SECOND READING. (Hansard, 8 July 1869)

THE LORD CHANCELLOR
In bringing this Bill before the attention of your Lordships, I feel, in the first place, that a few words are due from me in explanation of the fact that the measure comes to us from the other House. It was the desire of some of your Lordships, particularly of my noble and learned Friend on the left (Lord Cairns), that the Bill should have been first introduced into this House early in the Session instead of into the House of Commons; but, my Lords, the motive which influenced me to adopt the course pursued has been justified by the result. This Bill pre-eminently concerns the interests of trade and commerce; and not only have we Gentlemen in the House of Commons eminently qualified to consider the subject in those interests, but we have also in that House a number of Gentlemen, members of the Bar and solicitors in practice, competent to form an opinion on the details of the Bill as affecting a mercantile community, and also upon its principles. I feel, my Lords, that no apology was needed for having brought the subject of bankruptcy under the notice of Parliament this Session, because for several years past Bills have been introduced for the purpose of amending the law, and I am thus very far from claiming any special credit for the particular Bill now before us—upon which, however, I have certainly bestowed great attention—because 1404 I have profited in my consideration of the subject by proceedings in reference to the Bills, first of my hon. and learned Friend (Sir Roundell Palmer) in 1866, then of Sir John Rolt in 1867, and then by my noble and learned Friend who sits on my left (Lord Cairns) in 1868. I, therefore, claim no credit whatever for proposing any new scheme or system. All I do claim credit for is having most seriously considered all the information that I could obtain upon the subject. I simply endeavoured, from the various documents placed before me, aided by the results of my experience, to prepare such a Bill as might prove generally acceptable to that part of the community who were more particularly interested. Hitherto the Government has been successful with this measure, for, thanks to the very clear statement of the Attorney General, it has been received from the first moment to the last with considerable favour, and I believe none of its important provisions have been very seriously modified. After all the consideration the subject of bankruptcy has received I shall not weary your Lordships by any historical disquisition upon it, but will rapidly review the course of the Law of Bankruptcy since the year 1821, when the law was consolidated. In that year the laws relating to debtors engaged in trade—and it is to be observed that a distinction was drawn between traders and non-traders—were consolidated. Up to that period they were scattered over a variety of statutes and books of practice, but were, as I have said, consolidated at that time. That Bill worked well, and without any very great dissatisfaction being expressed, up till the year 1831; but at that period dissatisfaction was expressed at the constitution of the tribunal invested with the power of deciding questions in bankruptcy. I refer to the Commissioners in Bankruptcy, who fulfilled various functions, including that of being Judges. This system was very much disliked, and it was further found that the assignees did not answer the purposes for which they were intended as well as was desirable. Accordingly, in the year 1831, a Bill was introduced by Lord Brougham to establish a Court of Bankruptcy, and to introduce official assignees, in whom it was thought the general creditors might have more reliance. After this, things 1405 went on till the year 1849, when a considerable change took place with reference to the whole Bankruptcy Law. A new consolidation of the laws was effected, and there was introduced a principle which, at that time, was thought desirable, namely, the principle of giving several classes of certificates by which the Judge could regulate his punishments and inflict whatever measure of it he thought proper. After this had been done the Bankruptcy Acts were found to work so unsatisfactorily that, in the year 1854, a Royal Commission was appointed to inquire into the causes of the great diminution of the funds of bankruptcy used for the payments of the Courts, and also to decide what should be done with reference to the official assignees who did not prove so great a success as was anticipated. My noble and learned Friend near me (Lord Chelmsford) introduced a Bill, in 1859, founded upon the Report of that Commission, well calculated to remedy those defects; but, although it was read a second time, a change of Ministry prevented its further progress. After this Lord Westbury, in 1861, introduced a Bill, which passed and brought about many beneficial reforms, but brought with it also some serious inconveniences. It was beneficial, in the first place, by abolishing the distinction between traders and non-traders, but was defective in another point. Lord Westbury was very desirous that the debtor himself should have an opportunity of declaring, at the earliest possible moment, that he felt himself involved in difficulties, was unable to meet his engagements, was desirous of making an immediate abandonment of his property in favour of his creditors, and was desirous of making application for proceedings in bankruptcy, which, up till that time, it was not competent for him to do. But, unfortunately, though well conceived, the plan was found to work unfavourably to the creditor, because it left a loophole for fraud, and of this I can speak from personal experience, as president of a Court of Appeal in cases of bankruptcy. The fraud was committed in this way—A debtor was allowed to obtain the concurrence of his creditors to wind up his affairs by arrangement, instead of by passing through the Court; and it happened that if he were indebted on Bills of Exchange he managed to keep them 1406 out of his account, on the plea that he could not tell who possessed them, and the holders of them were not included among his creditors. Then, every creditor voted, and fraud was frequent by the bankrupt having given security for, say, £2,000 to a creditor for some £3,000, in order that he might go to the meeting and vote in the debtor's favour against those wholly unsecured. To meet this defect in the law Mr. Moffatt, who was then a Member of the House of Commons, selected particular clauses to deal with this particular difficulty, and in 1861 he carried a Bill providing that in all these arrangement deeds the debtors should not merely state the amount of debts, but should give the names and addresses of the creditors and swear to the truth of the statement. This was considered to be necessary, because it was found that fictitious debts had been manufactured in order to enable a debtor to pass through the court and to be whitewashed of his debts. That this species of fraud did take place I can prove by reference to some Returns that have been drawn up, which show the number of persons who availed themselves of these deeds before and after the gentleman I have referred to took the matter in hand, and the clause of the Bill of 1861 was passed. From the 11th October, 1867, to the 11th January, 1868, there were no less than 2,010 deeds executed; while from the 11th October, 1868, to the 11th January, 1869, only 804 were executed. During the first of these periods, again, only 33 per cent was divided among the creditors; while during the latter 66 per cent was divided. These figures show the extent of the fraud which was formerly perpetrated and the advantage gained by the passing of the measure. I now proceed to state what it was led me to devote my attention to the preparation of this one measure in preference to other measures of legal reform. I found that there had been all the measures upon this subject which I have named, and when I was called upon to take a part in public affairs, on the 9th December, there was only an interval of ten weeks before the Session. With the details of the Irish Church Bill to be considered, I did not feel it possible for me to undertake more than one other subject, and therefore I gave my attention to this. Consulting the opinion of 1407 men engaged in business, as expressed by the Chambers of Commerce, and having regard to the several Bills which had been introduced, I found one thing which accorded with my own experience pretty clearly established, and it was that there was a strong desire that creditors should be left more to the management of their own affairs, and that the object of the Court should be, first, to take care that justice was rendered to those who might be considered weak—namely, the smaller creditors, who, though a majority in number, might be a minority in the value of their debts; and second, to take care that there was a full disclosure by the bankrupt of all his assets and a secured realization of them. Subject to these two conditions, I found there was an increasing desire that creditors should be left to manage their own affairs upon a principle which was adopted some time ago in Scotland. For the sake of avoiding disappointment hereafter, I may say I do not find the Scotch system quite so cheap as it has been represented to be. As your Lordships are aware, there are three methods adopted in the winding up of companies; they may be either wound up by the Court of Chancery, or wound up voluntarily without the interference of the Court, or they may be wound up voluntarily under the supervision of the Court; and, as the result of my experience in every case that comes before me, I recommend, and, if I can, I enforce, winding up under the supervision of the Court, which I believe to be the best mode to adopt in the winding up of a company. The aim in bankruptcy is to secure a man's assets, as speedily as possible after he is known to be in a hopeless condition, for the equal benefit of all creditors; and the object of the Bill which sanctioned deeds of arrangement was to encourage a man to come forward, as soon as he discovered he was insolvent, and give up the property which was no longer his own to his creditors. Then we have to inquire how you may best induce the honest debtor to disclose his insolvency and prevent the dishonest debtor from withdrawing any part of his property. We thought it best to allow the debtor to call his creditors together, but not to put the Court in motion unless they decide upon doing so. We further propose that any creditor having security shall vote only in respect 1408 of the unsecured balance, and, further, to secure the minority of the creditors, we propose that the Court may approve or disprove the deed of arrangement. We proposed that a debtor should be entitled to his discharge when he had paid 10s. in the pound; but the House of Commons fixed the limit at 6s. 8d. in the pound. Lord Westbury graphically described the swarm of people who poured down upon a bankrupt's effects. There are the messengers, who are not wanted at all. A number of respectable firms of Liverpool write to me to say that, in the great majority of cases, no messenger is required. They say that in most cases the bankrupt can be left in possession of his property. They say, further, the official assignee is a useless officer, and they need neither the one nor the other. The course we have adopted is to leave it to the creditors, immediately after a bankruptcy, to make an application for adjudication in bankruptcy; to hold a meeting immediately after obtaining this for the purpose of choosing trustees, and when they are appointed to hold another meeting. But, in order to secure against any improper dealing with the bankrupt, it was determined to get rid of the messenger immediately after adjudication. By doing this we think we have taken a good means of securing the realization of the assets, and also have held out inducements to the bankrupt to meet his creditors at the earliest possible period after he thinks he has become bankrupt. That having been done, the next thing to be considered was what was to be done after the discharge of the bankrupt. The Act of 1849 acted with great severity towards the bankrupt after he had surrendered his property. Having secured the assets, the question which we next considered was how we were to distribute them and not punish the bankrupt? If he is to be punished at all he should be punished in a different way, and with that object I shall presently say a few words on another Bill which I shall introduce to your Lordships by-and-by. We think that the question of awarding punishment and the handing over the assets to the creditors should be kept entirely distinct, and accordingly we have confined the power of imprisonment to the cases where the bankrupt, by not yielding up his property or neglecting to answer questions put to him, has been guilty of 1409 contempt of the Court. What we do is this—We place the property of the bankrupt in the hands of a trustee, who is selected by the creditors, and his proceedings are subject to the supervision of inspectors, who superintend what he does; and, what is still more important, the trustee is bound not only to render a quarterly account to the inspectors, but is under a heavy penalty in the shape of increased interest to hand over all moneys belonging to the bankrupt's estate within ten days of their coming into his possession. Again, a Controller will be appointed to superintend the whole of the districts of bankruptcy throughout England, and he will be required to render his account yearly. When a report is made to the Court stating that no more sums remain to be collected on account of the bankrupt's estate, the bankruptcy will be declared closed. A bankrupt whose estate pays 10s. in the pound will be discharged from further liability; and the creditors themselves have power to grant a release where even less is paid, by coming to a resolution in open Court that the bankruptcy was due to involuntary misfortune, and was not attributable to any misconduct on the part of the bankrupt. If, however, the bankrupt be not discharged, and the bankruptcy be not declared closed, then this result follows—We have thought it right to recur to some extent to the provisions of the Insolvent Debtors' Act. As your Lordships know, an insolvent was never discharged from his liabilities, and his future property might always be demanded in payment of his debts. And certainly a great scandal has arisen from the fact that men who have paid little or nothing to their creditors have, after having passed through the Bankruptcy Court, been able subsequently to amass considerable property, while their creditors have remained unpaid and been—what I believe it is but just to term—defrauded. We propose that the bankrupt shall have three years in which to rehabilitate himself, during which period he shall remain unmolested by his creditors. At the end of the three years, unless his bankruptcy shall have been declared closed, any of his former creditors may apply to the Judge, and, on stating that he has ascertained that the bankrupt is in possession of considerable property, may ask for an order sequestrating a 1410 portion of it. I think that this will be a proper place to say how much reason there really was to be dissatisfied with the existing system. In 1868, out of 9,125 adjudications in bankruptcy, 6,679 were on debtors' petitions—a thing which we, of course, propose to abolish—and 817 on the petitions of the creditors, others being made by the registrars of prisons, and others in formâ pauperis. There were 1,714 cases in which dividends were paid, and, in 6,489 cases, no dividend at all was realized. It is obvious, therefore, that the existing system has given rise to a gross system of fraud. The next point I come to is the nature of the Court which we propose should preside over the administration of matters in bankruptcy. It is necessary that there should be some Court, as knotty questions demanding solution will occasionally arise. But such questions as will ordinarily occur, of law or otherwise, may be settled by the trustee, who is, however, amenable to the Court. While upon the subject of deeds I ought to mention that a very fruitful source of litigation hitherto, in courts both of law and equity, has been the validity of the deeds. We propose that the Judge in Bankruptcy shall settle that question once for all. It is only with regard to the Court that any change has been made in the plan I drew up. It was the opinion of the members of the Judicature Commission, though this particular subject did not come under their consideration, that it was desirable in the establishment of any new Court that it should be empowered to deal with questions both in law and equity. Representations, too, on this point were made by the Chambers of Commerce from Liverpool, Manchester, and other large towns, and we therefore determined that the Court should have jurisdiction on all matters connected either with law or equity. I also thought, for the same reason, that it would be desirable that one of the Superior Courts in London should take charge of bankruptcy, and I found upon inquiry that a Common Law Judge was to be preferred. I found that, in London as well as in the country, there was a strong desire to get rid of a peculiar Court. On. this point, however, let me not be misunderstood. I do not mean to say that any complaint was urged against those by whom business in bankruptcy is ad- 1411 ministered. The demand in this direction did not arise from any dissatisfaction of that nature. Now, my Lords, I thought that a Common Law Judge was preferable because the duties could be performed by him without taking him away from his Court, because there would be an easy appeal to the Judges in banco, and because the plan would not entail any increased expenditure, inasmuch as the Judge would be relieved from attendance on circuit, and would thus find ample compensation in the increase of comfort and leisure which would naturally arise from this arrangement. In the House of Commons, however, Sir Roundell Palmer directed attention to the abilities of the learned Judge of the existing Court of Bankruptcy—and in the tribute that was paid to that learned Judge I entirely concur—and suggested that that learned Judge should in the first instance be appointed as the Chief Judge, and that the plan I originally drew up should be adopted upon Ms vacating his office. Of course the Government had no objection to the adoption of that course. As the matter now stands-he will receive the same remuneration as he now does; but that arises rather from the way in which the matter was introduced into the House of Commons, when this plan was recommended on the ground that it would not be accompanied by any increased expenditure. There will then be one Judge instead of three, but I believe that under this Bill there will be no increase in the amount of work that he will be called upon to perform, although if there should be there will be no difficulty in doing what is right and just. Under this Bill matters will to a great extent be in the hands of the creditors themselves, and we shall consequently cease to witness those unseemly disturbances which at times do occur under the existing system, and, indeed, as were witnessed yesterday in one of our police courts. I need not detain your Lordships by going further into the details of the Bill, every portion of which has been so fully discussed in "another place." I may, however, briefly refer to a Bill which is a corollary of the one to which I have been referring. The Imprisonment for Debt Bill will come before your Lordships immediately, and there is a third Bill—a repealing measure—to remove all the statutes which stand in the way of the 1412 two other Bills. In the Imprisonment for Debt Bill are matters which will be found to require much consideration from your Lordships. We propose to abolish imprisonment for debt. Where there is mere doubt we propose that there should be no imprisonment; but where a person has contracted debts fradulently there we give a power of imprisonment. At present the County Court Judges can imprison debtors against whom orders for payment have been made, and who, having the means to comply with those orders, refuse to do so. Out of 300,000 cases of debt coming before the County Court Judges each year about 7,000 persons are ordered to prison, or about 2½ per cent of the total number of debtors. We felt that either the powers of the County Court Judges to imprisonment for debt should be abolished, or the principle must be extended. We could not have one law for the rich and the other for the poor. We concluded, therefore, that we must introduce an analogous power in the case of larger debtors, because all the County Court Judges who gave any opinion on the subject were unanimously of opinion that it would be very dangerous to withdraw the power in the case of small debtors. At present the jurisdiction of the County Court Judges in respect to imprisonment reaches only to debts of £20. Under this Bill it will be extended to debts of £50, and the Superior Courts will have a similar jurisdiction in cases beyond that amount. My Lords, I do not conceal from myself that it is impossible to assert beforehand the success of any measure like this Bankruptcy Bill. I have, however, strong hopes of its success. In the House of Commons it received a very remarkable amount of support. It has been considered and approved by some of the ablest lawyers and some of the most eminent solicitors. Another great advantage is, that owing to the ability of the able draftsman who drew it up, the Bill contains only 130 clauses, and, coupling it with the Bill for the Abolition of Imprisonment for Debt and the repealing Bill, the whole of this new bankruptcy code comprises only 180 clauses—a number which, I believe, will be considered very moderate by all those who remember the history of our past legislation upon this subject. We proceed on the principle of saying to the creditors—"Take the whole thing 1413 in your own hands. We enable you to put in motion a machinery by which you may realize assets for yourself. More than that the Legislature cannot do." My Lords, if this attempt fails I do not at present see what else we can do; but I think there is everything to justify us in hoping that the attempt will be successful, and therefore it is with considerable confidence I ask your Lordships to read the Bill a second time.

§ LORD CAIRNS
My Lords, judging from the appearance of the House, I think the subject of bankruptcy as years roll on is not growing more attractive. But, be that as it may, knowing the difficulty of preparing Bankruptcy Bills, I congratulate my noble and learned Friend (the Lord Chancellor) on the fact that this measure has attained the stage it has now reached. In all the leading principles of the Bill I entirely concur. It is the principle on which the last three Bankruptcy Bills have been framed —namely, that the creditors should be made, as far as they can be made so with safety, the arbiters and masters of their own business and their own property. In other words that there should be a maximum of power in the creditors and a minimum of interference on the part of the Court. I must, however, make a complaint, not against my noble and learned Friend, but against the course taken by the Government with respect to the introduction of this Bill. Early in the Session we urged on the Government the necessity of introducing the Bill in this House in the first instance rather than in the House of Commons, and we foretold what has come to pass—that if the Government did not take that course the Bill would not reach this House until a period when to send it to a Select Committee—and a Bill of this character ought to be examined by a Select Committee—would be tantamount to rejecting it. Let me now make one or two observations upon the details of the measure. I agree with my noble and learned Friend that it is a pleasant thing to hear of a Bankruptcy Bill of only 180 clauses. But we should deceive ourselves if we judged the measure merely by the number of its clauses. This is, no doubt, shorter than other Bankruptcy Bills; but the reason of that 1414 is that it is not a Bankruptcy Bill in the sense of containing within itself the Law of Bankruptcy. It is rather one to empower the Lord Chancellor and the Chief Judge in Bankruptcy to make a Bankruptcy Bill. In every section the word "prescribed" occurs. Almost everything in it is something "prescribed," this word having reference to the orders which were to be framed by the Lord Chancellor and the Chief Judge. I think it is well to leave a good deal to be done by means of general orders, but I doubt whether this Bill may not carry that principle to an extreme length. Again, my Lords, while in the Bankruptcy Bills passed from time to time one uniform phraseology had been adopted, an entirely new phraseology is introduced into the bankruptcy system by the Bill now before your Lordships. I think it would have been well to preserve the old phraseology, because by the introduction of those new terms we run the danger of rendering the whole of the previous decisions on questions of bankruptcy perfectly useless. The question is—what is this House to do with the Bill? The noble and learned Lord on the Woolsack says that it deserves our most careful consideration. That a measure of this nature deserves the best consideration that your Lordships can give to it is undoubted; but it appears to me that, with questions of importance arising upon almost every clause, the Bill could only receive due consideration before a Select Committee. To refer the Bill, however, to a Select Committee at this period of the Session would be tantamount to saying that it should not pass this Session, and therefore I do not propose to ask your Lordships to adopt that course. I cannot, however, help feeling painfully that this Bill will pass—if it does pass—through this House without receiving that amount of consideration which it deserves at your Lordships' hands. I have to express my satisfaction with the excellent change which was effected in the other House of Parliament, by which Mr. Commissioner Bacon, the present head of the Bankruptcy Court in London, is to be appointed the Chief Judge of the new Bankruptcy Court, in place of one of the Common Law or Equity Judges. It is with no want of respect to the learned Common Law and Equity Judges that I say that in point of ability, efficiency and 1415 great and varied experience in bankruptcy matters, no better selection could have been made than that to which I have referred. By some oversight, however, the Bill provides that the salary of the learned Judge who is to be appointed to fill this responsible and arduous office shall only be the same as that he now receives; while the other Commissioners —happy men—are to be allowed to retire and receive their salaries for doing nothing. This is, however, evidently a mere oversight, and will doubtless be remedied in Committee. I also think that the question of the compensation of the other bankruptcy officers both in London and in the country should be considered in Committee, as, in my opinion, the Bill as it stands proposes to treat them rather hardly. Under the Bill, as it was originally introduced into the other House, all those officers who held their situations during good behaviour were to retire upon their full salaries; but just before the Bill had passed through Committee, on the Motion of a Member of the Government (the Secretary to the Treasury) an entire change was effected in the treatment they were to receive under the Bill. I feel assured that your Lordships will not approve this method of treating servants of the public, and that you will, in Committee upon the Bill, see that they have justice done them. In conclusion, I may state that I shall be glad to offer the noble and learned Lord all the assistance in my power towards rendering this Bill a satisfactory measure.

§ LORD ROMILLY
I rise merely to express my general concurrence in what has fallen from the noble and learned Lord on the Woolsack, and from the noble and learned Lord opposite. I may, however, point out that the orders to be issued by the Lord Chancellor under this Bill, if not found to work satisfactorily, can be varied with greater facility than the provisions of an Act of Parliament could be. There are, however, many matters in this Bill which demand serious attention. I am unable to understand why any distinction is made in freedom from imprisonment depending on the amount of the debt. The power of imprisoning the debtor for the purpose of enforcing the payment of debts recovered in the County Courts appears to me to be very objectionable, and to encourage tallymen and an injurious system of credit. I admit that all, or nearly all, the Judges 1416 of these Courts are strongly in favour of preserving to them that power; but they are not, in my opinion, the best judges. And it should be remembered that no adage of the law is more earnestly clung to by Judges than that— Boni judicis est ampliare jurisdictionem. Nor is there one which ought to be more carefully watched and defined. I hope that the noble and learned Lord on the Woolsack will appoint such a day for going into Committee upon the Bill as will give those noble Lords who desire to do so ample time for preparing the Amendments upon the measure which they may desire to propose.

§ LORD CHELMSFORD
I feel disposed simply to echo the observations of the noble and learned Lord who has just sat down; but I may be permitted to remark that when I introduced a Bill upon this subject some time since the commercial world appeared to be divided in opinion as to whether the creditors should be permitted to have the entire control of the bankrupt's estate, or whether the matter should be taken out of the hands of the creditors altogether, and the power of dealing with the bankrupt's estate be given to the Court. From what has fallen from the noble and learned Lord on the Woolsack, however, it would appear that the commercial world has now come to the conclusion to place the matter altogether in the hands of the creditors, leaving the Court only a minimum of power to supervise their proceedings. I can assure the noble and learned Lord that I will do my best to assist him in making this Bill as satisfactory as possible.

THE LORD CHANCELLOR
I have to express my thanks to the noble and learned Lords for the kind consideration they have promised to give to this Bill. The reason for the provision as to general orders is that those orders, if found unsatisfactory in practice, may be altered. With regard to the phraseology of the Bill, I may observe that it has been approved by the House of Commons, and by large numbers of eminent members of the Bar, and by solicitors generally. In order to afford ample time for the preparation of Amendments by your Lordships, I will fix Friday week for going into Committee upon the Bill.