128
BANKRUPTCY
to defraud tlieir creditors and set them at defiance. et, in the endorser, although the bill was not yet due, and the legislation which ensued, this fact appears to have been acceptor was perfectly solvent and able to meet it at ^a,-a ignored. Under the Act of 1869, which Thus in large mercantile failures, bankers and of 1869 entirely wag passe(i for the avowed purpose of remedying maturity. the evils which had arisen, the procedure under a bankruptcy other holders of first-class bills could prove and vote on petition was certainly rendered more effective. Meetings of the estates of their customers, for whom the bills had been creditors were presided over, and creditors’ claims were, for vot- discounted, and thus control the entire proceedings, ing purposes, adjudicated upon by the registrar of the court ; although they had no ultimate interest in the estate. the bankrupt had to pass a public examination in court, which But probably the greatest source of the abuses which although chiefly left to the trustee appointed by the creditors, afforded some opportunity for investigation ; and the bankrupt arose under the Act of 1869 was the proxy system estabcould not obtain his discharge without the approval of the court, lished by the Act, and by the rules which were subseand in certain circumstances the consent of the creditors. An quently made to carry it out. The introduction of proxies independent official, the Comptroller in Bankruptcy, was appointed, whose duty it was to examine the accounts of trustees, call them was no doubt intended to give absent creditors an opporto account for any misfeasance, neglect, or omission, and refer the tunity of expressing their opinions upon any question matter to the court for the exercise of disciplinary powers where which might arise. But the system was too often used necessary. These provisions were well calculated to promote sound for the purpose of stifling the viewTs of those wdio took an administration, but they were, unfortunately, rendered nugatory independent part in the proceedings. The form of proxy by provisions relating to what were practically private arrangements on similar lines to those which had rendered previous legis- prescribed by the rules contained no limitation of the lation ineffective. In some respects the evil was aggravated. powers of the proxy holder, and no expression of the Deeds of arrangements were nominally abolished, but under sections opinion of the creditor. It simply appointed the person 125 and 126 of the Act, a debtor was empowered to present a named in it as “my proxy,” and these magic words gave petition to the court for liquidation of his affairs by “arrangement,” or for payment of a composition, whereupon a meeting of the holder power to act in the creditor’s name on all creditors was summoned from a list furnished by the debtor, and questions that might be raised at any time during the without any judicial investigation of claims, a majority in number bankruptcy. Hence arose a practice of canvassing for and three-fourths in value of those who lodged proofs of debt, proxies, which were readily given under the influence of and who were present in person or by proxy at the meeting, might by resolution agree to liquidation by arrangement, or to the plausible representations, such as the holding out of the acceptance of the composition. Such resolution thereupon became prospect of a large composition, but which, when once binding upon all the creditors, without any act of approval by the obtained, could be used for any purpose whatsoever court, any judicial examination of the debtor, or any official super- except the receipt of a dividend. Thus it frequently vision over the trustee’s account. As a debtor was not permitted happened that the entire proceedings -were controlled by to present a bankruptcy petition against himself, his only method of procedure was that which thus removed the matter from the professional proxy - holders, in whose hands these docusupervision and control of the court, and as about nine-tenths of ments acquired a marketable value. They were not only all the proceedings under the Act of 1869 were initiated by debtors, used to vote for liquidation by arrangement instead of it followed that only about one-tenth was submitted to proper bankruptcy proceedings, but not infrequently the matter investigation. It is true that the creditors might refuse to assent to the debtor’s proposal, and that any creditor for £50 or upwards took the form of a bargain between an accountant and a could present a petition in bankruptcy, but even where this solicitor, under which the former became trustee, and the course was adopted, the proceedings under the petition were, as a latter the solicitor in the liquidation, without any provirule, stayed by the court if the debtor subsequently presented sion for control over expenditure, or for any audit of the a proposal for liquidation or composition, and the creditor was left to pay the expenses of his petition if the requisite majority voted for accounts. Even where a committee of inspection was the debtor’s proposal. So far, therefore, as the Act was concerned, appointed to exercise functions of control and audit, they every inducement was held out to the adoption of a course which too were often appointed by the proxy-holders, and not took the examination of the debtor, the conditions of his discharge, infrequently shared in the benefits. On the other hand, and the audit of the trustee’s accounts, out of the control of the where the amount of debts represented by the proxy-holder court. One of the chief reasons why the Acts of 1849, 1861, was insufficient to carry the appointment of a trustee and and 1869 thus proved failures, lies in the obvious fact committee, the votes could be sold to swell the chances of other candidate. Where the debtor opposed these Causes that the creditors of a particular estate are some of nonnot, as appears to have been assumed, a homo- appointments, or refused to assist in carrying them by using success. geneous or organized body capable of acting such influence as he might possess, he sometimes became together in the administration of a bankrupt estate. In a target for the exercise of revenge. His discharge, which the case of a few special and highly organized trades it under liquidation by arrangement was entirely a matter may be otherwise, but in the great majority of cases the for the creditors, might be refused indefinitely; and so creditors have but little knowledge of each other, or means largely and harshly was this power exercised under the of organized action, while they have neither the time nor proxy system, especially where it was supposed that the the inclination to investigate the complicated questions debtor had friends who could be induced to come to his which frequently arise, and which are therefore left in aid, that a special Act of Parliament was passed in 1887, the hands of professional trustees or legal agents. But authorizing the court to deal with cases where, under the the appointment of trustees under these Acts, instead of Act of 1869, a debtor had not been able to obtain a being the spontaneous act of the creditors, was frequently release from his creditors. On the other hand, the comdue to touting on the part of such agents themselves, or plaisant debtor, although he had incurred large obligato individual creditors whose interests were not always tions in the most reckless manner, often succeeded in identical with those of the general body. According stifling investigation and obtaining his release without to Mr. Robson, the author of a standard work on the difficulty as a return for his aid in carrying out the subject, the arbitrary powers conferred by the Act of arrangement. The result of such a system could not be other than a 1861 “led to great abuses, and in many cases creditors were forced to accept a composition, the approval of which failure. After the Act of 1869 had been in operation for ten had been obtained by a secret understanding between the years, the Comptroller in Bankruptcy reported debtor and favoured creditors, and not unfrequently by the that out of 13,000 annual failures in England bankruptcy creation, of fictitious debts. ” These evils were greatly aggra- and Wales, there were only 1000 cases (or statistiCs. vated by the decisions of the court relating to proofs on about 8 per cent.) “ to which the more importbills of exchange, under which it w^as held that the holder ant provisions of the Act for preventing abuses by insolvent of a current bill could prove on the bankrupt estate of an debtors and professional agents applied; the other 12,00
