§ Order for Second Reading read.
§ THE ATTORNEY GENERAL (Sir JOHN HOLKER)
Sir, the Bill which I am now asking the House to read a second time passed through the House of Lords last Session; but, owing to the great pressure of Business in this House, and the fact that other measures were deemed by those who had charge of the Government Business of more vital importance, those who had this Bill in hand were unable to bring it forward; and, as a consequence, it has never been debated in this House. During the present century there has hardly been any subject on which there has been so much legislation, and, I regret to say, 1126 so much unsuccessful legislation, as on the subject of bankruptcy. Originally, the debtor was looked upon more as a criminal than anything else, and he was handed over to his creditor to be treated in the most summary way. After some time, it was found necessary that this severity should be mitigated, and that some means should be discovered for enabling a man who had conducted himself creditably and blamelessly to escape from all punishment for non-payment of his debts, provision being made, at the same time, that his estate should be secured for the benefit of his creditors, and distributed rateably amongst them. The objects were to make the fraudulent debtor still remain liable, and to reward the innocent by freeing him from all liability, and enabling him to start fresh in the world. Secondly, the object was to efficiently administer the estate for the benefit of creditors. Since 1869, however, indebtedness has ceased to be considered almost as a crime, and imprisonment for debt has been abolished. The freedom of the debtor from punishment, by refusing to allow him to be discharged from his debt, is not now a matter of so much importance as formerly, the object of the law being now to secure that, at the earliest possible moment, the debtor shall be induced or compelled to call his creditors together, and to transfer his estate to the trustee for the benefit of his creditors, with the view that his estate shall be fairly and properly administered. If the Bankruptcy Law succeeds in securing these advantages, and in accomplishing these ends, it should, it seems to me, be satisfactory to the community; or, at all events, such part of the community as is not interested in the perpetuation of a mischievous, ineffectual, and expensive system. Such a law may be pronounced a good law, and such a law, I hope, hon. Members will find in the Bill which I am now about to explain. I am not going to trouble the House with any history of the Bankruptcy Acts, because, though interesting and perhaps advantageous, at this hour it would be found tedious. It will be enough to say that for some time prior to the Act of 1861, the system of bankruptcy was essentially a system of officialism. The Court and its officials controlled everything, directed everything; and, practically, the creditors had little or no power. In 1861, 1127 an Act was passed, Lord Westbury being the Attorney General at the time; which, though it did not give the creditors complete power, yet gave them greater power than they formerly possessed. In 1869 that power was further increased by the passing of the Act which contains the law as at present administered. I believe that hon. Members will bear me out in saying that that Statute was a most carefully considered measure, and was founded on a true principle. It secured the extinguishment of officialism, it handed over the debtor to be dealt with according to the view his creditors entertained of his merits or demerits, and it entirely confided to the creditors the management of the debtor's estate. Because it did these things, I say it was founded on a true principle. It was passed with very strong expressions of approval. It may be said to have been passed amid the plaudits of Parliament. I remember especially a speech by the hon. Member for Hull (Mr. Norwood) in which he emphatically approved the measure. But it was not found to work well. It was more successful than a great many other Bankruptcy Acts; but it was not completely successful, and very soon after the Bill passed, there were complaints with regard to its operation and effects. To these complaints I would desire to call attention, because it is essential that we should know the defects in the existing system, and their causes, before we can devise any remedy that will remove them. It was said, in the first place, that it was far too severe upon debtors whose only fault was misfortune, who had behaved with honesty, and whose conduct had been bond fide. It was said, also, that it was not hard enough on the dishonest and culpable debtors, and offered to those who had contracted their debts by gross recklessness, extravagance, and improper dealings the opportunity of freeing themselves from liability for such debts, and of escaping from all punishment by means which are very easily resorted to, and carried into effect by debtors who are not scrupulous. It was further alleged that the law of 1869, which ought to have provided the greatest possible care in the conduct of estates in bankruptcy had had the contrary effect, and it had resulted from its operation that there was the greatest possible waste in the management of estates, especially of estates 1128 of the smaller sort. It was, moreover, alleged that far too great powers were confided to majorities, and that creditors, or even the representatives of creditors, perhaps made up almost altogether of the friends of the debtor, were able to impose upon the minority terms and stipulations which were essentially unjust. The complaints were so frequent, and were urged with such great persistence, that my noble and learned Friend the Lord Chancellor determined to have a thorough inquiry to ascertain whether these complaints were well founded or not; and, if they were, to ascertain what remedy could be applied. Accordingly, a Committee of the greatest possible experience was appointed, and authorized to make a thorough investigation. The Committee consisted of gentlemen of very great authority and experience—namely, Mr. Rupert Kettle, a County Court Judge; Mr. Brougham, one of the Registrars of the London Court of Bankruptcy; Mr. Mansfield Parker, a Controller in Bankruptcy; Mr. Henry Nicholl, a gentleman in an official position at the Treasury, who has the management of the finances connected with Bankruptcy Estates; and Mr. Hopcraft, a member of the firm of Linklater and Co., who has had the largest practical experience in bankruptcy matters. These gentlemen brought not only their own knowledge and experience to bear on this question, but sought for information from all important and valuable sources. They reported in July, 1875, in a joint Report. The Controller went somewhat further than his colleagues, although he agreed with them in the main, and he made a separate Report sent in some months after. The Bill which I now ask leave to be read a second time is substantially founded on the recommendations of the Committee. They found that these complaints were, in the main, well-founded, and they recognized the gravity of the defects alleged. The Committee first say that the law of 1869 is unjust to honest debtors, who are straightforward in their dealings, and are too high-minded to resort to any unfair dealing. Under the law, as it at present stands, if there is a petition in bankruptcy against a man, he is adjudicated a bankrupt at once, before there is any opportunity given to his creditors of investigating his affairs, and ascer- 1129 taining what Ms conduct has been. At present a man whose conduct may have been thoroughly honourable, and whoso commercial career has been blameless, is nevertheless affected with the stigma of bankruptcy, and is impaled, so to speak, in The Gazette, without meriting disgrace of any kind. This seems to me a great evil. It may be true that, after his adjudication, he is dealt with with extreme leniency, and obtains his discharge on very easy terms; but still he has been made bankrupt, and the indelible stain of bankruptcy has been attached to him. Some people may not attach very great importance to it; but to the sensitive man the stain of bankruptcy often gives very serious annoyance. This is the way in which the Act is harsh and unjust to the honourable debtor, who has fallen into misfortune. We propose to remedy this state of things by enacting that the first result of a petition in bankruptcy shall not be an adjudication. When a man is petitioned against, or petitions against himself—for that is allowed by this Bill—in the first place, the property of the debtor will be vested in a trustee, and secured for the benefit of the creditors. That is essential to accomplish at the very outset. Then, the affairs of the debtor and his conduct shall be thoroughly investigated, and the order of bankruptcy, in the first place, will be provisional only, and not necessarily follow from adjudication. If the creditors form a favourable opinion, the man may be discharged without further proceedings, or his affairs may be wound up under a deed of arrangement—for that is provided—or a composition can be accepted. The creditors will consider all these things after the petition, before it is necessary to consider whether there shall be any adjudication at all; and it may happen—in a majority of cases, perhaps, will happen—that the debtor will never be made a bankrupt at all. The next defect in the present law is the operation of Section 125 of the Act of 1869, which provides for what are called liquidations by arrangement. Under this section, a man who is unable to meet his engagements, may summon a general meeting of his creditors, who by resolution may declare that his affairs shall be liquidated by arrangement, and not in bankruptcy. No doubt, many liquidations have been 1130 conducted in a satisfactory manner, and innocent debtors discharged without being subjected to the stigma of bankruptcy, and estates have undoubtedly, in many cases, been properly collected and distributed, without undue expense and waste. Complaints would indeed be few if creditors would pay a little more attention to their own interests. But the great secret of the failure of the Act is that creditors will not exert themselves to look after their own affairs. Unfortunately, they will not; and if a man will not do a thing, it is very diffieult to make him. Very often it is, unfortunately, the case that a liquidation is simply a contrivance for enabling an unworthy, perhaps sometimes a fraudulent, debtor to escape from liability to pay his debts, resulting in the gross and shameful waste of his estate. What does the debtor do who is not particularly honest and scrupulous; who does not care much for his estate, or his creditors; who is merely anxious to got free from his debts, and to do as much for his friends, and as little, perhaps, for the bulk of his creditors, as he possibly can? He selects for the meeting the most inconvenient place that he can possibly think of, and, as a consequence, the creditors do not trouble to attend in great numbers, but give their interests and votes to proxies. The debtor gets a few friendly creditors there, or perhaps people who pretend to be, yet really are not, creditors at all. They hold the meeting, and they pass a resolution. The bankrupt frequently buys the interests of those who held the proxies, and he is then able to come down with the resolution absolutely passed that he shall not be made bankrupt, but that his affairs shall be wound up by arrangement. In effect, the debtor and his friends are able to do pretty much as they like. The trustee is appointed, who is a more instrument of the debtor, and simply carries out his wishes. The trustee appoints a solicitor, who is also managed in the same way, and the whole liquidation is conducted in this hole-and-corner fashion. The debtor is discharged with a eulogium on his honour; the trustee has the estate handed over to him, and he wastes it for his own benefit, and—though I do not wish to say anything harsh against solicitors—for the benefit of solicitors; it may be that counsel are also engaged 1131 in the matter, and the waste of the estate is the result. Under the Act of 1869, so far as liquidations by arrangement are concerned, there is no provision for the audit of accounts; and, therefore, there is, practically, no restriction upon the charges of a trustee. The upshot is, that a fraudulent debtor can got whitewashed in a gentlemanly way; his estate is dissipated by all sorts of means, and the trustee, and the few people in league with him, get a good haul, while the creditors have next to nothing. This, if not the rule, yet happens so frequently, as to have become a scandal to the administration of bankruptcy law. It is one of the great defects and evils of the present system, and we desire by the Bill to put an end to it. We wish to prevent the escape of the unscrupulous debtor, and to put a stop to the shameful waste of the estate which certainly ought to be reserved for the benefit of the creditors. In order to accomplish this not easy matter, we propose to do away altogether with liquidations by arrangement as carried on under the 125th Section of the Act of 1869. But, by the provisions inserted in the Bill, we still enable any honest arrangement to be carried out which creditors may desire, whether liquidations by arrangement, or any other sort, provided they are free from the evils involved in the present system. This will be done by reference to Provisional Orders, when there is a petition in bankruptcy against the debtor or the debtor petitions against himself. Then, after the proceedings which I have described have taken place, there is a meeting of creditors, at which they may resolve that the proceedings shall go on in liquidation by arrangement, and not in bankruptcy. But such liquidations will be essentially different from those carried on under the Act of 1869; for an application for a Provisional Order has first to be made to the Court sitting in the place where a debtor resides, or has carried on business, or where most of his debts have been contracted. The effect of that will be that creditors, however reluctant to abandon their own affairs, may be induced to attend. The Bill has this further important provision—that the trustee shall not be appointed, as now, by the votes of the creditors' proxies, but by the committee of inspection, consisting of creditors 1132 only. Thus, proxies will not have the same influence as they have in liquidations under the present law. For my own part, I confess I should like to get rid of proxies altogether. I have made careful inquiry to see if it could be accomplished; but I find it is impossible. Creditors would never be satisfied if proxies were abolished, and all we can do is to render their action as little harmful as possible. The administration of estates being placed, as I have described, in the hands of trustees really representing the interests of creditors, there is some probability of the assets being well administered. We alsoprovide by the Bill that the accounts of trustees shall be audited in all cases, so that if there be any extravagance or waste, it will fall, not upon the creditors, but upon the person who occasions it. In addition to that, there are limitations placed upon the charges of the trustees, making the amount of remuneration of the trustees vary with the estate. I think hon. Members will find that a reasonable and just provision. I have now to refer to the fourth defect, which I mentioned as existing in the present system, administered under the' Act of 1869. By Section 126 of that Act, the debtor, who is unable to meet his debts, may call a meeting of his creditors; and the creditors may, without proceeding to bankruptcy, resolve, by an extraordinary resolution, that a composition shall be accepted in satisfaction of their claims. At the meeting where such a resolution is passed, persons holding proxies for creditors may vote as well as the creditors themselves; and the consequence is, that the creditors in the debtor's interest, and the debtor himself, very often brings about an acceptance of the composition. The minorities are thus often compelled to accept arrangements and stipulations which are unfair and inadequate. That is the evil under the present system; and, of course, it is somewhat difficult to find a remedy. But the provisions we have made will, I think, completely remove the defect. We provide by the Bill that the deeds which are to be binding on minorities are not to be merely those sanctioned at meetings of creditors, but such as are filed in Court a short time after. There is also to be deposited, after the filing of the deed, a complete list of debts and assets; and before the deed can be even 1133 provisionally binding, it is to be absolutely assented to by a majority representing three-fourths in value of the creditors who are required to give their assent in writing, without the intervention of proxies. It is further provided that the deed shall not even then be binding until confirmed by the Court; and the minority will have an opportunity of showing cause to the Court why the deed should not be confirmed at all. The deeds, which by the Bill may be made binding on creditors, are not simply to be composition deeds, but those for winding up the debtor's estate in any way whatever. The effect of this alteration of the law will be that the majority of creditors will only be able to bind the minority in cases where the majority really votes in the matter. And minorities have thrown around them many opportunities of protecting their interests, which they do not possess under the existing law. I do think these provisions will remedy the evil which now exists, through the extreme power of majorities to bind minorities to unfair stipulations and arrangements. I will only detain the House further to mention one or two provisions of the Bill in detail, to show that I have not forgotten them. One is a provision which greatly simplifies the proceedings in debtor's summonses, and another clause requires the trustees of a debtor's estate periodically to account for the payment of unclaimed dividends. A question has been asked me about a debtor's discharge; and the provisions in the Bill with regard to that subject are, that a debtor shall receive his discharge if the creditors think proper within a year. It requires a certain majority of the creditors in number and value to consent. After the lapse of a year, a smaller majority is sufficient; and at the end of two years the debtor is entitled to his discharge, unless some creditors lay a complaint before the Court with regard to his conduct. If, upon investigation, the Court finds he has been guilty of any offence mentioned in the sections, it can suspend or refuse the discharge. These latter provisions have been practically copied from the Act of 1861. There are other provisions which, owing to the lateness of the hour, I will not now explain. I beg to move the second reading of the Bill.
§ Motion made, and Question proposed, "That the Bill be now read a second time."—(The Attorney General.)
§ SIR HENRY JAMES
Sir, I do not wish to complain of the hon. and learned Gentleman for bringing on this Bill; but I think it has been brought on in a House which did not expect it this evening. It was supposed that the Navy Estimates would occupy the whole time of the House, and many hon. Members who wish to take part in the discussion are not now present. The hour at which we have arrived is, unfortunately such, that the hon. and learned Member abstained from explaining certain details of the Bill, and apologized for occupying the time of the House; and still more will other Members, not holding his distinguished position, be under the necessity of apologizing. I hope the Government will not wish to proceed with the Bill this evening; but if there is any particular reason why the second reading should be taken now, I think it would be satisfactory both to Her Majesty's Government and to the House that the second reading should now be taken pro forma, and that the real discussion of the measure should be taken on the Motion that you, Sir, do leave the Chair. If that course should be acquiesced in, I hope it will be distinctly understood between ourselves that we shall have no hurried discussion on the occasion to which I refer, and that full Notice will be given of the Motion being made, and also that the discussion will be commenced at such an hour as will afford a full opportunity for debate. I may mention that the Bill has only been printed a very few days, and that it certainly has not been laid before the great commercial bodies who take a deep interest in the question.
§ THE ATTORNEY GENERAL (Sir JOHN HOLKER)
said, he was quite willing to adopt the suggestion of the hon. and learned Member for Taunton. If the House would allow him then to take the second reading, he would undertake that an opportunity should be afforded for a full discussion of the clauses of the Bill— that a reasonable Notice of such discussion should be given, and that the next stage should be taken at an early hour in the evening.
§ MR. WHITWELL
said, he was pleased to hear the announcement of the 1135 hon. and learned Attorney General, as the subject was one of great practical importance, and the Bill had only been a few days before the House.
§ MR. SERJEANT SIMON
said, he should be willing, on the strength of the undertaking which had been given, to withdraw the Amendment, of which he had given Notice.
§ Amendment, by leave, withdrawn.
§ Question put, and agreed to.
§ Bill read a second time, and committed for Monday 25th March.