Chapter XXXII: 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 A Dominion act was passed in 1875, but repealed in 1880.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 L5.

_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.)

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Corrections made to printed original.

page 186, "His opportunity for territorial aggrandizement": 'aggrand-dizement' over line-break in original.

page 202, "the accommodation and protection of the reeds": 'accomodation' in original.

page 225, "in the neighbourhood of Bayeux": 'neighborourhood' in original.

page 273, equation (26) "... = -r = -gp/C.": '= -rr = -gp/C.' in original, the first r upright, the second italic. Compare the table before (25) where Cr = gp.

page 286, (Victor Baltard) "In 1833 he gained the prix de Rome": '1803' in original (2 years before he was born!); various internet sources agree 1833 is the correct date.

page 308, "he had a perfect sense of proportion": 'pefect' in original.