_Scottish Bankruptcy Legislation._
In Scotland, as in England, the law of bankruptcy arose as a remedy against the frauds of insolvent debtors. It was declared by an act of the Scottish parliament (1621, c. 18) that no debtor after insolvency should fraudulently diminish the fund belonging to his creditors, and if a deed of assignment was gratuitously executed after the contracting of debt in favour of a near relation or a confidential friend, fraudulent dealing was to be presumed. The act 1696, c. 5, settled the definition of a notour or notorious bankrupt, a question which had previously engaged the attention of the judges of the court of session. The statute defines "a notour bankrupt" to be any debtor who, being under diligence by horning or caption, at the instance of his creditors, shall be either imprisoned, or retire to the abbey or any other privileged place, or flee or abscond for his personal security, or defend his person by force, and who shall afterwards be found, by sentence of the lords of session, to be insolvent.
Bankruptcy as thus defined was, it is said, intended to afford a remedy against fraudulent preference by debtors, and not as the ground-work of a general process of distribution, although by later statutes it became a necessary requisite of every such process. The exceptions recognized in the act of 1696, of persons absent from Scotland and therefore not liable to imprisonment, or of persons exempted therefrom by special privileges, were removed by later legislation. The old English distinction between traders and non-traders, it will be observed, is not recognized in Scottish law.
The statute made null and void all voluntary dispositions, assignations and other deeds made after or within sixty days before bankruptcy.
In 1856 was passed the Bankruptcy (Scotland) Act, by which the law of bankruptcy in Scotland is mainly regulated. By this act, notour (_i.e._ legally declared) bankruptcy was constituted:--
1. By sequestration (or adjudication in England and Ireland); and
2. By insolvency concurring either--(a) with a duly executed charge for payment or (b) with sale of effects belonging to the debtor under a poinding or under a sequestration for rent, or making application for the benefit of _cessio bonorum_.
Notour bankruptcy continues, in cases of sequestration, until the debtor has obtained his discharge and in other cases until insolvency ceases.
Sequestration may be awarded of the estate of any person in the following cases:--
1. Living debtor subject to jurisdiction of Scottish courts--(a) on his own petition with concurrence of qualified creditors, or (b) on petition of qualified creditors, provided he be a notour bankrupt, and have had a dwelling-house or place of business in Scotland within the previous year.
2. In the case of a deceased debtor, subject at his death to the jurisdiction of the court--(a) on the petition of his mandatory; or (b) on the petition of qualified creditors (-- 13).
Sequestration may be awarded either by the court of session or by the sheriff. A sequestration may be recalled by a majority in number and four-fifths in value of the creditors, who may prefer to wind up the estate by private arrangement. If the sequestration proceeds, the creditors hold a meeting, and by a majority _in value_ elect a trustee to administer the estate, and three commissioners (being creditors or their mandatories) to assist and control the administration and declare the dividends. The bankrupt (under pain of imprisonment) must give all the information in his power regarding his estate and he must be publicly examined on oath before the sheriff; and "conjunct and confident persons" may likewise be examined.
The bankrupt may be discharged either by composition or without composition. In the latter case (1) by petition with concurrence of all the creditors, or (2) after six months with concurrence of a majority and four-fifths in value of the creditors, or (3) after eighteen months with concurrence of a bare majority in number and value, or (4) after two years without concurrence. In the last case the judge may refuse the application if he thinks the bankrupt has fraudulently concealed his effects or wilfully failed to comply with the law. This act was amended by the Bankruptcy and Real Securities Act 1857, which deals with the cost of competition for trusteeships; the Bankruptcy Amendment (Scotland) Act 1860, which enables the court to recall a sequestration where it is more convenient that the estate should be wound up in England or Ireland; and the Bankruptcy Amendment Act (Scotland) 1875, which makes the wages of clerks, shopmen and servants preferential claims for a period not exceeding four months and an amount not exceeding 50, while the claims of workmen are placed on a similar footing for a period not exceeding two months. Some important changes were subsequently introduced, one of the principal being that effected by the Debtors (Scotland) Act 1880, which abolished imprisonment for debt, but which, like its English prototype (the Debtors Act 1869), contains a series of important provisions for the punishment of fraudulent bankrupts. Under these provisions the laws of the two countries on that subject are practically assimilated, although some minor differences still survive. One of the most important of these differences is, that while the Scottish act makes the failure, within the three years prior to the sequestration, to keep "such books and accounts as, according to the usual course of any trade or business in which he (the debtor) may have been engaged, are necessary to exhibit or explain his transactions" a criminal offence, the English act contains no provision of an analogous character; the non-keeping of such books being treated as a fact to be taken into account in dealing with the debtor's application for his discharge but not coming within the scope of the criminal law. On the other hand, there are a few minor trading irregularities dealt with in the English act which are not specifically included in that of Scotland.
Another important distinction is that under the Scottish act the same offences may be treated differently, according as they are brought for trial before the court of justiciary or a sheriff and jury, in which case the maximum penalty is two years' imprisonment; or before a sheriff without a jury, in which case the penalty is limited to imprisonment for a period not exceeding sixty days. This distinction admits of a useful elasticity in the administration of the law, having regard to the comparative importance of the case, which is hardly possible under the English act.
Another most important modification of the law is effected by the Debtors Act 1880, combined with the Bankruptcy and Cessio Act 1881, and the Act of Sederunt anent Cessios of the 22nd of December 1882. Under the law existing prior to these enactments, the process of _cessio bonorum_ operated chiefly as a means for obtaining release from imprisonment for debt on a formal surrender by a debtor of all his goods and estate. But under this process the debtor was not entitled to a discharge, and his future-acquired property was still subject to diligence at the instance of unsatisfied creditors. By abolishing imprisonment for debt (except in regard to crown debts and public rates and assessments), the legislature also practically abolished this use of the process of cessio, and the process itself would probably have become obsolete, but for certain changes effected by the act of 1881, which have given it a different and more extended scope. Among these changes may be noted (1) [v.03 p.0330] the extension to "any creditor of a debtor who is notour bankrupt," without reference to the amount of his debt, of the right hitherto limited to the debtor himself, to petition the court for a decree of cessio, the prayer of the petition, whether presented by the debtor or by a creditor, being "to appoint a trustee to take the management and disposal of the debtor's estate for behoof of his creditors"; (2) the discretionary power given to the court upon such petition to award sequestration under the bankruptcy act, in any case where the liabilities of the debtor exceed 200; and (3) the right of the debtor to apply for his discharge under similar conditions to those obtaining in the case of sequestration. An important modification of the law relating to discharge which equally affects a debtor under the Bankruptcy and Cessio Acts, is also effected by the provision of the act of 1881, which requires, in addition to the concurrence of creditors, the fulfilment of one of the following conditions, viz., "(a) That a dividend of five shillings in the pound has been paid out of the estate of the debtor, or that security for payment thereof has been found to the satisfaction of the creditors; or (b) that the failure to pay five shillings in the pound has, in the opinion of the sheriff, arisen from circumstances for which the debtor cannot justly be held responsible." Orders of cessio are only made in the sheriff courts, and when made, the court also appoints a trustee, who conducts the proceedings without the control exercised by the creditors in a sequestration. Under these conditions it will be seen that the original purpose and constitution of the process of cessio has entirely disappeared, and it has now become a modified form of official bankruptcy procedure, with a less elaborate routine than in the case of sequestration, and one perhaps more suitable to the smaller class of cases, to which in practice it is limited.
The Bankruptcy Frauds and Disabilities (Scotland) Act 1884 applies to sequestrations and decrees of cessio the criminal provisions of -- 31 of the English Bankruptcy Act 1883, relating to the obtaining of credit for 20 and upwards by an undischarged bankrupt, without disclosure of his position. It also places the law relating to the disqualifications attaching to such bankrupts on a similar footing to that of the English act.
The Judicial Factors Act of 1889 contains a provision calculated to check excessive costs of administration, by requiring that where the remuneration of a trustee under a sequestration is to be fixed by the commissioners, intimation of the rate of remuneration is to be given to the creditors and to the accountant of court before being acted on, and the latter officer is empowered, subject to appeal, to modify the same if he deems it expedient.
It may be pointed out that the Deeds of Arrangement Act 1887, which applies to England and Ireland, does not apply to Scotland, and there is no analogous provision requiring registration of private deeds of assignment for the benefit of creditors as a condition of their validity in that country.
Finally, it is to be noted that the office of accountant in bankruptcy, which was established by the Bankruptcy Act of 1856, has under the Judicial Factors Act 1889 been abolished, the duties being merged in those of the office of accountant of the court of session.
_Irish Bankruptcy Legislation._
The Irish law of bankruptcy is regulated by the two leading Irish statutes of 1857 and 1872, together with the Irish Debtors Act 1872, and corresponds in its main features to some of the older English enactments, with modifications adopted from the English act of 1869. It may be pointed out, however, that the system of liquidation by arrangement and composition without the approval or control of the court, which proved fatal to the success of the latter, has not at any time been imported into the Irish law. A special act was passed in 1888 for establishing local bankruptcy courts in certain districts in Ireland, and an act was also passed in 1889, applying the main provisions of the English Act of 1888, relating to preferential payments in bankruptcy, to Ireland.
The Deeds of Arrangement Act 1887, which has been already discussed above under the head of English bankruptcy legislation, also applies in its main provisions to Ireland, and as supplemented by the Irish Deeds of Arrangement Amendment Act 1890, places the law relating to this branch of insolvency procedure upon a similar footing in both countries, so far as regards the publicity of such deeds. The last-mentioned act also requires a similar registration of all petitions for arrangement under the Bankruptcy Act 1857.
(J. SM.*)
COMPARATIVE LAW
_British Empire_.--In most parts of the British empire the law of bankruptcy has been modelled upon the English system. This is particularly the case in Australia and New Zealand. Victoria, South Australia, Western Australia and New Zealand follow the lines of the existing English acts. In Queensland, Tasmania and New South Wales the system is rather that of the English act of 1869, leaving more to the creditors' management and less to officialism.
One point may be mentioned in which the Australian colonies have improved on the English system. Under the English acts a bankrupt is under no obligation to apply for his discharge. The result is that the United Kingdom contains a population of 70,000 undischarged bankrupts--a manifest danger to the trading community. Under the bankruptcy systems of New South Wales, Victoria and New Zealand, a bankrupt is bound to apply for his discharge within a fixed period, otherwise he is guilty of a contempt of court.
In Canada, under the British North America Act 1867, the Dominion parliament has exclusive legislative power in regard to bankruptcy and insolvency: but there is no existing Dominion act on the subject. A Dominion act was passed in 1875, but repealed in 1880. The failure of this act may perhaps be ascribed to the diversity of the pre-existing provincial systems, embracing such contrasts as the English law of Ontario, and the French code based on _cessio bonorum_--which ruled in Quebec. Bankruptcy is dealt with in a fragmentary way by the provincial legislatures by acts regulating such matters as priority of execution creditors, fraudulent assignments and preferences, imprisonment of debtors, administration of estates of deceased insolvents.
In Cape Colony and Natal English law is substantially followed. In the Transvaal, where Roman-Dutch law prevails, the law governing the subject is the Insolvency Law, No. 13 of 1895. It provides for voluntary surrender and compulsory sequestration. The law of the Orange River Colony is similar.
In British Guiana, Gambia, Jamaica, Hong Kong, Mauritius, Grenada, Trinidad, Tobago and the Straits Settlements the law is modelled on the English pattern.
In India insolvency is regulated by the Indian Insolvency Act 1848, extended by the Act XI. of 1889.
An English bankrupt, it may be added, is entitled to plead his discharge in England as a defence in a colonial court. The explanation is this. The English act vests all the bankrupt's property, whether in the United Kingdom or in the colonies, in his trustee in bankruptcy. Having thus denuded him of everything, it has been held to follow that the bankrupt's discharge must also receive recognition in a colonial court.
_France_.--Bankruptcy in France is regulated by the Commercial Code of 1807, amended and supplemented by the law of 9th June 1838. By Article 437 of the code bankruptcy is defined as the state of a trader who is unable to meet his commercial engagements. Simple insolvency of this kind is known in France as _faillite_. Insolvency attended with circumstances of misconduct or fraud is known as _banqueroute simple_ or _banqueroute frauduleuse_.
Only a trader can become bankrupt. The debt, too, for obtaining adjudication must be a commercial debt, the laws regulating bankruptcy being designed exclusively for the protection of commerce. To be made a bankrupt a trader need not be insolvent: it is sufficient that he has suspended payment. Commercial companies of all kinds are liable to be declared bankrupt in the same manner as individual traders. A trader-debtor can be adjudicated bankrupt upon his own petition, or upon the petition of a creditor, or by the court itself _proprio motu_. A petitioning debtor must within fifteen days file at the [v.03 p.0331] office of the Tribunal of Commerce of the district, a declaration of suspension, with a true account of his conduct and of the state of his affairs, showing his assets, debts, profits and losses and personal expenses. On adjudication the Tribunal of Commerce appoints a person, called a _syndic provisoire_, to manage the bankrupt's estate, and a _juge commissaire_ is also named to supervise the syndic. A bankruptcy terminates by an ordinary composition (_concordat_), a sale of the debtor's assets (_union_), or a composition by relinquishment of assets. It is a striking feature of the French system, and highly creditable to French commercial integrity, that a discharge in bankruptcy, even when accompanied by a _declaration d'excusabilite_, leaves the unpaid balance a debt of honour. At the time of the French Revolution the National Convention passed a resolution that any man who contracted a debt should never be free from liability to pay it. The spirit of this resolution still survives, for until a trader has paid every penny that he owes he is not rehabilitated and remains under the stigma of various disabilities: he has no political rights, he cannot hold any public office, or act as a stockbroker, or sit on a jury. _Banqueroute simple_ is where the bankrupt has been guilty of grave faults in the conduct of his business, such as extravagance in living, hazardous speculation or preferring creditors. _Banqueroute frauduleuse_ involves the worse delinquency of fraud. Both _banqueroute simple_ and _banqueroute frauduleuse_ are punishable,--the latter with penal servitude ranging from five to twenty years.
_Germany._--Bankruptcy in Germany is governed by a code passed in 1877.
Prior to this each state had its system and the law was "wholly chaotic."
The same distinction is drawn in Germany as in France between mere commercial failure and bankruptcy, simple or fraudulent. Simple bankruptcy is established by such offences as gambling, dealing in "futures,"
disorderly book-keeping or extravagance in living: fraudulent bankruptcy, by offences of a deeper dye--the concealment of property, the falsifying of books, the manufacture of fictitious debts and the giving of illegal preferences. Both kinds of bankruptcy are punishable, fraudulent bankruptcy by penal servitude, or in case of mitigating circumstances, by imprisonment for not less than three months. Accessories in fraudulent bankruptcies are liable to penal servitude--for instance, a creditor who conspires with the debtor to secure an advantage to the prejudice of the other debtors. The creditors are called together within one month from the date of adjudication, and at their meeting they may appoint a committee of their number to advise with the trustee. It is the duty of the court to see that the trustee performs his functions. Estates are liquidated with great rapidity. In order that the creditors may receive dividends at the earliest moment, it is customary to sell the assets by auction. The creditors by a majority in number and three-fourths in value may accept a composition, but such an arrangement must have the approval of the court. The fees are very moderate: in an ordinary bankruptcy the attorney's fees do not, it is said, exceed 5.
_Italy._--Bankruptcy in Italy is regulated by the Commercial Code of 1883 (Part III.). Only merchants can pass through the bankruptcy court.
Merchants are defined by the code as those who, as an habitual profession, engage in commercial business. This definition includes merchant companies.
Bankruptcy proceedings may be taken either by the debtor or by a creditor for a _commercial_ debt, or may be ordered by the court. The amount of the debt is immaterial: a small sum will suffice, provided its non-payment is proof of insolvency. Bankruptcy can only be declared where there is insolvency. The judgment adjudicating a debtor bankrupt deprives the bankrupt of the right to administer his affairs, and nominates a trustee to realize the property under the superintendence of a judge and a commission of creditors. All the property of the bankrupt, movable and immovable, is sold by auction and distributed in dividends. This is one way of closing the bankruptcy, but it may also be closed by an arrangement. No minimum percentage is required for such arrangement, but it must have the assent of creditors representing three-fourths of the bankrupt's indebtedness.
Composition before bankruptcy is not recognized by Italian law. Bankrupts are liable to criminal proceedings involving punishments more or less heavy for offences against the law, _e.g._ for not keeping books in the way prescribed by law.
_United States._--After much fragmentary legislation the bankruptcy system of the United States is now embodied in the National Bankruptcy Act of 1898, as amended by the act of 1903. The acts of bankruptcy under the act may be summarized as follows: where a debtor (1) removes any of his property to hinder or delay his creditors; (2) being insolvent, transfers property with intent to prefer a creditor; (3) suffers any creditor to obtain a preference; (4) makes a general assignment for the benefit of his creditors; (5) "admits in writing his inability to pay his debts and his willingness to be adjudicated a bankrupt on that ground." These acts of bankruptcy do not include, it will be observed, non-payment by a debtor of his debts. A debtor can therefore only be adjudicated a bankrupt on the ground of indebtedness with his own consent in writing. Presumably the legislature thought that the desire to obtain the protection and privilege of bankruptcy would be a sufficient inducement to confess insolvency, where such insolvency, in fact, exists.
To constitute a fraudulent preference it is not necessary, as it is under English law, that the payment should be made "with a view to prefer" the favoured creditor. It is enough that the creditor is preferred. This avoids the nice questions of legal casuistry which have embarrassed the English courts, and it is the more rational rule, for creditors are not concerned with a debtor's intention. Any person, trader or non-trader, may avail himself of the act, but, in the case of a corporation, there is this peculiarity: it may be petitioned against but cannot petition.
Insolvency is construed in a practical sense; that is, a person is insolvent where the aggregate of his property, at a fair valuation, is insufficient to pay his debts; but he is not necessarily insolvent because his realized assets are insufficient to meet his liabilities.
Involuntary proceedings can only be taken against debtors owing $1000 or over, with certain exceptions. A petitioning creditor's debt must amount to $500.
The administration of the law of bankruptcy is entrusted to the district courts and is exercised through the medium of certain officers appointed by the courts and called referees. The creditors appoint a trustee or trustees of the estate.
So soon as his judicial examination is over the bankrupt may offer his creditors a composition, but to take effect the composition must be approved by the court after hearing objections.
The discharge is the key to the efficiency of every bankruptcy system. By the control which the court thus holds, it is enabled to bring its moral censorship to bear on a debtor's conduct and so maintain a high standard of commercial integrity. Under the United States system the judge is to investigate the merits of the application and to discharge the bankrupt, unless he has (1) committed an offence punishable by imprisonment; (2) with intent to conceal his financial condition, destroyed, concealed, or failed to keep books of account or records from which such condition might be ascertained; or (3) _obtained property on credit from any person upon a materially false statement in writing made to such person for the purpose of obtaining such property on credit; or_ (4) _at any time, subsequent to the first day of the four months immediately preceding the filing of the petition, transferred, removed, destroyed or concealed any of his property with intent to hinder, delay or defraud his creditors; or_ (5) _in voluntary proceedings been granted a discharge in bankruptcy within six years; or_ (6) _in the course of proceedings in bankruptcy refused to obey any lawful order of or to answer any material question approved by the court._
It is significant that the italicized qualifications were added to the act of 1898 by the experience of five years of its working.
(E. MA.)