BANK RATE

bank rate, a term used in financial circles to designate the rate of discount charged in the chief monetary centres by the state or leading bank, as opposed to the open-market rate. (see market: _money market_.) [sidenote: definition.] bankruptcy (from lat. _bancus_ or fr. _banque_, table or counter, and lat. _ruptus_, broken), the status of a debtor who has been declared by judicial process to be unable to pay his debts. although the terms "bankruptcy" and "insolvency" are sometimes used indiscriminately, they have in legal and commercial usage distinct significations. when a person's financial liabilities are greater than his means of meeting them, he is said to be "insolvent"; but he may nevertheless be able to carry on his business affairs by means of credit, paying old debts by incurring new ones, and he may even, if fortunate, regain a position of solvency without his creditors ever being aware of his true condition. and even when his insolvency becomes public and default occurs, a debtor may still avert bankruptcy if he is able to effect a voluntary arrangement with his creditors. a debtor may thus be insolvent without becoming bankrupt, but he cannot be a bankrupt without being insolvent, for bankruptcy is a legal declaration of his insolvency and operates as a statutory system for the administration of his property, which is thereby taken out of his personal control. [sidenote: early methods.] in primitive communities bankruptcy systems were unknown. individual creditors were left to pursue their remedies by such means as the law or practice of the community might sanction, and these were generally of a very drastic character. under the roman law of the twelve tables, the creditors might, as a last resort, cut the debtor's body into pieces, each of them taking his proportionate share; and although blackstone in quoting this law appears to cast some doubt upon its too literal interpretation, there can be no doubt that the power of selling the debtor and his family into slavery was one which was habitually exercised in greece, rome, and generally among the nations of antiquity. even among the jews, whose legislation was of a comparatively humane character, this practice is illustrated by the old testament story of the 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." the savage severity of these earlier laws was, however, found to be inconsistent with the development of more humane ideas and the growth of popular rights; and tended, as in the case of greece and rome, to create serious disturbance in political relations between the patricians, who generally composed the wealthier or creditor class, and the plebeians, in whose ranks the majority of debtors were to be found. later legislation consequently substituted imprisonment in a public prison for the right of selling the person of the debtor. under the feudal systems of europe the state generally insisted on its subjects being left free for military service, and debts could not therefore be enforced against the person of the debtor; but as trade began to develop it was found necessary to provide some means of bringing personal pressure to bear upon debtors for the purpose of compelling them to meet their obligations, and under the practice of the english courts of law the right of a creditor to enforce his claims by the imprisonment of his debtor was gradually evolved (although no express legal enactment to that effect appears at any time to have existed), and this practice continued until comparatively recent times. [sidenote: commercial objects.] without some system of enforcing payment of debts it would have been impossible for the commerce of the world to have attained its present proportions; for modern commerce is necessarily founded largely on credit, and credit could not have existed without the power of enforcing the fulfilment of financial contracts. on the other hand remedies against a debtor's person, and still more against the persons of his family, are not only inconsistent with the growth of opinion among civilized communities, but are in themselves worse than futile, inasmuch as they strike at the root of all personal effort on the part of a debtor to retrieve his position and render a return to solvency impossible. hence the necessity of devising some system which is just to creditors while not unduly harsh upon debtors, which discriminates between involuntary inability to meet obligations and wilful [v.03 p.0321] refusal or neglect, and which secures to creditors as between themselves an equitable share of such of the debtor's assets as may be available for the payment of his liabilites. these are the objects which the bankruptcy laws have primarily in view. another object, which has not always been so fully recognized as it might appear to deserve, has marked the most recent legislation, namely, the fostering of a higher tone of commercial morality and the protection of the trading community at large from the evils arising through the reckless abuse of credit and the unnatural trade competition thereby engendered. it must be admitted that these objects are of a somewhat conflicting character, and wherever the state has interfered with the view of securing an efficient system of bankruptcy legislation the task has been found to be extremely difficult. not only have the conflicting interests of the debtor and his creditors to be taken into account, but the method to be adopted in dealing with his property has also given rise to much conflict of opinion, and to a lack of uniformity and consistency in the legislation which dealt with it. the debtor's property was naturally regarded as belonging to the creditors, but it could not be distributed among them until it was realized, and until their respective right and interests were determined by competent authority. in some cases claims to rank as creditors are of doubtful validity. in others the creditor holds securities, the value of which requires investigation, or he claims a preference to which he may or may not be legally entitled. creditors have thus conflicting interests as between themselves, and are therefore incapable of acting together as a homogeneous body. hence the necessity for calling in the aid of professional assignees or trustees, solicitors and other agents, who made it their special business to deal with such matters, exercising both administrative and quasi-judicial functions, in return for the remuneration which they receive out of the property for their services. professional interests, which are not always identical with the interests of the debtor or the creditors, are thus called into existence, and these interests have from time to time exercised a powerful influence in shaping the course of legislation. while the law of bankruptcy has therefore been largely the product of commercial development, it has necessarily been of slow and gradual growth, tentative in its character, and subject to oscillation between the extremes of conflicting interests according to the temporary and varying predominance of each of these interests from time to time. no intelligible grasp of the principles which underlie the history of bankruptcy legislation in england, and no satisfactory explanation of the fluctuating tendencies which have marked its progress, are possible without bearing these considerations in view. _bankruptcy in england._ [sidenote: history.] the subject was originally dealt with in the sole interest of creditors; it was considered fraudulent for a debtor to procure his own bankruptcy. thus the earliest english statute on the subject, 34 & 35 henry viii. c. 4 (a.d. 1542), was directed against fraudulent debtors, and gave power to the lord chancellor and other high officers to seize their estates and divide them among the creditors, but afforded no relief to the debtor from his liabilities. subsequent legislation modified this attitude and introduced the principle of granting relief to the bankrupt with or without the consent of the creditors, where he conformed to the provisions of the bankruptcy law, and under the act of 1825 the debtor was allowed himself to initiate proceedings. since 1542 about forty acts of parliament have been passed, dealing with the many aspects of the subject, and slowly expanding, modifying and building up the highly complex system of administration which now exists. [sidenote: court of 1831.] the courts exercising jurisdiction originally, consisted of commissioners appointed by the lord chancellor. but in 1831 a special court of bankruptcy was established, consisting of six commissioners with four judges as a court of review, and official assignees attached to the court for the purpose of getting in the distributing the bankrupt's assets. non-traders were originally excluded from the bankruptcy court, and a special court called the "court for relief of insolvent debtors" was instituted for their benefit, in which relief from the liability to imprisonment could be obtained on surrender of their property, but they were not discharged from their debts, subsequently-acquired property remaining liable. both of these courts were subsequently abolished, non-traders were permitted to obtain the benefit of the bankruptcy laws, including a discharge, and in 1869 the system of official assignees was swept away, and a new court of bankruptcy created with one of the vice-chancellors at its head as chief judge, and a number of subordinate registrars or inferior judges under him. this court has also now been abolished, and the business is administered by a judge of the high court specially appointed for the purpose by the lord chancellor, with registrars of the high court, who deal with the ordinary judicial routine of bankruptcy procedure in the london district, while similar duties are performed by the county-court judges throughout the country. [sidenote: rights of creditors.] but the questions which have proved the most difficult to deal with, and which more than any others have been the cause of fluctuating and inconsistent legislation, have undoubtedly been those relating to the share which the creditors ought to have in the administration of the proceedings, and to special arrangements effected between a debtor and his creditors under conditions more or less beyond the control of the court. these two questions are largely intermixed, and the history of english legislation on these points and its results throw much light on the causes of the failure of the many attempts which have been made by the most eminent legal authorities to bring the law into a satisfactory condition. the right of creditors to exercise some control in bankruptcy over the realization of the debtor's property through an assignee chosen by themselves was recognized at an early date, but this right was exercised subject to the supervision of the court which investigated the claims of creditors and determined who were entitled to take part in the proceedings. provision was also made for the interim protection of the debtor's property by official assignees attached to the court, who took possession until the creditors could be consulted, and under the supervision of the court audited the accounts of the creditor's assignee. so long as this system continued substantial justice was generally secured; the claims of creditors were strictly investigated and only those who clearly proved their right before a competent court were entitled to take part in the proceedings. the bankrupt was released from his obligations, but only after strict inquiries into his conduct and under the exercise of judicial discretion. the accounts of assignees were also strictly investigated, and the costs of solicitors and other agents were taxed by officers of the court. but the system was found to be cumbrous, to lead to delay and too often to the absorption of a large part of the estate in costs, over the incurring of which there was a very ineffective control. hence arose a demand for larger powers on the part of creditors, and the introduction into the bankruptcy procedure of the system of "arrangements" between the debtor and his creditors, either for the payment of a composition, or for the liquidation of the estate _free from the control of the court_. [sidenote: acts of 1825, 1831, 1842, 1849.] at first these arrangements were carefully guarded. under the act of 1825 a proposal for payment of a composition might be adopted only after the debtor had passed his examination in court, and with the consent of nine-tenths in number and value of his creditors assembled at a meeting. upon such adoption the bankruptcy proceedings were superseded. dissenting creditors, however, were not bound by the resolution, but could still take action against the debtor's subsequently-acquired property. these powers were not found to be sufficiently elastic and the act failed to give public satisfaction. attempts were made by the acts of 1831 and 1842 to remedy the defects complained of by a reconstitution of the bankruptcy court and its official system. but these measures also failed because they were based on the assumption that judicial bodies could exercise effective control over administrative [v.03 p.0322] action, a control for which they are naturally unsuited, and which they could only carry out by cumbrous and expensive methods of procedure. under the act of 1849 a totally new principle was introduced by the provision that a deed of arrangement executed by six-sevenths in number and value of the creditors for l10 and upwards should be binding upon _all_ the creditors without any proceedings in or supervision by the court. but the determination of the question who were or were not creditors was practically left to the debtor himself, without any opportunity for testing by independent investigation the claims of those who signed the deed to control the administration of the estate. it is not difficult to see, in the light of subsequent experience, how likely this provision was to encourage fraudulent arrangements, and to introduce laxity in the administration of debtors' estates. a modification of the too stringent conditions of the act of 1825, which would have enabled a bankrupt to pay a composition on his debts, with the consent of a large proportion of his bona-fide creditors, and subject to the approval of the court, after hearing the objections of dissenting creditors, would doubtless have proved a beneficial reform, but the act of 1849 proceeded on a very different principle. instead of reforming, it practically abolished judicial control. by avoiding scylla it fell into charybdis. to give _any_ majority of creditors the power to release a debtor from his obligations to non-assenting creditors without full disclosure of his affairs, and without any exercise of judicial discretion or any investigation into the causes of the failure, or the conduct of the debtor, would in any circumstances have been to introduce a new and mischievous principle into legislation, for it would necessarily destroy the essential feature of such arrangements, that they are _voluntary_ contracts, the responsibility for which lies solely with the parties entering into them. but to give such a power to creditors whose claims were subject to no independent investigation was to invite inevitable confusion and failure. [sidenote: 1861.] yet this was the dominating principle of english bankruptcy legislation for nearly thirty-five years. its effect under the act of 1849 was, however, to some extent modified by subsequent decisions of the courts that to make a composition arrangement binding it must be accompanied by a complete _cessio bonorum_; but this qualification was removed by the act of 1861 which made such arrangements binding without a _cessio_ and reduced the majority required to make a deed of arrangement binding on all the creditors, to a majority in number and three-fourths in value of those whose claims amounted to l10 and upwards. the result was an enormous increase in fraudulent arrangements. the then attorney-general, sir robert collier, in introducing an amending act in 1869, described the abuses which had grown up under the 1849 and 1861 acts, as having the effect of enabling a bankrupt to "defraud those to whom he was indebted and to set them at defiance"; while lord cairns, the lord chancellor, in the house of lords expressed the opinion that the large increase which had taken place in the annual insolvency of the country during the preceding years could not "be attributed to depression of trade but must be traced to the enormous facilities which are given to debtors who wish to be released from their debts on easy terms." and yet in the legislation which ensued these facts were entirely ignored or lost sight of. [sidenote: 1869.] it is indeed a curious illustration of the difficulties which have attended bankruptcy legislation in england that the very measure (the act of 1869) which was introduced to remedy this deplorable condition of affairs, was twelve years afterwards denounced in parliament by the president of the board of trade (mr joseph chamberlain) as "the most unsatisfactory and most unfortunate of the many attempts which had been made to deal with the subject" and as "the object of the almost unanimous condemnation of all classes." how was this? under the act of 1869, the procedure under a bankruptcy petition was certainly rendered effective. meetings of creditors were presided over and creditors' claims were, for voting purposes, adjudicated upon by the registrar of the court; the bankrupt had to pass a public examination in court, which although chiefly left to the trustee appointed by the creditors, afforded some opportunity for investigation; and the bankrupt could not obtain his discharge without the approval of the court and in certain circumstances the consent of the creditors. an independent official, the comptroller in bankruptcy, was appointed, whose duty it was to examine the accounts of trustees, call them to account for any misfeasance, neglect or omission, and refer the matter to the court for the exercise of disciplinary powers where necessary. these provisions were well calculated to promote sound administration, but they were, unfortunately, rendered nugatory by provisions relating to what were practically private arrangements on similar lines to those which had rendered previous legislation ineffective. in some respects the evil was aggravated. deeds of arrangements were nominally abolished, but under sections 125 and 126 of the act a debtor was empowered to present a petition to the court for liquidation of his affairs by "arrangement," or for payment of a composition, whereupon a meeting of creditors was summoned from a list furnished by the debtor, and without any judicial investigation of claims, a majority in number and three-fourths in value of those who lodged proofs of debt, and who were present in person or by proxy at the meeting, might by resolution agree to liquidation by arrangement or to the acceptance of the composition. such resolution thereupon became binding upon all the creditors, without any act of approval by the court, any judicial examination of the debtor, or any official supervision over the trustee's accounts. the debtor was not permitted to present a bankruptcy petition against himself, and consequently his only method of procedure was that which thus removed the matter from the supervision and control of the court, and as about nine-tenths of all the proceedings under the act of 1869 were initiated by debtors, it followed that only about one-tenth was submitted to proper investigation. it is true that the creditors might refuse to assent to the debtor's proposal, and that any creditor for l50 or upwards could present a petition in bankruptcy, but even where this course was adopted, the proceedings under the petition were, as a rule, stayed by the court if the debtor subsequently presented a proposal for liquidation or composition, and the creditor was left to pay the expenses of his petition if the requisite majority voted for the debtor's proposal. so far, therefore, as the act was concerned, every inducement was held out to the adoption of a course which took the examination of the debtor, the conditions of his discharge and the audit of the trustee's accounts, out of the control of the court. [sidenote: causes of failures of acts.] the establishment of a bankruptcy court, with its searching powers of investigation and its power of enforcing penalties on misconduct, can only be defended on the ground that the administration of justice is a matter affecting the interests of the community at large. but apart from the injury done to these interests by reducing the administration of justice to a question of barter and arrangement between the individuals immediately concerned, one of the chief reasons why the acts of 1849, 1861 and 1869 proved failures, lies in the obvious fact that the creditors of a particular estate are not, as appears to have been assumed, a homogeneous or organized body capable of acting together in the administration of a bankrupt estate. in the case of a few special and highly organized trades it may be otherwise, but in the great majority of cases the creditors have but little knowledge of each other or means of organized action, while they have neither the time nor the inclination to investigate the complicated questions which frequently arise, and which are therefore left in the hands of professional trustees or legal agents. but the appointment of trustees under these acts, instead of being the spontaneous act of the creditors, was frequently due to touting on the part of such agents themselves, or to individual creditors whose interests were not always identical with those of the general body. according to g. y. robson, the author of a standard work on the subject, the arbitrary powers conferred by the act of 1861 "led to great abuses, and in many cases creditors were forced to accept a composition, the approval of which had been obtained by a secret understanding between the debtor and favoured creditors, and not unfrequently by the creation of fictitious debts." these evils [v.03 p.0323] were greatly aggravated by the decisions of the court relating to proofs on bills of exchange, under which it was held that the holder of a current bill could prove on the bankrupt estate of an indorser, although the bill was not yet due, and the acceptor was perfectly solvent and able to meet it at maturity. thus in large mercantile failures, bankers and other holders of first-class bills could prove and vote on the estates of their customers, for whom the bills had been discounted, and thus control the entire proceedings, although they had no ultimate interest in the estate. but probably the greatest source of the abuses which arose under the act of 1869 was the proxy system established by the act and by the rules which were subsequently made to carry it out. the introduction of proxies was no doubt intended to give absent creditors an opportunity of expressing their opinions upon any question which might arise. but the system was too often used for the purpose of stifling the views of those who took an independent part in the proceedings. the form of proxy prescribed by the rules contained no limitation of the powers of the proxy-holder and no impression of the opinion of the creditor. it simply appointed the person named in it as "my proxy," and these magic words gave the holder power to act in the creditor's name on all questions that might be raised at any time during the bankruptcy. hence arose a practice of canvassing for proxies, which were readily given under the influence of plausible representations, such as the holding out of the prospect of a large composition, but which, when once obtained, could be used for any purpose whatsoever except the receipt of a dividend. thus it frequently happened that the entire proceedings were controlled by professional proxy-holders, in whose hands these documents acquired a marketable value. they were not only used to vote for liquidation by arrangement instead of bankruptcy proceedings, but not infrequently the matter took the form of a bargain between an accountant and a solicitor, under which the former became trustee and the latter the solicitor in the liquidation, without any provision for control over expenditure or for any audit of the accounts. even where a committee of inspection was appointed to exercise functions of control and audit, they too were often appointed by the proxy-holders, and not infrequently shared in the benefits. on the other hand, where the amount of debts represented by the proxy-holder was insufficient to carry the appointment of a trustee and committee, the votes could be sold to swell the chances of some other candidate. hence ensued a system of trafficking in these instruments, the cost of which had in the long run to come out of the estate. the result was that undesirable persons were too frequently appointed, whose main object was to extract from the estate as much as possible in the shape of costs of administration. the debtor was practically powerless to prevent this result. if he attempted to do so he sometimes became a target for the exercise of revenge. his discharge, which under liquidation by arrangement was entirely a matter for the creditors, might be refused indefinitely; and so largely and harshly was this power exercised under the proxy system, especially where it was supposed that the debtor had friends who could be induced to come to his aid, that a special act of parliament was passed in 1887, authorizing the court to deal with cases where, under the act of 1869, a debtor had not been able to obtain a release from his creditors. on the other hand, the complaisant debtor, although he had incurred large obligations in the most reckless manner, often succeeded in stifling investigation and obtaining his release without difficulty as a return for his aid in carrying out the arrangement. the result of such a system could not be other than a failure. after the act of 1869 had been in operation for ten years, the comptroller in bankruptcy reported that out of 13,000 annual failures in england and wales, there were only 1000 cases (or about 8%) "to which the more important provisions of the act for preventing abuses by insolvent debtors and professional agents applied; the other 12,000 cases (or 92%) escaping the provisions which refer to the examination and discharge of bankrupts, and to the accounts, charges and conduct of the agents employed." it is not to be supposed that all the cases in the latter class were marked by the abuses which have been here described. in a large number the proceedings were conducted by agents of high character and standing, and with a due regard to the interests of the creditors. but the facilities for fraudulent and collusive arrangements afforded by the act, and the want of effective control over administration, inevitably tended to lower the morale of the latter, and to throw it into the hands of the less scrupulous members of the profession. the demand for reform, therefore, came from all classes of the business community. no fewer than thirteen bills dealing with the subject were introduced into the house of commons during the ten years succeeding 1869. at length in 1879 a memorial, which was authoritatively described as "one of the most influential memorials ever presented to any government," was forwarded to the prime minister by a large body of bankers and merchants in the city of london. the matter was then referred to the president of the board of trade (mr chamberlain), who made exhaustive inquiries, and in 1881 introduced a measure which, with some amendments, finally became law under the title of the bankruptcy act 1883. [sidenote: act of 1883.] hitherto the question had been dealt with as one of legal procedure; it was now treated as an act of commercial legislation, the main object of which, while providing by carefully framed regulations for the equitable distribution of a debtor's assets, was to promote and enforce the principles of commercial morality in the general interests of the trading community. one of the chief features of the act of 1883 is the separation which it has effected between the judicial and the administrative functions which had previously been exercised by the court, and the transfer of the latter to the board of trade as a public department of the state directly responsible to parliament. under the powers conferred by the act a new department was subsequently created under the title of the bankruptcy department of the board of trade, with an officer at its head called the inspector-general in bankruptcy. this department exercises, under the direction of the board of trade, a general supervision over all the administrative work arising under the act. it has extensive powers of control over the appointment of trustees, and conducts an audit of their accounts; and it may, subject to appeal to the court, remove them from office for misconduct, neglect or unfitness. a report upon the proceedings under the act is annually presented to parliament by the board of trade, and although the department is practically self-supporting, a nominal vote is each year placed upon the public estimates, thus bringing the administration under direct parliamentary criticism and control. the act also provides for the appointment and removal by the board of trade of a body of officers entitled official receivers, with certain prescribed duties having relation both to the conduct of bankrupts and to administration of their estates, including the interim management of the latter until the creditors can be consulted. these officers act in their respective districts under the general authority and directions of the board of trade, being also clothed with the status of officers of the courts to which they are attached. while effecting this supervision and control by a public department directly responsible to parliament, the main objects of the measure were to secure--(1) an independent and public investigation of the debtor's conduct; (2) the punishment of commercial misconduct and fraud in the interests of public morality; (3) the summary and inexpensive administration of small estates where the assets do not exceed l300 by the official receiver, unless a majority in number and three-fourths in value of the creditors voting resolve to appoint a trustee; (4) full control in other cases by a majority in value, over the appointment of a trustee and a committee of inspection; (5) strict investigation of proofs of debt, with regulations as to proxies and votes of creditors; (6) an independent audit and general supervision of the proceedings and control of the funds in all cases. besides amending and consolidating previous bankruptcy legislation, the measure also contains special provisions for the administration under bankruptcy law of the estates of persons dying insolvent (s. 125); and for enabling county courts to make administration orders for payment by instalments in lieu of immediate committal to prison, in the case of judgment debtors whose total indebtedness does [v.03 p.0324] not exceed l50 (s. 122). it also provides for the getting in and administration by the board of trade of unclaimed dividends and undistributed balances on estates wound up under previous bankruptcy acts (s. 162). lastly, it amends the procedure under the debtors act of 1869, dealing with criminal offences committed by bankrupts (which, prior to 1869, had been treated as part of the bankruptcy law), by enacting that when the court orders a prosecution of any person for an offence under that act, it shall be the duty of the director of public prosecutions to institute and carry on the prosecution. [sidenote: act of 1890.] an amending act, under the title of the bankruptcy act 1890 was passed in that year, mainly with the view of supplementing and strengthening some of the provisions of the act of 1883, more particularly with regard to the conditions under which a bankrupt should be discharged or schemes of arrangement or composition be approved by the court. it also dealt with a variety of matters of detail which experience had shown to require amendment, with the view of more fully carrying out the intentions of the legislature as embodied in the principal act. these two acts are to be construed as one and may be cited collectively as the bankruptcy acts 1883 and 1890. they are further supplemented by a large body of general rules made by the lord chancellor with the concurrence of the president of the board of trade, which may be added to, revoked or altered from time to time by the same authority. these rules are laid before parliament and have the force of law. [sidenote: special acts.] besides these general acts, various measures dealing with special interests connected with bankruptcy procedure have from time to time been passed since 1883, the chief of which are as follows, _viz_., the bankruptcy appeals (county courts) act 1884; the preferential payments in bankruptcy act 1888, regulating the priority of the claims of workmen and clerks, &c. for wages and salaries; and the bankruptcy (discharge and closure) act 1887, dealing with unclosed bankruptcies under previous acts. [sidenote: inquiry of 1906.] it would be out of place in this article to attempt to answer the question how far later legislation has solved the difficult problems which prior to 1883 were found so intractable, but it may be mentioned that in 1906 the board of trade appointed a committee to inquire into and report upon the effect of the provisions of the laws in force at the time in the united kingdom in relation to bankruptcy, deeds of arrangement and composition by insolvent debtors with their creditors, and the prevention and punishment of frauds by debtors on their creditors, and any points and matters upon which the existing laws seemed to require amendment. the committee received a vast amount of evidence as well as documents and memoranda from chambers of commerce, trade protection societies and influential public bodies. the scope of the inquiry was not limited to english law and procedure, but also embraced that of germany, france, australia, scotland and ireland. the report of the committee was issued in 1908 (cd. 4068), and reference may be made to it for much valuable information. the committee reported that the result of their inquiry did not disclose any dissatisfaction on the part of the commercial community with the main features of the existing law and procedure. but there were certain special incidents of the law and branches of its administration upon which the committee made recommendations. one was the prosecution and punishment of debtors who had committed fraud on their creditors or caused loss to them by improper and reckless trading. the existing procedure was complained of as being dilatory, cumbersome and expensive, and the committee were of an opinion that where a debtor had committed an offence for which he could and ought to be prosecuted, prosecution and conviction, with adequate punishment, ought to follow speedily and decisively, and the chief recommendation of the committee was that, while the existing procedure should be left untouched, offences ought also to be punishable on summary conviction before magistrates and justices, and the provisions of the summary jurisdiction acts applied to them, and that where an order for a prosecution is made on an application by the official receiver of a bankruptcy court and based on his report, that court should have power to order the official receiver to conduct the prosecution before the court of summary jurisdiction. the committee also reported that numerous delinquencies by insolvent debtors in the conduct of their affairs, or which had contributed to the losses sustained by their creditors, were not punishable or even cognizable by courts having bankruptcy jurisdiction unless or until a debtor who had a receiving order against him, or became a bankrupt, applied for an order sanctioning a composition or scheme of arrangement with his creditors, or for an order discharging him from his debts. the most prominent of these delinquencies which were brought to the notice of the committee were--failure by a debtor to keep any books or any proper or adequate books of account in his business; trading with knowledge of insolvency; gambling and speculation leading to, or contributing to, the debtor's insolvency or bankruptcy; failure properly to account for any substantial deficiency of assets. the committee received a large body of evidence in favour of making delinquencies such as have been described punishable by imprisonment. evidence was also given as to the laws in force in germany, france and scotland, from which it appeared that such delinquencies, especially that of keeping no books of account, can be severely dealt with as criminal offences. after carefully weighing the evidence on both sides the committee recommended that the failure or omission by a debtor who becomes bankrupt to have kept any books of account, or proper books of account, within two years next preceding his bankruptcy, in a trade or business carried on by him, if without excuse, should be made by law an offence punishable on summary conviction by imprisonment, subject to four important limitations, namely, that the law should define what books of account a person carrying on a trade or business must keep, following in this respect the law in force in france and germany; that failure or omission by a debtor to have kept the required books should only be punishable in the event of a debtor becoming bankrupt and of the liquidated debts proved in the bankruptcy exceeding l200 in amount; that no prosecution of a debtor for failure or omission to keep books of account should take place before the lapse of two years from the passing of the law; that a debtor should not be punished if he could show that his failure or omission to keep proper books was honest and excusable and did not contribute to his insolvency, and that no prosecution should be instituted for the offence except by order of the bankruptcy court. the committee made recommendations of much the same character with regard to punishing some of the other delinquencies mentioned above. there were also recommendations by the committee as to trading by undischarged bankrupts, as to the realization of estate on bankruptcy, as to the operation of the law of relation back of a bankruptcy trustee's title, as to the law relating to the after-acquired property of an undischarged bankrupt, and dealings with such property, and with respect to married women and their liabilities under bankruptcy law. the committee also reported on the law and practice relating to voluntary deeds of arrangement between a debtor and his creditors and on the compulsory regulation of assignments of book debts, and of agreements for the hire and purchase of chattels. [sidenote: results of legislation.] in addition to this report the annual reports of the board of trade, which are accompanied by elaborate tables of statistics, and by copious illustrations both of the working of the system and of the characteristic features and causes of current insolvency, are published as parliamentary papers, and may be usefully consulted by those interested in the subject. it appears from these reports that the total number of insolvencies dealt with under the bankruptcy acts during the ten years ending 31st december 1905, was 43,141, involving estimated liabilities amounting to l61,685,678, and estimated assets amounting to l26,001,417. it may also be pointed out that according to the official figures, the cost of bankruptcy administration under the present system has very considerably decreased as compared with that under the act of 1869. estates are also closed at much shorter intervals, and, what is more important from a public point of view, it appears [v.03 p.0325] that while the estimated liabilities of bankrupt estates during the ten years ending 1883 amounted on an average to l22,380,000 per annum, the estimated liabilities during the ten years ending 1905 only averaged l6,168,567 per annum. but during the latter period there was an annual average of 3426 private arrangements involving a further estimated annual liability of l4,166,354 entered into outside of the bankruptcy acts by insolvent debtors. there are no means of ascertaining the corresponding amount of liabilities on private arrangements outside of the bankruptcy acts prior to 1883, and therefore a complete comparison is impossible; but it is evident that on any method of computation there has been a very great diminution in the trading insolvency of england and wales, while it is also clear as a matter of general knowledge in commercial circles, that a great decrease in the proportion of fraudulent trade and reckless speculation has been a marked feature of private trading during the period in question. the cost of bankruptcy administration is provided for: (1) by fees charged to bankrupt estates, (2) by interest on balances at the credit of such estates with the bankruptcy estates account, and (3) by interest on unclaimed funds at the credit of estates under former bankruptcy acts. out of this are paid the salaries of all the officers of the department, including the official receivers; the remuneration due in respect of bankruptcy services to the county court registrars; pensions, &c., payable to retired officers under the present and previous bankruptcy acts; cost of bankruptcy prosecutions; and rents, stationery, travelling and other incidental expenses. the system is self-supporting and involves no charge upon the tax-payers of the country. it has been objected that inasmuch as the act professes to be based on the principle of enforcing commercial morality in the interests of the general community, the cost of administering it should not be charged entirely to the bankruptcy estates concerned. but when it is considered that a large part of the revenue of the department is derived from funds to which estates administered under the present act have contributed nothing, this objection does not appear to be well founded. [sidenote: summary of procedure.] for the convenience of readers who may require more detailed information, the accompanying summary of some of the more important provisions of the law relating to bankruptcy procedure is submitted. it must be borne in mind, however, that the subject is in some of its branches extremely intricate, and that both the law and the procedure are being constantly affected by a considerable body of judicial interpretation, while the acts also contain detailed provisions with regard to many questions incident to the administration of bankruptcy. a reference to the latest textbooks or competent professional advice will always be advisable for those who have the misfortune to be practically interested either as debtors or as creditors in bankruptcy proceedings. [sidenote: deeds of arrangement.] the deeds of arrangement act 1887, although not falling strictly within the scope of the bankruptcy law, may also, in consequence of its important bearing upon the question of insolvency in england and wales, be here noticed. it has been pointed out that, under the bankruptcy acts of 1849 and 1861, non-official arrangements by deed between a debtor and the general body of his creditors were not only officially recognized, but were in certain circumstances made binding on all the creditors, including those who refused to assent to them. under the act of 1869, although such deeds were no longer recognized or made binding on non-assenting creditors, the proceedings under the "liquidation by arrangement" and "composition" clauses were practically private arrangements by resolution instead of deed, and were proved by experience to be open to the same abuses. it has also been shown that under the act of 1883 no arrangements either by deed or by resolution have any force against dissenting creditors, unless confirmed after full investigation and approval of the bankruptcy courts. private arrangements, therefore, cease to form any part of the bankruptcy system. but they are, nevertheless, binding as voluntary contracts between the debtor and such creditors as assent to them. being, however, in the nature of assignments of the debtor's property, they are either deemed fraudulent if the benefit of the assignment is limited to a portion of the creditors, or, if it is extended to all they become acts of bankruptcy, and, like any other voluntary assignment, are liable to be invalidated if made within three months prior to the petition on which a receiving order is made against the debtor. treated as voluntary assignments, which are not binding on those who do not assent to them, such arrangements, where honestly entered into and carried out by capable administration, in many cases form a useful and expeditious method of liquidating a debtor's affairs, and where the debtor's insolvency has been brought about without any gross misconduct they will probably always be largely resorted to. the danger attending them is that even in cases where the debtor has been guilty of misconduct, a private arrangement may be used to screen his conduct from investigation, while in many cases it may be made the medium for the concealment of fraudulent preferences. the absence of any independent audit of the trustees' accounts may also encourage or conceal irregularities in administration. previous to 1887, however, much inconvenience arose from the fact that the execution of these private arrangements was frequently kept secret, and fresh credit was obtained by the debtor without any opportunity being afforded for the new creditors becoming acquainted with the fact that they were dealing with an insolvent person, and that in many cases they were simply supplying the means for meeting past obligations in respect of which the debtor had already committed default. the deeds of arrangement act 1887 was therefore passed to compel the disclosure of such arrangements, by declaring them void unless registered within seven days after the first execution by the debtor or by any creditor. registration is effected by lodging with the registrar of bills of sale at the central office of the supreme court a true copy of the deed and of every inventory and schedule attached thereto, together with an affidavit by the debtor, stating the total estimated amount of property and liabilities, the total amount of composition, if any, and the names and addresses of the creditors. where the debtor's residence or place of business is outside the london bankruptcy district, the registrar is required to forward a copy of the deed to the registrar of the county court of the district where the debtor's residence or place of business is situated. both the central and the local registers are open to public inspection on payment of a small fee and general publicity is secured by the action of various trade agencies, which make a practice of extracting and publishing the information for the benefit of those interested. by section 25 of the bankruptcy act 1890, every trustee under a deed of arrangement is required to transmit to the board of trade within thirty days of the 1st of january in each year an account of his receipts and payments and such accounts are open to the inspection of any creditor on payment of a small fee. they are not, however, subject to any kind of audit or control by the department. the registrar is also required to make periodical returns of the deeds thus registered to the board of trade, in order that a report of proceedings under the deeds of arrangement act may be included in the annual report which the department is required to make on proceedings under the bankruptcy acts. full statistics of such proceedings are accordingly included in these reports, from which it appears that during the ten years ended 31st december 1905 the total number of registered deeds of arrangement was 34,273, with estimated liabilities amounting to l41,663,541, and estimated assets to l23,020,483. _summary of bankruptcy procedure._--subject to certain special provisions in the case of what are termed "small bankruptcies" (see below), the following summary sets forth some of the more important provisions of the various acts and rules relating to bankruptcy administration grouped under convenient heads to facilitate reference. in some cases the effect of legal decisions has been embodied in the summary. _preliminary proceedings._ _petition and receiving order._--any court exercising bankruptcy jurisdiction in the district in which he resides or carries on business [v.03 p.0326] in england or wales may make a receiving order against a debtor, whether a trader or not, either on his own petition or on that of a creditor or creditors whose claims aggregate not less than l50. in the case of a creditor's petition proof must be given of the debt, and of the commission of an act of bankruptcy within three months preceding the date of the petition. an act of bankruptcy is committed if the debtor fails to satisfy the creditor's claim upon a bankruptcy notice; if he makes an assignment for the benefit of his creditors generally; if he absconds or keeps house; if he gives notice of suspension of payments; if his goods are sold or seized under execution; if he files in court a declaration of inability to pay his debts; or if he grants a fraudulent preference or conveyance. these acts are here enumerated in the order in which they most frequently occur in practice. _object and effect of receiving order_.--the object of the order is to protect the debtor's property until the first meeting of creditors, and to bring the debtor and his affairs within the jurisdiction of the court. its effect is to stay all separate action against the debtor, and to constitute the official receiver attached to the court receiver of the debtor's property, although the legal title still remains in the debtor. where there is an estate or business to be managed the official receiver may appoint a special manager, who receives such remuneration as the creditors, or failing them the board of trade, may determine. as a consequence of the order the following obligations are imposed upon the debtor:--he must make out and submit to the official receiver within a prescribed period a statement of his affairs, containing the names and addresses of his creditors, the amount of their claims and the securities held by them, and the nature and value of his assets; and accounting for his deficiency. any material omission or false statement of his losses or expenses is a misdemeanour under the debtors act, unless he can prove that he had no intention to defraud. the statement is open to the inspection of creditors. he must also in every case submit to a public examination in court, in which the official receiver, the trustee and any creditor who has proved his debt may take part. his evidence may be used against him. he may further be specially examined by the court at any time with reference to his dealings or property. he must attend the first meeting of creditors, wait upon the official receiver, trustee and special manager, and give all necessary information, and generally do all acts which may reasonably be required of him with the view of securing a full investigation of his affairs. he may be arrested if there is reasonable ground for believing that he is about to abscond, destroy papers or remove goods, or if he fails without good cause to attend any examination ordered by the court. the court may also for a period of three months order his letters to be re-addressed by the post-office to the official receiver or trustee. with regard to persons other than the debtor, any person capable of giving information respecting the debtor, his dealings or property, may be examined by the court, and a summary order may be made against such person for delivery of any property belonging to the debtor. _first meeting of creditors._ this meeting is summoned by the official receiver, notice being given in the _london gazette_ and in a local paper, and sent by post to each creditor. a summary of the statement of affairs should accompany the notice, with any observations by the official receiver which he may think fit to make. the object of the meeting is to decide whether any proposal for payment of a composition or for a scheme of arrangement submitted by the debtor is to be entertained, or whether an application should be made to the court to adjudicate the debtor bankrupt. in the latter case the meeting may by an ordinary resolution appoint a trustee with or without a committee of inspection. it may also give any directions as to the administration of the estate. the meeting should be held at the place most convenient for the majority of the creditors. it is presided over by the official receiver or his deputy, who, subject to appeal to the court, admits or rejects proofs for the purpose of voting. for the transaction of business three creditors qualified to vote, or all the creditors if fewer than three, must be present or represented. only persons who have proved their debts are entitled to vote, and detailed regulations respecting proofs and the valuation of securities are laid down in the first and second schedules to the act of 1883. one of the chief alterations in the law on this point is the condition imposed on creditors on bills of exchange to deduct from their claims the value of the liability of prior obligants before voting, thus cancelling the power of controlling the proceedings previously possessed by persons who had no real interest in the estate. votes may be given in person or by proxy, and stringent regulations are laid down with the view of preventing the abuse of proxies. general proxies entitling the holder to exercise all the powers which the creditor could exercise if present may be given to the official receiver or to any person in the regular employment of the creditor. special proxies may be given to any person to vote for specified resolutions, or for the appointment of specified persons as trustee and committee. only official forms can be used, and the blanks must be filled up in the handwriting of the creditor or some person in his regular employment, including the authorized agent of a creditor resident abroad. a proxy must be lodged with the official receiver not later than four o'clock on the day before the meeting or adjourned meeting at which it is to be used. resolutions are ordinary, special or extraordinary. an ordinary resolution is carried by a majority in value of the creditors voting; a special resolution by a majority in number and three-fourths in value of such creditors. the only instance of a resolution other than these is that required for the approval of a composition or scheme which requires a majority in number and three-fourths in value of all the creditors who have proved. the majority of questions arising at a meeting are decided by an ordinary resolution. _adjudication._ if the creditors so resolve, or if a composition or scheme of arrangement is not proposed by the debtor or entertained by the creditors, or if entertained is not approved by the court, or if without reasonable excuse the debtor fails to furnish a proper statement of his affairs, or if his public examination is adjourned _sine die_, the court adjudicates the debtor bankrupt and thereupon his property vests in a trustee, and, subject to the payment of the costs and fees of administration, is divisible among his creditors until all his debts are paid in full with interest at the rate of 4% per annum. _effect on bankrupt_.--the bankrupt is bound to aid the trustee in his administration, and if he wilfully fails to deliver up any part of his property he is guilty of contempt of court. he is also liable to criminal prosecution under the debtors act if with intent to defraud he conceals or removes property to the value of l10 or upwards; or if he fails to deliver to the trustee all his property, books, documents, &c.; or if he knowingly permits false debts to be proved on his estate without disclosure; or mutilates, falsifies, destroys or parts with books or accounts; or attempts to account for his property by fictitious losses; or if within four months next before presentation of a bankruptcy petition, he obtains property on credit by false representation; or pledges or disposes of, otherwise than in the ordinary way of his trade, any property which has not been paid for; or by misrepresentation obtains the assent of his creditors to any agreement with reference to his affairs. he is also under the act of 1883, guilty of misdemeanour if before his discharge he obtains credit for more than l20 from any person without informing such person that he is an undischarged bankrupt. it is the duty of the official receiver to report any such facts to the court, and if the court is satisfied that there is a reasonable probability of conviction, it is required to order a prosecution which is then conducted by the director of public prosecutions. _disqualifications_.--a bankrupt cannot during his bankruptcy or until five years after his discharge, unless the bankruptcy is annulled or he obtains his discharge with a certificate by the court that the bankruptcy was caused by misfortune without misconduct, act as a member of the legislature, or as a justice of the peace, mayor, alderman, councillor, guardian or overseer of the poor, member of a sanitary authority, school, highway or burial board, or select vestry in any part of the united kingdom. _annulment_.--an order of adjudication may be annulled if the court is of opinion that it should not have been made, or that the bankrupt's debts are paid in full, or if a composition or scheme of arrangement is approved by the court after adjudication. _discharge_.--the court may also at any time after the conclusion of the bankrupt's public examination, and after hearing the official receiver, the trustee and any creditor, to all of whom previous notice of the application must be given, grant the bankrupt a discharge either absolutely or under conditions, but subject to the following qualifications, viz.:--(1) if the bankrupt has committed a criminal offence connected with the bankruptcy, the application must be refused unless for special reasons the court determines otherwise. (2) if the assets are not equal in value to ten shillings in the pound of the unsecured liabilities (unless the bankrupt can show that he is not responsible); or if proper books have not been kept; or if the bankrupt has traded after knowledge of insolvency; or has contracted debts without reasonable probability of payment; or failed to account for his deficiency; or contributed to the bankruptcy by rash speculation, gambling, culpable neglect or by unjustifiable expenses; or has taken or defended legal proceedings on frivolous grounds; or has within three months preceding the receiving order given an undue preference; or has increased his liabilities with the view of making his assets equal to ten shillings in the pound; or has previously been bankrupt or made an arrangement with creditors; or has been guilty of any fraud or fraudulent breach of trust; then the court shall, on proof of any of these facts, either (a) refuse the discharge, or (b) suspend it for a period of not less than two years, or until a dividend of not less than ten shillings in the pound has been paid; or (c) qualify the order by the condition that judgment is entered up against the bankrupt for payment of any unpaid balance of his debts, or of part of such balance out of his future earnings or property. the bankrupt may, however, after two years apply to the court to modify the conditions if he is unable to comply with them. an order of discharge releases the debtor from all his obligations except debts due to the crown, and other obligations of a public character which can only be discharged with the consent of the treasury, debts incurred by fraud, and judgment debts in an action for seduction or as a co-respondent in a matrimonial suit or under an affiliation order, which are only released to such extent and subject to such conditions as the court may expressly order. the release of the bankrupt does not operate as a release [v.03 p.0327] of any partner or co-obligant with him. neither does it release the bankrupt from liability to criminal prosecution. _composition or scheme of arrangement._ after a receiving order has been made the debtor may submit a proposal for the payment of a composition, or for the liquidation of his affairs, by a trustee or otherwise, without adjudication. the proposal must be lodged with the official receiver in sufficient time to allow notice, together with a report by that officer, to be sent to the creditors before the meeting is held at which it is to be considered. if the proposal is entertained at the meeting by a majority in number and three-fourths in value of all the creditors who have proved their debts, and if it is thereafter approved by the court, it becomes binding upon all creditors who would be bound by an order of discharge had the debtor been adjudicated bankrupt. a similar proposal may be made after adjudication, and if entertained by the creditors and approved by the court, the adjudication may be annulled. the debtor's release will be subject to the terms of the scheme, but his future acquired property will not pass to the creditors unless there is an express stipulation to that effect. if default is made in carrying out the scheme, or if it is found that it cannot proceed without injustice or undue delay, the court may at any time adjudicate the debtor bankrupt, in which case the scheme will fall to the ground, except in respect of past transactions under it. the approval of a composition or scheme does not release the debtor from his liabilities under the criminal law, nor from the necessity of undergoing a public examination which must, in fact, be held and concluded before the approval of the court is applied for. also before such approval is given a report must be filed by the official receiver upon its terms and on the conduct of the debtor, and the court must be satisfied after hearing that officer and any creditor, that the proposal is reasonable and calculated to benefit the creditors, and that no criminal offences connected with the bankruptcy have been committed by the debtor. further, if any fact is proved which would have prevented the debtor from obtaining an absolute or unconditional order of discharge had he been adjudged bankrupt, the composition or scheme cannot be approved unless it provides reasonable security for the payment of not less than seven shillings and sixpence in the pound on all the unsecured debts. where a trustee is appointed to carry out the composition or scheme, all the provisions of the act with reference to the remuneration of the trustee, the custody of funds, the audit of his accounts and the control exercised by the board of trade apply in the same manner as they would under an adjudication. further, the provisions relating to the administration of property, proof of debts, dividends, &c., will also apply, so far as the nature of the case and the terms of the arrangement admit. _property divisible among the creditors._ no part of the law of bankruptcy is more intricate, or has been the subject of more litigation than this, and any detailed view of the effect of legal decisions can only be gathered by a perusal of the cases; but the following general principles may be stated:--the term "property" includes not only property of which the bankrupt is the true owner, but property in his possession, order or disposition in his trade or business with the consent of the true owner, in such circumstances that he is the reputed owner thereof. the application of the doctrine of reputed ownership has been considerably restricted in recent years by the growth of alleged trade customs, in accordance with which property is frequently lent under a contract of "hire and purchase" or otherwise; and by the decisions of the courts that where such custom is sufficiently proved the doctrine does not apply. further, the trustee's title not only includes property in the actual possession of the bankrupt, but relates back to the date of the first act of bankruptcy committed by him within the three months preceding the presentation of the bankruptcy petition, and thus invalidates all payments and assignments to creditors made during that period with knowledge on the part of the creditor or assignee of the commission of the act of bankruptcy. in such cases the trustee may, therefore, require the money or property to be restored to the estate. and even where no prior act of bankruptcy is proved, any payment made to a creditor with the view of giving such creditor a preference over the other creditors, within the three months preceding the presentation of the petition on which the payer is made bankrupt, is rendered void as against his trustee. settlements of property within the two years preceding the bankruptcy, unless made before and in consideration of marriage, or made in good faith for valuable consideration, are also void, as are similar settlements within ten years, unless it is proved that the settlor was (independently of the settled property) solvent at the date of the settlement, and that the interest in the property passed to the trustees on the execution of the deed. the same rule applies to covenants to settle in consideration of marriage future-acquired property in which the debtor had no interest at the date of the marriage (other than property acquired by the bankrupt through his wife), if such property is not actually transferred before the bankruptcy. executions by a creditor not completed at the date of the receiving order are also void, and the proceeds of an execution in the hands of the sheriff must, with certain exceptions and subject to deduction of costs, be handed over to the trustee. but all property held by the bankrupt on trust, and tools of trade, wearing apparel and bedding to a total value not exceeding