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Insolvency Law

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16 AUG 2009

HOBS: The Bankruptcy Act 1914 and the Battle of the Viscounts

An interesting exchange took place in the House of Lords on the 15 February 1926 between Viscount Cave (1856-1928), then Lord Chancellor, and Viscount Haldane (1856-1928), a previous Lord Chancellor. Viscount Haldane's papers have been preserved. Curiously the two Viscounts shared exactly the same birth and death years. Viscount Cave was actually an Earl by the time of his death and had been an authority on the bankruptcy jurisdiction in the late nineteenth century, when he had a chancery practice at the bar. He was not responsible however for the famous 'Cave Orders' in bankruptcy. His ODNB entry notes that, "the day before he died he was told that he had been made an earl; his widow was subsequently granted the title Countess Cave of Richmond."

The subject matter of their 1926 House of Lords exchange was bankruptcy reform and in particular the Bankruptcy Act 1914. The exchange highlights a pre-cursor to the Cork Report, namely, the Hansell Report on Bankruptcy. Hansell was of course an editor of the celebrated Williams on Bankruptcy. Here is the exchange:

"BANKRUPTCY (AMENDMENT) BILL. [H.L.], HL Deb 18 February 1926 vol 63 cc182-5
THE LORD CHANCELLOR (VISCOUNT CAVE) My Lords, this is a Bill which is very unattractive in form, and consists mainly of amendments to certain sections of the existing Bankruptcy Act. I think that with a short explanation of the important clauses I shall be able to make the Bill clear. As your Lordships know, bankruptcy is regulated now by the Act of 1914, which consolidated a number of Statutes.

After the War there was a large number of bankruptcies, which caused a good deal of loss to the business community, and at the desire of the Association of British Chambers of Commerce a Bill was introduced in the House of Commons by Mr. A. M. Samuel, who was then a private member but is now in charge of the Overseas Trade Department. That Bill was withdrawn on the promise of the Government of the day to appoint a Committee to go into the whole matter.

A strong Committee was appointed with Mr. E. W. Hansell, a barrister of much experience in bankruptcy law, as Chairman. The Committee heard a great deal of evidence and reported last year. I think we are much indebted to the members of that Committee for the time and skill they gave to the consideration of this matter. This Bill is founded, in the main, on the Report of that Committee. With a few exceptions it proposes to give effect to their recommendations. although there, are some additional proposals, made at the desire of the Department.

Taking the clauses in order very shortly, paragraph (a) of subsection (1) of the first clause is of a somewhat technical nature, and I will not go into it to-day. The effect of paragraph (b) is this. At present the discharge of a bankrupt is in certain circumstances suspended for not less than two years, even in oases where there is no moral turpitude. That is found to be inconvenient and it is proposed to allow the discharge to be suspended for such period as the Court thinks proper. Under the law as it stands to-day a bankrupt who, within three months before a receiving order, brings a frivolous or vexatious action is liable to have his discharge suspended. The period of three months is found to be too short as bankrupts are able to stave off the time of the receiving order, and therefore, by subsection (2) of this clause, it is proposed to abolish that time limit. I need not dwell upon Clause 2, which is intended to make clear the effect of Section 33 of theBankruptcy Act, the section which gives priority in bankruptcy for the wages or salary of any clerk or servant in respect of services rendered to a bankrupt during four months before the date of the receiving order.
The clause provides that the same priority shall extend to wages which take the form of a commission. Clause 3 is somewhat complicated and I do not propose to go into its effect to-day. The most important effect of it is to make Section 39 of the principal Act apply where a second receiving order is followed by a composition or scheme of arrangement or administration in bankruptcy. The fourth clause of the Bill is intended for the protection of banks which pay the cheques of a bankrupt without having received notice of a receiving order. As the law stands they may in some cases be made liable for the amount, and it is not thought right entirely to discharge them from that liability, but the effect of the clause is that the trustee shall try, first, to recover the amount of the cheque from the person to whom it is paid and only if that fails is he to have his remedy against the bank.
Clause 5 relates to the fraudulent removal of property or destruction of property within six months before the presentation of a receiving order. It is felt that six months is too short and that an intending bankrupt may be able to stave off bankruptcy for more than six months and therefore go free. It is proposed to extend the period to twelve months. The second subsection of this clause dealts with the penalties for certain serious bankruptcy offences and makes the person guilty of these offences liable, on conviction, to penal servitude for live years. This clause also makes the receiver of property fraudulently pledged or disposed of by a bankrupt liable, it he takes the property knowing it to have been obtained in circumstances amounting to a misdemeanour.Clause 7 is important because it refers to a difficulty which has occurred in many fraudulent bankruptcies; that is, that the bankrupt has not kept proper books or accounts. The clause proposes to make a failure to keep proper books and accounts a criminal offence in the case of the first bankruptcy as well as in the case of a later bankruptcy. Certain safeguards are inserted, for the clause provides that the bankrupt shall not be convicted under this clause unless his total unsecured liabilities exceed £500 and also that he shall not be convicted if he proves that in the? circumstances in which he carried on the business the omission was honest and excusable. That affords a loophole for the honest trader or small farmer. Some notice must be given of this new liability to keep proper books of account and accordingly the clause is not to come into operation until two years after the commencement of the Act.

Clause 8 extends the discretion of the Court as to ordering a prosecution, and Clause 9 repeals a section of the earlier Act, which (I am told) is never used. Clause 10 provides that a court of summary jurisdiction may give a sentence up to twelve months' imprisonment for an offence under the principal Act instead of the present maximum of six months.These are, in substance, the provisions of the Bill. I have dwelt upon the most important of them. Some of them are technical, but they are in the main substantial and useful proposals directed to preventing fraud and encouraging honest trading. I shall be quite ready in Committee to reply to any questions that noble Lords may desire to ask, but I think that your Lordships will consider that the general trend of the proposals of the Bill does entitle it to receive a Second Reading to-day. I beg to move that the Bill be now read a Second time.Moved, That the Bill be now read 2a.— (The Lord Chancellor.)

VISCOUNT HALDANE My Lords, this Bill consists of a series of detailed amendments of the Bankruptcy Act, 1914. It is not possible to come to any useful conclusion about these amendments in detail without a much greater familiarity with The practice in the Bankruptcy Court than I possess and anything that I say and any conclusions that I come to must therefore be taken as provisional. On the statement, however, of the noble and learned Viscount on the Woolsack and on looking through the clauses of the Bill, these amendments seem to me to be reasonable amendments. They have the sanction not only of the bankruptcy officials but of the Committee of which the noble and learned Viscount spoke. In those circumstances I shall offer no opposition to the Second Reading of the Bill.On Question, Bill read 2a, and committed to a Committee of the Whole house. "

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