THE LAW OF BANKRUPTCY.

HL Deb 18 July 1848 vol 100 cc565-71

LORD WHARNCLIFFE

rose to present a petition from merchants, bankers, and traders of the metropolis, praying for a consolidation and amendment of the law of Bankruptcy, in conformity with certain suggestions therein contained. The noble Lord said this petition was originally intended to have been presented by a deceased noble Lord (Lord Ashburton), whoso position and great experience had peculiarly fitted him for such an office; but it so happened that it now fell upon him (Lord Wharncliffe) to do so; and he would not detain their Lordships at any great length, beyond calling attention to the various suggestions in the petition. Their Lordships, he must observe in the first place, must admit that the subject was one of great moment to an immense and an important class of the community, namely, the commercial men of this country. Again, the petition was one which demanded the grave consideration of their Lordships' House, from the high respectability and character of those who had signed it. There were appended to this document 300 signatures of the most considerable trading firms of this great metropolis, and they prayed their Lordships to amend the laws which regulated the transactions carried on between parties engaged in the commercial world. The petitioners observed— That the welfare of this great country is dependent upon trade and commerce, and that credit or confidence between man and man is an essential element of their existence. That it is the especial duty of the State to maintain credit in its integrity, and effectually to discourage and punish its fraudulent or wilful abuse. That commercial credit, far from being sustained by the laws, is, on the contrary, almost wholly unsupported by them; and that dependence on the mercantile honeur of the country, which has contributed so much to its greatness, is, from a defective system of legislation, almost extinct. Now, with a view to call the attention of their Lordships and the commercial world to the evils of which they complained, the petitioners continued— That, at a public meeting of merchants, bankers, and traders, of the metropolis, held in the month of February, in the year 1847, it was unanimously resolved. That the existing bankruptcy and insolvent laws were a disgrace to this commercial age and country; that, under their shelter, deceit, reckless trading, extravagance, dishonesty, and every species of fraud, might be practised with impunity: the debtor was demoralised, and the creditor unprotected; that this impunity was steadily and surely undermining the commercial morality of the country; that it was unjust in reference to society in general, and to the industrious classes in particular; that, under this protection, a profligate dealer, after destroying the fair trade of a district, and ruining all in his neighbourhood, might, in effect, recommence business and repeat his course in another, or even in the same district, with scarcely a possibility of his reckless career being stopped by the arm of justice, or of any punishment being inflicted upon him for the ruin he had entailed upon others; that the opinion then expressed has been unhappily strengthened by the numerous and disastrous failures which have since occurred, and which are mainly attributable, as your petitioners confidently assort, to the absence of adequate and certain punishment for reckless and fraudulent traders; that the annual loss sustained by the country from bad debts has been under-estimated at 50,000,000l. sterling; that this vast amount is exclusive of the serious injury to the industrious classes, by the reduction of wages, resulting from the system of selling at a loss, practised by dishonest dealers, who trust to the protection and exemption from punishment now afforded them; that the present laws appear to have been enacted for the purpose of dealing with insolvency after it has taken place, and not with the view to prevent that course of trading which leads to it—a principle of legislation which your petitioners consider of vital importance to the safety of commerce. That your petitioners have long entertained the opinion that when insolvency has arisen from wilful misconduct or extravagance, or where debts have been contracted in fraud, dishonesty, or without the reasonable expectation of ability to pay them, the debtor should be subjected to punishment for the injury he has inflicted upon society, by imprisonment in the common gaol; they, therefore, hailed with satisfaction the recognition of this principle in the County Courts Act, and are most desirous of its extension to debts of larger amount. That notwithstanding certain acts of fraud committed by bankrupts are by law punishable as felonies or misdemeanours, yet the difficulties and obstacles in the way of conviction are such as almost entirely to deter creditors from their prosecution. That your petitioners are of opinion that upon non-payment of his demand the creditor ought to have every possible facility of obtaining an immediate distribution of his debtor's property, without the risk of further loss by its being made away with. Now, in consequence of certain resolutions and conclusions which had been arrived at in many meetings, held for some years past, there were furnished the particulars of 48 consecutive cases to the Committee, by the Commissioners of Bankruptcy. It appeared that in these 48 cases there was an amount of debts proved of no less than 154,557l.; and of this sum the total amount collected under the bankruptcy laws was 41,826l.; but before this amount was divided amongst those who were entitled to receive it, there were various deductions to be made; there were the expenses of the court, and miscellaneous charges, the solicitor's costs, the official assignee's charges, &c; and, taking all these charges together, and deducting them from the amount collected under the estates, the result was that no more than 23,338l. was left to be divided, and this gave a dividend of 3s. in the pound; and as these 48 consecutive cases were taken as the average of cases, it might be presumed that the result was not far from the average result. If they took the average amount of bankruptcies for five years, to be 1,348l., and the dividends at 3s. in the pound, the amounts paid were, say 2,213,000l.: that would represent no less a sum than 8,083,000l., the loss on that amount being nearly 7,000,000l. Then there were the Insolvency Court dividends; then there were those from the Court of Requests; then those settled by composition; and taking all these items together, it appeared that upon an average calculatain the gross amount of bad debts was 65,000,000l., and the loss on this account was 49,000,000l. at the lowest estimate. He believed, however, that a statement had been made by a learned Commissioner, who had been constantly acting in the administration of these laws, and he had made an estimate of the loss, which was somewhat lower than this. But the lowest estimate of the loss incurred by the inefficiency of the bankruptcy laws was 25,000,000l.; and whether it were 25,000,000l., or, according to the calculation he had referred to, 49,000,000l., he thought their Lordships would admit that the subject was one which demanded serious attention. The bankruptcy laws, as every one knew, had within the last few years undergone many changes, and amongst other changes was that which removed the power over the person of the debtor by the creditor. No doubt there was at the time a very strong feeling against this power of imprisonment by the mesne process, and Parliament applied itself to afford a remedy; but, for his own part, he must say, that he had some doubt whether Parliament, in seeking to remedy an abuse, did not go too far in an opposite direction, by giving an undue advantage to the debtor over the creditor, which operated most perniciously. Now, this was a state of things to which the petitioners called the attention of their Lordships in the following terms:— That the evils which the trading community have suffered by the abolition, in the year 1838, of arrest for debt upon mesne process, have convinced them that process against the person in the first instance is a remedy which ought to be again accorded, but accompanied with precautions against misuse, and with inducements to the debtor to surrender himself to the Court of Bankruptcy. That it is the opinion of your petitioners that all creditors whoso debts shall have been proved, and also the assignees, for the whole amount of the bankrupt's debts, should have the rights of judgment creditors against his person. That the court should have discretionary power to refuse, suspend, or withdraw its protection, now granted as of course, to the bankrupt upon his surrender to the fiat; and that such protection should be absolutely refused or withdrawn whenever the debtor shall fail to show that his bankruptcy has arisen otherwise than from fraud, gambling, wilful misconduct, or extravagance, or in case of concealment or of making away with his property or books, contracting debts without reasonable expectation of ability to pay them, or of his commission of any offences now punishable as felonies or misdemeanours. That in the event of the bankrupt being taken in execution after having been thus declared unworthy of protection, he should not be entitled to his release for three years (the maximum period of remand possessed by the Insolvent Debtors' Court), except by order of the Commissioner by whom his protection shall have been withdrawn. Now, the power of arrest by mesne process existed, as the petitioners stated, up to the year 1838, when it was abolished; and so entirely was the law altered that its practical effect now was to give a most undue latitude to fraudulent persons. He saw no reason when fraud was proved—where the bankrupt could not remove from himself the suspicion in a primâ facie case of having become bankrupt by fraud—to securing the person of such bankrupt, and make him answer in that way for his misconduct. He did not see why, under proper restrictions, that course should not be adopted. The noble Lord proceeded to read the remaining paragraphs of the petition to the following effect:— That trading by uncertificated bankrupts should be punished by severe penalties. That the fees now paid to the Court of Bankruptcy, and which press most heavily upon small estates, should be reduced. That the fiat, which your petitioners deem an unnecessary source of delay, trouble, and expense (and which was declared to be so in the report of the Parliamentary Commissioners made in the year 1840), should be abolished. That the remuneration to the official assignees throughout the country should be upon one scale, to be declared by Parliament; and, as a great preventive of fraud, that they should prepare the bankrupt's balance-sheet. That upon the deaths of traders, and me default of appointment of executors or administrators, the Court of Bankruptcy should he empowered, after proper notice, to distribute the effects of the deceased. That where compositions and other arrangements between debtors and their creditors cannot be otherwise carried through, the concurrence of three-fourths in number and value of the creditors (above 5l.) should be binding upon the remainder, provided the arrangement be effected with the sanction of the Court of Bankruptcy; and that an efficient registration of all such deeds, as well as of bills of sale and mortgages to creditors, should he kept. That full annual returns should he made to Parliament under every bankruptcy, of the amount of the debts and liabilities, the available assets and dividends, and other particulars. That a consolidation of the numerous statutes relating to bankruptcy is most desirable.

LORD BROUGHAM

said, it was impossible to over-rate the importance of the subject thus brought before them by the petitioners, traders in London. both wholesale and retail, He was far from saying that the tradesmen of London were unanimous upon this subject; but still here were three hundred persons whose names were sufficient to show their great importance in this city, and the consideration that their Lordships ought to give to their petition, There were various points in that petition with which he fully agreed, particularly in the opinion that the bankruptcy laws, as they at present stood, were too complicated, scattered over a variety of statutes, and that they ought to be consolidated, reduced into manageable form, and made more accessible to practitioners and to the public at large. But there were other recommendations in the petition, the propriety of which he not only more than doubted, but which he was not at all prepared to accede to. His noble Friend had truly said that largo changes had of late years been made in the law of debtor and creditor. In the Bankruptcy Courts six Commissioners were always working. He believed that no men would more readily admit this than the petitioners themselves. There were recent cases in which 2,400,000l. were recovered, which were distributed among the creditors; there were other cases in which 20s. in the pound had been paid, and the commissions, of course, superseded, which advantages would have been lost under the old system. But that was not the only change. Imprisonment for debt had been wholly abolished, and imprisonment under execution had been almost wholly abolished; that was to say, the great principle had been adopted by Parliament that debt should be distinguished from crime, and that nobody should be imprisoned as in compensation to his creditors, to whom indeed it was no compensation, but rather an expense. At the same time, imprisonment was permitted for a fraudulent contraction of debt, or for gross extravagance, which was a kind of fraud, or for contumaciously refusing to give up property, or for making away with the property of the creditor subsequently to the contracting of debt. Under these four heads, which were crimes and not misfortunes, a person was still liable to be imprisoned. It appeared that the petitioners did not think that the creditor had sufficient power over the debtor. Well, he would say, let that be inquired into. Great changes had of late taken place; and as all human lesgislation must be more or less in the nature of an experiment, this of course must be so. Some persons were of opinion that the late changes had been perfectly successful. He was not one of those who thought so, for no man could say that the acts of any human legislature were perfect, or even approached perfection. There were others who said that the changes made matters worse than the old law; he still less agreed with them, for he thought if the new bankruptcy laws were not perfect, they were as near perfection as could be expected under the circumstances: but what he said was this, that they required to be looked after; they had been tried for sonic years, and Parliament had now the benefit of being assisted in their inquiries by men who said they had suffered, and by others who said they had benefited by these laws. All this, therefore, was a reason for examination. Where they had done wrong, let them correct—where they had done right, let them persist in their legislation—and where they had omitted, let them add what was wanting. On those grounds he cordially seconded the Motion to refer this petition to the Committee that was now sitting; and he would only add that, on those points where he most differed from the petitioners, he would he most anxious to hear their opinions.

The LORD CHANCELLOR

said, he would not now debate the matters contained in the petition, for he thought it would be imprudent to pronounce any decided opinion upon them, as the petition would be the subject of future inquiry.

Petition read, and referred to the Select Committee on the Bankrupt Law Consolidation Bill.

House adjourned.