Page images

weighted down with an impossible load of debt. The relief granted by these last-mentioned laws has not, however, been conditional upon the honesty of the debtor. So far as enforcing the principles of commercial morality is concerned these laws are necessarily indiscriminate in their operation. They have equal application to the just and to the unjust; to the rash speculator and to the unfortunate tradesman; to the man who has become insolvent because of the failure of his debtors or perhaps through financial panic and depression, and to the spendthrift and gambler who has wasted his substance in riotous living; to the confidence man to whom a straight path is impossible, and to his unfortunate dupes.


The principle embodied in the want of bankruptcy legislation in Canada is, historically considered, that of slavery In the most primitive stage of society, indeed, the remedy, is there was any, was probably that of private vengeance. In the next stage we have the condition of things which may be described as private vengeance regulated by the State—the manus injectio of the Romans, whereby the creditor was permitted privately to imprison the debtor, and even to kill him. In the next stage we have public imprisonment of the debtor. The debtor was restrained of his liberty, that is, he was restrained as to locality and also as to his liberty to deal with his fellowmen. Later still, in the next stage, the restraint as to locality was removed, but the restraint as to the debtor's dealings with others was, in effect, retained. Imprisonment for debt is abolished, but, no discharge being granted, the disability as to dealing with others persists. In the last and final stage of development personal restraint entirely disappears, and the honest, but unfortunate debtor is not only not imprisoned, but is left free to engage, unhindered, in the activities for which he may have any special skill and aptitude to the benefit of himself, his family, and of the State, A glance at the pages of history is sufficient to verify the evolutionary process here briefly sketched. In all primitive communities of which we have historical record, the rule was that a man must pay his debts in full, and if he could not pay with his property, he should answer with the liberty, not only of himself, but of his family. The Old Testament contains the story of a woman, who sought the help of Elisha, saying, “thy servant my husband is dead and the creditor is come to take unto him my two children to be bondmen.” 2 Kings 4, 1. Sir Henry Maine said: “Nothing strikes the scholar and jurist more than the severity of ancient systems of law towards the debtor and the extravagant power lodged in the creditor.” It brought many early States to the brink of ruin. In Athens a revolution was only averted by the abolition of enslavement for debt. In Rome in the ancient law of the twelve tables every execution was personal and resulted in the bondage of the debtor, and a right to the creditor to sell him into slavery or even to kill him. If several creditors had claims upon one and the same debtor the law allowed them to cut the debtor into pieces and divide his body between them. The creditor's right to sell his debtor was abolished in 313 B.C., nevertheless, imprisonment continued to be the principal method of execution. When the person of the debtor passed into the power of the creditor, the same fate befell his whole estate. It was not until the time of Julius Caesar that a debtor became entitled to immunity from imprisonment on formally giving up everything to his creditors, cessio bonorum. This cessio bonorum marks the commencement of one of the true principles of bankruptcy.

The earliest English statute on the subject of bankruptcy was passed in 1542. Then, as now, it was found necessary to enact laws for protection against fraudulent traders. The next Act was passed in 1570, and applied only to traders, but provided penalties for the non-disclosure of assets. Neither of these Acts granted any relief to the debtor in the way of discharge of liability, and although the law expressed in those Acts, was modified by new statutes from time to time, it was not until 1706 that the principle of granting a discharge to the debtor was introduced. The Act of 1706 provided that the debtor might with the consent of a specified majority of his creditors obtain from the commissioners who had the conduct of the bankruptcy proceedings a certificate which when confirmed by the Lord Chancellor discharged his person and whatever property he might subsequently acquire from all debts which he owed at the time of his bankruptcy, Until 1831 the jurisdiction over bankrupt estates was exercised either directly by the Lord Chancellor or by Commissioners appointed by him. In that year a Bankruptcy Court was established in England, and continued until the juris. diction was in 1883 transferred to the High Court and certain County Courts. In Scotland where a most simple and practical system of bankruptcy is now in operation, all insolvents were at one time called dyvours, and were regarded as fraudulent debtors. In the beginning of the seventeenth century, the unfortunate dyvour was clad in party colored garment, one-half yellow and the other brown, and in this attire was exposed at intervals upon the public pillory. Although this practice long ago fell into disuse, it was not abolished by law until 1836. When the laws of England were introduced into Upper Canada in 1792, the laws respecting bankrupts were excepted, the statute, 32 George III., ch. 1, sec. 6, enacting: “Provided always and be it enacted by the authority aforesaid, that nothing in this Act contained shall introduce any of the laws of England respecting bankrupts.” After the union of Upper and Lower Canada, and in 1843, a Bankruptcy Act was enacted which granted a discharge to the debtor from all debts due by him at the date of the commission and from all claims provable under the commission. This Act by its terms to continue in force for only two years, but by subsequent enactments passed annually it was continued in force until 1849. The Act applied only to traders and the term “trader " was very strictly defined. In 1844, an Act for the relief of non-traders was passed, by which such persons were protected from arrest under civil process. In 1864 a new Insolvent Act was passed which applied in Lower Canada to traders only, but in Upper Canada to all persons. This Act was repealed in 1869, and the Insolvent Act of 1869, which applied to traders only was substituted. The Act of 1869 was by its terms limited to four years, but in 1874, it was continued until the following year, and in 1875, a permanent Act was passed applicable to traders only, and this Act was repealed on the 1st of April, 1880. In New Brunswick prior to Confederation there was no bankrupt or insolvency law, nor any provision for the distribution of a person's estate other than by ordinary process, and there was no law against preferences. In Nova Scotia a remedial law intended to supplement and mitigate the law of imprisonment for debt was in force before Confederation and in British Columbia and Vantouver Island, the English bankruptcy law of 1849, was in force until those provinces became part of the Dominion.


In Ontario and the Western Provinces, very strict laws are now in force prohibiting unjust preferences of one creditor over another. There are also laws abolishing priority between execution creditors. Assignments for the benefit of creditors providing for a ratable distribution of an insolvent debtor's property among his creditors without preference or priority (except claims given by law or statute, a preference such as wages), are valid, and for certain purposes the assignee is the representative of the creditors. These Acts also contain provisions for the examination of the debtor and for the contestation of creditors’ claims. Under these Acts the assignee is in the first place selected by the debtor, but may be removed and a new assignee appointed upon a vote of the creditors. The creditors are largely at the mercy of the assignee, both as to the administration of the estate, the expenses connected therewith, the scrutiny of claims, the conduct of proceedings for the contestation of securities and the examination of the debtor. In many cases no doubt the creditors prefer to avoid the loss of time and expense which would be involved in scrutinizing the affairs of the estate and are content to take whatever dividend may become payable and to continue to hold their debtor responsible for the unpaid balance of their claims. Unless a creditor wishes to be unduly harsh, he omits to obtain judgment for the amount remaining due to him and consequently in due time his claim is barred by the Statutes of Limitation and the debtor becomes free from enforceable liability except to those creditors who have taken the precaution to obtain a judgment against him.


Apart from China and Canada, and possibly Japan, there is no country of any considerable importance without its bankruptcy law. In China the various foreign nationalities have bankruptcy laws, which are enforced against their nationals. All Chinese delinquents pass into the dishonoured class, and are put under process of coercive termination of a business career, and are subject to punishment by bamboo blows.

In the United States the first bankruptcy law was passed in 1800, and repealed in 1803. A second Act was passed in 1841, and repealed in March, 1843. A third was passed in 1867, and repealed in 1878. In 1898, Congress passed a Bankruptcy Act, which is now in force in the United States


It will be seen by reference to the many Bankruptcy Acts which have been passed both in England, the United States, and in Canada, that bankruptcy legislation has apparently been a series of experiments. This has been due to various causes. The principle of every Bankruptcy Act, since the beginning of the 18th Century, has been the same. The difficulty has been in its administration. Some of these difficulties are:–

1. The manufacture of fraudulent claims. 2. The rapacity of trustees. 3. The expense attendant upon the administration of an estate under the official supervision of a Court. 4. The absence of control by creditors. 5. The facility of obtaining the approval of a deed of composition by creditors constituting the requisite majority. 6. The absence of public examination of the debtor. 7. The want of sufficient penalties for dishonest or reckless conduct or for violations of the principles of commercial morality.


The repeal by Parliament in 1880, of the Insolvent Act, of 1875, was probably due to an aggregation of evils rather than to any specific cause. Under the Act of 1875, there was no single Bankruptcy Court. The Act was administered in Quebec by the Superior Courts, in Manitoba, by the Court of Queen's Bench, in Ontario, British Columbia, and Prince Edward Island by the County Courts, and in Nova Scotia by the Court of Probate, until such time as County Courts should be established in that province. There was no examination of the debtor in open Court. True, a debtor was liable to be examined under oath before the assignee, and was bound to attest his statements of liabilities and assets under oath. The administration of the estates was committed to a privileged class of persons called official assignees, who were appointees under the party system of Government.

« PreviousContinue »