BANKRUPT

From Agepedia

BANKRUPT is derived, generally, from bancus, a bench, and ruptus, broken, in allusion to the benches formerly used by the moneylenders in Italy, which were broken in case of their failure. This word signifies, in its most general sense, an insolvent person, but, more strictly, an insolvent merchant There is, perhaps, no branch of legislation more difficult, and at the same time more important, than that which defines the relations of debtors and creditors. One of the first objects of all laws, after the protection of the person, is, the enforcement of the obligation of contracts, and, among all the contracts made in a community, those imposing the obligation to pay money constitute the most numerous class. Some of the first questions in legislation are,By what measures shall this obligation be enforced? and by what penalties shall the breach of it be punished? In many communities, especially in the earlier stages of civilization, the breach of such a contract or obligation is regarded as a crime, and the insolvent debtor treated as a criminal. The ancient laws upon this subject, in England, regard the insolvent trader in this light. The early laws of the Romans and Athenians authorized the most rigorous measures for procuring satisfaction of a debt, even permitting the sale of the debtor into slavery for this purpose. And the Battas of Sumatra are said to sell, not only the debtor, but also his family, for the benefit of the creditor. But as civilization advances, the laws put a more mild construction upon the debtor's failure to fulfil his contract, and, with certain qualifications, and under certain restrictions, attribute it to misfortune, and, on his giving up his property to be divided among his creditors, discharge him from all further liability. Both by the French code and the English statutes, the persons capable of becoming bankrupts are such as fall under the general description of merchants: the French code describes them as commergants; the English statute of 6 Geo. IV, c. 16, s. 2., imbodying the previous acts and judicial decisions on this subject, enumerates particularly the descriptions of persons who are to be considered merchants, and capable of becoming bankrupts ; and the statute of 33 Geo. Ill, relating to bankrupts in Scotland, describes a person capable of becoming such to be one who, " either for himself, or as agent for others, seeks his living by buying and selling, or by the workmanship of goods or commodities." The power of making bankrupt laws, in the U. States, is, by the constitution, conferred on congress, and was generally understood to be exclusively vested in that body. The question how far the several states may legislate upon this subject, has been discussed in the supreme court of the U. States, in a number of cases arising under the state insolvent laws. In the case of Ogden v. Saunders, it was settled that a state insolvent law, whereby it is provided that a debtor, on giving up his property to his creditors, is absolutely discharged from further liability, will, as long as there is no act of congress on bankruptcy, be valid, in respect to creditors residing in such state, and to contracts made in the state subsequently to the passing of such law. According to this decision, an insolvent law of a state, however general in its provisions, can have only a partial operation as a bankrupt law; but, in the cases completely within the jurisdiction of the states, may have all the essential operation of such a law, not being limited to a mere discharge of the person of the debtor on his surrendering his effects. This decision recognised in the states larger powers than had previously been supposed to have been retained by them. But congress alone has the power to make a bankrupt law, which shall be applicable to, and binding upon, all creditors in the U. States, and all descriptions of debts. This power was exercised by congress, in 1800, by the enactment of a bankrupt law, limited to five years, and which expired by its own limitation. This act was modelled upon the English statutes of bankruptcy existing at the time, and, like them, was applicable to no debtors except merchants. By the French mercantile law, a bankrupt merchant must, within three days after stopping payment, give notice of it to the tribunal of commerce, which, even if the notice is not given immediately, proceeds, at the request of the creditors, or by virtue of its own authority without any petition, or on motion of the king's procureur, to put the debtor's storehouse, countinghouse, effects, books and papers ounder seal, also to appoint a commissioner from its own body, and several sworn agents, who give security for the faithful discharge of their trust, and to put the bankrupt in prison or under arrest and surveillance, from which, however, after an investigation of his affairs, he may be released, either unconditionally, or on giving bail. From the day of his failure, the bankrupt is divested of all his interest and title in his property, and, during the ten days preceding, no one can acquire any right in it, by pledge or mortgage; and any gratuitous transfer by him during that time is void, and any transfer made for consideration may be annulled, if attended with circumstances indicating fraud. And all acts done or contracts made by him, in fraud of his creditors, are void. An advertisement of the bankruptcy must be posted up in public places, and inserted in the gazette. The agents abovementioned continue to manage the aflairs of the bankrupt only 14 days, or until the appointment, of the provisional syndics (.rusceesj. The commissioner, within three days after the bankrupt's leger has been put into his hands, makes a catalogue of the creditors, and convenes them by means of letters and the public papers. The creditors assemble at the fixed tin *. and place, in the presence of the commissioner, to whom they delivera list containing three times as many names, as, in their opinion, there should be persons appointed provisional trustees (syndics provisoires) of the property. From this list the requisite number is appointed by the tribunal of commerce. Within 24 hours after the appointment of trustees, the functions of the agents cease, and they render their account to the trustees, who, under the superintendence of the commissioner, now have the management of all the affairs of the bankrupt. They immediately remove the seals, and take an inventory of the bankrupt's effects, in the presence of a justice of the peace, with the aid of the bankrupt. Within eight days from entering upon office, they render to the king's procureur a report of the state of the bankrupt's affairs, and take charge of, and administer upon, his estate. The moneys received are placed in a chest with a double lock, of which the oldest trustee has one key, and the other is given to a creditor, selected by the commissioner. Every week, the commissioner is furnished with the cash account of the trustees, and may, upon their suggestion and that of the creditors, if he thinks it advisable, put the money already received at interest. It is the duty of the trustees to call in the debts of the bankrupt, and to have any mortgages made to him recorded, if he has not had it done himself; likewise to summon, without delay, all the creditors, by letter or the public papers, to appear before them within 40 days, personally or by attorney, to prove their claims, present their vouchers, or deposit them with the tribunal of commerce. The examination of claims is made within 14 days after the expiration of the 40 days, and every creditor, whose claims have been allowed, is at liberty to be present at the discussion of others' claims, and offer objections. After the claims have been discussed, each creditor must deliver, within eight days, an affidavit to the commissioner, that his demands are true. Whether a process shall be allowed, to establish the contested claims, rests on the decision of the tribunal of commerce. After the ex piration of the time fixed for allowing claims, it is the duty of the trustees to take note of the creditors who do not appear ; the commissioner gives information of them to the tribunal of commerce, which now assigns an additional period for their appearance, which, in respect to inhabitants of the kingdom, is regulated by the distance of their residence, one day being allowed for every three myria metres, about 18| English miles. In cases of foreign creditors, longer delays are allowed. After the expiration of this period, those who do not appear are excluded from a future dividend. Within three days after the period assigned for making affidavit, the creditors whose claims are allowed, are convened, and the state of the bankrupt's property is laid before them in the presence of the commissioner and the bankrupt. This is the time for the accord, which may take place if acceded to by the majority of the creditors, the sum of whose claims constitutes at least three fourths of the amount of debts to be liquidated. Creditors who hold collateral security for their debts have no voice in the decision. In case of presumption of fraud, from an examination of the bankrupt's books and papers, no accord is valid. If an accord is made, it must be signed during this sitting. Whoever is against it, is allowed a space of eight days to exhibit his objections. The accord, when legally ratified, restores the bankrupt to his former situation. If no accord is effected, the assembled creditors have to appoint definitive trustees (syndics definitifs), and a cashier to receive the moneys arising from the income or sale of the bankrupt's property. The duties of these definitive trustees are the same with those of the provisional trustees and the agents whom they succeeded; and the provisional trustees account and transfer the affairs over to the definitive, in the same manner as the agents had done to them. Monthly reports are made to the commissioner, who now has to fix the dividends. Prior to the final division, the creditors are convened, under the superintendence of the commissioner, and the final account is submitted by the trustees. The commissioner, on the suggestion of the syndics, assigns to the bankrupt's family their apparel and household furniture. Wives, married with a stipulation for separate property, or for community of goods accompanied with a separate interest in immovable property, retain the estate to which they are thus entitled, and also such as may have accrued to them by succession or donation. They are also entitled to retain personal property acquired by them, if it is the proceeds of such estate, and the right to employ such estate has been secured to them at the time when it came into their possession. Except in such cases, the presumption of law is, that property acquired by the wife has been peid for from die estate of the husband, and it is to be considered as belonging to him, unless she can substantiate her claim to it. She has a right, however, to articles of dress and furniture proved to belong to her by the marriage contract, or to have fallen to her by inheritance. Goods sold to the bankrupt may be reclaimed by the vender, if they are still in transitu, and not yet delivered at the storehouse of the bankrupt, and have not been sold by him on authority of the bill of lading, or other sufficient authority. But all the bankrupt's advances for freight, charges, &c, on account of the goods, must first be refunded. And so the price, for which the goods consigned to the bankrupt for sale, on account and risk of the consignor, have been sold by him to third persons, may be claimed by the consignor, if it has not been paid to the bankrupt, or passed into the accounts between him and the consignor. The simple bankrupt (that is, he who is convicted of mere negligence) is liable to imprisonment for a time not less than one month, nor more than two years. The fraudulent bankrupt is condemned to hard labor (travcmx forces) for a definite time.By the English statute of 6 Geo. IV, it is made an act of bankruptcy for a debtor to depart the realm, remain abroad, leave his house, shut himself up in his house, suffer himself to be arrested for a debt not due, yield himself up to be put in prison, suffer himself to be outlawed, procure himself to be arrested, or his goods to be attached, or make transfers of his lands or goods, with intent to defraud his creditors. So it is an act of bankruptcy in a debtor, on commitment for debt, to lie in prison 20 days, or escape from prison. A man may become a bankrupt, also, by declaring himself such at the bankrupt office. Where the debtor does not so declare himself bankrupt, proceedings are commenced against him as such, on petition to the chancellor, by one creditor to the amount of £100, or two or more to the amount of £150. And in case the petitioners do not establish the bankruptcy, they are liable for the costs of the proceedings, and damages to the party petitioned against. The act extends to aliens, denizens and women. On a petition being made, the lord chancellor appoints commissioners, to take charge of the body, lands and effects of the party petitioned against. These commissioners proceed to take testimony that the petitioners are creditors, that the debtor is a merchant or trader within the meaning of the statute, and that he has committed an act of bankruptcy. These facts being established, they adjudge thathe is a bankrupt, and give notice thereof in the London Gazette. The commissioners are invested with ample powers for getting possession of the bankrupt's person and effects. They assign all his property, real and personal, to assignees appointed by themselves, and these assignees subsequently assign it over to other assignees, appointed at the second meeting of the creditors, in case of such other assignees being so appointed, and approved by the commissioners. Creditors, whose debts are not due, are allowed to prove them, discounting interest. Sureties and bail for the bankrupt, when they pay the whole debt for which they are bound, may represent their claims under the commission, and receive the dividends that would otherwise have been assigned to the party to whom they pay the debt, even if it is not paid until after the commission issues. Persons holding policies of insurance signed by the bankrupt, may also present their claims, and if the contingency, whereby they would be entitled to a loss^ happens before the commission is closed, their claims will be allowed. An annuity creditor is also admitted to prove; likewise sureties on an annuity bond, and any creditor whose debt depends on a contingency, if the contingency take effect pending the commission. The conveyance made to th e assignees will transfer to them, for the benefit of the creditors, all goods of any other person in the possession of the bankrupt at the time of the failure, and, by permission of the owner, reputed to belong to the bankrupt. Conveyances and transfers made by the bankrupt after he shall have been insolvent, except upon consideration of marriage, or other good consideration, are void, and the property so transferred is disposed of by the assignees for the benefit of the creditors. The assignees may, at their election, assume any subsisting lease held by the bankrupt, or any agreement by him to purchase lands. The bankruptcy dissolves articles of apprenticeship entered into with the bankrupt, and if he has received any apprentice's fee, on account of taking an apprentice, a part or the whole of it is returned by the commissioners. The assignees may execute any powers vested in the bankrupt, which he might have executed for his own benefit. If the bankrupt was trustee of property, the chancellor appoints others in his stead. Conveyances by, and contracts and transactions by and with, the bankrupt, bona fide, and executions levied more than two VOL. i. 47 months before the issuing of the commission, though after the act of bankruptcy, are valid if the other party had no notice of the previous act of bankruptcy. Payments made at any time before the bankruptcy are also valid. The creditors appoint a receiver of the money, the proceeds of the bankrupt's property. The money must be \ <=sted in exchequer bills on interest, if so directed by the commissioners. The first dividend is made at the end of 12, and the final one at the end of 18 months. In case the bankrupt does not surrender himself withm 42 days after notice, or appear, as required, from time to time, to be examined on oath before the commissioners, or does not discover all his property, or deliver up all his books and papers relating thereto, or conceals and embezzles property to the valae of £10, or papers relating thereto, he is deemed guilty of felony, and liable to be transported for life, or for a term not less than seven years. During his examination, an allowance is made to him for the support of his family. The bankrupt is absolutely discharged from all his debts and liabilities subsisting at the time of his becoming bankrupt, in case of his obtaining, and the lord chancellor's allowing, a certificate of four fifths in number and value of creditors to the amount of £20 each, or, after six months from the time of his last examination, of three fifths in number and value of such creditors, oi nine tenths in number, that he has duly surrendered, and in all things conformed to the requisitions of the act. All contracts to induce creditors to sign the certificate are void. But, if it be a second case of the debtor's bankruptcy, his certificate will not exempt his future property and earnings from liability to his creditors, unless the dividends amount to 15.9. in the pound. A bankrupt who obtains his certificate, if the dividends amount to 10s. in the pound, is allowed 5 per cent, on the amount, not exceeding £400; and if the dividends amount to 12s, 6d, in the pound, he is allowed 7£ pei cent., not exceeding £500; and if the dividends amount to 15s. in the pound, he is allowed 10 per cent., not exceeding £600: but if they are less than 10s, in the pound, he is only allowed such sum as the assignees and commissioners may think fit, not over 3 per cent., nor exceeding £300. But the bankrupt is not enti tied to a certificate, if he has lost, in gambling, within 12 months, £200, or £20 in any one day in that time, or if he has lost £200 in stockjobbing, or has caused false entries in his books, and mutilated or falsified papers to defraud his creditors, or connived at any person's proving a fictitious debt under the commission. If the bankrupt or his friends propose a composition which is accepted by nine tenths of his creditors in number and value, the commission of bankruptcy will be superseded.In Holland, there has existed, since 1643, in Amsterdam and other commercial cities, a court (Kamer van desotade Boedels), consisting of an equal number of lawyers and merchants, who assemble twice a week, to take cognizance of the bankruptcies that may occur. When a person becomes insolvent, this court appoints two commissioners (a merchant and a lawyer), to take charge of his affairs, who, with a secretary, immediately repair to the bankrupt's, seal up and make an inventory of his property, take possession of his books, &c. The following day, they assemble the creditors living in the place, and make a report; at the same time assigning certain days for the future meetings of the creditors. Two or three creditors are now appointed to take possession of the property of the bankrupt and administer it, and attend to the substantiation of claims. From this time the bankrupt has a month to propose an accord to his creditors, which the commissioners make known to creditors, abroad and at home, by public advertisements. If a creditor has any objections to it, he must urge them strenuously. To have any respect paid them, they must be made by a principal creditor, whose claims amount to one fifth or one sixth, or by two or more, whose joint claims amount to one twentyfifth. If no accord is effected, the bankrupt is declared insolvent by the commissioners, his property is put iii trust, and the former sequestrators are changed into trustees, who, with the aid of a bookkeeper, proceed to the examination of claims. The insolvency is now reckoned from the sequestration, and all transfers, &c, made in the four weeks previous, are regarded as null and void. These trustees now ascertain the amount of property and debts, and make a dividend, though the last dividend must be made 18 months after the assignment. The allowance made the bankrupt is from 3 to 10 per cent., in proportion to the dividend ; but it can never exceed 10,000 florins. If the bankrupt is not found chargeable with fraud, he may obtain a certificate, which must be signed by the trustees, and the creditors, at least one half in number and five eighths in value,or five eighths in number and one half in value, and which not only restores him to his former standing, but secures him from all subsequent demands of former creditors.Denmark, also, has a distinct court of distribution (Skifteret), which appoints trustees, who divide the estate of the bankrupt among the creditors, under the approbation of the court. No creditor can be appointed a trustee.In Sweden, the debtor, from the time of giving notice of his insolvency, must keep his house. The creditors of the place and neighborhood are forthwith called together; the bankrupt makes oath of his property ; and the estate is given, in provisional trust, to two or more men. All the creditors are now publicly invited to prove their demands at the end of six months. The creditors must appear, before 12 o'clock, on the fixed day; their information is read, and, if possible, on the same day, oath is made of the justice of their claims. Two trustees, chosen by the creditors, now take charge of the estate. Three weeks after the first meeting of the creditors, a second takes place, and, 14 days afterwards, they are again assembled, and receive a dividend. All these laws are more judicious than the common German law on the same subject, which is, indeed, in commercial cities, frequently superseded by special law. The delays and expenses of the German bankrupt system are carried to a great extent, and even the most equitable judge is often unable to prevent fraud and abuse. The tedious public citations; the various processes of liquidation ; the admission of legal measures, involving delay; the frequent disputes respecting right of priority;all these have the effect of inspiring merchants, foreigners especially, with a dislike of the system, and inducing them, if possible, to come to a voluntary composition. More than half the estate of the bankrupt is often exhausted by the costs, or by the unavoidable delay of its conversion into money, and there are instances of 100 years having elapsed before a final settlement. The punishment of negligent and fraudulent bankrupts is usually confinement in prison or the workhouse.