SECOND READING. (Hansard, 16 March 1877)

THE LORD CHANCELLOR,
in moving that the Bill be now read the second time, said, he would remind their Lordships that at the latter part of last Session he laid on the Table of the House 2 a Bill for the Consolidation and Amendment of the Bankruptcy Laws. In doing so he, with the permission of their Lordships, entered at some length into a consideration of the present state of the law, and of the defects which were supposed to exist in the Act of 1869; and, further, of the way in which, on the part of Her Majesty's Government, he proposed to remedy those defects. Inasmuch as the Bill now before their Lordships was to a great extent the same as that of last Session, he thought it would be unpardonable in him to repeat the statement he made when introducing that Bill. When he said that the present Bill was to a great extent the same, a considerable number of changes had been made in the measure of last year after consultation with those who were best acquainted with the subject; but they were changes of a nature which could hardly be explained till their Lordships went into Committee on the 3 Bill now before them. The Bill of last year had passed their Lordships' House at so late a period of the Session that it was found impossible to pass it through the other House of Parliament. He only hoped that the present Bill, if it met with their Lordships' approval, would be more successful elsewhere than the Bill of 1876. The evils it was intended to meet certainly were crying, and they had not abated since last Session. The Government would do everything in its power to ensure the passing of the Bill. He now moved the second reading, but would be glad to afford any information on the subject of the Bill which any noble Lord might desire.

§ LORD HATHERLEY
said, that in 1869 the state of the Law of Bankruptcy was felt to be in a deplorable condition. The last Act on the subject passed previously to that year was the Act of 1861, which was prepared and introduced by a man of great ability—the late Lord Westbury. Returns had been made to Parliament for the year ending October, 1869, and he would quote some figures from that Return to show how much amendment in the law was required at that date, because it seemed to him they had a strong bearing on some objections he might feel it his duty to raise in Committee. By the Act of 1861, a petition for adjudication was not confined to creditors alone, but a debtor was allowed to apply to the Court for his own adjudication as a bankrupt. This course of proceeding had led to some very remarkable consequences. In the year ending October, 1869, of 10,000 persons who were adjudicated bankrupts, 7,530 were made bankrupts at their own request. And what were the results as respected the creditors? He found that in that same year dividend was paid in 1,695 cases, while in 7,346 cases no dividend whatever was paid. When their Lordships bore in mind the fact that in that year 7,530 persons were adjudicated bankrupt at their own request, they would readily understand why no dividend was paid in 7,346 cases. He alluded to these points because he perceived that in the present Bill it was proposed to undo what was done in 1869, 4 and revert to the system of allowing debtors to get themselves adjudicated bankrupt. He was not aware that his noble and learned Friend on the Woolsack had shown any good ground for a return to a policy that had produced such results as those to which he had just referred; and he could not help thinking that if the old course were reverted to, they might revert also to the same result in respect of dividends. They had not been favoured with any distinct reason why the clause should have been re-introduced. He was aware that in support of the proposition his noble and learned Friend relied on the fact that the Controller of Bankruptcy and other gentlemen of great experience were favourable to it; but in the Paper in which those gentlemen expressed their opinion on the subject, they gave no reason for that opinion. He was happy to say that simultaneously with the Bankruptcy Act of 1869 he succeeded in passing an Act abolishing imprisonment for debt, except in case of misconduct on the part of the bankrupt, which misconduct might be punished by imprisonment for six weeks. The great objects to be desired in a Bankruptcy Law were—first, to collect the assets of the bankrupt; next to place them in security for the moment; and, lastly, to divide them honestly among the creditors. The defect of the previous law was to entrust too much to the Court of Bankruptcy. The principle of handing over the management of such business as that to the Court appeared to him to be a false one. He did not see why a Court of Justice should be regarded as a machinery for the collection of debts. The punishment of a fraudulent debtor no doubt did properly come within the province of a Court of Justice. The best course as regarded the creditors was to leave them to manage their own affairs. The policy of the Act of 1869 was to hand over to his creditors the management of the property of the bankrupt. The creditors were authorized to select trustees, and a penalty was provided in case the trustees should keep the assets in their hands beyond a certain stipulated time after collection. He understood that the defects in the working of the law were found to be these, Parliament having sanctioned the principle that the creditors were to have possession of the bankrupt's property, and to take 5 the necessary proceedings for its realization and distribution—it was found, in effect, that the management of the bankrupt's estate usually got into the hands of a comparatively small body of the creditors, and that vast sums of money had accumulated in the hands of trustees in Bankruptcy matters. It might be asked, Quis custodiet custodes? He attributed the evils charged against the Act to those who ought to be most interested in the proper carrying out of a bankruptcy matter—the creditors themselves. The Controller in Bankruptcy in England showed that in those cases where the creditors had bestowed close attention to the management of the estate the Act had worked well, and the Controller in Bankruptcy in Scotland stated his opinion that the failure of the Act of 1869 was due to creditors not taking a proper interest in the management of the estate and acting by proxy. There were inherent difficulties in the business which he feared no legislation would cure. Those who were unhappily involved in the bankruptcy of a debtor declined to have anything to do with the administration of the estate, for two reasons—first, that men of business would not give up the time—and with business men time was money—necessary for the management of a bankrupt estate, when all they could get for it was a dividend, and in most cases, perhaps, a small dividend. The second was that men in business disliked it to become known that they were creditors to a large amount of a bankrupt debtor. These two drawbacks would always be an obstacle in the working of Bankruptcy Acts by the creditors themselves, but at the same time he thought that the principle on which all bankruptcy laws should be framed was to leave everybody to manage his own affairs, taking every possible precaution against abuses. He might call attention to the fact that while the total number of adjudications in bankruptcy was 10,000 in 1869, it was only 1,350 in 1870—the year after his Act became law.

§ THE EARL OF POWIS
drew attention to Clause 100, relating to sequestrations of ecclesiastical benefices, which he thought would require consideration in Committee, as it appeared to take away various preferential rights and charges, granted by Dilapidation, Gilbert's, and Sequestration Acts.

THE BISHOP OF PETERBOROUGH
expressed a hope that nothing would be allowed in the Bill which might interfere with the Sequestration of Benefices Act, a statute the working of which had been most beneficial.

THE LORD CHANCELLOR
said, that in respect of the sequestration of benefices this Bill was only a re-enactment, word for word, of the existing law. If, however, that law could be improved, the passing of this Bill might be a convenient opportunity for making the improvement, and he should be happy to lend his assistance to the consideration of any suggestion which the right rev. Prelate might make on that subject. In reply to his noble and learned Friend (Lord Hatherley), who had objected to what he considered a defect in the Bill, he might observe that one reason for reverting to the provision enabling debtors to apply for an adjudication of bankruptcy in their own cases was that persons of great experience in the working of the Bankruptcy Laws recommended it. He quite admitted, however, that would not be a sufficient reason if there were not other grounds for the provison. But he asked what good reason there was why an honest man who, though inclined to do so, could not pay his debts, and who confessed that he could not pay them, and who wished to have his property divided among his creditors should not go to the Court and say — "I cannot pay my debts, but I wish to surrender what property I have, and to have my conduct investigated?" Why should he not be able to do so? He did not see any reason for it. They might say that dishonest men who wished to get discharged from their debts might make application to be adjudicated bankrupt. That might be: but, while it was a good reason for the adoption of precautions against the dishonest debtor, in was none whatever for preventing the honest debtor from making a confession of his debts and of his inability to pay them, and having his assets administered by his creditors. His noble and learned Friend talked of the abuses which had existed under the Act of 1861, and pointed out that while under that Act the adjudications in bankruptcy were many thousand in 1869, they fell to 1,300 in 1870 under the Act of 1869. His noble and learned Friend might have gone further, and 7 showed that in 1875 the number of adjudications in bankruptcy was only 965. But did it follow that all the many thousands of person who, if the Act of 1861 were still in existence, it might be supposed would be applying to be adjudicated bankrupt, were now all paying their debts, and were not having recourse to any means of getting discharged from them? There could not be a greater mistake than to suppose anything of the kind. He did not know that any Bankruptcy Act would prove completely satisfactory; but he did know that while the Bankruptcy Act of 1869 stopped the power of the debtor to apply to the Court for his adjudication as a bankrupt—while it shut that door, it opened another and a very much wider one, through which the debtor might pass by the form of asking for a liquidation. This system enabled him, by means of a resolution passed by a majority of his creditors by the aid of a vicious system of proxies, to get what was vulgarly called "whitewashed" and set up in the world again just as though he had got his discharge from the Bankruptcy Court. This was a very much pleasanter plan for the dishonest debter than that to which he must have had recourse previously to 1869. Under the Act of 1861 he would have been exposed to the eyes of the Court and the world, but now he could do the thing like a gentleman. He had only to secure a majority of the creditors by having the meeting of creditors held in an out-of-the-way part of the country, and procuring proxies from the creditors who would not take the trouble to attend. In this way he might escape by the payment of 2s. or 3s. in the pound. Accordingly, in 1875, there were only 965 adjudications in bankruptcy; but there were no fewer than 6,924 liquidations. What the Government proposed now was that there must be an adjudication in bankruptcy; or if there was to be a liquidation it must be by deed to which the creditors must be made strictly parties. The use of proxies would not be permitted; and for the liquidation there must be a majority of the creditors in number and value. Those creditors must have seen the deeds, so that nothing could be done behind the backs of the creditors. He thought that in other respects the Act of 1869 had been a useful one; but he believed that the abuses 8 under the liquidation system were greater than any likely to arise under a provision allowing persons to apply for adjudication in their own cases, and one for liquidation accompanied by such safeguards as those contained in this Bill.