Blogs

Written by: Robert DeMarco
Bankrupt Laws of England – Queens Anne’s Act
The frustration in England concerning bankrupts continued. In 1 Jac. I, c. 15 (1604), entitled “An Act for the Better Relief of the Creditors Against Such as Shall Become Bankrupt,” it is stated:

For that Fraud and Deceit 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 Heart of the Realm, by such as wickedly and willfully become Bankrupt…

1 Jac. I, c. 15, sec. I (1604). In its continuing efforts to stem the tide of bankrupts, Parliament continued to increase the powers of the Commissioner to investigate fraud. The Commissioner was now entitled to depose persons thought to be in possession of the bankrupt’s assets. 1 Jac. I, c. 15, sec. V (1604). If a person refuse to attend or give evidence the Commissioner had the right to imprison, without bail, such person until the questions are answered and evidence given. Id. Even more harsh, however, was the treatment of the bankrupt that commits perjury.

And that if upon his, her or their Examination, it shall appear that he she or they have committed any willful or corrupt perjury tending to the hurt or damage of the Creditors of the said Bankrupt to the value of Ten Pounds … the Party so offending shall [pay] or may thereof be indicted … and being lawfully convicted thereof, shall stand upon the Pillory in some public place by the space of two hours, and have one of his ears nailed to the Pillory and cut off.

1 Jac. I, c. 15, sec. IV (1604).
The bankrupt laws continued to evolve thereby increasing the rights and remedies of the creditors. For example, in 21 Jac. I, c. 19 (1623) a debtor indicted for fraudulent transfers was also subject punishment by Pillory and the loss of an ear. 21 Jac. I, c. 19, sec. VI (1623). The severity of punishment, however, reached its pinnacle in 4 & 5 Anne, c. 4 (1705), wherein it is stated:

That if such Person or Persons so voluntarily surrendering him her themselves shall afterwards neglect or omit to discover and deliver his her or their Estates and Effects shall be taken and adjudged to be a fraudulent Bankrupt within the true Intent and Meaning of this Act and thereof being lawfully convicted shall suffer as a Felon, without Benefit of Clergy [the death penalty].

4 & 5 Anne, c. 4, sec. XIX (1705). On the other hand, 14 Car. II, c. XXIV (1662) did afford certain citizens protection from the bankrupt laws. The 1662 Act provides that a commission of bankrupt shall not issue against a person by reason of investments in the Royal Fishing Trade, East India Company or Guiney Company. 14 Car. II, c. XXIV, sec. I (1662).
The punitive aspects aside, the 1705 Act, is the first bankrupt law to actually provide the bankrupt a discharge. The discharge language is as follows:

And be it further enacted by the Authority aforesaid, That all and every Person and Persons so becoming bankrupt as aforesaid who shall within the Time limited by this Act surrender him her or themselves to the major part of the Commissioners therein named and in all things conform as in and by this Act is directed shall be … discharged from all Debts by him her or them due and owing at the Time that he she or they did become Bankrupt….

4 & 5 Anne, c. 4, sec. VIII (1705). The discharge in the 1705 Act was neither automatic nor self-executing. A majority of the commissioners had to find the bankrupt conformed to the Act as a condition precedent to receiving a discharge. The discharge was evidenced by a “certificate of conformity. Bankruptcy Discharge, 65 Am. Bankr. L. J. 325 at 334. The discharge did not bar or enjoin any subsequent litigation on debts arising before the date the commission of bankrupt issued.. 4 & 5 Anne, c. 4, sec. VIII (1705). It did however, permit the discharged bankrupt to plead discharge as an affirmative defense. In addition to the discharge provision, the 1705 Act permitted, subject to some limitations, the conforming bankrupt to receive as much as five percent of the estate recovered up to a maximum of 200 pounds. 4 & 5 Anne, c. 4, sec. VIII (1705).
While the additional rights afforded the bankrupt under the 1705 Act are significant, it must not be forgotten that the Act was passed for the sole benefit of the creditors. The 1705 Act is entitled “An Act to Prevent Frauds Frequently Committed by Bankrupts” and remained limited in its application to those persons who were merchants or tradesmen. 4 & 5 Anne, c. 4 (1705). The preamble states “[w]hereas many Persons have and do daily become Bankrupt not so much by reason of Losses and unavoidable Misfortunes as to the Intent to defraud and hinder their Creditors of their just Debts and Duties to them Due….” 4 & 5 Anne, c. 4 (1705). Also lets not forget, as stated supra, the 1705 Act introduced the death penalty for fraudulent bankrupts. 4 & 5 Anne, c. 4, sec. XIX (1705). Lastly, one year after the passage of the 1705 Act, Parliament passed 6 Anne, 22 (1706), a primary purpose of which was to require creditor consent as a condition precedent to the bankrupt’s receipt of a discharge. 6 Anne, 22, sec. II (1706).
Parliament passed a comprehensive revision of British bankruptcy law in 1732. 5 Geo. II, c. 30 (1732). The 1732 Act retained the discharge and the allowance features for conforming bankrupts as well as the death penalty for fraudulent bankrupts. 5 Geo. II, c. 30, sec. I and VII (1732). The 1732 Act, while substantively similar to the 1705 Act, was procedurally much more detailed. The conditions precedent for a discharge were spelled out in detail as was the method for enforcing the discharge. More attention was paid to the allowance portions of the Act making clear when and under what situations a dividend or allowance should be paid the bankrupt from the estate proceeds.
The 1732 Act was the bankrupt law that was in place in England during the: (1) American Revolution; (2) Constitutional Convention of 1787; and (3) enactment of the first United States bankruptcy law in 1800. “It thus was the bankruptcy model envisioned by the drafters of the bankruptcy clause of the Constitution and which was followed in material part in the first United States law.” Bankruptcy Discharge, 65 Am. Bankr. L. J. 325 at 340-1.
DATED:  July 7, 2013
1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11

Written by: Robert DeMarco
Bankruptcy Laws of England – Elizabethan Era
The first bankruptcy law, promulgated in 1542 under the reign of Henry VIII, was a remedy designed solely for the benefit of the creditor and directed at merchants and tradesmen. 34 & 35 Hen. VIII, c. 4 (1542). The 1542 Act, entitled “An Act Against Such Persons as Do Make Bankrupt,” was an involuntary proceeding initiated by the creditors in order to facilitate the complete liquidation of all of the debtor’s holdings. The preamble and section I of the 1542 Act provide ample insight into how debtors of the day were perceived as well as the ramifications of being declared a bankrupt:

Where divers and sundry persons craftily obtaining into their hands great substance of other men’s goods do suddenly flee to parts unknown or keep their houses, not minding to pay or restore to any their creditors their debts and duties, but at their own will and pleasure consume the substance obtained by credit of other men, for their own pleasure and delicate living, against all reason, equity and good conscience …the Lord Chancellor … shall have power and authority by virtue of this Act to take … imprisonment of their bodies or otherwise, as also with their [real and personal property however held] and to make sale of said [real and personal property however held] for true satisfaction and payment of the said creditors, that is to say; to every of the said creditors a portion, rate and rate like, according to the quantity of their debt.

34 & 35 Hen. VIII, c. 4. (1542). Perhaps of greater import, however, is what the 1542 Act did not address. The 1542 Act did not discharge the debtor nor did it exempt future earnings or acquisitions of the debtor from execution for the debt. 34 & 35 Hen. VIII, c. 4 (1542); see generally, Tabb, Charles Jordan, The Historical Evolution of the Bankruptcy Discharge, 65 Am. Bankr. L. J. 325, 331-2 (1991).
The 1542 Act was followed by 13 Eliz., c. 7 (1570). The preamble of the 1570 Act exemplifies the frustration England faced in dealing with bankrupts.

[T]hose kind of persons have and do still increase into great and excessive numbers, and are like more to do, if some better provision not be made for the Repression of them; and for a plain declaration to be made and set forth who is and ought to be taken and demand for bankrupt….

13 Eliz., c. 7 (1570). While it had been the general practice under the 1542 Act to limit its application to merchants and tradesmen, the 1570 Act codified the practice. The 1570 Act is distinct from the 1542 Act in two very important aspects. First, the 1570 Act strengthened the provision respecting fraudulent transfers. No longer would the Commissioner have to settle for turnover of the asset fraudulently transferred. The Commissioner was entitled to collect double the loss to the estate. 13 Eliz. C. 7, sec. VI (1570). Second, the 1570 Act created a perpetual bankruptcy estate. If after liquidation of all of the bankrupt’s assets there was a remainder still owing, not only was that remainder not discharged, but the Commissioner retained the right and authority to seize and sell any property subsequently acquired (by any means) by the bankrupt until all creditors were paid in full. 13 Eliz. C. 7, sec. X (1570).
DATED:  July 6, 2013
1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11

Written by: Robert DeMarco
Bankrupt Laws of England – The Middle Ages
Laws concerning the debtor and creditor relationship, however, began anew in the late Middle Ages. This societal shift, in the context of England, is explained below by the United States Supreme Court.

The nature of the population of England in feudal times [Middle Ages], develops the cause. The different counties of England were held by great lords; the greater part of the population were their villains; commerce hardly existed; contracts were infrequent. The principal contracts that existed were with the lords and their bailiffs, the leviers of their fines and amercements, receivers of their rents and money, and disbursers of their revenues.

Sturges v. Crowninshield, 17 U.S. 122, 140 (Wheat. 1819). The Court then continues, listing the first statutes enacted concerning imprisonment for debt.

In the year 1267, imprisonment for debt was first given against the bailiffs, by the statute of Marlbridge, 52 Hen. III., c. 23; Burgess 18, 19; F. N. B. Accompt, 117. The statute of Acton Burnel, 11 Edw. I., gave the first remedy to foreign merchants, by imprisonment, in 1283. The statute 13 Edw. I., c. 2, gave the same remedy against servants, bailiffs, chamberlains, and all manner of receivers. Burgess 24, 27. These instances show how imprisonment for debt first commenced, how few were at first included, and accounts for the non-existence of legal insolvency.

Sturges, 17 U.S. 122 at 140 -141.
As the Middle Ages waned and commerce increased it became clear that debt became necessary for the growth of society. “Trade cannot be carried on without mutual credit on both sides: the contracting of debt is therefore here not only justifiable, but necessary.” Blackstone, Commentaries, Bk. II, ch. xxxi, p. 474.
As the use of debt increased, England instituted a variety of laws concerning debt relief. Such laws evolved along two different fronts. One set of laws, commonly referred to as bankrupt laws, were directed to debtors engaged in business, whereas the other set of laws, referred to as insolvency laws, covered the remainder of debtors. Justice Blackstone explained:

[England allows] the benefit of the laws of bankruptcy to none but actual traders; since that set of men are, generally speaking, the only persons liable to accidental losses, and to an inability of paying their debts, without any fault of their own. If persons in other situations of life run in debt without the power of payment, they must take the consequences of their own indiscretion, even though they meet with sudden accidents that nay reduce their fortunes: for the law holds it to be an unjustifiable practice, for any person but a trader to encumber himself with debts of any considerable value. If a gentleman, or one in a liberal profession, at the time of contracting his debts, has a sufficient fund to pay them, the delay of payment is a species of dishonesty, and a temporary injustice to his creditor: and if, at such time, he has no sufficient fund, the dishonesty and injustice is the greater.

Blackstone, Commentaries, Bk. II, ch. xxxi, p. 473-4. Insolvency laws were nothing like the bankrupt laws. See infra.  For the most part the English laws on insolvency related to the nature, extent and duration of imprisonment. Insolvency laws were initiated in response to 19 Hen. VII, c. 9 (1503), “which gave like process in actions of the case and debt, as in trespass, [and] is the true basis of the right, or wrong, of general imprisonment.” Sturges, 17 U.S. 122 at 141; 19 Hen. VII., c. 9 (1503). The beginnings of insolvency laws began with the statute 8 Eliz., c. 2 (1566), which “restricted the right of imprisonment, and guard[ed] against its abuses.” Sturges, 17 U.S. 122 at 141; 8 Eliz., c. 2 (1566) (proof by declaration was required and costs were awarded the defendant for delay, discontinuance and nonsuit). Various proclamations issued over the years to follow, which proclamations were subsumed into 22 & 23 Car. II, c. 20 (1670).  Sturges, 17 U.S. 122 at 142. The 1670 Act was the first great regular insolvent act and “the model of all that follow; its provisions and language having been copied by the subsequent parliaments in England, and by our colonial legislatures, with almost unvarying exactness.” Id.
DATED:  July 5, 2013
1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11

Everyone agrees that bankruptcy is a powerful financial tool that can help you obtain a  fresh start. Yet there continues to be myths, misconceptions, and misunderstandings about the purpose of bankruptcy and its related processes. A number of bankruptcy professionals who are familiar with such misconceptions can probably write a few books about reasons why [...]