Bankruptcy and Insolvency in London During the Industrial Revolution

Ian P. H. Duffy

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781351719612
• Edition: 1
• Topic: History
• Subtopic: World History
• Index: History

This title, first published in 1985, examines the evolution of the laws relating to debt and credit during the industrial revolution. Since economic activity was so precarious during the industrial revolution it is important to explore the legal procedures designed to deal with its victims. This work examines two aspects of financial collapse during the industrial revolution: the legal and institutional framework which defined and regulated it, and bankruptcy itself. This title will be of interest to students of history, law and economics.

PART ONE

THE LEGAL FRAMEWORK

CHAPTER I

THE BANKRUPTCY LAWS

I

A BANKRUPT, is one that has broken or wasted his Stock, or hath failed in the World, being derived as some say, from the French Words Banque and rumper, signifying to break the Bank; or rather from Banqueroute, that is, a Person broke or decayed: In Latin such a Man is called Decoctor, for consuming and spending his Estate in extraordinary and delicate Living.

The Law for and against Bankrupts.
By a late Commissioner of Bankrupts (1743), p. 1.

The development of bankruptcy law in England was a product of the inflexibility of medieval Common Law and its procedure. The basic assumption of Common Law was that land was the source of all wealth and it obliged creditors individually to pursue remedies against the land and the bodies of their debtors. As English overseas trade grew in the middle ages, these remedies became increasingly inappropriate to large and often complicated mercantile concerns, requiring a different legal process which not only rendered commercial property liable for debts but also facilitated equal treatment of all creditors. As T.F.T. Plucknett says, ‘It is typical of the middle ages … that this law should be not the law of the land but the law of a particular class of people, developed through their custom and enforced through their own organisation.’¹ This chapter examines the origins of bankruptcy law, its procedure and defects during the industrial revolution and its reform during the fourth and fifth decades of the nineteenth century.

The bankruptcy law and procedure which operated during the industrial revolution were products of legislation dating back to 1571. Unlike its only predecessor,² the Act Touching Orders for Bankrupts of that year restricted the bankruptcy process to merchants and traders. It empowered the Lord Chancellor to appoint ‘wise and honest discreet persons’ as commissioners who could imprison the bankrupt, if necessary, and take steps to seize all his assets and share them among his creditors. A formal procedure was established by which a creditor could petition the commissioners claiming that his debtor had committed an act of bankruptcy.³ Bankrupts who did not surrender to the commissioners after due notice were proscribed and those who concealed property were fined and gaoled. All property acquired subsequent to the act of bankruptcy was liable for former debts.⁴

In the first quarter of the seventeenth century, the commissioners’ powers and jurisdiction were enlarged. In 1604, the formal examination of the bankrupt on oath was introduced and the commissioners were empowered both to compel the attendance of witnesses to the bankruptcy and to collect debts owing to the bankrupt. Bankrupts who refused to answer the commissioners’ questions were to be gaoled until they were prepared to co-operate and perjurors were to be pilloried and to lose an ear.⁵ In 1624, aliens were made liable to become bankrupt and obstacles to the rapid acquisition of a bankrupt’s estate were reduced by the stipulation that commissioners could break down the door of his house if necessary. In addition, bankrupts who fraudulently concealed property worth more than £20 were to be pilloried.⁶ The only other seventeenth-century modification of importance was the arrogation of some control over disputed cases by Lord Chancellor Nottingham and his successors, after 1676.⁷

The basic assumption of these early attempts to deal with the problem was that bankrupts were dishonest, fraudulent and profligate. The act of 1604, for example, noted that

Frauds and deceits, as new diseases, daily increase amongst such as live by buying and selling to the hindrance of traffic and mutual commerce, and to the general hurt of the realm, by such as wickedly and wilfully become bankrupts.⁸

Consequently, sixteenth- and seventeenth-century statutes were designed to prevent fraud and abuse of legal procedure by providing the commissioners with adequate coercive powers. As Holdsworth points out, the Council frequently intervened in bankruptcy cases, appointing commissioners to investigate people imprisoned for debt, encouraging creditors to accept compositions in lieu of debts and ordering them to give debtors time in which to pay.⁹ After the abolition of the Council in 1641, however, no such relief was available and, as will be shown in chapter two, parliament itself began to intervene to relieve the more unfortunate imprisoned debtors, including bankrupts.

At the start of the eighteenth century, the spirit of the law was profoundly altered. The new policy did not seek to reduce the punitive powers available to commissioners in cases of fraud and evasion. Indeed, they were increased. In 1705, fraudulent disposal of goods by a bankrupt and non-surrender within thirty days of receiving notice of the commission (at the bankrupt’s dwelling house and in the London Gazette) were declared non-clergyable felonies, and bankrupts who concealed property were to be fined £100 and twice the value of the property concealed.¹⁰ In 1706, concealment and embezzlement of property by the bankrupt was made a capital crime if its value was over £20.¹¹ It sought, however, to minimise the prevailing dread of bankruptcy and to encourage bankrupts to co-operate with the commissioners by granting them rewards for honesty and assistance.¹² The statute of 1705, for example, stipulated that co-operative bankrupts would be given an allowance of five per cent of the assets if their estates produced dividends of eight shillings in the pound (up to £200 maximum). They could also receive from the commissioners a certificate of discharge from all debts owing at the time of bankruptcy, provided that the creditors did not object. Another concession to the bankrupt forbade commissioners to extract food and drink bills from estates. In 1706, further changes were effected which, with those of 1705, substantially erected the bankruptcy process which was to operate until 1831. The vagueness of the 1705 act about the procedure for granting the certificate was now replaced by a definite stipulation that the consent of four-fifths of the creditors was required. The petitioning creditor’s debt must amount to more than £100 (or £150 if there were two petitioning creditors and £200 if more than two). The majority of creditors in number were to choose assignees who would collect the bankrupt’s estate (previously a function of the commissioners) and who were empowered to enter into compositions with the bankrupt’s debtors. The assignees were to be subject to the equitable jurisdiction of the Chancellor when suits were filed against them.

That the legislature was becoming increasingly lenient towards bankrupts is further evidenced by the fact that in 1718 they were, for the first time, protected from arrest for debt during journeys to and from meetings with commissioners. This statute also attempted to reduce the incidence of frauds committed after proceedings had commenced by authorizing the Lord Chancellor to dismiss unsuitable assignees and ordering (apparently for the first time) that bankruptcy proceedings be recorded.¹³ In 1719, it was enacted that imprisoned bankrupts would be released after receiving their certificate of discharge.¹⁴ A year later, creditors who held bills of exchange which were not due at the time of the acceptor’s bankruptcy were allowed to prove them in his commission.¹⁵

The mass of bankruptcy statutes was consolidated in 1732 by the Act to Prevent the Committing of Frauds by Bankrupts, which Edward Christian in 1818 called ‘the most important existing statute in the system of bankrupt law.’¹⁶ The act also effected a number of amendments in the law. The commissioners, whose fees were now specified, were to appoint three meetings with creditors within 42 days of the opening of the commission, in which time the bankrupt was to surrender to the commission. Assignees were to be chosen by the majority in value of creditors whose claims amounted to more than £10. The provision of allowances to co-operative bankrupts was extended.¹⁷ Certificates were to be granted by four-fifths in number and value of creditors who were owed over £20, provided that the commissioners certified to the Lord Chancellor that the bankrupt’s conduct, after the commencement of proceedings, had conformed to statute and that his evidence had been valid. In addition, the act ordered that the bankrupt should be free from arrest throughout the whole period of his examination.

By 1732, therefore, a procedure had been established which, in theory at least, facilitated the equitable division of bankrupt estates among creditors and provided incentives for the bankrupt to act honestly. In practice, as Lord Chancellor Hardwicke pointed out in 1737, because of its abuse by bankrupts, the law had become ‘the accidental occasion of great frauds.’¹⁸ In the following century, the legislature, accepting that bankruptcy law was now basically sound in principle, periodically sought to clarify controversial points and abolish opportunities for abuse. Many of the more blatant frauds were committed by bankrupts who continued trading after their acts of bankruptcy, in the knowledge that creditors would be forced to forfeit property thus received when the commission was opened. In 1746, this loop-hole was closed by the stipulation that no creditor would be liable to refund any property received before notice of the bankruptcy.¹⁹ A similar statute, in 1806, stated that a commission was not invalidated by the disclosure of a secret act of bankruptcy committed before the bankrupt had contracted his debt to the petitioning creditor.²⁰ Parliament responded similarly to other abuses of the l...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Preface
• Table of Contents
• Abbreviations
• Introduction
• Part One. The Legal Framework
• Part Two. Bankruptcy
• Appendices
• Bibliography
• Statistical Supplement