History of Bankruptcy – Part 7

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
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