SECOND READING. (Hansard, 3 March 1879)

§ LORD HATHERLEY
said, that he did not intend to oppose the Bill—on the contrary, he thought it desirable that the 2 measure should pass through their Lordships' House with all due speed, and be sent down for early consideration to the other House, where there were so many who had a deep interest in the subject. He should, however, make a few observations with reference to the supposed necessity for legislation. No doubt, there was considerable demand for a change in the existing Bankruptcy Law, and that demand had reached its expression in the Memorial presented to the noble and learned Earl on the Woolsack from certain of the bankers and merchants of London. These were, no doubt, men of the highest consideration; but on that account it was all the more desirable that the House should consider carefully what it was the memorialists required, and how far the facts which they furnished bore out their views. He had no hesitation in saying that he thought a very great part of the necessity for the measure was due to what he should call the neglect or supineness of 3 the creditors in looking after their interests in bankrupt estates. His noble and learned Friend had appointed a Committee to inquire into the operation of the Act of 1869. Of this Committee the Comptroller of Bankruptcy in England was a Member, and they reported that the want of activity among the creditors of an estate was one of the great reasons why fresh legislation was required. The Committee, however, went on to state that from the information which had been laid before them it would appear that the working of the Act was not in many cases, when fairly put in force, unsatisfactory. Again, the Comptroller in Bankruptcy in Scotland said that, in his opinion, the failure of the Act of 1869 was due principally to the fact that the creditors did not take proper charge of the estates of their debtors; while it was stated in the Memorial of the bankers that the objection which they entertained to the existing law was that it afforded undue facilities to insolvent debtors for withdrawing their estates from the control of their creditors. The policy of the Act of 1869 was to give creditors the right to administer the estate of the bankrupt which had become their own, with the least possible interference from the law. He quite agreed in that policy, and there was proof that where the creditors had acted in pursuance of it the working of the Act had not been unsatisfactory. There were two reasons for that supineness of creditors of which he complained. In the first place, men who had lost money through the bankruptcy of their debtors did not like to throw good money after bad, or to waste time in thoroughly investigating the debtor's affairs and administering his estate; and, in the next place, they did not like to be mixed up, as mercantile men, with bankruptcy matters, lest their own credit should be suspected, if it appeared that they had been heavy losers. This latter reason was one, he believed, which operated very powerfully. There was no question as to the necessity which had led to the alteration of the law in 1869. The evils of the old system were shown by the fact that in 1868 the number of bankruptcies, including compositions, was 12,000; that 7,800 persons were adjudicated bankrupt on their own petition, and that, of these, 7,400 4 paid no dividend whatever. The Act of 1869 was passed to cure those evils. It abolished the vicious principle of allowing persons to have themselves declared bankrupt on their own petition, presented at their most convenient time, and under circumstances most favourable to themselves; and they virtually appointed their own trustee and solicitor. In the year following the passing of that Act, the number of bankruptcies fell from 10,000 to 5,000; and in 1875 the number of applications was 7,500; in 1878 they amounted to 9,600; but the depression of trade had doubtless much to do with the increase. He believed that the Act of 1869 had brought the bankrupt's estates and effects as near to the pockets of the creditors as it was possible for legislation to do; and he trusted that the time had come when creditors would see that, by putting their own shoulders to the wheel, they would protect their interests better than any Act of Parliament could do. In the Memorial presented to his noble and learned Friend, the memorialists had mingled together two things which the Act of 1869 had carefully separated—the penal consequences of misbehaviour on the part of the bankrupt, and the accident of his misfortune or failure. That distinction was maintained in the Bill, as it assuredly should be. With regard to criminal jurisdiction provided by the Bill, he understood the new Judge would be one of the ordinary Judges of the land, and in that case, no doubt, he could try offences of this kind. Connected with criminal jurisdiction there was the question of whether or not there should be a Public Prosecutor; but, until that was done, he supposed the public must prosecute for themselves. He should be glad to see this Bill passed through their Lordships' House, for he believed it would be improved in the Commons.

§ LORD SELBORNE
said, he must acknowledge that he had begun to despair of the whole question of bankruptcy; but he thought the fault lay more with the creditors than with the law. He had gone through the proposed Bill, and he must say that there were in it one or two alterations in the present law which appeared to him to be retrogressions—the provision by which a debtor was permitted to apply for his own adjudication, and the change which was made in 5 the terms of a bankrupt's discharge. The present Act insisted that before a debtor was entitled to his discharge he must have paid a dividend of 10s. in the pound, or have obtained a resolution from a majority of his creditors in favour of his discharge. This Bill, however, would make a retrogressive change, for it would enable a debtor to obtain his discharge without paying any dividend whatever, or giving any security of his future property for the discharge of his debts. Now that imprisonment for debt had been abolished, he did not think it right that a bankrupt, not having paid any dividend, and whose failure had not arisen from any misfortune, should be released without a condition that a portion of his future property should be available for the benefit of his creditors. He perceived with some astonishment the power which the present Bill gave to the Court to refuse an order of discharge, except in terms which might make after acquired property available for the payment of his debts. That was a power which did not extend to the case of non-payment of a dividend. There must be special reasons afforded to enable the Court to refuse an order of discharge after the expiration of two months. If the bankrupt had paid no dividend the Court ought, except for special reasons, to have the power of annexing to the discharge terms which would make after-acquired property of the bankrupt available to the payment of creditors.

§ THE EARL OF POWIS
, who was quite inaudible, was understood to object that under this Bill proxies would be allowed.

THE LORD CHANCELLOR
said, as he had been allowed to make on a former occasion a very full explanation of the provisions of this Bill, he certainly should be inexcusable if he were to trouble their Lordships now with more than one or two sentences. He need hardly follow in all points what had been said by his noble and learned Friend (Lord Hatherley), because he quite agreed with a great deal he had said. There was no doubt whatever that no system of bankruptcy could be introduced under which it would not happen that, if creditors did not watch over their own interests, it would be almost impossible to work the Act; and he agreed that a great deal 6 of the evil of the present system had resulted from the indifference and supineness of the creditors themselves, and the impossibility of persuading them to look after their own interests. But, unfortunately, their Lordships must look to things as they were; and although they might regret the way in which creditors dealt with the administration of the law of bankruptcy, they must, as far as it was possible for legislation to do, aid it by such changes in the law as the experience of those who were acquainted with the working of the law had discovered to be necessary. With regard to proxies, it was true proxies were not abolished by this Bill; and, in fact, it was impossible that they should be entirely abolished; they must be necessary in many cases. The object of the provisions of this Bill was to remove the difficulties found by experience to be connected with proxies. Under the 143rd section it was provided that where it should appear to the satisfaction of the Court that there had been any solicitation in obtaining proxies for the purpose of getting the appointment of the trustees or receivers under a bankruptcy, the Court might refuse to allow the trustee, on behalf of whom such solicitation had been made, his remuneration as a penalty for doing that which was not right. Then they had to consider what was best calculated to meet the evils arising from the use of proxies. There were various complaints under that head; but he thought it was a matter which could not be very well settled by a rigid clause in an Act of Parliament, and that the better course would be to leave it in the hands of the Judge, who would, from time to time, as experience might dictate, draw up rules to meet the evils complained of. It might, perhaps, be desirable to limit the use of proxies. Another suggestion was that they should not be allowed to extend beyond a certain time; but in practice it was found that they were used at the first meeting upon minor issues before any of the burning questions of the bankruptcy came on for consideration; so that it was a question if they ought not to be renewed for every subsequent meeting. His noble and learned Friends seemed to object to the power which was proposed to be given to debtors to make themselves bankrupt when they found 7 that they were unable to meet their liabilities. But had his noble and learned Friends considered this point fully? If they had they must have known there was nothing of which traders more complained than the inability of a man to do so under the present law. It operated in this way. As the law at present stood, the debtor might continue trading—his affairs getting worse and worse every day, and the estate from which his creditors were to get their dividend every day diminishing. The proposal of the Bill was that a man, when he found himself failing in business, should be allowed to come into Court, make a declaration of his insolvency, and hand over his estate to his creditors to deal with as they best could. His noble and learned Friends would let him sit at home, lessen his resources, and squander his funds until some creditor, becoming aware of his circumstances, stepped in and had him declared a bankrupt. At present a bankrupt could evade the whole intention of the law, inasmuch as he might select any place in England, far removed from his place of business, and, after nominally trading there for a few weeks, apply to the local County Court for leave to liquidate, getting a certain number of his creditors to pass a resolution giving him his discharge. Such proceedings were altogether illusory, and left him master of the situation to do what he pleased with his property. As regarded the order of discharge itself, as the law stood the debtor was not entitled to it until he paid 10s. in the pound, unless his creditors passed a resolution to that effect; and, in practice, he was almost certain to obtain that resolution. The Bill would make a change in that respect, and would require that if the application for discharge should be made before the expiration of 12 months from the date of examination of the bankrupt, the application must be concurred in by a majority in number, and three-fourths in value, of the creditors who had proved; and if after the expiration of 12 months, and before the expiration of two years, then by the majority in number and value of the creditors; but, at any time, a creditor who objected to the discharge of the debtor would be entitled to come to the Court of Appeal and state what were the grounds of his objection.