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No effective audit of the accounts of these assignees was provided for and the security required to be given by them for the proper administration of estates committed to their care was nominal. The debtor by obtaining the execution by a majority in number and three-fourths in value of his creditors having proved claims of $100, and upwards, could obtain his discharge unless some dissenting creditor chose to intervene and oppose confirmation of the composition upon grounds enumerated in the statutes. Moreover, at the time that the Canadian Parliament dealt with the matter in Canada, an agitation was on foot in England to repeal the bankruptcy law of that country. As the dissatisfaction existing in England with the working of the bankruptcy law then in force contributed in no small degree to the repeal of the Canadian Act—helping as it did to discourage the supporters of bankruptcy legislation here and to confirm the opponents of it in their antagonism—we may digress for a moment to glance at some of the defects in the English Act, which gave rise to the aforesaid dissatisfaction and agitation.
In most respects the English Act, of 1869, was an admirable one, but the English practitioner discovered in it what in the slang of the present period may be called a “joker.”
Sections 125 and 126 of the Act contained provisions enabling a debtor to present a petition in Court for liquidation of his affairs by arrangement or on payment of a composition. On presentation of this petition a meeting of creditors was to be summoned, but the names of the creditors were furnished by the debtor himself. No judicial investigation of the right of these creditors to be deemed creditors was held. A majority in number and value after lodging proof of claims could, by resolution, agree to liquidation by arrangement, and to the acceptance of the composition. That resolution then became binding on all other creditors, without any act of approval by the Court, any judicial examination of the debtor, or any judicial examination of the trustees’ accounts. The consequence was that most of the proceedings under that Act were taken under these sections. After the Act had been in force ten years the comptroller in bankruptcy reported 13,000 annual failures in England and Wales, and of these 12,000 were taken under secs 125 and 126. The facilities for fraudulent and collusive arrangements afforded by the Act, and the want of effective control over the administra
tion tended to lower the moral of the proceedings and to throw the control of them into the hands of the less scrupulous members of the profession. The demands for reform were frequent and came from all classes of the business community. Thirteen Bills, dealing with the subject were introduced into the English House of Commons between 1869 and 1879. At length in 1879 a memorial signed by a large body of bankers and merchants in the city of London, a memorial described as “One of the most influential memorials ever presented to any Government,” was forwarded to the Prime Minister. The matter was referred to the president of the Board of Trade, who was Mr. Joseph Chamberlain. Exhaustive inquiries were made under his direction, and in 1881, a measure was introduced which with some amendments finally became law, under the title of “The Bankruptcy Act of 1883.” This Act with some amendments is still in force in England, and is giving satisfaction. One underlying principle of the Act is—the estate for the creditors, not for the debtor or for the trustee. The other underlying principle is—commercial morality. The dealings of an insolvent debtor with his estate are not matters which concern only him and his creditors; the community is also vitally interested therein. Therefore, the Act, while just and generous to the honest and unfortunate trader, penalizes the incompetent and dishonest and endeavours to protect the trading community from his incompetency and dishonesty.
DEBATES OF 1879 AND 1880.
The agitation for the repeal of the English Bankruptcy Act of 1869, synchronized then, as we have said, with the debates in the Canadian House of Commons on the same subject in 1879 and 1880.
In 1879 a resolution was proposed by the leader of the Government to refer three bills, which had been introduced in that session, dealing with the question of insolvency legislation, to a select committee, whose duty it should be to enquire into and consider all questions of insolvency and bankruptcy. On the debate on this resolution many speakers On both sides of the House strongly opposed the continuance of bankruptcy legislation, but the resolution to refer was nevertheless passed and the committee was appointed. Later in the same session they brought in their report and proposed the repeal of the old law and the enactment of a new Act. An amendment was moved to approve the report of the committee in so far as it related to the repeal of the old Act, but not to enact any new law. Somewhat unexpectedly this amendment received an affirmative vote in the House, but was rejected in the Senate. Next year, however, a bill to repeal the existing Act was again passed in the House, and this time it received the support of a majority in the Senate, and the Insolvent Act of 1875, was repealed. Thenceforward creditors were compelled to protect themselves against one another by means of the more or less imperfect remedies provided by provincial enactments. Debtors had several courses open to them:1. They could leave the country. 2. They could carry on business in the names of their wives and defy their creditors. 3. They could form limited liability companies. 4. They could obtain precarious credit. 5. They could await the Statute of Limitations. 6. They could obtain a discharge from such of their creditors as were willing to grant it and could settle with or pay the others. The honest capable man, unwilling to adopt any device derogatory to his manhood was practically prohibited from giving to the community the benefit of his services, except as the hired servant of others more fortunate, but possibly not so capable as himself.
OBJECTIONS URGED IN PARLIAMENT.
When the debates in Parliament are examined it will be found that the reasons given for the repeal did not go to the root of the matter. The fault of the law was not so much in its principle as in its administration. Among the objections were:— 1. The Act gives too great a facility to debtors to make private arrangements with their creditors. . 2. The throwing of bankrupt stocks on the markets de- ranges business and militates against the honest trader. 3. The only man who needs protection is the honest but unfortunate debtor, and to such a debtor the commercial community will be indulgent without a bankruptcy law. 4. A bankruptcy law, the benefits of which are enjoyed only by traders, induces a great many people to go into business who otherwise would not.
5. Bankruptcy laws encourage rash speculation and induce a great many improvident persons to go into speculation into which they would not venture if they did not know that they had a chance of getting a discharge from their liabilities if they should be unsuccessful.
6. The Act is too expensive in its operation. In most cases creditors are pleased to enter into deeds of composition in order to get anything at all.
7. The assignees and lawyers are too rapacious and it is to their interest to prolong the proceedings and increase the expense. Under the old system one man, namely the man with the first execution in the sheriff’s hands, got his pay. No one gets it now. Nobody gets paid. They had raised up a class of official assignees who took it all.
8. Confining the operation of a bankruptcy law to traders is class legislation. The Act is detrimental to farmers and other classes of society who are, shut out from the privileges of the Act. A trader got a non-trader to endorse his note, and after a while got into difficulties. He could call his creditors together and could get relief from his creditors, but the non-trader who had endorsed his paper must pay up to the last farthing and might be ruined thereby.
9. One reason for the unpopularity of the Act was the absence of proper supervision of the assignees. Were there Government inspectors to supervise all the acts of the assignees things might be otherwise. Many official assignees manage by some means to find out the affairs of persons in business and facilitate their bankruptcy.
10. Another reason for the unpopularity of the Act in Ontario was the permission to creditors to name an assignee outside the province, while there was no power to bring one who had acted improperly to the province to make him disgorge.
11. At a meeting of creditors one or two of those who held the heaviest claims were appointed inspectors, and they took good care of their own interests. They come to an understanding among themselves whilst the less fortunate suffer. The law did not protect those who did work for the merchants—the mechanic, the working man, the professional man, all those who work.
It will be seen from these suggestions urged in the House of Commons debate at the time, that one of the powerful causes operating to bring about the repeal of the Act was the fact that only traders were entitled to its benefits. These objections were urged more especially by members representing rural constituencies. Repeatedly it was pointed out by such members that the majority of their constituents, farmers, mechanics, and professional men, received no benefit from the Act, though compelled to bear their share of the loss resultant.
Other causes more or less unconnected with the merits of the Act itself that conduced in no small degree to its repeal were:
PREDOMINANCE OF QUEBEc.
The fact that in Lower Canada they had a provincial law which enabled a creditor to hold an insolvent's property for the benefit of all creditors. It was pointed out that clause 766 of the Code of Civil Procedure provided a much more simple, much more expeditious, and much less unjust remedy, and that the inhabitants of Quebec had the great advantage of protecting the unfortunate debtors from the bite or embrace of the official assignee. The strongest opposition came from the province of Quebec.
Is A BANKRUPTCY LAw WICIOUS?
The Commons were also influenced, as has been already mentioned, by the fact that in England they had not as yet succeeded in devising a satisfactory bankruptcy procedure. The same thing was at this time also true of the United States. There was in fact much dissatisfaction in both these countries with their existing laws. It was strongly urged that this dissatisfaction proved the contention that all bankruptcy laws were inherently vicious and incapable of successful enforcement, and that it was no use trying to amend them.
Many of the complaints were well-founded. Parliament, however, overlooked the fact that no real argument against the principle of bankruptcy laws had been brought forward The objections, formidable as they were, were not to the substantive but to the adjective portions of the law. The