§ Bill read 3a (according to Order).
§ LORD CRANWORTHwould remind their Lordships that when the Bill was in Committee he moved the omission of certain clauses which had relation to the appointment of trustees or official assignees; 225 and that on their Lordships disagreeing from his proposition, he gave notice that in a future stage of the Bill he intended to renew his Motion. Accordingly he now rose to move that clauses 95 to 98 be omitted from the Bill; and if their Lordships should agree that those clauses should be omitted, the effect would be to restore the old or rather the present existing system of bankruptcy so far as related to assignees. Although this might be a very dull subject to their Lordships, he could assure them that to the mercantile community it was one of very great interest and of very great importance. Before the alterations which took place in 1831, when Lord Brougham held the Great Seal, there was no public officer who had control over the funds of bankrupt estates. Such estates were then vested in assignees who were chosen by the creditors; that was, they were nominally chosen by the creditors; but the evidence given before the Commission of 1854, and he believed also before a former Commission, clearly showed that, in fact, the assignees were appointed by the solicitors of the chief creditors, and the fight as to who should be the assignees generally was between the solicitors of the chief creditors, because, in this way, the solicitors obtained the management of the funds and a very profitable branch of business. The result was exactly what might have been expected by a priori reasoning. As the funds of the bankrupt estate were generally very inadequate to meet the claims of the creditors, the general creditors were very lukewarm as to the administration of an estate under such circumstances—especially when the estate was small, as was most frequently the case—and the assignees being much more profitably engaged in their own business, declined to lose their time in attempting to realise a shilling or two more or less in the pound for other parties; and thus the bankrupt's estate was neglected and fell a prey to the legal gentlemen, was absorbed in costs and expenses, and thus a very small portion of the funds ultimately found its way into the pockets of the creditors. By the indifference of these assignees when the new system was introduced in 1831, and official assignees were appointed,who—not alone, but in conjunction with the former assignees—were charged with the duty of getting in the assets of bygone bankruptcies, they actually realized upwards of £ 2,000,000 of money which the assignees had neglected to distribute. 226 These assignees paid the assets of the estates into their private bankers; and in this way sums varying from £100 to £500, and even more, had been lying for years in those bankers' hands. He remembered that Lord Brougham stated that the banking-house of Smith, Payne and Smith had been called upon to pay over sums amounting to nearly half a million which had been so left in their hands. No part of this large sum would probably ever have come into the hands of the creditors but for the appointment of these official assignees in 1831. By that Act the persons to be appointed official assignees were to be persons who had been engaged in trade, but who were thereby rendered incapable of continuing in trade, or having any other duties to discharge other than administering estates in bankruptcy. Since this system came into operation in 1831, the official assignees had collected between £2,000,000 and £3,000,000 of outstanding assets, and had distributed it among the creditors, who, but for them, would have lost the whole of it. Was it expected that, under the new system, a larger sum would be realized from bankrupt estates than was possible under the old? At this moment there was invested in the Three per Cents, in the name of the Accountant in Bankruptcy, sums belonging to bankrupt estates amounting to about £1,500,000, and producing an annual income of about £40,000. It was now proposed by this Bill that the creditors should have the option of dispensing with the official assignee altogether, and of appointing trade assignees only, as under the old system. The name, it was true, was changed to "trustee," but the office was precisely the same. But if that proposition was to be acted upon—and if it were not the mere option was of no consequence—if the old system was to be reverted to, was it possible but that the old results would follow? It was impossible not to anticipate otherwise than that the evils of the old system would be renewed. Indeed, his noble and learned Friend himself appeared to expect it, because in a subsequent clause he had provided that the creditors might appoint a committee to superintend the trustee; in fact, to operate as a check upon him. No doubt there was a great cry in some quarters against the official assignee. But why was that? The truth was, it was because the substitution of creditors' assignees for official assignees meant the substitution of solicitors for the official assignee—the mo- 227 ment it was said that the estate should be managed by the trade assignee it meant that it should he managed by the solicitors of the assignees. Naturally enough there was a strong wish for the alteration among a certain class of gentlemen who had a great deal of influence in "another place," though not quite so much in their Lordships' House. Under the old system the interests of the smaller creditors were completely overborne by the large creditors. The assignees were appointed by the majority in value of the creditors; two or three largo creditors joined together and chose the assignees, the assignees placed the estate in the hands of his solicitor— or, more generally, of the solicitor who had, in fact, appointed him—and the interests of the smaller creditors were entirely unprotected. This state of things would be exactly revived if the old system were returned to. It was therefore, he submitted, their Lordships' bounden duty to interfere for the protection of the smaller creditors against evils which the experience of the old system had fully proved. It was a mere fiction to say that the expense of the official assignees was worthy of consideration; they formed a very small item indeed, in the expenses of bankruptcy. A statement had been forwarded to him by a gentleman of very great experience in bankruptcy (Mr. Freeman), and who had been examined before the Committee of 1852, of the result of ten bankruptcies. The gross assets of the estates were £5,600; and the charges for rent, taxes, &c, being deducted, the net assets were £4,672. It was shameful to have to remark, that from that sum £ 2,684— considerably more than 50 per cent—went in expenses. But what proportion went to the official assignee? Less than the charges of the messengers. The messengers received £329, and the official assignee less than £300—only £294—or scarcely more than 5 per cent on the assets realized. Creditors might say, "Why should we be paying 5 per cent to an official assignee?" But he asked would not the services of an official whose undivided duty was to realize the largest possible amount of assets in the shortest time, and at the least expense, amply compensate for the 5 per cent? It was the duty of their Lordships to protect the smaller creditors, and not to leave them at the mercy of the old system. He would allude to one other point. The great objection to the English bankruptcy system had no doubt been its costliness in comparison 228 with other systems. Now, part of that cost consisted of compensations paid to officers who were put out in 1831, when the new system was introduced. Those compensations were, he thought, most improperly charged on the estates of future bankruptcies. That was a charge that ought to have been borne by the Consolidated Fund, and he thought his noble and learned Friend deserved the highest credit for the alteration which he proposed to make in the law in that respect, by enacting that those compensations should in future be paid out of the national funds. Subject to that payment, the expenses of the Court were properly borne by the Court itself. The Court was a court mainly—to the extent of nine-tenths of it—of mere administration. If they removed the official assignees the trade assignees would not be bound to pay in the funds as they received them to the account of the Accountant— they would place the funds in the hands of their own private bankers. In consequence of this change the interest on the funds in the hands of the Accountant, amounting to £40,000 a year, would be lost to the Court, and the consequence would be that much higher fees would be imposed. The present amount of assets absorbed by solicitors' bills was very large, and he could easily imagine that when the supervision of the official assignees was withdrawn it would be still larger. The noble and learned Lord then moved to omit Clauses 95 to 98 inclusive.
§ THE LORD CHANCELLORsaid, he hoped their Lordships would not suppose that the various objections which had been so strongly urged by his noble and learned Friend who had just addressed the House had not been taken into consideration, carefully and anxiously, before those clauses were inserted in the Bill. There was no plan that could be devised that would not be found open to strong, perhaps unanswerable, objections; and the only way to deal with any scheme was to look at the objections on either side. The Government had had the greatest possible difficulty to contend with in judging what provision it would be the best to adopt for the administration of an insolvent estate in the Bankruptcy Court. As he had mentioned on a former occasion there were two distinct classes of opinion which divided the commercial world. One of them was that which his noble and learned Friend represented when urging his objections to this Bill—namely, that the creditors should 229 have no power whatever—should not he allowed to interfere with the administration of the affairs of the insolvent. Many persons of the highest authority in the commercial world took that view; their opinion was entitled to the greatest respect, and would no doubt influence any one framing a Bill on this subject, and determine him to adopt the views which persons of such weight in the City of London represented. But if the Government had framed the Bill on their suggestions they would have encountered a powerful opposition from another class of persons, who since 1831, when the official assignees were first created, and the creditors debarred from interference, had insisted on the right of creditors to have more control over the administration of their affairs. They had complained from time to time that the creditors should have been thrust out of all interference when the Bankruptcy Court got hold of the affairs of an insolvent debtor. Evidence was given to a considerable extent on the subject of such administrations before the Commission of 1852, and the Commissioners appeared to have favoured the views of that latter class. He did not, however, mean to say the question was so clear that any decided opinion had been formed by them on the subject. It was necessary to examine carefully what were the different circumstances that required attention; and in choosing between conflicting opinions it was the duty of the Government to adopt that course which they thought best calculated to do justice to the different classes concerned. To show their Lordships the inherent difficulty of this matter he might observe that a few evenings before his noble and learned Friend presented a petition from 800 merchants and bankers of the City of London in favour of the view which he represented. He (the Lord Chancellor) had been told there was much facility in obtaining petitions of this kind, and that much reliance was not to be placed upon the circumstance that they were presented; but if such petitions were to be supposed to express the deliberate opinion of those who signed them they must be held to have great weight. But he had himself presented a petition from 4,000 of the principal merchants and bankers of London of quite an opposite character to that presented by his noble and learned Friend. Again, a noble Lord (Lord John Russell) had introduced a Bill on this subject in the other House, which Bill was supposed to represent those most important bodies, the Chambers of 230 Commerce in many of the large towns. The Chambers of Commerce, if he might judge from the framing of the noble Lord's Bill, took exactly the same view of the case as that which he (the Lord Chancellor) might say he represented on that occasion in respect of giving to creditors a control over the affairs of debtors when their affairs were to be wound up in the Courts of Bankruptcy and Insolvency. What, then, were the Government to do on this subject? It was quite clear that, whatever course they might adopt, they would meet with determined opposition. They were, therefore, obliged to consider what, in their judgment, was the best course to be adopted to reconcile conflicting interests and do justice to all classes. His noble and learned Friend had argued as if the Bill made it compulsory on the creditors to put aside the official assignees and to thrust the Court out of its office by appointing a trustee of their own. Now, what the clauses which the noble and learned Lord proposed to omit from the Bill proposed was this—that the creditors might have, if they desired it, an opportunity of choosing a trustee, in place of the official assignee, to conduct the administration of affairs in the Court. They might, if they pleased, appoint the official assignee for that office, or they might leave the matter with the Court and the official assignee, according as might appear to their judgment to be best for their interests. Their Lordships would see that there was nothing compulsory there. Would their Lordships reject a scheme which had been been framed after great consideration, and which had almost been forced upon the Government by the demands of the commercial world, and which was designed to remove the complaint of the creditors, that they bad now no power in the administration of their affairs in the Court of Bankruptcy? His noble and learned Friend said that if creditors were left to themselves they would not pay proper attention to the matter; that they were lukewarm. Now it was contrary to human nature that they should be so. His noble and learned Friend also argued that, under the provisions of this Bill, everything would be left to the solicitors, and, in his anxiety to guard against that source of expense and waste, he gave some instances in which, under the careful guardianship of the official assignee, the costs of the solicitors had been enormous. Surely that argument, if a good one, recoiled on his noble and learned Friend him- 231 self, for it showed that the official assignees had not been as careful as they ought to have been in the supervision of the solicitors' accounts. He (the Lord Chancellor) should apologise to their Lordships for having said so much on a subject which had really been exhausted, but he had felt it necessary to state his reasons for thinking that the objections of his noble and learned Friend were not well founded, and that the clauses ought to be retained as they stood in the Bill.
§ LORD OVERSTONEsaid, he wished to express his entire concurrence in all the arguments and statements of his noble and learned Friend (Lord Cranworth). He could confirm every statement of his noble and learned Friend. He had said before, and he now again repeated, that the introduction of these clauses was a retrograde step, whether they looked to the interests of creditors or to higher moral considerations. The noble and learned Lord Chancellor had asked what were the Government to do when there were petitions on one side objecting to the official assignees, and petitions on the other to the reverse effect? Let the Government consult the lessons of past experience, which were so clear, distinct, and emphatic, as to leave no room for doubt. What was the origin and cause of the introduction of official assignees? The introduction of official assignees was the consequence of the strong, universal, and indignant feeling, with regard to the abuses that prevailed under the then existing law of bankruptcy. What where these abuses? The funds were imperfectly realized, kept back, or unjustly distributed; improper transactions were concealed, chicanery of every kind was perpetrated, some creditors wore paid in full, in order to protect the debtor against investigation, and others received improper advantages—in short, every species of abuse which could be imagined constantly occurred. Such were the circumstances that caused an overwhelming demand for the institution of official assignees. Had these officers failed in realizing the expectations formed of their utility? He defied any one to maintain such a proposition. The change consequent upon the appointment of the official assignees was immediate and remarkable. As soon as they were appointed immense funds were brought forth and speedily distributed, which, to his knowledge, had for years remained beyond the reach of creditors. And such had been the continued and progressive operation of 232 that part of the bankrupt law. The funds of insolvents or bankrupts had been satisfactorily realized and administered under the new system; and, he should like to be informed, what were the defects, misdoings, or shortcomings, of the official assignees which rendered it necessary to abolish the office? He knew of none. But he objected to these clauses on higher moral grounds. The laws and institutions of the country had a great and powerful influence in regulating the moral character of the people. Let their Lordships beware lest their commercial legislation should lower the tone of commercial morality. Two or three years ago he thought that the measures introduced by the late Government had, on the subject of limited liability, a tendency to lower the tone of morality in the commercial world, and he therefore opposed them. He held that opinion still, and he objected to the present clauses for the same reason. He believed that the knowledge that every transaction would be looked into by an impartial and responsible officer of the Court had a great, effect in checking the tendency to fraudulent practices throughout the trading community. For these reasons, he must give his unqualified support to the proposal of his noble and learned Friend (Lord Cranworth).
THE EARL OF DONOUGHMOREsaid, he could not help thinking that the noble Lord who had just sat down argued on the assumption that there was a provision in the Bill to abolish official assignees. That was quite an erroneous assumption. Under the present law it was compulsory in all cases that an official assignee should be chosen. The Bill modified this provision by proposing to leave it to the creditors to say whether an official assignee should be chosen or not. The Bill enabled the creditors to be the judges whether they ought or ought not to employ an official assignee; and he thought they were likely to be the best judges on that point. It did not prevent them having recourse to the assistance of an official assignee if they should think it desirable; but it did not enforce the appointment of an official assignee when the creditors did not think it necessary. The creditors as a body would do what they thought would most tend to their own interests; that was what the Bill enabled them to do; and its working in that respect would eventually result in much useful experience as to the class of cases which should be confided to the management of 233 official assignees. He therefore trusted their Lordships would not strike the clauses out of the Bill.
§ EARL GREYsaid, he did not think that the objections of his noble Friend had been met by the arguments of the noble and learned Lord on the woolsack, or those of the noble Earl opposite (the Earl of Donoughmore). The whole defence was, that the Bill did not do away with the assistance of the official assignee; it only gave power to a majority of the creditors to dispense with the services of that functionary. It, however, appeared to him (Earl Grey) it was precisely in those cases where it was important for that officer to be employed that the official assignee would not be called upon. In cases where everything was straightforward and bonâ fide the official assignee would be appointed; but it was just in those cases where inquiry was most needed, those of the creditors who had some advantage in concealment would consider the assistance of the assignee as troublesome and undesirable. When it was for the interest of the public that transactions should be brought to light those were the cases in which no official assignee would be called in. When such a bankruptcy occurred, a great many of the most respectable creditors would take no trouble about it, thinking that no advantage could be obtained commensurate with the loss of time which could be more profitably and more agreeably occupied; and then the estate would fall into a few hands, who having probably private interests to serve would manage the affair among themselves, secure from the interference of an official assignee. Neither the arguments of the noble Earl nor of the noble and learned Lord on the woolsack had controverted the statements of his noble and learned Friend (Lord Cranworth). He therefore thought their Lordships should not rashly nor without sufficient reason take a step that would be fatal to a principle of reform which had been recognized in past legislation and had operated for the public benefit.
§ On Question, "That the said clauses stand part of the Bill,"
§ Contents 38; Not-contents 23: Majority 15.
234| CONTENTS. | |
| Chelmsford, L. (L. Chancellor.) | Amherst, E. |
| Bandon, E. | |
| Bath, M. [Teller.] | Beauchamp, E. |
| Erne, E | Bagot, L. |
| Graham, E. (D. Montrose.) | Boston, L. |
| Clifton, L. (E. Darnley.) | |
| Hardwicke, E. | |
| Lucan, E. | Colchester, L. |
| Malmesbury, E. | Colville of Culross, L. [Teller.] |
| Rosslyn, E. | |
| Shrewsbury and Talbot, E. | De L'Isle and Dudley, L. |
| Stanhope, E. | De Ross, L. |
| Verulam, E. | Dowries, L. |
| Doneraile, V. | Kingston, L. (E. Kingston.) |
| Dungannon, V. | |
| Exmouth, V. | Lovel and Holland, L. (E. Egmont.) |
| Gordon, V. (E. Aberdeen.) | Redesdale, L. |
| Hutchinson, V. (E. Donoughmore.) | Sondes, L. |
| Templemore, L. | |
| Strathallan, V. | Wynford, L. |
| NOT-CONTENTS. | |
| Somerset, D. | Ebury, L. |
| Clarendon, E. | Gage L. (V. Gage.) |
| Durham, E. | Overstone L. |
| Granville, E. | Panmure, L |
| Grey, E. | Ponsonby, L. (E. Besborough.) [Teller.] |
| Ripon, E. | |
| Saint Germans, E. | Somerhill, L. (M. Clanricarde.) |
| Carlisle, Bp. | Stanley of Alderley, L. |
| Down, &c., Bp. | Teynham, L. |
| Belper, L. | Truro, L. |
| Cranworth, L. [Teller.] | Wensleydale, L. |
| De Tabley, L. | Wodehouse, L. |
§ LORD CRANWORTHsaid, he had also given notice of his intention to move the omission of Clauses 113 to 116, which had reference to the disposal of the insolvent's reversionary interest. He quite agreed with the principle of the Bill by which traders and non-traders were put on the same footing. But these clauses enacted that with respect to non-traders who became insolvent their reversionary interest in settled estates should not be sold till it fell into possession. He did not see why an invidious distinction, should be made in this matter between traders and non-traders. No doubt it was much more for the interest of the debtor that the sale of reversionary property should be postponed till it fell into possession, and Lord Derby had said that he deprecated the sale of reversionary property at all; but this measure would only prevent its sale in the case of those persons who were tenants in tail; for instance, of a son who was to succeed to a settled estate after his father. It was a provision for the benefit of the eldest sons of landed proprietors, and of no other class, since if a person was entitled to a reversionary interest in funded property, in case of his becoming insolvent it would be sold. The object of these clauses was to give protection to one particular class only, and being so they would not be at all accepted by the public.
§ THE LORD CHANCELLORsaid, this statement of the objects of the clauses was not quite correct. It was true that these clauses only applied to the case of tenants in tail of settled estates, because in that case there could be no possible advantage to the creditors in forcing a sale; yet the creditors would have their full rights reserved to them when the estate fell into possession. There was no power to deal with the settled estates without the consent of the protector of the settlement, so that the reversionary interest was one which might never come into existence at all, and was, therefore, of very little value to the creditors, as the protector of the settlement had the means of preventing the sale to any advantage, by refusing his consent. The question, therefore, was whether it was desirable, when for the first time this Bill introduced non-traders to a system by which they would be compelled to part with the whole of their property, that an interest should be taken from them at once which could scarcely be available for the creditors, or whether the interests of the creditors were not better secured by enabling them to avail themselves of the settlement with the consent of the protector of the settlement, and at all events to avail themselves of the reversionary interest when the insolvent should come into possession of it.
§ Motion agreed to.
§ LORD WENSLEYDALEsaid, that one of the County Court Judges had applied to him to know whether this Bill would affect their powers, and he suggested that a saving clause should be introduced to provide that nothing in the Bill should apply to any warrant of commitment for non-payment of a debt issued by the County Court.
§ THE LORD CHANCELLORsaid, that he wished for time to consider this point, and there would be an opportunity of proposing such an Amendment when the Bill sent down to the House of Commons.
§ Amendments made: Bill passed, and went to the Commons.