The Pamphlet Collection of Sir Robert Stout: Volume 30
It Las been suggested to me that I ought to vindicate the remark at page 27, by mentioning some at least of the prominent examples. I prefer doing so separately, in a postcript as they are only likely to interest the professional reader.
I may observe, in limine, that a great defect in the colonial acts is the omission of any declaratory clause, explaining the object of the acts, and the nature of the powers and authority intended to be conferred by them. There is such a clause in the Consolidation Act, (it is the 12th) and it has been found most useful in defining the jurisdiction of the court.
The 7th clause of the first act declares liable to be set aside, all alienations of goods made without valuable consideration and within twelve months preceding an act of insolvency; if the clause concluded here, it might have been of some value; but it annexes to the liability to be set aside the condition that the order of the Supreme Court must be at the instance of some creditor, and "in "so far as such creditor would thereby be prevented from receiving "the full amount of his said debt." If it is meant by this that the creditor must trace up his loss specifically to the act of alienation, it would be nearly impossible, in most cases, for any creditor to do this.
The 9th clause gives protection to a bonâ fide purchaser from the alienee mentioned in the 7th clause, but renders the alienee himself liable to pay the value of the goods so purchased, to such creditors as have been described in the 7th clause; this is inefficient and mischievous: inefficient from the difficulty just explained of proving the position of the creditor, and mischievous, because it suggests to a fraudulent insolvent a safe way page ii of carrying his fraudulent intention into effect; he has only to alienate to a man of straw, and then he can give a good title to every purchaser under such alienee.
The 10th clause avoids all alienations made after sequestration; but in as much as the 53rd clause gives to the order of sequestration the effect of divesting the insolvent of his property, it follows that the 10th clause is absurdly unnecessary, for how can he alienate that which he does not possess?
The 11th clause declares void any discharge by the insolvent for a debt due to him, where payment of the debt has not been actually bonâ fide received; but it is obvious that this is severe upon the debtor, unless it is qualified by the condition that he has notice of the insolvency; and there may be many cases easily supposed, in which a discharge has been bonâ fide given, and yet no payment actually made; in such cases the discharge ought clearly to be protected.
The 12th clause, as I read it, for it is not very intelligible, is simply absurd; it provides "that all payments really and bonâ fide "made by any insolvent, or by any person in his behalf, to any "creditor before any order made for the sequestration of his estate "is known to the insolvent or to such creditor, shall be valid;" they would of course be valid, and without any enactment; nor can I conceive the necessity for such an enactment unless to dispel any doubt arising from the preceding clause; the same remark applies-and with the same force, to the next paragraph in the 12th clause, declaring the validity of bonâ fide payments by the insolvent, without notice; it seems probable that the draughtsman had in his mind some confused idea of the doctrine of relation back to the act of bankruptcy, without clearly understanding it.
The 13th and 14th clauses provide for sequestration on the petition of creditors, whether separately or jointly; the latter clause requiring that the single petitioner's debt shall amount to £50, but that where there are "two or more" petitioning creditors, the joint debt shall amount to £100. These clauses only deserve notice as exhibiting the carelessness with which they are drawn; page iii for is it not apparent that the same measure of debt is given in the case of two petitioning creditors as in the case of one?
The 16th clause is remarkable for its extreme clumsiness; it provides for payments of the costs of sequestration out of the free residue of the estate, and that if that residue is not sufficient, the creditors who have proved shall make up the deficit by contribution; where the simple course would obviously have been to follow out the bankruptcy system, and pay the costs before declaring a dividend.
To pass over many intermediate clauses that are open to similar objections, I will mention the 33rd for the discontinuance of actions by the subsequent sequestration of the insolvent's estate; the clause ends with a humane proviso, enabling the insolvent to continue in his own name and for his own benefit, any action he has commenced for any personal wrong or injury to himself or his family; but in carrying out this humane intention, the act has forgotten what is due to the creditors; slander upon the plaintiff's trading credit, would clearly be a "personal injury or wrong" to the plaintiff himself, and the creditors ought yet to have the benefit of the action, for his failure and their loss may have been occasioned by the slander.
The 38th clause, founded upon the 55th of the 6th Geo. IV., ch. 16, provides for the proof of debts, though payable at a future time; but by the introduction of the words of description, "every person to whom the insolvent was under legal obligation "to pay money at a certain future time shall be accounted a "creditor," the act raises a question as to the meaning of "legal obligation;" is it meant to distinguish between legal and equitable obligations? or between simple contract and specialty debts? or is no distinction of any kind intended? if the latter, then the word "indebted" should simply have been used.
The 39th clause provides for the manner of proving by creditors holding security, and prescribes the practice to be followed for valuing the security by the oath of the creditor; this is both page iv complicated and objectionable; the framer of the act would have done better to have taken for his model the general order of Lord Loughborough, of the 8th of March, 1794, directing a sale of mortgage securities before the mortgagee can prove for the balance; this still continues the practice in the English courts.
The 40th clause admits the proof of debts payable on a contingency, but omits to provide for the proof of contingent liabilities as debts; a question which was much agitated in the English courts till set at rest by a special enactment.
The 44th clause is not intelligible; its object is to provide "the mode of settling interest upen claims." The word "claim' has a doubtful meaning; in bankruptcy it means a claim to reserve a dividend in respect of a debt of which the proof is not immediately admissible, and it is used in this sense in the preceding clause. Does the 44th clause mean this, or does it mean simply "debts?" The clause proceeds to direct the assets to be applied "first in payment, according to the legal order of preference, of all the preferent debts." What does this mean? In England there are several classes of debt to be discharged in full, as rent for twelve months, salary and wages for three months, with certain limitations; assessed taxes, apprenticeship premiums, and the debts due to friendly societies; but the colonial act gives preference to none of these, except six mouths' rent, and six months' salary or wages; and these three being already secured a preference by the 41st and 42nd clauses, it was unnecessary to provide again for that preference by the 44th clause. Have the words any reference to the relative position of joint and separate creditors as respects to their recourse to the joint and separate estates? According to the English law, a separate creditor is entitled to be paid in full till the separate estate is exhausted, and so is a joint creditor in respect of the joint estate; it is also true that if creditors under a first insolvency suffer an uncertificated man to trade and contract new debts, an equity arises by which subsequent creditors may obtain a preference upon subsequently acquired effects; but the question must be determined on bill in equity page v and not on petition in bankruptcy; ex parte. Storks 2 Rose 179, Barton v. Tattersal, 1 Russ. and Myl. 237. Possibly the 44th clause may contemplate such cases as these, but I acknowledge that I cannot see that such questions are likely to arise under these colonial acts.
The 87th clause requiring the trustee, among other things, to submit a plan for distributing the estate, is wholly unnecessary according to the simple principle of the bankruptcy system, that all creditors shall come in equally; and if, as I collect, the same principle prevails here, then all this complicated enactment is superfluous.
The 100th clause, authorising the imprisonment of the insolvent after surrender, upon proof that he has reasonable means of discharging the debts, or a part of them, is most extraordinary, and without any English precedent. If he has such "reasonable means" they pass by the colonial law, as well as by the English law, to the official assignee; and were it not that these insolvent acts fail, for the reasons mentioned in my letter, to provide any adequate means of seizing the estate, the official assignee might clearly take "the means" contemplated by this clause, without such a breach of good faith towards the insolvent as to take his person when he has surrendered all his estate to secure protection to it.
There are many other criticisms that might be justly made upon both the provisions and the language of these insolvent acts, but I think that I have said enough to satisfy the reader that, severe as my censures have been, I have not passed them without reflection.
Printed at The Ago Office, Melbourne.