HC Deb 08 April 1864 vol 174 cc680-90

, who had given notice "To call the attention of the House to the working of the new Bankruptcy Act, and to move for a Select Committee to inquire and report thereon," said, the House could hardly be aware of the strong feeling that existed throughout the country with reference to the unhappy working of the new Bankruptcy Act. Since he had given notice of a Motion on the subject, his table had been covered with notes, letters, and communications, all complaining of the operation of the Act, exposing the gross frauds which it encouraged, and making suggestions for its amendment, which might usefully be considered by the Committee for which he moved. The transactions governed by the Bankrupt Act had attained an amount so marvellous as scarcely to be measured by figures. Taking the way in which the imports were turned over and over again in articles manufactured, sold and resold, passing from wholesale dealers to retail dealers, and thence to the consumer, in the daily trade of the kingdom, their aggregate value could scarcely be expressed in hundreds of millions. On the authority of an acute actuary, he believed that the amount of insolvency in this country annually exceeded £50,000,000—a sum approaching the yearly expendi- ture of the nation. That was a tax which fell exclusively on the mercantile classes, who did not, however, ask to be relieved of the burden, though they did ask Parliament not to increase it by such a mischievous legislation as now governed the whole question of debtor and creditor in this country. Only a few of this country's transactions rested immediately on a money basis. Most of them arose out of credits more or less extensive. In a trading country like England one would have supposed it to be the first duty of the Government to make the Law of Bankruptcy more perfect than any other part of the Commercial Code. Instead of that they had a law so inoperative and so prejudicial to the creditor, and often also to the debtor, that traders endeavoured to avoid its operation, as much as possible. Creditors had in many cases submitted to be wronged or robbed by their debtors, rather than avail themselves of the law as it stood prior to 1860–61. In that year the first Law Officer of the Crown gave his attention to this subject, and denounced the cost and delay of the then existing system; he showed how the costs reduced the assets 30 per cent, and how the officers of the court were obstructed in the administration of the law. In 1858 the total amount of money liabilities proved in bankruptcy was £8,200,000. In the same year the amount received by the official assignees was £1,800,000. The amount of the dividends declared was only £980,000, or about 2s. 4½d. in the pound on the proved debts. In 1860, the last year under the old Act, the debts proved were £4,479,000, the amount received by the official assignees £1,250,000, and the amount of dividend declared was only £590,000, or about 2s. 7½d. in the pound. Out of the whole amount received, that was the sum which, after months of delay, found its way into the pockets of the creditors. But that was a happy state of things, compared with what took place under the new Act. By the last Return the total amount received by the official and trade assignees was £650,000. In another direction an enormous increase had taken place under the new Bill. Instead of the number of bankruptcies being moderate, as in 1858, when they were 1,080, or as in 1860, when they were 1,430, they were nearly 10,000—the exact figures showed that 9,663 persons obtained quittance from their pecuniary liabilities, of whom nearly 7,000 paid not one farthing of dividend. With that enormous increase in the number of applications to Courts of Bankruptcy, the total amount of assets realized was only £616,000. The new Bankruptcy Act came into operation in 1861, and in a year nearly 10,000 persons availed themselves of its provisions; and the whole amount of receipts under those bankruptcies was only £600,000. He thought that when those figures were placed side by side, they formed the most complete and satisfactory proof that the Bankruptcy Law had better be eliminated from the statute book altogether than remain in its then form. If the Legislature could produce nothing better than that, it would be well to leave the trade and commerce of the country to shift for themselves. The only thing then a man would have to trust to, would be the character of him with whom he did business. That was really very much the case at present. If the creditor demurred to the terms proposed, the debtor replied, "If you don't accept I will go into the Bankruptcy Court;" and it was remarkable that out of 9,000, who had gone into that court, only 700 had gone in on petition of the creditors. The new Bankruptcy Bill, as brought into the House, had, he thought, very great merits. It was laid on the table, and amended after due consideration. It was a very great improvement on the old Bill. It grappled boldly with the question of the bankrupt's property. It gave every facility for agreements out of court; it had the great merit of clearing the gaols of insolvent debtors; it assimilated proceedings in insolvency and bankruptcy. It proposed a machinery by which all that it proposed would probably have been effected. After much discussion, the Bill left that House and went to another place. There it shared something like the fate of "the man who journeyed from Jerusalem to Jericho," for it returned to them in a very different state. The provisions, which would have tended to render the Bill effective, were cut out of it. The enactment, that there should be a High Court of Bankruptcy, with a Chief Judge in bankruptcy, was gone; whilst, on the other hand, the old machinery was retained, and every facility afforded to debtors to pass through the court without any effective check. The result was soon shown, for whilst in 1858 the total number of insolvents and bankrupts was 4,580, and in 1860 it was 4,250, the number in the year following the passing of the Bill was nearly 10,000. The Bill also originally proposed to deal very effectively with trust deeds, but nothing could be more defective than the provisions as they now stood. The mode of operation was this:—The debtor finding it to his advantage to come to some reckoning with his creditors, prepared a list of what he was pleased to call his debts and assets, placed the matter in the hands of a solicitor, telling him that certain persons who were set down as creditors had agreed to accept a composition of, say five shillings in the pound. It frequently happened that the persons so designated were sufficient in number and amount to bind the other creditors; and he (Mr. Moffatt) had been assured by commercial men that they had, under such circumstances, felt compelled to accept the composition, although their conviction was that the debts of the majority were mainly fictitious, and though it was clear that, at all events, they were not trade debts; in such cases all that could be done was for a creditor to insist on bankruptcy; but probably the whole assets were only £80 or £100, whilst the very initiation of proceedings in bankruptcy would cost £30, a cost to which the creditor might become personally liable, and for which risk he could ensure no corresponding advantage. It might be said that the creditors had a remedy, because the 197th section provided, that if it could be proved that a single false debt were inserted the whole arrangement was null; but the Commissioners, instead of examining the insolvent upon that matter, cast upon the creditors the onus of proof, and this made the enactment a sham and a delusion. In reference to compositions, the practice formerly was for the debtor to notify his difficulty to his creditors, and they appointed a solicitor to look into the matter and say whether there ought to be a bankruptcy or not; but now the course was, for the firm that was under the necessity of stopping payment to place their affairs in the hands of a friendly accountant, or a still more friendly solicitor, who signified to the creditors that he had their affairs in hand. The creditors were summoned, the accountant or solicitor made a statement for those who employed him. Having looked into the affairs, he assures the creditors, "though there has been misfortune, and perhaps indiscretion, there it is, and the best thing that can be done is to accept the composition of 5s. 10d.; if they don't, the thing must inevitably go into bankruptcy." If a demur be made, he says he will look again into the case: he does; the creditors think the matter over, and in the end the composition is accepted. These things were increasing, and would continue to increase unless the law put a stop to them. Dishonest debtors were reaping the benefit of the wonderful facility which the law now gave them. He should, then, like to know from the Attorney General, whether he was prepared to approve such a state of things, or whether, on the contrary, he agreed with him, that the law imperatively required inquiry and amendment? He believed they could scarcely overrate the importance of this subject to the trade, industry, commerce, and character of the country. The present law operated not only against creditors, but against honest debtors. When the law was found to give no security, it operated to limit the extent of credit. His belief was that the measure had been a thorough failure. It required entire re-organization, and it was the duty of the Government to take the initiative at the earliest opportunity. He moved the appointment of a Select Committee to inquire and report on the subject.


said, that in seconding the Motion, he wished to raise no objection to the principle of the Act of 1861, which he thought was a good one; but he did object to the mode in which the Act had been administered. Returns of the business in Bankruptcy during two years ending October 11, 1863, had been laid before the House, from which it appeared that 18,133 persons had become bankrupt, and of this number only 1,546, or 8½ per cent, had paid dividends. Of the 18,133 only 1,442 were made bankrupts by their creditors, while the remainder went to the court of their own motion. Upon looking to ascertain what became of these bankrupts, he found, that of the gross number he had mentioned, 12,844 had had their discharges granted, 913 or 5 per cent, had their discharges suspended, and only in 276 cases or 1½ per cent, were the discharges refused. Comparing these figures with the calculations made by the Attorney General in introducing the Bill of 1861, it was clear that, under the old system, certificates were refused to a greater extent than discharges were now withheld from bankrupts. The law, too, as at present administered, would not, unfortunately, reach many of the dishonest debtors. Every Commissioner exercised a separate judgment, and there was no fixed rule by which dishonesty could be detected, or, if detested, punished. That was not, however, the only evil, for the assets had considerably diminished. It was an extraordinary thing that out of the 18,133 who had passed through the Bankruptcy Court, 699 only had paid dividends under half-a-crown in the pound, 456 had contrived to pay dividends under 5s., and 212 under 7s. 6d., making a total of 1,367 out of the 1,546 to whom he had previously alluded. In the course of two years, five only had paid 20s, in the pound. The Act had also increased the expenses instead of diminishing them, for the charges at the court in the two years amounted to £183,214 8s. 8d. In that sum was included £4,933 paid to the registrars of the county courts, so that the cost of administering the Bankruptcy Law in this country was £178,281 8s. 8d. During the same period the retiring annuities and compensations had amounted to £45,325 10s. 6d., making a total of £224,000, or equal to a sixth of the value of all the bankrupts' and insolvents' estates in England and Wales. On the other hand, the figures he had cited had no reference to the legal, auctioneers', or other charges connected with the ordinary administration of a bankrupt's estate. In addition to these financial defects, the present system of audit was altogether inefficient. It was a matter of public notoriety that not long since one of the official assignees was a defaulter to the extent of several thousand pounds. As he understood the case, the excuse of the official assignee was that his accounts had not been properly audited by his Commissioner. He did not consider that that was an excuse which could be entertained for a moment for making away with the property of creditors, although it might serve to show that the Commissioner had not performed his duty. The instance he had alluded to, however, was not a solitary one, nor was it a solitary case in which the accounts had not been audited. There was no correct or satisfactory system of auditing Bankruptcy accounts in practice in this country, and it would be advisable if auditing were properly carried out on some system similar to that employed in Scotland, where an officer, called an accountant in Bankruptcy, not only examined every account, but also ascertained how much had been collected from the estate, and the cause why any property or debts was outstanding, and for this duty he and his clerks received £1,500 a year. In England there existed nothing of the kind, for the duty of looking after the estate was not confided to any one. If a better system were instituted, they would not hear of the defalcations of creditors' assignees, or of official assignees. He, therefore, cordially seconded the Motion, in the hope that some advantage might accrue from an alteration of the present system of the Bankruptcy Law in its administration, and that it might better enable creditors to obtain that to which they were justly entitled.


said, though it was not possible to put the Motion to the House, he could assure them that the Government felt that the subject brought forward by the hon. Member was one which deserved the fullest and most searching inquiry. It was the earnest desire of the Lord Chancellor that the bankruptcy system should be thoroughly investigated and understood by the country, and that with the assistance of the House its working might be made as perfect as possible. The Act referred to by the hon. Gentleman contained several useful provisions, and with respect to some of them he believed that it had undoubtedly succeeded, while with respect to some of the others it could not be denied that its effect had not been so satisfactory as was desirable. The House would remember that one most important step in advance was effected by the Bill be referred to the abolition of the distinction between bankruptcy and insolvency. That had been done once and for ever, and he had no hesitation in saying that if nothing else had been effected by the Act, that would still have been an important contribution to the cause of legal advancement. The remarkable figures quoted by the hon. Gentleman were, in the main, attributable to the fact of their having included among the bankrupts those who were formerly classed under the head of insolvents, and also to the fact that prolonged imprisonment for debt was done away with. He regarded as one of the chief benefits of the Act the opportunity it afforded a man of clearing himself in the world and getting rid of the load of debt hanging upon his shoulders. Although a man might not be able to satisfy the demands of his creditors, he believed it to be a benefit to society for him to have the means at his disposal of getting free in the world, and endeavouring for the future to earn his title to a name for honesty. He did not, therefore, look either with alarm or dissatisfaction upon the number of persons who had taken advantage of the Act without paying any dividend. The next point aimed at by the Act was to get rid of oppressive and unnecessary imprisonment of small debtors for debt. As the House was aware, under the provisions of that statute, the gaols were visited every fort night, and their inmates if confined for debt were compulsorily adjudged bankrupts, and then released. The result of that provision was that the Queen's prison had been entirely closed, and that imprisonment for debt was now all but abolished. The Lord Chancellor had in view an amendment of the law for the purpose of enabling some debtors to become bankrupts formâ pauperis without the necessity of going to prison, a plan which he believed many of them at present adopted for that purpose. Another object sought to be attained was the suitable regulation of estates administered under trust deeds: for in many instances the creditors as well as the debtors had no desire to incur too much publicity in respect to their business transactions. His hon. Friend was not satisfied with the operation of that portion of the Act, but he (the Attorney General) doubted whether the unsatisfactory trust deeds which had of late years become prevalent were fairly attributable to the operation of the law. He thought the mercantile community had a great deal to answer for in that respect. The object of the Act was to bring all such transactions under the cognizance of the court; and, in this respect also, if further improvements might still be made, a valuable step had been taken, and the Act might fairly be stated lo have been successful. The number of these deeds had been continually increasing; and if it happened, as it sometimes did, that persons not really creditors signed deeds, or signed them for amounts not really due to them, the clauses in the Act bearing on that point furnished easy means of bringing those frauds under the notice of the Court. With regard to the discharge of bankrupts, it appeared that the provisions on the subject had on the whole worked well. But in two other respects he admitted that the Act seemed to be deficient. For one of the changes he referred to—the system of administering the bankrupt's estates by trade assignees instead of by official assignees—the mercantile community were mainly responsible. They had desired that the management of the property should be left in their hands, on the ground that they could get in the assets better and more cheaply than was done before. But hitherto that change had not worked well; and, though he was far from saying that they ought to return to the old system of official assignees without any improvement, inasmuch as the want of an efficient audit was a blot upon that system, experience did not encourage them to persevere with the present plan of putting the whole collection of the assets into the hands of creditors' assignees. In the first place, he believed it was shown that assets were not better got in, that the amounts were not greater, and that the expenses of collection were not diminished. On the contrary, the ordinary operation was this:—A creditor's assignee was chosen, and he at once appointed a solicitor to do, with less responsibility and less security, and at greater cost, business which the official assignee before did better. He hoped that the inquiry of the Committee, to the appointment of which the Government did not object, would assist them in the correction of this evil. Another great feature originally contemplated in the Act of 1861, and one without which, as was pointed out at the time, it became nugatory to the public and was deprived of its fair chance of success, was the appointment of a chief Judge in bankruptcy. One of his first duties as Law Officer of the Crown was to endeavour to persuade that House to adhere to its decision in favour of a chief Judge, against the opinion of the House of Lords. He then said, "You are cutting off the head of the Bill; you are taking out the main spring of the machine, and the system cannot be expected to work well if you deprive it of its controlling and superintending power." The system of Commissioners had been found to work in a most unsatisfactory manner. The expense of that system was very great, and though he did not like to make any personal allusions, and though, no doubt, all the Commissioners intended to discharge their duties satisfactorily, the number who were able to discharge their duties with efficiency was by no means great, from health, age, and otherwise. The whole system wanted fresh blood infused into it; and, with all the imperfections in this measure—imperfections inseparable from a new machinery—if there had been an efficient and vigorous mind, addressing itself to the improvement and amendment of the administration in bankruptcy centrally in London, he believed that by that time we should have been deriving from the new Act benefits which everybody would be able to appreciate. Unfortunately, the country was deprived of that chance, and that had contributed materially to the disappointment of its expectations. He believed that if the Committee extended its inquiry into the matter they would find it cheaper and better for the country to assimilate the administration in bankruptcy to the administration of deceased person's estates in Chancery; and if even it were necessary to go to greater expense than could be involved in the appointment of one superior Judge (though one Judge would, he believed, be all that was necessary), still, in dispensing with, or greatly reducing the present enormous staff of Commissioners and Registrars throughout the country, there would be a saving of money along with a gain of real efficiency. The Lord Chancellor, as the author of the Act of 1861, was most desirous of seeing all the evils corrected which were complained of, and quite acceded to the desire for inquiry. His Lordship was most sensible that the expenses of bankruptcy administration were intolerably great, and ought to be diminished. These expenses arose from various causes. Among other things required was a greatly reduced scale of costs for attorneys and solicitors, and his Lordship had been directing his attention to that subject. No vote could be taken now upon the appointment of the Committee, but the Government would be glad to see it appointed at some future time.


said, that having been a strong supporter of the Bill of 1861, he was sorry that it had not worked more satisfactorily. But he entirely agreed with the Attorney General that the failure was mainly owing to the powers given to the creditors' assignee and the non-appointment of a chief Judge. His own opinion was so strong, that when the House of Lords declined to sanction the appointment of a chief Judge, he had recommended the Lord Chancellor to abandon the Bill altogether, rather than fail to secure the coherence and the one uniform system which a chief Judge alone could give, and which alone could make the Act successful. It was now high time the House should take the matter in hand, and revert to the principle sanctioned by it in 1861, but unfortunately rejected by the other House. He was glad to have a Committee, for the principle of the Bill was sound, and the machinery only was defective.