PART IV

BANKRUPTCY

§ 258. Principle involved. The law of bankruptcy is based on the principle that if a person is unable to pay his debts in full, his property should be taken to satisfy his creditors as far as it will go, he himself being discharged from any further liability in respect of such debts. The first English statute on the subject was directed against fraudulent debtors. Subsequently bankruptcy was restricted to traders, but now any person (with some exceptions), whether a trader or not, may take advantage of the bankruptcy laws.

§ 259. The Board of Trade.-The Board of Trade is entrusted with very important powers and duties in all cases of bankruptcy. All moneys received by a trustee are paid into an account kept by the Board with the Bank of England, called "The Bankruptcy Estates Account," except when the committee of inspection (§ 269) or the Board of Trade think it desirable to have the money paid to a local bank. Any local account has to be kept in the name of the debtor's estate.

The Board of Trade appoints the official receivers (§ 264) and other officers. It has also power to issue general orders of an administrative character; and may alter the form of all official documents not of a judicial

nature.

§ 260. Acts of Bankruptcy.-Proceedings in bankruptcy are commenced by a creditor presenting a petition in the proper court alleging that the debtor has committed an "act of bankruptcy." The following are acts of bankruptcy :

I. Where the debtor departs out of or remains out of England, or departs from his dwelling-house, or otherwise absents himself, or begins to keep house, with the object of defeating or delaying his creditors.

2. When he assigns his property to trustees for the benefit of his creditors generally; or

3. Assigns his property or part thereof with the object of defrauding or defeating or delaying his creditors. 4. Where he assigns his property or part thereof, or

creates any charge with the object of fraudulently benefiting one or more of his creditors at the expense of the others.

5. Where he files in court a declaration of inability to pay debts.

6. Where he permits an execution to be levied by seizure of his goods under an order of the court, and the goods are sold or held by the sheriff for twenty-one days.

When judgment is recovered in an action, if the amount claimed be not paid, the creditor issues execution, i.e. he sets the sheriff in motion, and the sheriff seizes the goods of the debtor, and holds them until the debt is paid or sells them.

7. A creditor who obtains judgment may serve the debtor with a notice requiring him to pay, and if he does not do so within a given time, he commits an act of bankruptcy.

8. Where the debtor gives notice to any of his creditors that he has suspended or is about to suspend payment of his debts.

§ 261. Who may be made Bankrupt.-Any person who can enter into a binding contract may, as a rule, be made bankrupt. A person under twenty-one years cannot

be made bankrupt since he cannot make binding contracts except for necessaries. A married woman may be made bankrupt where she can contract as if she were a single woman, e.g. where she carries on trade in the city of London. And a married woman carrying on trade in respect of her separate estate (§ 45) may be made bankrupt in respect of such separate estate. But if she is not carrying on trade, she cannot be made bankrupt though she possesses separate estate.

§ 262. Who can petition.-A person may petition to have himself adjudicated a bankrupt, but as a rule a petition is presented by a creditor who cannot obtain payment of his debt. The following conditions must be fulfilled in order to enable a creditor to petition :—

(a) The debt due must be at least £50.

(b) The debt must be an ascertained amount.

The

price of goods bought is ascertained, but a claim for damages is unascertained.

(c) The debt must be payable immediately or at some certain future time.

(d) The act of bankruptcy must have occurred within three months before the presentation of the petition. (e) The debtor must reside in England, or within a year before the presentation of the petition have resided or had a place of business in England.

§ 263. Order of Adjudication.-When the petition is presented by a creditor, the court requires proof of the debt and of the act of bankruptcy. It must also be shown that the debtor had notice of the petition. If the court is satisfied that an act of bankruptcy has been committed, it will make "receiving order," which has the immediate effect of making the official called the "official receiver" the receiver of all the property of the debtor, with certain exceptions, and deprives the creditors of power to bring any actions against the bankrupt for their debts.

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§ 264. The Official Receiver. The Board of Trade has appointed a number of official receivers, who have important duties to discharge. The debtor is always examined by an official receiver, who makes a report to the

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court on the debtor's conduct, and especially as to whether the debtor has done any act that would justify the court in refusing, suspending, or modifying an order for discharge (§ 275).

Pending the appointment of a trustee (§ 268) or special manager, he has charge of all the property of the debtor; he summons and presides at meetings of creditors; and he makes a report to the creditors on any proposal of the debtor regarding the payment of the debts.

§ 265. Special Manager.—Where it is necessary in the interests of the estate that a special manager should be appointed, the official may make such appointment on the application of any creditor. The special manager has to give security for the performance of his duties, and may be removed by the official receiver. The creditors may require his removal. If it is necessary for the special manager to raise money to carry on the business, he must get the assent of the official receiver.

§ 266. Public Examination of the Debtor.—When the court makes a receiving order, it appoints a day for the examination of the debtor, and the debtor is required to attend. The debtor is also required to furnish the official receiver with a statement of affairs showing the particulars of the debtor's liabilities, debts, assets, the names and addresses of the creditors, the securities (if any) held by them, and any other information the official receiver may require. At the public examination questions may be put by the official receiver or by any creditor who has tendered a proof of a debt (§ 270). The evidence of the debtor is taken on oath, and the examination cannot be declared closed until after the first meeting of creditors.

§ 267. First General Meeting.—Within fourteen days after the receiving order is made, a general meeting of creditors, at which the debtor must be present, is called by the official receiver. Each creditor is entitled to have sent him a summary of the debtor's statement of affairs, accompanied by any observations the official receiver may think fit to make. The creditors at this meeting may resolve that the debtor be adjudged a bankrupt, or may agree

to accept a scheme put forward by the debtor (§ 279). The resolution in favour of bankruptcy must be carried by a majority "in value" of the creditors present, personally or by proxy, i.e. each vote is estimated at the amount of the debt due to the voter. The court will subsequently adjudge the debtor bankrupt, and thereupon his property becomes available for the payment of his debts.

§ 268. The Trustee.-When the creditors have resolved that the debtor be adjudged bankrupt, the creditors may appoint a fit person to be trustee of the property of the bankrupt, but they may leave the appointment to the committee of inspection (§ 269). Until the trustee is appointed the official receiver acts as trustee. If the creditors do not appoint a trustee, the Board of Trade may appoint, but a trustee subsequently appointed by the creditors will displace the trustee appointed by the Board of Trade.

On his appointment all the property of the bankrupt passes to the trustee. The chief duties of the trustee are to take possession or get in all the debtor's property liable for payment of his debts, to keep books and accounts, to pay all moneys received into the Bank of England, and to declare and pay dividends from time to time.

The chief powers of the trustee are to get in all the property of the bankrupt, to sell any part of such property, to hold property, to make contracts, to give receipts, to prove in bankruptcy when the bankrupt is a creditor, and to summon meetings of the creditors. The powers he can exercise with the consent of the committee of inspection are enumerated in another section (§ 269).

§ 269. The Committee of Inspection.-The creditors may appoint a committee of their own number qualified to vote, of not less than three and not more than five, to be a "committee of inspection." The duty of such committee is to superintend the administration of the bankrupt's estate by the trustee, and to give directions to the trustee subject to the views of the creditors assembled in general meeting.

The committee are entitled to see the record and cash books kept by the trustee, and once in every three months it is to audit the cash-book. The trustee requires the