professional See also:advice will always be advisable for those who have the misfortune to be practically interested either as debtors or as creditors in bankruptcy proceedings . The Deeds of Arrangement Act 1887, although not falling strictly within the scope of the bankruptcy law, may also, in consequence of its important bearing upon the question Deeds of of insolvency in England and Wales, be here noticed . arrange- See also:mew . It has been pointed out that, under the Bankruptcy Acts of 1849 and 1861, non-official arrangements by deed between a debtor and the general body of his creditors were not only officially recognized, but were in certain circumstances made binding on all the creditors, including those who refused to assent to them . Under the act of 1869, although such deeds were no longer recognized or made binding on non-assenting creditors, the proceedings under the " liquidation by arrangement " and " composition " clauses were practically private arrangements by resolution instead of deed, and were proved by experience to be open to the same abuses . It has also been shown that under the act of 1883 no arrangements either by deed or by resolution have any force against dissenting creditors, unless confirmed after full investigation and 'approval of the bankruptcy courts . Private arrangements, therefore, cease to. form any part of the bankruptcy system . But they are, nevertheless, binding as voluntary contracts between the debtor and such creditors as assent to them . Being, however, in the natureof assignments of the debtor's property, they are either deemed fraudulent if the benefit of the See also:assignment is limited to a portion of the creditors, or, if it is extended to all they become acts of bankruptcy, and, like any other voluntary assignment, are liable to be invalidated if made within three months prior to the petition on which a receiving order is made against the debtor . Treated as voluntary assignments, which are not binding on those who do not assent to them, such arrangements, where honestly entered into and carried out by capable administration, in many cases form a useful and expeditious method of liquidating a debtor's affairs, and where the debtor's insolvency has been brought about without any See also:gross misconduct they will probably always be largely resorted to . The danger attending them is that even in cases where the debtor has been guilty of misconduct, a private arrangement may be used to See also:screen his conduct from investigation, while in many cases it may be made the See also:medium for the concealment of fraudulent preferences . The See also:absence of any independent audit of the trustees' accounts may also encourage or conceal irregularities in administration . Previous to 1887, however, much inconvenience arose from the fact that the See also:execution of these private arrangements was frequently kept secret, and fresh credit was obtained by the debtor without any opportunity being afforded for the new creditors becoming acquainted with the fact that they were dealing with an insolvent person, and that in many cases they were simply supplying the means for meeting past obligations in respect of which the debtor had already committed default . The Deeds of Arrangement Act 1887 was therefore passed to compel the disclosure of such arrangements, by declaring them void unless registered within seven days after the first execution by the debtor or by any creditor . See also:Registration is effected by lodging with the registrar of bills of See also:sale at the central office of the Supreme Court a true copy of the deed and of every See also:inventory and See also:schedule attached thereto, together with an See also:affidavit by the debtor, stating the total estimated amount of property and liabilities, the total amount of composition, if any, and the names and addresses of the creditors . Where the debtor's See also:residence or place of business is outside the London bankruptcy district, the registrar is required to forward a copy of the deed to the registrar of the county court of the district where the debtor's residence or place of business is situated . Both the central and the See also:local' registers are open to public inspection on payment of a small See also:fee and general publicity is secured by the action of various trade agencies, which make a practice of extracting and See also:publishing the information for the benefit of those interested . By See also:section 25 of the Bankruptcy Act 189o, every trustee under a deed of arrangement is required to transmit to the Board of Trade within thirty days of the 1st of See also:January in each year an account of his receipts and payments and such accounts are open to the inspection of any creditor on payment of a small fee . They are not, however, subject to any See also:kind of audit or control by the department . The registrar is also required to make periodical returns of the deeds thus registered to the Board of Trade, in order that a report of proceedings under the Deeds of Arrangement Act may be included in the annual report which the department is required to make on proceedings under the Bankruptcy Acts . Full statistics of such proceedings are accordingly included in these reports, from which it appears that during the ten years ended 31st December 1905 the total number of registered deeds of arrangement was 34,273, with estimated liabilities amounting to £41,663,541, and estimated assets to £23,020,483 . Summary of Bankruptcy Procedure.—Subject to certain special provisions in the case of what are termed " small bankruptcies " (see below), the following summary sets forth some of the more important provisions of the various acts. and rules relating to bankruptcy administration grouped under convenient heads to facilitate reference . In some cases the effect of legal decisions has been embodied in the summary . Preliminary Proceedings . Petition and Receiving Order.—Any court exercising bankruptcy jurisdiction in the district in which he resides or carries on business Summary of procedure . in England or Wales may make a receiving order against a debtor, whether a trader or not, either on his own petition or on that of a creditor or creditors whose claims aggregate not less than £5o . In the case of a creditor's petition See also:proof must be given of the debt, and of the See also:commission of an act of bankruptcy within three rnonths preceding the date of the petition . 
An act of bankruptcy is committed if the debtor fails to satisfy the creditor's claim upon a bankruptcy notice; if he makes an assignment for the benefit of his creditors generally; if he absconds or keeps house; if he gives notice of suspension of payments; if his goods are sold or seized under execution; if he files in court a declaration of inability to pay his debts; or if he grantsa fraudulent preference or See also:conveyance . These acts are here enumerated in the order in which they most frequently occur in practice . Object and Effect of Receiving Order.—The object of the order is to protect the debtor's property until the first meeting of creditors, and to bring the debtor and his affairs within the jurisdiction of the court . Its effect is to stay all See also:separate action against the debtor, and to constitute the official receiver attached to the court receiver of the debtor's property, although the legal title still remains in the debtor . 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; and accounting for his deficiency . Any material omission or false statement of his losses or expenses is a See also:misdemeanour under the Debtors Act, unless he can prove that he had no intention to defraud . The statement is open to the inspection of creditors . He must also in every case submit to a public examination in court, in which the official receiver, the trustee and any creditor who has proved his debt may take part . His evidence may be used against him . He may further be specially examined by the court at any time with reference to his dealings or property . He must attend the first meeting of creditors, wait upon the official receiver, trustee and special manager, and give all necessary information, and generally do all acts which may reasonably be required of him with the view of securing a full investigation of his affairs . He may be arrested if there is reasonable ground for believing that he is about to See also:abscond, destroy papers or remove goods, or if he fails without See also:good cause to attend any examination ordered by the court . The court may also for a period of three months order his letters to be re-addressed by the See also:post-office to the official receiver or trustee . With regard to persons other than the debtor, any person capable of giving information respecting the debtor, his dealings or property, may be examined by the court, and a summary order may be made against such person for delivery of any property belonging to the debtor . First Meeting of Creditors . This meeting is summoned by the official receiver, notice being given in the London See also:Gazette and in a local See also:paper, and sent by post to each creditor . A summary of the statement of affairs should accompany the notice, with any observations by the official receiver which he may think See also:fit to make . The object of the 'meeting is to decide whether any proposal for payment of a composition or for a scheme of arrangement submitted by the debtor is to be entertained, or whether an application should be made to the court to adjudicate the debtor bankrupt . In the latter case the meeting may by an ordinary resolution appoint a trustee with or without a committee of inspection . It may also give any directions as to the administration of the estate . The meeting should be held at the place most convenient for the majority of the creditors . It is presided over by the official receiver or his See also:deputy, who, subject to appeal to the court, admits or rejects proofs for the purpose of voting . For the transaction of business three creditors qualified to vote, or all the creditors if fewer than three, must be present or represented . 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 ofy controlling the proceedings previously possessed by persons who had no real interest in the estate . 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 leceiver or to any person in the See also: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 . Only official fo'rms can be used, and the blanks must be filled up in the See also:handwriting of.the creditor or some person in his regular employment, including the authorized See also:agent of a creditor See also:resident abroad . A proxy must be lodged with the official receiver not later than four o'See also:clock on the See also:day before the meeting or adjourned meeting at whichit is to be used . Resolutions are ordinary, special or extraordinary . An ordinary resolution is carried by a majority in value of the creditors voting; a special resolution by a majority in number and three-fourths in value of such creditors . The only instance of a resolution other than these is that required for the approval of a composition or scheme which requires a majority in number and three-fourths in value of all the creditors who have proved . The majority of questions arising at a meeting are decided by an ordinary resolution . See also:Adjudication .
If the creditors so resolve, or if a composition or scheme of arrangement is not proposed by the debtor or entertained by the creditors, or if entertained is not approved by the court, or if without reasonabie excuse the debtor fails to furnish a proper statement of his affairs, or if his public examination is adjourned sine See also:die, the court adjudicates the debtor bankrupt and thereupon his property vests in a trustee, and, subject to the payment of the costs and fees of administration, is divisible among his creditors until all his debts are paid in full with interest at the See also:rate of 4 % per annum
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Effect on Bankrupt.—The bankrupt is bound to aid the trustee in his administration, and if he wilfully fails to deliver up any part of his property he is guilty of contempt of court
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He is also liable to criminal prosecution under the Debtors Act if with See also:intent to defraud he conceals or removes property to the value of £10 or upwards; or if he fails to deliver to the trustee all his property, books, documents, &c.; or if he knowingly permits false debts to be proved on his estate without disclosure; or mutilates, falsifies, destroys or parts with books or accounts; or attempts to account for his property by fictitious losses; or if within four months next before presentation of a bankruptcy petition, he obtains property on credit by false See also:representation; or pledges or disposes of, otherwise than in the ordinary way of his trade, any property which has not been paid for; or by misrepresentation obtains the assent of his creditors to any agreement with reference to his affairs
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He is also under the act of 1883, guilty of misdemeanour if before his discharge he obtains credit for more than £20 from any person without informing such person that he is an undischarged bankrupt
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It is the duty of the official receiver to report any such facts to the court, and if the court is satisfied that there is a reasonable See also:probability of conviction, it is required to order a prosecution which is then conducted by the director of public prosecutions
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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 See also:peace, See also:mayor, See also:alderman, councillor, See also:guardian or overseer of the poor, member of a sanitary authority, school, See also:highway or See also:burial board, or select See also:vestry in any part of the United Kingdom
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Annulment.—An order of adjudication may be annulled if the court is of opinion that it should not have been made, or that the bankrupt's debts are paid in full, or if a composition or scheme of arrangement is approved by the court after adjudication
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Discharge.—The court may also at any time after the conclusion of the bankrupt's public examination, and after hearing the official receiver, the trustee and any creditor, to all of whom previous notice of the application must be given, See also: Neither does it release the bankrupt from liability to criminal prosecution . Composition or Scheme of Arrangement . After a receiving order has been made the debtor may submit a proposal for the payment of a composition, or for the liquidation of his affairs, by a trustee or otherwise, without adjudication . The proposal must be lodged with the official receiver in sufficient time to allow notice, together with a report by that officer, to be sent to the creditors before the meeting is held at which it is to be considered . If the proposal is entertained at the meeting by a majority in number and three-fourths in value of all the creditors who have proved their debts, and if it is thereafter approved by the court, it becomes binding upon all creditors who would be bound by an order of discharge had the debtor been adjudicated bankrupt . A similar proposal may be made after adjudication, and if entertained by the creditors and approved by the court, the adjudication may be annulled . The debtor's release will be subject to the terms of the scheme, but his future acquired property will not pass to the creditors unless there is an express stipulation to that effect . If default is made in carrying out the scheme, or if it is found that it cannot proceed without injustice or undue delay, the court may at any time adjudicate the debtor bankrupt, in which case the scheme will fall to the ground, except in respect of past transactions under it . 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 . Also before such approval is given a report must be filed by the official receiver upon its terms and on the conduct of the debtor, and the court must be satisfied after hearing that officer and any creditor, that the proposal is reasonable and calculated to benefit the creditors, and that no criminal offences connected with the bankruptcy have been committed by the debtor . Further, if any fact is proved which would have prevented the debtor from obtaining an See also:absolute or unconditional order of discharge had he been adjudged bankrupt, the composition or scheme cannot be approved unless it provides reasonable See also:security for the payment of not less than seven shillings and sixpence in the pound on all the unsecured debts . Where a trustee is appointed to carry out the composition or scheme, all the provisions of the act with reference to the remuneration of the trustee, the custody of funds, the audit of his accounts and the control exercised by the Board of Trade apply in the same manner as they would under an adjudication . Further, the provisions relating to the administration of property, proof of debts, dividends, &c., will also apply, so far as the nature of the case and the terms of the arrangement admit . Property divisible among the Creditors . No part of the law of bankruptcy is more intricate, or has been the subject of more litigation than this, and any detailed view of the effect of legal decisions can only be gathered by a perusal of the cases; but the following general principles may be stated:--The See also:term " property " includes not only property of which the bankrupt is the true owner, but property in his possession, order or disposition in his trade or business with the consent of the true owner, in such circumstances that he is the reputed owner thereof . The application of the See also:doctrine of reputed ownership has been considerably restricted in recent years by the growth of alleged trade customs, in accordance with which property is frequently See also:lent under a See also:contract of " hire and purchase " or otherwise; and by the decisions of the courts that where such See also:custom is sufficiently proved the doctrine does not apply . Further, the trustee's title not only includes property in the actual possession of the bankrupt, but relates back to the date of the first act of bankruptcy committed by him within the three months preceding the presentation of the bankruptcy petition, and thus invalidates all payments and assignments to creditors made during that period with knowledge on the part of the creditor or assignee of the commission of the act of bankruptcy . In such cases the trustee may, therefore, require the See also:money or property to be restored to the estate . And even where no prior act of bankruptcy is proved, any payment made to a creditor with the view of giving such creditor a preference over the other creditors, within the three months preceding the presentation of the petition on which the payer is made bankrupt, is rendered void as against his trustee . Settlements of property within the two years preceding the bankruptcy, unless made before and in See also:consideration of See also:marriage, or made in good faith for valuable consideration, are also void, as are similar settlements within ten years, unless it is proved that the settler was (independently of the settled property) solvent at the date of the See also:settlement, and that the interest in the property passed to the trustees on the execution of the deed . The same rule applies to covenants to See also:settle in consideration of marriage future-acquired property in which the debtor had no interest at the date of the marriage (other than property acquired by the bankrupt through his wife), if such 'property is not actually transferred before the bankruptcy . Executions by a creditor not completed at the date of the receiving order are also void, and the proceeds of an execution in the hands of the See also:sheriff must, with certain exceptions and subject to See also:deduction of costs, be handed over to the trustee . But all propertyheld by the bankrupt on trust, and tools of trade, wearing See also:apparel and bedding to a total value not exceeding 20, are excluded from the property divisible among the creditors . With respect to property acquired by the bankrupt, whether by See also:gift or See also:legacy, or consisting of accumulations of business or other profits after the commencement of the bankruptcy, and before he obtains his discharge, the trustee's title also prevails; but bona-fide transactions by the debtor for value, other than transactions relating to See also:freehold property, appear to be valid . Where the bankrupt is a beneficed clergyman the trustee may, subject to certain provisions for the due discharge of the duties of the office, apply for the See also:sequestration of the profits of the See also:benefice; and where he is in receipt of a See also:salary, income or See also:pension, &c., the court may order any part thereof to be paid to the trustee, but where he is an officer of the See also:army, See also:navy or See also:civil service, such order is only to be made with the consent of the chief of the department concerned . Claims of Creditors and Dividends . 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 See also: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 See also:remainder of his claim ranking for dividend with the claims of other creditors . Various See also:gas and See also:water companies have also statutory powers of distraint under special acts, but the policy of recent legislation has been to discourage any See also:extension of such privileges . Where the bankrupt holds an office of trust in any savings See also:bank or friendly society, any balance in his hands due to such bank or society has been held under the acts relating to these bodies to be payable in preference to any other claim against the estate . Other preferential claims are regulated by the Bankruptcy Acts and by the Preferential Payments in Bankruptcy Act of 1888, and include taxes, parochial and other local rates for not more than one year, wages and salaries for four months, but not exceeding ad (limited in the case of ordinary labourers and workmen to two months' wages not exceeding X25), and agricultural labourers' claims not exceeding one year s wages, if hired by special contract for payment of a lump sum at the end of a year . These claims are entitled to preference not only over funds in the hands of the trustee, but also over the proceeds of any distraint levied by the landlord within the three months prior to the receiving order, the latter in that case becoming a preferred creditor for the amount so paid . Articled clerks and apprentices may also be allowed repayment of a proportion of the See also:premium on their unexpired agreements . On the other hand, usual trade discounts (exceeding 5 %) must be deducted from traders' proofs, and the following claims are postponed until the general creditors are paid in full, viz. claims by a married woman for loans to the husband for the purposes of his business, claims for loans advanced to any person in business at a rate of interest varying with the profits, and claims for interest in excess of 5 % per annum . Subject to these exceptions all debts proved in the bankruptcy must be paid See also:pail passu . Any surplus after payment of 2os. in the pound and interest at the rate of 4 % per annum, from the date of the receiving order, is payable to the bankrupt . Proofs of Debt.—All claims and liabilities present or future, certain or contingent., arising out of obligations incurred before the date of the receiving order are provable in the bankruptcy, an estimate of the liability in the case of contingent debts being made by the trustee subject to appeal to the court . But demands in the nature of unliquidated See also:damages arising otherwise than by See also:reason of a contract, promise or breach of trust are not provable . 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 . He may be required by the creditor to elect which of these courses he will adopt, failing which the See also:equity of redemption will vest in the creditor . For further regulations as to proofs, the time within which they must be lodged for voting and for dividend, and the manner of dealing with them, reference should be made to the first and second schedules of the act of 1883 and the rules relating thereto . Dividends.—After payment of costs of administration and preferential debts, it is the duty of the trustee to distribute the estate with all convenient See also:speed,—the first dividend within four months after the first meeting of creditors, and subsequent dividends at intervals of not more than six months, but the declaration may be postponed for sufficient reason by the committee of inspection . Notice of the intention to declare a dividend is gazetted and sent to each, creditor mentioned in the bankrupt's statement of affairs who has not proved . The notice should state the last day for proving in order to participate in the distribution, and should be given not more than two months before the declaration . When the dividend is declared, notice of the amount due, and of the place where the same is payable, is sent to each creditor who has proved, with a statement showing particulars of the estate . And provision must be made for creditors at a distance, who have not had time to prove, for disputed claims, and for debts the subject of claims not yet determined . 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 . In the case of a bankrupt See also:firm the See also:joint creditors are not entitled to receive a dividend out of the separate property of the bankrupts until all the separate creditors are paid in full . Trustee's Administration, While the interim preservation and management of the estate is conducted by or under the direct supervision of officers appointed by and responsible to the Board of Trade, the ultimate realization and distribution of the assets devolve upon the trustee appointed by the creditors . But besides acting as receiver prior to the first meeting of creditors, the official receiver also becomes trustee by operation of law on the making of an order of adjudication . He vacates the office when a trustee is appointed by the creditors, and certified by the Board of Trade, but again becomes trustee on the creditors' trustee being released, dying, resigning or being removed from office . As the bankrupt's property vests in the trustee for the time being, and passes from trustee to trustee by operation of law, and without any formal act of conveyance, the continuity of the office is thus secured . Appointment of Trustee.—A trustee may be appointed by a majority in value of the creditors voting, at the first or any subsequent meeting, or the appointment may be left to the committee of inspection . In either case the appointment is subject to See also:confirmation by the Board of Trade, who may object on the ground that the creditors have not acted in good faith in the interests of the general body, or that the person appointed is not fit to act, or occupies such a position in relation to the debtor, to any creditor, or to the estate, as makes it difficult for him to act with impartiality, or that in any previous case he has been removed from office for misconduct or for failure without good cause to render his accounts for audit . An appeal from such objection to the High Court lies at the instance of a majority in value of the creditors, but in the absence of an appeal it is fatal to the appointment . Before being confirmed, the trustee-elect must also furnish security to the satisfaction of the Board of Trade, and such security must be kept up to the amount originally fixed, or to such lesser amount as that department may require throughout the See also:tenure of the trusteeship, failing which the trustee is liable to be removed from office . Where the creditors fail to appoint a trustee, the Board of Trade may do so, but such appointment may at any time be superseded by the creditors . Removal.—The trustee may be removed by the creditors at a meeting summoned for the purpose without reason assigned, or by the Board of Trade for misconduct, or for incapacity or failure to perform his duties, or on either of the other personal grounds of objection to which the appointment is open . But the removal is in like manner subject to appeal at the instance of creditors . If a receiving order is made against a trustee he thereby vacates office . He may also, with the consent of a general meeting of creditors, resign, but his resignation does not operate as a release from his liability to account for his administration . Powers and Duties.—The trustee is required to take immediate possession of the bankrupt's property, including deeds, books and accounts, and has the powers of a receiver in the High Court for the purpose of enforcing delivery . 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, See also:compromise debts and claims, raise money on See also:mortgage, sell property on credit, or divide the estate where practicable among the creditors in its existing form . He may, without special sanction, but subject to any directions which may be given by the creditors in general meeting, or failing them by the committee, sell the property or any part of it for See also:cash, including business See also:goodwill and book debts, and either by public See also:auction or private treaty, and generally exercise all the powers which the bankrupt might before adjudication have exercised in relation to the property, or which are by the Bankruptcy Act conferred on the trustee . Where any part of the property is held subject to onerous obligations, such as the payment of rent, &c., the trustee may disclaim the same, subject in certain cases to the leave of the court, and the See also:disclaimer operates to determine all interest in or liability in respect of the property on the part of the estate . The trustee is required to keep a See also:record book (which is commenced by the official receiver), containing minutes of the proceedings in the bankruptcy, and a cash book in the prescribed form, in which all receipts ar,d payments by him must be entered . All monies received must forthwith be paid into an account at the Bank of England, entitled the " Bankruptcy Estates Account," which is under the control of the Board of Trade, unless where in special circumstances the sanction of that depart-329 ment is obtained to the opening of a local banking account, but in no circumstances must estate monies be paid to the trustee's private account . When monies are required for the purpose of the estate, special cheques or money orders are issued by the Board of Trade on the application of the trustee . Control over Trustee.—In his administration of the estate the trustee is subject to control by the committee of inspection, the creditors, the court and the Board of Trade . The committee is appointed by the creditors, and must consist of not more than five nor less than three creditors or authorized representatives of creditors . It acts by a majority present at a meeting, and should be convened once'a See also:month unless it otherwise directs . If no committee is appointed, the Board of Trade may give any direction or permission which might have been given by a committee . Directions given by the committee, if not inconsistent with the provisions of the act, are binding on the trustee, unless contrary to or overruled by those of the creditors or of the court . The official receiver or trustee mey summon a meeting of the creditors at any time to ascertain their wishes, and must do so when so required by one-See also:sixth in value of the creditors or when directed by the court . The Board Of Trade may also direct the official receiver to summon a meeting for the purpose of reviewing any act done by the trustee or any resolution of the committee of inspection . Further, the trustee may apply to the court for directions in any particular matter, and the court may also, on the application of any person aggrieved See also:reverse or modify any act of the trustee, or make such order as it See also:deems just . The directions of the court override those of the creditors . The Board of Trade is required to take general See also:cognizance of the conduct of trustees, to inquire into any complaints by creditors, and in the event of any trustee not faithfully performing his duties, to take such action, including the power of removal, as may be expedient . It may also direct a local investigation of the trustee's books and accounts, and may require him to answer any inquiries, or may apply to the court to examine him on See also:oath . If any loss has arisen to the estate from any misfeasance, neglect or omission of the trustee, it may require him to make it good . The orders of the Board of Trade under the powers conferred by the act may be enforced by the court by committal of the trustee or otherwise . Audit of Accounts.—The trustee's accounts must be audited by the committee of inspection not less than once in every three months ; and once in every six months, as well as at the See also:close of the administration, the record and cash books must also be submitted with the vouchers, and the committee's certificate of audit to the Board of Trade for final audit . If it appears that the trustee has retained more than 5o in hand for more than ten days without a satisfactory explanation, he may be removed from office, surcharged with interest at the rate of 20 % per annum and lose all claim to remuneration . Remuneration.—The trustee's remuneration is fixed by the creditors or by the committee if so authorized by them . It must be in the nature of a percentage on the amount of the realization and on the dividends . If one-See also:fourth of the creditors in number or value dissent from the resolution, or if the bankrupt satisfies the Board of Trade that the remuneration is excessive. the Board may review the same and See also:fix the remuneration . A trustee may not receive any remuneration for services rendered in any other capacity, e.g, as solicitor, auctioneer, &c., beyond that voted to him as trustee; nor may he share his remuneration with the bankrupt, the solicitor or other person employed about the bankruptcy; or receive from any person any gift, or other pecuniary or personal benefit in connexion therewith . Costs.—A trustee receiving remuneration is not allowed the costs of any other person in respect of duties which ought to be performed by himself . All bills of solicitors and other agents employed must be taxed before payment, as being in accordance with the prescribed scales of costs; and the taxing See also:master must satisfy himself that the employment has been properly authorized before the work was done . All bills of costs must be delivered to the trustee within seven days of the See also:request for the same, otherwise the estate may be distributed without regard to such costs . Release.—When the property, so far as it is capable of realization, has been realized and distributed, the trustee must apply to the Board of Trade for his release, forwarding to each creditor a notice of his having done so, together with a copy of his final accounts, and the Board of Trade, after preparing and considering a report on the same, and the objections of any person interested, may, subject to appeal to the High Court, grant or withhold the release . If a release is withheld, the court may, on the application of any person interested, make such order against the trustee as it thinks just . The release when granted operates as a removal from office, and thereupon the official receiver again becomes trustee, and is thus in a position, even after the nominal close of the bankruptcy, to deal with any circumstances which may arise, or which have not been foreseen and provided for . Small Bankruptcies . When the official receiver reports, or the court is otherwise satisfied that the debtor's property is not likely to realize more than £300, the court may make ail order for the summary administration of the estate, in which case, if the debtor is adjudged bankrupt, the official receiver in the ordinary course becomes and remains trustee, and certain other modifications are effected with the view of simplifying and accelerating the procedure . The chief of these modifications are as follows, viz. the Board of Trade acts as committee of inspection; there is no See also:advertisement of the proceedings in a local paper; in legal proceedings all questions of law and fact are determined by the court without a See also:jury; adjudication may be made on a report by the official receiver before the first meeting of creditors where no composition or scheme is proposed; meetings of creditors may be held in the See also:town where the court sits or the official receiver's office is situated; notice to creditors of meetings other than the first meeting, or of application by a debtor for his discharge, are dispensed with in the case of creditors for amounts not exceeding See also:f2 . Costs, other than a solicitor's charges, may be paid without See also:taxation; and the time for declaring the first dividend is extended to six months, but the whole estate must be realized and distributed within this period if practicable . No modification, however, is permitted in the procedure relating to the public examination and discharge of the bankrupt . Notwithstanding that an order has been made for summary administration, the creditors may at any time by a resolution passed by a majority in number and three-fourths in value of those voting at the meeting, appoint a trustee in place of the official receiver, in which case the summary order ceases to be operative . Scottish Bankruptcy Legislation . In Scotland, as in England, the law of bankruptcy arose as a remedy against the frauds of insolvent debtors . It was declared by an act of the Scottish parliament (1621,c . 18) that no debtor after insolvency should fraudulently diminish the fund belonging to his creditors, and if a deed of assignment was gratuitously executed after the contracting of debt in favour of a near relation or a confidential friend, fraudulent dealing was to be presumed . The act 1696, c . 5, settled the definition of a notour or notorious bankrupt, a question which had previously engaged the See also:attention of the judges of the court of session . The statute defines " a notour bankrupt" to be any debtor who, being under See also:diligence by See also:horning or See also:caption, at the instance of his creditors, shall be either imprisoned, or retire to the See also:abbey or any other privileged place, or flee or abscond for his personal security, or defend his person by force, and who shall afterwards be found, by See also:sentence of the lords of session, to be insolvent . Bankruptcy as thus defined was, it is said, intended to afford a remedy against fraudulent preference by debtors, and not as the ground-work of a general process of distribution, although by later statutes it became a necessary requisite of every such process . The exceptions recognized in the act of 1696, of persons absent from Scotland and therefore not liable to imprisonment, or of persons exempted therefrom by special privileges, were removed by later legislation . The old English distinction between traders and non-traders, it will be observed, is not recognized in Scottish law . The statute made null and void all voluntary dispositions, assignations and other deeds made after or within sixty days before bankruptcy . In 1856 was passed the Bankruptcy (Scotland) Act, by which the law of bankruptcy in Scotland is mainly regulated . By this act, notour (i.e. legally declared) bankruptcy was constituted: By sequestration (or adjudication in England and Ireland); and 2 . By insolvency concurring either—(a) with a duly executed charge for payment or (b) with sale of effects belonging to the debtor under a poinding or under a sequestration for rent, or making application for the benefit of cessio bonorum . 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 . 2 . In the case of a deceased debtor, subject at his See also:death to the jurisdiction of the court—(a) on the petition of his mandatory; or (b) on the petition of qualified creditors (§ 13) . Sequestration may be awarded either by the court of session or by the sheriff . A sequestration may be recalled by a majority in number and four-fifths in value of the creditors, who may prefer to See also:wind up the estate by private arrangement . If thesequestration proceeds, the creditors hold a meeting, and by a majority in value elect a trustee to administer the estate, and three commissioners (being creditors or their mandatories) to assist and control the administration and declare the dividends . The bankrupt (under See also:pain of imprisonment) must give all the information in his power regarding his estate and he must be publicly examined on oath before the sheriff; and " conjunct and confident persons " may likewise be examined . The bankrupt may be discharged either by composition or without composition . In the latter case (1) by petition with concurrence of all the creditors, or (2) after six months with concurrence of a majority and four-fifths in value of the creditors, or (3) after eighteen months with concurrence of a See also:bare majority in number and value, or (q) after two years without concurrence . In the last case the judge may refuse the application if he thinks the bankrupt has fraudulently concealed his effects or wilfully failed to comply with the law . This act was amended by the Bankruptcy and Real Securities Act 1857, which deals with the cost of competition for trusteeships; the Bankruptcy Amendment (Scotland) Act 1860, which enables the court to recall a sequestration where it is more convenient that the estate should be wound up in England or Ireland; and the Bankruptcy Amendment Act (Scotland) 1875, which makes the wages of clerks, shopmen and servants preferential claims for a period not exceeding four months and an amount not exceeding X50, while the claims of workmen are placed on a similar footing for a period not exceeding two months . Some important changes were subsequently introduced, one of the principal being that effected by the Debtors (Scotland) Act 1880, which abolished imprisonment for debt, but which; like its English prototype (the Debtors Act 1869), contains a See also:series of important provisions for the punishment of fraudulent bankrupts . Under these pro-visions the laws of the two countries on that subject are practically assimilated, although some See also:minor See also:differences still survive . One of the most important of these differences is, that while the Scottish act makes the failure, within the three years prior to the sequestration, to keep "such books and accounts as, according to the usual course of any trade or business in which he (the debtor) may have been engaged, are necessary to exhibit or explain his transactions " a criminal offence, the English act contains no provision of an analogous character; the non-keeping of such books being treated as a fact to be taken into account in dealing with the debtor's application for his discharge but not coming within the scope of the criminal law . On the other hand, there are a few minor trading irregularities dealt with in the English act which are not specifically included in that of Scotland . Another important distinction is that under the Scottish act the same offences may be treated differently, according as they are brought for trial before the court of See also:justiciary or a sheriff and jury, in which case the maximum See also:penalty is two years' imprisonment; or before a sheriff without a jury, in which case the penalty is limited to imprisonment for a period not exceeding sixty days . This distinction admits of a useful See also:elasticity in the administration of the law, having regard to the See also:comparative importance of the case, which is hardly possible under the English act . Another most important modification of the law is effected by the Debtors Act 1880, combined with the Bankruptcy and Cessio Act 1881, and the Act of See also:Sederunt anent Cessios of the 22nd of December 1882 . Under the law existing prior to these 'enactments, the process of cessio bonorurn operated chiefly as a means for obtaining release from imprisonment for debt on a formal surrender by a debtor of all his goods and estate . But under this process the debtor was not entitled to a discharge, and his future-acquired property was still subject to diligence at the instance of unsatisfied creditors . By abolishing imprisonment for debt (except in regard to crown debts and public rates and assessments), the legislature also practically abolished this use of the process of cessio, and the process itself would probably have become obsolete, but for certain changes effected by the act of 1881, which have given it a different and more extended scope . Among these changes may be noted (1) the extension to " any creditor of a debtor who is notour bankrupt," without reference to the amount of his debt, of the right hitherto limited to the debtor himself, to petition the court for a See also:decree of cessio, the See also:prayer of the petition, whether presented by. the debtor or by a creditor, being " to appoint a trustee to take the management and disposal of the debtor's estate for behoof of his creditors "; (2) the discretionary power given to the court upon such petition to See also:award sequestration under the bankruptcy act, in any case where the liabilities of the debtor exceed too; and (3) the right of the debtor to apply for his discharge under similar conditions to those obtaining in the case of sequestration . An important modification of the law relating to discharge which equally affects a debtor under the Bankruptcy and Cessio Acts, is also effected by the provision of the act of 1881, which requires, in addition to the concurrence of creditors, the fulfilment of one of the following conditions, viz., " (a) That a dividend of five shillings in the pound has been paid out of the estate of the debtor, or that security for payment thereof has been found to the satisfaction of the creditors; or (b) that the failure to pay five shillings in the pound has, in the opinion of the sheriff, arisen from circumstances for which the debtor cannot justly be held responsible." 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 See also: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 . The Bankruptcy Frauds and Disabilities (Scotland) Act 1884 applies to sequestrations and decrees of cessio the criminal provisions of § 31 of the English Bankruptcy Act 1883, relating to the obtaining of credit for £20 and upwards by an undischarged bankrupt, without disclosure of his position . It also places the law relating to the disqualifications attaching to such bankrupts on a similar footing to that of the English act . The Judicial Factors Act of 1889 contains a provision calculated to check excessive costs of administration, by requiring that where the remuneration of a trustee under a sequestration is to be fixed by the commissioners, intimation of the rate of remuneration is to be given to the creditors and to the accountant of court before being acted on, and the latter officer is empowered, subject to appeal, to modify the same if he deems it expedient . It may be pointed out that the Deeds of Arrangement Act 1887, which applies to England and Ireland, does not apply to Scotland, and there is no analogous provision requiring registration of private deeds of assignment for the benefit of creditors as a condition of their validity in that country . Finally, it is to be noted that the office-of accountant in bankruptcy, which was established by the Bankruptcy Act of 1856, has under the Judicial Factors Act 1889 been abolished, the duties being merged in those of the office of accountant of the court of session . Irish Bankruptcy Legislation . The Irish law of bankruptcy is regulated by the two leading Irish statutes of 18J7 and 1872, together with the Irish Debtors Act 1872, and corresponds in its main features to some of the older English enactments, with modifications adopted from the English act of 1869 . It may be pointed out, however, that the system of liquidation by arrangement and composition without the approval or control of the court, which proved fatal to the success of the latter, has not at any time been imported into the Irish law . A special act was passed in r888 for establishing local bankruptcy courts in certain districts in Ireland, and an act was also passed in 1889, applying the main provisions of the English Act of 1888, relating to preferential payments in bankruptcy, to Ireland . The Deeds of Arrangement Act 1887, which has been already discussed above under the head of English bankruptcy legislation, also applies in its main provisions to Ireland, and as supplemented by the Irish Deeds of Arrangement Amendment Act 189o, places the law relating to this See also:branch of insolvency procedure upon a similar footing in both countries, so far as regards the publicity of such deeds . The last-mentioned act also requires a similar registration of all petitions for arrangement under the Bankruptcy Act 1857 . (J . |
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