RESOLUTION. (Hansard, 16 May 1865)

MR. MOFFATT

said, he rose to call attention to the Report of the Select Committee on the Bankruptcy Act of 1861 and the existing state of the Laws in regard to Debtor and Creditor, and to move— That, in the opinion of this House, the Report of the Select Committee on the Bankruptcy Act of 1861 deserves the prompt and serious consideration of Her Majesty's Government. The subject, he said, was a most disagree able one to all parties—to the debtor who had cheated his creditors, to the creditors who had lost their money, and especially so to that House, seeing that upon the Legislature rested the responsibility of the present system by which fraud was made so easy and profitable to those who chose to take advantage of the Act. Without going back to the time of the Tudors or the early Georges, he would give a brief outline of the history of bankruptcy during the latter part of the present century, which would be found exceedingly instructive. Forty years ago bankruptcy cases were under the control of that somewhat slow and expensive tribunal the Court of Chancery, while the creditors managed, and in many cases mismanaged, affairs for themselves, because the assignees were under no official control from the Court. About that time a great bankruptcy re form measure was brought forward by Lord Brougham. That measure, instead of proving a great success, worked most unsatisfactorily. The great alteration was then made, and Commissioners and official assignees were appointed, and thus the matter remained for twenty years. During that period matters went from bad to worse, and it was found that official assignees were at least as expert as creditors' assig- 421 nees were in abstracting funds from the bankrupt's estates. To show how unsatisfactory Lord Brougham's Act was, he need only state that during twenty years there were no less than eleven Acts of Parliament passed for the purpose of amending it. Eventually, there came the Consolidation Act of 1849, which, again, had rendered matters worse than they were before. Then came the Act of 1861, which had done a great deal more harm than good. That Act expunged the distinction between the trading and the non-trading communities. The results were somewhat start ling, for the trading community had been, in consequence of the manifold evils of the system, in a great degree prevented from availing themselves of the benefits of the Bankruptcy Court. Owing to the exertions of the Lord Chancellor, an inquiry had been instituted into the way in which the surplus fees in bankruptcy were dealt with. They should be paid into the Bankruptcy Fee Fund. The result of that inquiry was that, while in 1862—during which year there was no inquiry—there was only the sum of £1,300 paid in; it increased in 1863, when there was inquiry, to £13,620, and in 1864 to £45,158. The result of the new system was that in this great country the Bankruptcy Court during the year ending the 11th of October, 1864, collected only £677,536, on which the official charges amounted to £140,000; leaving to the creditors under all the bankruptcies in the United Kingdom £530,000. In 1843, when the commerce of the country was not half its present amount, there were 1,112 bankruptcies, and the sum collected was £1,067,976. Last year there were 7,200 bankruptcies, and the amount collected and divided among the creditors was £530,000. And if they analyzed the list of bankruptcies for last year, they would find that out of the 7,200 bankrupts, 6,600 were made bankrupts on their own petition, and only 600 at the instance of their creditors. It would further appear that of those made bankrupts on their own petition, 5,324 paid no dividend at all, and 848 a dividend under 2s. 6d. in the pound; 5,335 bankrupts got their discharge, and only 80 out of 7,224 were refused their discharge—a proof either of marvelous laxity in the law, or of wonderful honesty in the bankrupts. The present position was practically this—Wherever there was an estate with any prospect of a dividend the creditors agreed to any course, compromise, composition, 422 or assignment, rather than go to the Court of Bankruptcy. The natural consequence was that every debtor knew perfectly well he had an instrument in his hand by which he could cheat his creditors, and the only question with him was what was the smallest amount his creditors would be willing to take in lieu of 20s. in the pound. That was done in two ways, both of which were inaugurated by the Act of 1861, by composition or assignment. Composition the creditors generally preferred. To give a most striking proof of how this system of allowing debtors to evade their debts was telling on the mercantile interests of the country he might state that in 1863 the number of compositions was 640, while in 1864 the number was 1,348. In the last three months of 1864 there were 302 registered deeds compounding for less than 5s. in the pound, and of these 244, or nearly five sixths, were under 3s. in the pound Some were as low as 3d., 6d., and 8d. in the pound. Anything was taken rather than go through the Bankruptcy Court. The great mass of the insolvency of the country was settled under assignments. There was scarcely a week passed without the appearance in the "Money Article" of the London newspapers of intimations that such a firm, extensively engaged in business, perhaps only a few months old, had suspended payment, and they had placed their affairs in the hands of an accountant—a friendly accountant, or their own solicitor. The accountant or solicitor said to the creditors, Wait; we shall inspect the books and tell you what will happen. The creditors were kept at bay. The friendly solicitor or accountant—many of whom were firms of the highest respectability—took the books as they found them, and never inquired be low the surface of the accounts. Any indiscretion, any malversation, any amount of abstraction from the assets of the estate might pass undiscovered. The creditors had no means of knowing it. They were called together, and simply told the estate would pay 7s. or 10s. in the pound; there was an assignment, a composition, and there an end of the transaction. The result was generally a serious disappointment as between the estimate first made, and the amount paid under the deed. It was not pleasant to mention instances, but he knew two or three great failures within the last eight months where the accounts looked as if there would be 20s. to every 423 creditor, and where the debts at the pre sent time might be bought for 2s. or 3s. per pound. The insolvents passed in this way without any censure, and without the slightest difficulty or trouble to them selves. In many instances the insolvent made a great profit by this mode of settlement. It was a disgrace to the Legislature and a discredit to the country that such a state of law should exist. It did exist to an extent the House would hardly believe. He had obtained a return of the deeds registered in the Court of Bankruptcy and in the office of the Chief Registrar during the months of November and December, 1864, showing the amount of stamp and ad valorem duty paid thereon, the amount of property or composition comprised therein or distributable there under, and the amount of unsecured debts above £10 comprised therein. He found that in the month of November, 1864, the deeds registered were 455, the amount of estate and effects comprised or distributable was £1,047,700, and the amount of unsecured debts above £10 was £3,938,125. And in December, 1864, the deeds registered were 518, the amount of estate and effects comprised or distributable £1,246,600, and the unsecured debts above £10, £4,049,249. That would be at the rate of £48,000,000 a year. It might be objected that these were months of extreme pres sure and exceptions to the general rule; but he had obtained another return which showed that this was rather the normal state in which composition deeds now were. The number of deeds registered in the two months he had named was 973, with a stamp duty of £6,000; while the number for the six months ending 11th April, was 2,800, with a stamp duty of £15,614, and the stamp duty was only a partial test as it extended only up to £80,000. The state of the law as effecting debtor and creditor was as bad as could well be imagined. It was well for the House, then, to inquire what might be the remedy. Very few remedies had been suggested except by the practice in Scotland. It was surprising how little attention had been given to this subject. Take what had occurred before the Committee of last Session. The wit nesses generally had not grappled with the question whether the principle was a right one on which they had heretofore legislated. All the attacks upon Lord Brougham's proposition were on the question of patronage, but nothing was said 424 with respect to the benefit of the estate. He thought that principle had been proved to be essentially and fundamentally wrong. He believed the best system would be to leave creditors to manage their own affairs with their debtors, and that the State should interfere with them as little as possible. If the debtor had been guilty of fraud, let him be brought before the ordinary tribunals of the country; but the creditors should not have the power to punish the debtor in any way. Under the old law the creditor had power to take the body of the debtor, and that he believed was the least profitable and advantageous resource they could give the creditor. The Committee recommended the abolition of imprisonment for debt—that they should take away from the creditor the power of coercing the body of the debtor. They proposed also that the creditors should have the fullest and freest access to the property of the debtor, and that from the moment of insolvency it should vest exclusively in them. The Committee proposed that they should abolish the whole of the present system of bankruptcy, and that they should in lieu thereof give the creditors the power of choosing their own officers and managing their own affairs them selves, only taking care to supply them with efficient supervision in regard to the officers whom they might employ. This difficulty undoubtedly occurred in settling that question—that it was practically impossible to get the individual creditors to look after their own affairs and those of the general body of the creditors; and consequently the remedy recommended by the Committee was the remedy suggested by the Scottish practice, and which had been sanctioned by a successful experience of ten years. The main change proposed by the Committee, then, was the total abolition, as soon as might be practicable, of the whole system of bankruptcy as it now existed in practice. One thing, he thought, was quite certain—namely, that a worse system than the present one could not be devised, and any change which they could make must be for the better. The measures proposed received the most careful consideration from the Committee, and he thought the Committee were greatly encouraged in the somewhat bold course which they had adopted by a communication made to them by a noble and learned Lord who had taken a great interest in that subject. The Lord Chancellor had addressed to him, as Chairman 425 of the Committee, a letter, in which he said— Is it not a mistake to attempt, in a system of rules for the collection and distribution of the assets of a bankrupt, to create a code for enforcing commercial morality? He quite agreed with the noble and learned Lord as to that. The letter continued— A very large part of the present bankruptcy law relates to the manner in which a certificate or discharge shall be granted or refused to a bankrupt, to his protection from arrest, to the liability or non-liability of future acquired property, and to the punishment of the bankrupt in the event of his being found to have committed any act which the bankruptcy law treats as contrary to commercial integrity. This attempt to combine the punishment of the dishonest or reckless debtor with the collection and distribution of his remaining property is in my judgment a very great mistake. It has led to the most expensive and most unsatisfactory and imperfect part of the present system. I would abolish it altogether. If a man has committed a fraud, let him be punished by the existing criminal law. If that be not severe and stringent enough, make it more so; but do not attempt to administer criminal law, or quasi- criminal law, in bankruptcy. Let this be the law:—On a man becoming bankrupt grant him, on his surrender, protection from imprisonment for debt (so long as that absurdity continues), but let his future estate remain liable to his debts until he gets a voluntary discharge from his creditors. Let it be his business to obtain such discharge. If he does not succeed in obtaining a discharge from all his creditors, let him stand, as to his future estate, in the shoes of those creditors who have signed his discharge. All other enforcement of penal law, or infliction of penalties, is a mistake. At present, two separate functions are confounded—the civil and the criminal. The Court of Bankruptcy properly has but one function—the collection and distribution of the debtor's assets, present and future. The law as it stands first assumes that it is its duty to provide the honest bankrupt with a discharge. It has no such duty, but having begun with this false principle, it is then entangled in the necessity of inquiring into the man's honesty or dishonesty, by artificial rules which it has constructed for this purpose. All this is a gross mistake, and has been the fruitful source of the expense, uncertainty, and dissatisfaction that now attend the administration of the bankruptcy law. Now, in that he believed was contained the whole germ of a thorough reform in the present law of bankruptcy, and also a remedy by which they might make the law of debtor and creditor just and equitable as between them both. He concurred very much, although the Committee did not, in what the Lord Chancellor said in that communication, as to making the discharge of the debtor depend entirely on the acquiescence of the creditors. He could understand the State interfering to maintain the integrity of contracts between 426 debtor and creditor, but he could not understand the State interfering to violate their integrity. He said, let the debtor and creditor settle the matter between themselves; and as to the payment of 6s. 8d. in the pound giving a man a right to a discharge, he did not agree with the Committee. In the matter of assignments he thought it was still more objectionable. However, the recommendations of the Committee, if embodied in an Act, would, in his opinion, produce the greatest possible benefit to the mercantile interests. He trusted it was not necessary to urge upon the Government that on a question so vast as that, involving certainly an annual tax upon commerce of considerably more than £50,000,000, or about double the yearly charge for the National Debt, the Resolution which he had ventured to lay on the table was deserving of prompt and serious attention. The hon. Member concluded by moving his Resolution.

§ Mr. AYRTON

, in seconding the Motion, said, he wished to explain the nature of the Resolutions to which his hon. Friend was anxious that the Blouse should then give a general approval. His hon. Friend must have satisfied any one who heard his statement that our present system of bankruptcy law had entirely failed. But if that complete failure was the only result at which Parliament had arrived after devoting itself to that subject for a period of nearly 300 years, they must approach that subject with extreme distrust of their own opinions; and he himself should have hesitated to advocate the adoption of these Resolutions had he not believed that, under lying the whole system of our legislation on that question, there were some radical errors which it was the object of the Committee to induce the House to abandon. The first of those errors was the notion that the imprisonment of a debtor at the instance of a creditor was one of the best means of obtaining the satisfaction of a debt; and it was a little remarkable that in a country like this, which professed so much respect for personal liberty, such an idea should have so long survived. In former times when violence prevailed imprisonment might have been a natural remedy in these cases; and, moreover, our system of law in those days did not give the suitor an adequate remedy when he had obtained the judgment of a Court in his favour. The result was that although the creditor had acquired a right he was practically unable to enforce it, because the law 427 took cognizance only of property which could be readily seized and sold in the market, but not of other forms of property which were not capable of being disposed of by the officer of the court. Therefore imprisonment for debt came to be regarded as a means of reaching any property of which the debtor might be possessed. In later years attempts bad been made to render various kinds of property available for the payment of debts; but those attempts had been comparatively feeble, and recourse continued to be had to the process which the Committee now sought to abolish. It was surprising that anybody should be found to advocate imprisonment for debt, because it seemed to defeat every object which a creditor might be supposed to have in view in commencing a civil proceeding. If the debtor had no property imprisoning him could not serve the creditor, but could only prevent the debtor from earning, by his industry or intelligence, the means of meeting the demands upon him. If, on the other hand, he had property, the remedy was to search it out and make it available in satisfaction of his debts. Again, the system of imprisonment was also mischievous, because it lost sight of the line of demarcation between a civil and a criminal proceeding, the former having for its object the satisfaction in money or money's worth of some demand; the latter seeking the punishment of the offender by imprisonment more or less severe. Again, imprisoning a person if he were involved in difficulties only added to his embarrassment, and by taking away his power of looking after his affairs tended to the greater devastation of the estate which it was desirable for the sake of the creditors should be preserved. The Committee, for these reasons, came to the conclusion that it was absolutely necessary to sweep wholly away the fallacious system of imprisonment for debt. In the case of a person who attempted to abscond from the country without giving up his property, there would still be power to detain him until he had disclosed it. The next Resolution arose out of the change which the Committee proposed to make. The law was at present applied only to debts above £50, and a large number of debtors would escape if that limit was retained. The Committee came to the conclusion that the provision of the last Bankruptcy Acts as to trader debtor summonses should be extended to amounts below £50; so that while imprisonment for debt was abolished, every creditor would 428 be able to push to the fullest extent his claim against his debtor. Bankruptcy being, thus speaking, generally reduced to the simple condition that a man was unable to meet the demands which were made upon him by his creditors, the Committee were of opinion that it would no longer be necessary to maintain important Courts of Justice all over the country for the administration of the law with regard to it. All that would be necessary in 99 cases out of 100—he might say, in 999 cases out of 1,000—would be merely an authentic re cord of the facts of the status of the bankrupt, and this it was proposed should be made in the country by the County Courts, and in the metropolis by a special Court to be constituted for the purpose. The next evil to be cured arose from the old idea that bankruptcy was in some sort a penal proceeding, which must be pressed with great rigour against the bankrupt. The consequence was that as soon as a man failed a flight of officers were let loose against him, by whom his property was harried until it was delivered to his creditors shorn of one-third of its amount. In 99 cases out of 100 the employment of all this legal machinery was quite need less; and the Committee therefore recommended that a bankrupt's estate should remain in his custody until a meeting of creditors had been held to express their opinion as to the best mode of dealing with it, power being given to the Judge to order the immediate disposal of any thing that was so perishable that it could not be preserved for even a few days. The next alteration recommended referred to the rights of secured creditors. At pre sent secured creditors who clearly had entirely different interests from those of creditors holding no security, exercised rights as to the disposal of the estate to the full amount of the demands. The result was that they got assignees appointed who were favourable to themselves, and who were not active in investigating what portion of the estate was really available to meet the demands of the unsecured creditors, but connived at the enforcement of their securities. In order to redress this grievance, the Committee proposed that creditors should only interfere in the first steps for the administration of the bankrupt's estate to the extent of their unsecured debts; thus reserving to the unsecured creditors the whole power of directing the administration of the estate.