Bankruptcy in England

BANKRUPTCY IN ENGLAND The earliest English statute on the subject, 34 and 35 Henry VIII. c. 4 (A.D. 1S42), was directed against fraudulent debtors, and gave power to the lord chancellor and other high officers to seize their estates and divide them among the creditors, but afforded no relief to the debtor from his liabilities. Subsequent legislation modified this attitude and introduced the principle of granting relief to the bankrupt with or without the consent of the creditors, where he conformed to the provisions of the bankruptcy law.

The courts exercising jurisdiction originally consisted of com missioners appointed by the lord chancellor. But as a result of legislation in 1831 and 1869 the bankruptcy laws are now admin istered by two judges of the chancery division specially appointed for the purpose by the lord chancellor, with bankruptcy registrars who deal with the ordinary judicial routine of bankruptcy proce dure in the London district, while similar duties are performed by the county-court judges throughout the country.

The Act of 1883.

A feature of the Act of 1883 was the separa tion it effected between the judicial and the administrative func tions, which had previously been exercised by the court, and the transfer of the latter to the Board of Trade as a public depart ment of the State directly responsible to parliament. Under the powers conferred by the act a new department was subsequently created under the title of the Bankruptcy Department of the Board of Trade, with an officer at its head called the inspector-general in bankruptcy. This department exercises, under the direction of the Board of Trade, a general supervision over all the administrative work arising under the act. It has extensive powers of control over the appointment of trustees, and conducts an audit of their accounts; and it may, subject to appeal to the court, remove them from office for misconduct, neglect or unfitness. A report upon the proceedings is annually presented to parliament by the Board of Trade, and although the department is practically self-support ing, a nominal vote is each year placed upon the public estimates, thus bringing the administration under direct parliamentary criti cism and control. The act also provided for the appointment and removal by the Board of Trade of a body of officers entitled offi cial receivers, with certain prescribed duties having relation both to the conduct of bankrupts and to administration of their estates, including the interim management of the latter until the creditors can be consulted. These officers act in their respective districts under the general authority and directions of the Board of Trade, being also clothed with the status of officers of the courts to which they are attached. The main objects of the measure were to se cure—(1) An independent and public investigation of the debtor's conduct ; (2) the punishment of commercial misconduct and fraud in the interests of public morality ; (3) the summary and inexpen sive administration of small estates where the assets do not ex ceed .£30o by the official receiver, unless a majority in number and three-fourths in value of the creditors voting resolve to appoint a trustee; (4) full control in other cases by a majority in value over the appointment of a trustee and a committee of inspection; (5) strict investigation of proofs of debt, with regulations as to proxies and votes of creditors; (6) an independent audit and gen eral supervision of the proceedings and control of the funds in all cases. Besides amending and consolidating previous bankruptcy legislation, the measure also contained special provisions for the administration under bankruptcy law of she estates of persons dying insolvent; and for enabling county courts to make adminis tration orders for payment by instalments in lieu of immediate committal to prison, in the case of small judgment debtors.

An amending act, under the title of the Bankruptcy Act, 1890, was passed in that year, more particularly with regard to the con ditions under which a bankrupt should be discharged or schemes of arrangement or composition be approved by the court. These two acts were supplemented by a large body of general rules made by the lord chancellor with the concurrence of the president of the Board of Trade, which may be added to, revoked or altered from time to time by the same authority. These rules are laid before parliament and have the force of law.

Besides these general acts, various measures dealing with special interests connected with bankruptcy procedure have from time to time been passed since 1883, the chief of which are as follows, viz., the Bankruptcy Appeals (County Courts) Act, 1884; the Prefer ential Payments in Bankruptcy Act, 1888, regulating the priority of the claims of workmen and clerks, etc., for wages and salaries; and the Bankruptcy (Discharge and Closure) Act, 1887, dealing with unclosed bankruptcies under previous acts. In 1906 the Board of Trade appointed a committee to enquire into and report upon the effect of the provisions of the laws in force at the time in relation to bankruptcy, etc.

The Acts of 1913 and 1914.

The recommendations of the committee were embodied in an act of parliament passed in 1913. This measure was repealed and re-enacted in 1914 as part of the Bankruptcy Act, 1914, which consolidates substantially all the previous statutes. Among the changes effected by the Act of 1913 the following are conspicuous. Offences by bankrupts were made punishable summarily, and power was given to official re ceivers to institute and conduct prosecutions. In many cases of offences by bankrupts it was declared that the onus of proving absence of intent to defraud should lie on the debtor. Failure to keep proper accounts by a person who has previously been made bankrupt was made an offence, provided the unsecured liabilities exceed Imo oo and the bankrupt is unable to show that in the cir cumstances in which he traded or carried on business the omis sion was honest and excusable. The act also rendered criminally liable a bankrupt who, having been engaged in trade or business and having contracted debts therein, has contributed to his in solvency by gambling or rash or hazardous speculation. For a bankrupt to obtain credit in the sum of f 10 or upwards without disclosing the fact that he is undischarged was declared criminal (the limit having formerly been .20), while it was also declared criminal for him to trade in any name other than that in which he was made bankrupt without disclosing the fact. This act also amended the law as to married women in relation to bankruptcy, and as to the avoidance of settlements. It also dealt with assign ments of book debts, providing that, where a person engaged in any trade or business makes an assignment of his existing or future book debts and is subsequently adjudicated bankrupt, the assign ment is void against the trustee as regards any book debts which have not been paid at the commencement of the bankruptcy, unless the assignment has been registered as if it were a bill of sale. This, however, does not affect assignments of book debts due at the date of the assignment from specified debtors, or debts grow ing due under specified contracts, or debts included in the assign ment of a business made bona fide for value.

The cost of bankruptcy administration is provided for : (1) by fees charged to bankrupt estates, (2) by interest on balances at the credit of such estates with the bankruptcy estates account, and (3) by interest on unclaimed funds at the credit of estates under former Bankruptcy Acts. The system is practically self-supporting and involves hardly any charge upon the taxpayers of the country.

Who May Be Made Bankrupt.

Generally speaking any per son, being a debtor, may in certain circumstances be made bank rupt in England and Wales. The term "debtor" as used in the Act of 1914 (unless the context otherwise implies) includes any person, whether a British subject or not, who at the time when any act of bankruptcy was done or suffered by him (a) was per sonally present in England; or (b) ordinarily resided or had a place of residence in England; or (c) w as carrying on business in England, personally, or by means of an agent or manager ; or (d) was a member of a firm or partnership which carried on business in England. It will be seen from this that a foreigner may in certain circumstances be subject to the English bank ruptcy laws. Subject to what will be said presently about married women, every adult may be made bankrupt, whether engaged in trade or not ; but an infant cannot usually be made bankrupt although he is engaged in trade and obtains credit in the course of his business. If he can be made bankrupt at all, it can only be in respect of a judgment debt for "necessaries"—a phrase which has a special meaning amongst lawyers. With regard to a married woman, although she could not formerly have been made bank rupt at all, now, if she carries on a trade or business, whether separately from her husband or not, she is subject to the bank ruptcy laws as if she was a feme-sole. Whether a lunatic can or cannot be made bankrupt has never been decided ; but it is plain that he cannot commit an act of bankruptcy (the necessary pre liminary to an adjudication) which involves intent. A convicted felon may be made bankrupt. Peers and members of the House of Commons although having "privilege of parliament" may be made bankrupt. Although a corporation or limited company is for some purposes a "person," a receiving order (the order which leads to adjudication) cannot be made against any such body.

Petition and Receiving Order.

Any court exercising bank ruptcy jurisdiction in the district in which he resides or carries on business in England or Wales may make a receiving order against a debtor, whether a trader or not, either on his own peti tion or on that of a creditor or creditors whose claims aggregate not less than f so. In the case of a creditor's petition proof must be given of the debt, and of the commission of an act of bank ruptcy within three months preceding the date of the petition. An act of bankruptcy is committed if the debtor fails to satisfy the creditor's claim upon a bankruptcy notice ; if he makes an as signment for the benefit of his creditors generally; if he absconds or keeps house ; if he gives notice of suspension of payments ; if his goods are sold or seized under execution ; if he files in court a declaration of inability to pay his debts; if he grants a fraudu lent preference or conveyance, or if, upon an application being made to commit him under the Debtors Act, a receiving order is made in lieu of an order to commit. In such a case the judgment debtor is deemed to have committed an act of bankruptcy. These acts are here enumerated in the order in which they most fre quently occur in practice, but failure to comply with a bankruptcy notice is by far the most common act of bankruptcy. By a "bank ruptcy notice" is meant a notice by a judgment creditor or creditor who has obtained an order for payment by his debtor calling upon his debtor to pay, secure or compound for the debt to the satis faction of the creditor or the court. Failure to comply with the notice within seven days (if the debtor is in England) constitutes an act of bankruptcy upon which a petition is founded. Bank ruptcy notices are constantly used by the judgment creditor as a means of enforcing his judgment, as most debtors, whose credit is at stake, will make every effort to pay rather than face the con sequences of a petition in the bankruptcy court.

An assignment for the benefit of creditors generally is a fairly common act of bankruptcy and it is none the less so because it is registered as a deed of arrangement. Such a deed, however, cannot be relied on as an act of bankruptcy by all creditors party or assenting to it, or by any creditor who does not do so within a month after receiving notice of its execution from the trustee.

Bankruptcy proceedings are initiated by a petition, which may be presented by a creditor or by the debtor himself. Any body or person who can take proceedings to recover a debt at law or in equity may present a bankruptcy petition. A man may take an assignment of a debt for the express purpose of founding a peti tion upon it. But a creditor may not present a petition unless the debt is a liquidated sum amounting to 150 or more payable im mediately or at some future time. The act of bankruptcy on which the petition is founded must have occurred within three months of the date of the petition and the debtor must be domi ciled in England or must have ordinarily resided or had a dwelling place or place of business in England; or (except in the case of a person domiciled in Scotland or Ireland, or a firm or partnership having its principal place of business in Scotland or Ireland) he must have carried on business in England by means of an agent or manager, or (except as aforesaid) must have been within the said period a member of a firm or partnership of persons which has carried on business in England by means of a partner or an agent or manager. The petition, if successful, results in a re ceiving order being made against the debtor, but this is not made until eight days of ter the service of the petition.

At any time after the presentation of a bankruptcy petition any action, execution or other legal process against the property or person of the debtor may be stayed. The general rule, however, is that proceedings will not be restrained to which the discharge of the debtor from his bankruptcy would be no defence. For ex ample, a claim in tort against a debtor for fraudulent breach of trust would not be restrained, nor a committal order for non payment of rates.

A "receiving order" does not divest a debtor of his property; it merely protects it. If a receiving order is made on a debtor's own petition, adjudication follows as a matter of course, unless a composition or a scheme of arrangement is accepted by the credi tors. As soon as the order is made an official receiver is con stituted receiver of the property of the debtor, and thereaf ter no creditor can pursue any remedy against the debtor save by leave of the court, and then on such terms as the court may im pose. And it is obvious that this must be so, otherwise one creditor might secure an advantage over the others. Should it appear that the majority of the creditors are in Scotland or Ireland, and that from the habitation of the property it would be more convenient to administer the bankrupt's property there, a receiving order may be rescinded. It may also be rescinded if the court is satisfied that the debtor has paid all his debts since it was made. Where there is an estate or business to be managed the official receiver may appoint a special manager, who receives such remuneration as the creditors or, failing them, the Board of Trade may deter mine.

Statement of Affairs.

As a consequence of the receiving order the debtor must make out and submit to the official re ceiver within a prescribed period a statement of his affairs. The statement must be verified by affidavit, and must show the par ticulars of the debtor's assets, debts and liabilities, the names, resi dences and occupations of his creditors, the securities held by them respectively, the dates when the securities were respectively given, and such further or other information as may be prescribed or as the official receiver may require. The official receiver sup plies the bankrupt with a form of statement and may employ someone to assist the debtor to prepare it. It must be made out within seven days of the receiving order made on a creditor's peti tion and within three days of the receiving order made on debtor's petition. Failure to furnish it may involve adjudication; and the omission of material facts may render the bankrupt criminally liable. The statement of affairs is open to the inspection of credi tors and may be used against the bankrupt in any proceeding connected with his bankruptcy. The debtor must also in every case submit to a public examination in court, in which the official receiver, the trustee and any creditor who has proved his debt may take part. His evidence may be used against him. He may further be specially examined by the court at any time with refer ence to his dealings or property, and creditors may attend and take part in the examination. He must attend the first meeting of creditors, wait upon the official receiver, trustee, and special man ager, and give all necessary information and generally do all acts which may reasonably be required of him with the view of secur ing a full investigation of his affairs. He may be arrested if there is reasonable ground for believing that he is about to abscond, destroy papers or remove goods, or if he fails without good cause to attend any examination ordered by the courts. The court may also for a period of three months order his letters to be re addressed by the postoffice to the official receiver or trustee.

First Meeting of Creditors.

This meeting is summoned by the official receiver, notice being given in the London Gazette and in a local paper and sent by post to each creditor. A summary of the statement of affairs should accompany the notice, with any observations by the official receiver which he may think fit to make. The object of the meeting is to decide whether any pro posal for payment of a composition or for a scheme of arrange ment submitted by the debtor is to be entertained, or whether an application should be made to the court to adjudicate the debtor bankrupt. In the latter case the meeting may by an ordinary resolution appoint a trustee with or without a committee of in spection. It may also give any directions as to the administration of the estate. The meeting should be held at the place most con venient for the majority of the creditors. It is presided over by the official receiver or his deputy, who, subject to appeal to the court, admits or rejects proofs for the purpose of voting. For the transaction of business three creditors qualified to vote, or all the creditors if fewer than three, must be present or represented. Only persons who have proved their debts are entitled to vote, and detailed regulations respecting proofs and the valuation of securities are laid down in the Act of 1914. One of the chief alterations in the law on this point is the condition imposed on creditors on bills of exchange to deduct from their claims the value of the liability of prior obligants before voting, thus can celling the power of controlling the proceedings previously pos sessed by persons who had no real interest in the estate. Votes may be given in person or by proxy, and stringent regulations are laid down with the view of preventing the abuse of proxies. Gen eral proxies entitling the holder to exercise all the powers which the creditor could exercise if present may be given to the official receiver or to any person in the regular employment of the creditor. Special proxies may be given to any person to vote for specified resolutions, or for the appointment of specified persons as trustee and committee. Only official forms can be used, and the blanks must be filled up in the handwriting of the creditor or some person in his regular employment, including the authorized agent of a creditor resident abroad. A proxy must be lodged with the official receiver not later than four o'clock on the day before the meeting or adjourned meeting at which it is to be used. If solici tation has been used by or on behalf of the trustee in obtaining proxies, or in procuring the trusteeship, the trustee may be de prived of his remuneration. Resolutions are ordinary, special or extraordinary. An ordinary resolution is carried by a majority in value of the creditors voting; a special resolution by a majority in number and three-fourths in value of such creditors. The only instance of a resolution other than these is that required for the approval of a composition or scheme, which requires a majority in number and three-fourths in value of all the creditors who have proved. The majority of questions arising at a meeting are decided by an ordinary resolution.

The creditors entitled to vote may, at their first or any subse quent meeting, appoint from among the creditors generally, or the holders of general proxies, or general powers of attorney from such creditors, a committee of inspection to superintend the trus tee in his administration of the bankrupt's property. A person may also be appointed subject to his subsequently becoming the holder of a general proxy or general power of attorney, but he must not act until he has obtained this power. The committee must not consist of more than five or less than three persons. It generally includes the more important creditors. A creditor who is appointed a member may not act until he has proved his debt and his proof has been admitted, and he must not, except by leave of the court, become a purchaser of any part of the estate, nor may he, except with the like permission, receive any payment out of the estate for services rendered by him in connection with the administra tion of the estate. One of the functions of the committee is to audit the trustee's accounts, and certain functions of the trustee can only be exercised by him with the sanction of the committee.

If the creditors so resolve, or if a composition or scheme of arrangement is not proposed by the debtor or entertained by the creditors, or if entertained is not approved by the court, or if without reasonable excuse the debtor fails to furnish a proper statement of his affairs, or if his public examination is adjourned sine die, the court adjudicates the debtor bankrupt and thereupon his property vests in a trustee, and, subject to the payment of the costs and fees of administration, is divisible among his creditors until all his debts are paid in full with interest at the rate of 4% per annum. An order may also be made on the application of the official receiver where the debtor has absconded, or where the court is satisfied that the debtor does not propose a composition or scheme. Notice of every order of adjudication stating the name, etc., of the bankrupt is published in the London Gazette and advertised in a local paper.

Duty of a Bankrupt.

A debtor adjudged bankrupt must aid in the realization of his property to the utmost of his power, and in the distribution of the proceeds among his creditors. He must also, at the request of the official receiver, furnish trading and profit and loss accounts and a cash and goods account for a period not exceeding two years before the date of the receiving order. He must also, if required, attend and be cross-examined as to the whereabouts of his property, and may be arrested on a warrant if he refuses to attend.

The Bankruptcy Act of 1914 altered the law as to offences by debtors, making it rather more stringent than it was before. Thus the onus of proving that he is not guilty of any intent to defraud is now, generally speaking, placed upon him. if he fails to make full discovery of or to deliver up his property or books; if he conceals his property or debts; prevents production of books, etc.; or conceals, mutilates or falsifies his books, he may be guilty of a misdemeanour unless he proves that he had no intent to de fraud. He is also liable to be found guilty of an offence if he re moves property worth more than fro after or within six months before the date of the petition ; or if he fails to disclose the fact that a false debt has been proved by anyone in the bankruptcy. Other offences are the fraudulent parting with or alteration of books; declaration of fictitious losses; obtaining credit by false representations within six months before or after the date of a petition. Again, a bankrupt is guilty of an offence if, having been engaged in any trade or business and having outstanding at the date of the receiving order any debts contracted in the course and for the purpose of such trade or business, he has within two years before the date of the petition materially contributed to or in creased the extent of his insolvency by gambling or speculation. A prosecution for this offence, however, cannot be set on foot save by order of the court. Failure by a man who has once been bankrupt or who has compounded with his creditors to keep books of account within two years before a second bankruptcy may also be an offence. With regard to obtaining credit, it is obvious that the public must be protected against the undischarged bankrupt. Accordingly, it is provided that where an undischarged bankrupt (a) either alone or jointly with any other person obtains credit to the extent of f i o or upwards from any person without inform ing such person that he is an undischarged bankrupt, or (b) en gages in any trade or business under a name other than that under which he was adjudicated bankrupt without disclosing to all per sons with whom he enters into any business transaction the name under which he was adjudicated bankrupt, he shall be guilty of a misdemeanour.

An undischarged bankrupt cannot sit or vote in the House of Lords. He cannot be elected to sit in or vote in the House of Commons, or be elected or act as a justice of the peace, or mayor, alderman or councillor. Nor can he be a guardian or an overseer of the poor or member of a county council. He cannot be a mem ber or chairman of a parish council, rural district council, or board of guardians if he has within five years before his election or since his election been adjudged bankrupt or compounded with his creditors. These disqualifications disappear on the annulment of the bankruptcy, or if the court grant a certificate to the effect that the bankruptcy was caused by misfortune without any mis conduct on the part of the debtor.

Discharge.

The court may at any time after the conclusion of the bankrupt's public examination, and after hearing the offi cial receiver, the trustee and any creditor, to all of whom previ ous notice of the application must be given, grant the bankrupt a discharge either absolutely or under conditions, but subject to the following qualifications, viz. :—(i) If the bankrupt has com mitted (i.e., has been tried and convicted of) a criminal offence connected with the bankruptcy, the application must be refused unless for special reasons the court determines otherwise. (2) If the assets are not equal in value to ten shillings in the pound of the unsecured liabilities (unless the bankrupt can show that he is not responsible) ; or if proper books have not been kept ; or if the bankrupt has traded after knowledge of insolvency; or has contracted debts without reasonable probability of payment ; or failed to account for his deficiency; or contributed to the bank ruptcy by rash speculation, gambling, culpable neglect, or by un justifiable expenses; or has taken or defended legal proceedings on frivolous grounds; or has within three months preceding the re ceiving order given an undue preference; or has increased his lia bilities with the view of making his assets equal to ten shillings in the pound; or has previously been bankrupt or made an ar rangement with creditors; or has been guilty of any fraud or fraudulent breach of trust ; then the court shall, on proof of any of these facts, either (a) refuse the discharge or (b) suspend it for a period of not less than two years, or until a dividend of not less than ten shillings in the pound has been paid; or (c) qualify the order by the condition that judgment is entered up against the bankrupt for payment of any unpaid balance of his debts, or of part of such balance out of his future earnings or property. Assets are deemed to be equal to ten shillings in the pound when the court is satisfied that the property of the bankrupt has realized, or is likely to realize, or with due care in realization might have realized an amount of ten shillings in the pound on his unsecured liabilities. If of the facts referred to the only fact proved is that the assets are not of a value equal to ten shillings in the pound the discharge may be suspended for a period of less than two years. The bankrupt may, however, after two years apply to the court to modify the conditions if he is unable to comply with them. An order of discharge releases the debtor from all his obligations except debts due to the Crown and other obligations of a public character which can only be discharged with the consent of the Treasury, debts incurred by fraud and judgment debts in an action for seduction or as a co-respondent in a matrimonial suit or under an affiliation order, which are only released to such extent and subject to such conditions as the court may expressly order. Debts incurred by fraud in so far as they are the subject of actions of tort are not provable and are not therefore affected by an order of discharge. The release of the bankrupt does not operate as a release of any partner or co-obligant with him. Neither does it release the bankrupt from liability to criminal prosecution. Notwithstanding his discharge a debtor is still bound to help the trustee to distribute the assets.

Composition or Scheme of Arrangement.—After a receiv ing order has been made the debtor may submit a proposal for the payment of a composition or for the liquidation of his affairs, by a trustee or otherwise, without adjudication. The proposal must be lodged with the official receiver in sufficient time to allow notice, together with a report by that officer, to be sent to the creditors before the meeting is held at which it is to be considered. If the proposal is entertained at the meeting by a majority in number and three-fourths in value of all the creditors who have proved their debts, and if it is thereafter approved by the court, it becomes binding upon all creditors who would be bound by an order of discharge had the debtor been adjudicated bankrupt. A similar proposal may be made after adjudication, and if enter tained by the creditors and approved by the court the adjudication may be annulled. The debtor's release will be subject to the terms of the scheme, but his future acquired property will not pass to the creditors unless there is an express stipulation to that effect. If default is made in carrying out the scheme, or if it is found that it cannot proceed without injustice or undue delay, the court may at any time adjudicate the debtor bankrupt, in which case the scheme will fall to the ground, except in respect of past transactions under it. The approval of a composition or scheme does not release the debtor from his liabilities under the criminal law, nor from the necessity of undergoing a public ex amination which must, in fact, be held and concluded before the approval of the court is applied for. Also before such approval is given a report must be filed by the official receiver upon its terms and on the conduct of the debtor, and the court must be satisfied, after hearing that officer and any creditor, that the proposal is reasonable and calculated to benefit the creditors and that no criminal offences connected with the bankruptcy have been committed by the debtor. Further, if any fact is proved which would have prevented the debtor obtaining an absolute or uncon ditional order of discharge had he been adjudged bankrupt, the composition or scheme cannot be approved unless it provides reasonable security for the payment of not less than five shillings in the pound on all the unsecured debts. Where a trustee is ap pointed to carry out the composition or scheme, all the provisions of the act with reference to the remuneration of the trustee, the custody of funds, the audit of his accounts, and the control exer cised by the Board of Trade apply in the same manner as they would under an adjudication. Further, the provisions relating to the administration of property, proof of debts, dividends, etc., will also apply, so far as the nature of the case and the terms of the arrangement admit.

Property Divisible Among the Creditors.—No part of the law of bankruptcy is more intricate or has been the subject of more litigation than this, and any detailed view of the effect of legal decisions can only be gathered by a perusal of the cases; but the following general principles may be stated:—The term "property" includes not only property of which the bankrupt is the true owner, but property in his possession, order or disposi tion in his trade or business with the consent of the true owner, in such circumstances that he is the reputed owner thereof. The application of the doctrine of reputed ownership has been con siderably restricted in recent years by the growth of alleged trade customs, in accordance with which property is frequently lent under a contract of "hire and purchase" or otherwise ; and by the decisions of the courts that where such custom is sufficiently proved the doctrine does not apply. Further, the trustee's title not only includes property in the actual possession of the bank rupt, but relates back to the date of the first act of bankruptcy committed by him within the three months preceding the presenta tion of the bankruptcy petition, and thus invalidates all payments and assignments to creditors made during that period with knowl edge on the part of the creditor or assignee of the commission of the act of bankruptcy. In such cases the trustee may, therefore, require the money or property to be restored to the estate. And even where no prior act of bankruptcy is proved any payment made to a creditor with the view of giving such creditor a prefer ence over the other creditors, within the three months preceding the presentation of the petition on which the payer is made bank rupt, is rendered void as against his trustee. Settlements of prop erty within the two years preceding the bankruptcy, unless made before and in consideration of marriage, or made in good faith for valuable consideration, are also void, as are similar settlements within ten years, unless it is proved that the settlor was (inde pendently of the settled property) solvent at the date of the set tlement and that the interest in the property passed to the trustees on the execution of the deed.

Certain settlements made in consideration of marriage are also made void or voidable against a trustee in bankruptcy. Thus any covenant or contract by a settlor in consideration of marriage for the future payment of money for the benefit of wife or child, or for future settlement on wife or children of property in which the settlor had no interest at the date of the settlement is void against his trustee in bankruptcy, if it has not been executed at the date of the bankruptcy. This is subject to the exception that beneficiaries may claim dividends in the bankruptcy, such claims, however, being postponed until the claims of the settlor's other creditors have been satisfied. Not only is such a settlement void, but any payment made thereunder is void against the trustee un less the payee can prove either that the payment was made more that two years before the bankruptcy or that at the date of the payment the settlor could pay all his debts without the aid of the money so paid ; or that the payment was made pursuant to a covenant or contract to pay money expected to come to the settlor on the death of a particular person named in the covenant and was made within three months after the money came into the possession of the settlor. If any such payment is declared void, the payee can nevertheless rank as a creditor for dividend in re spect of it.

Executions by a creditor not completed at the date of the re ceiving order are also void, and the proceeds of an execution in the hands of the sheriff must, with certain exceptions and sub ject to deduction of costs, be handed over to the trustee. But all property held by the bankrupt on trust, and tools of trade, wear ing apparel and bedding to a total value not exceeding £20 are excluded from the property divisible among the creditors. With respect to property acquired by the bankrupt, whether by gift or legacy, or consisting of accumulations of business or other profits after the commencement of the bankruptcy and before he obtains his discharge, the trustee's title also prevails; but bona fide transactions by the debtor for value, other than transactions re lating to freehold property, appear to be valid. Where the bank rupt is a beneficed clergyman the trustee may, subject to certain provisions for the due discharge of the duties of the office, apply for the sequestration of the profits of the benefice, and where he is in receipt of a salary, income or pension, etc., the court may order any part thereof to be paid to the trustee ; but where he is an officer of the army, navy or civil service such order is only to be made with the consent of the chief of the department con cerned. When a banker has ascertained that a person having an account with him is an undischarged bankrupt it is his duty to inform the trustee or the Board of Trade of the existence of the account, and thereafter the account cannot be operated on except under the order of the court.

When a bankrupt who owns the copyright of a work is liable to pay royalties or a share of profits therein to the author, the trustee may not sell copies of or perform the work, except upon terms of paying the royalties due to the author. Nor can he as sign or licence the copyright without the consent of the author or the court except upon terms which will secure to the author payments not less than those which the bankrupt was liable to pay.

Claims of Creditors.—In the distribution of the debtor's prop erty certain claims are entitled to priority over others. Thus the landlord, although not entitled to a preference out of the funds in the hands of the trustee, can distrain for unpaid rent on the goods and effects of the debtor remaining on the landlord's prem ises; but where the distraint is levied after the commencement of the bankruptcy this right is limited by the Act of 1890 to six months' rent due before adjudication, the remainder of his claim ranking for dividend with the claims of other creditors. Various gas and water companies have also statutory powers of distraint under special acts, but the policy of recent legislation has been to discourage any extension of such privileges. Where the bankrupt holds an office of trust in any savings bank or friendly society, any balance in his hands due to such bank or society has been held under the acts relating to these bodies to be payable in preference to any other claim against the estate. Workmen's compensation, too, up to f roo in each case, is entitled to priority; but where an employer who is injured becomes bankrupt, his rights against the insurance company pass to his workmen. Con tributions payable by a bankrupt under the National Insurance Act 1911 are also entitled to preference. Other preferential claims are regulated by the Bankruptcy Acts and include taxes, parochial and other local rates for not more than one year, wages and salaries for four months, but not exceeding £50 (limited in the case of ordinary labourers and workmen to two months' wages not exceeding £25), and agricultural labourers' claims not exceeding one year's wages, if hired by special contract for pay ment of a lump sum at the end of a year. These claims are entitled to preference not only over funds in the hands of the trustee, but also over the proceeds of any distraint levied by the landlord with in the three months prior to the receiving order, the latter in that case becoming a preferred creditor for the amount so paid. Articled clerks and apprentices may also be allowed repayment of a proportion of the premium on their unexpired agreements. On the other hand, usual trade discounts (exceeding 5%) must be deducted from traders' proofs, and the following claims are postponed until the general creditors are paid in full, viz., claims by a married woman for loans to the husband for the purposes of his business, claims for loans advanced to any person in busi ness at a rate of interest varying with the profits, and claims for interest in excess of 5% per annum. Where a married woman has been adjudged bankrupt her husband cannot claim any divi dend in respect of money lent to her for her trade or business until all claims of her other creditors have been satisfied. Sub ject to these exceptions all debts proved in the bankruptcy must be paid pari passu. Any surplus after payment of 20s. in the pound and interest at the rate of 4% per annum, from the date of the receiving order, is payable to the bankrupt.

All claims and liabilities present or future, certain or contingent, arising out of obligations incurred bef ore the date of the receiving order are provable in the bankruptcy, an estimate of the liability in the case of contingent debts being made by the trustee subject to appeal to the court. But demands in the nature of unliquidated damages arising otherwise than by reason of a contract, promise, or breach of trust are not provable, nor are gaming debts or debts barred by the statutes of limitation. A secured creditor if he proves must either surrender his security or value the security and prove for the balance, and the trustee can thereupon, subject to the creditor's power in certain circumstances to amend the valuation, take over the security by paying the amount of the valuation or may require it to be realized. He may be required by the creditor to elect which of these courses he will adopt, fail ing which the equity of redemption will vest in the creditor.

After payment of costs of administration and preferential debts it is the duty of the trustee to distribute the estate with all con venient speed—the first dividend within f our months of ter the first meeting of creditors and subsequent dividends at intervals of not more than six months; but the declaration may be postponed for sufficient reason by the committee of inspection.

Trustee's Administration.—While the interim preservation and management of the estate is conducted by or under the direct supervision of officers appointed by and responsible to the Board of Trade, the ultimate realization and distribution of the assets devolve upon the trustee appointed by the creditors. But besides acting as receiver prior to the first meeting of creditors, the official receiver also becomes trustee by operation of law on the making of an order of adjudication. He vacates the office when a trustee is appointed by the creditors, and certified by the Board of Trade, but again becomes trustee on the creditors' trustee being released, dying, resigning or being removed from office. As the bankrupt's property vests in the trustee for the time being, and passes from trustee to trustee by operation of law, and without any formal act of conveyance, the continuity of the office is thus secured.

A trustee may be appointed by a majority in value of the creditors voting at the first or any subsequent meeting, or the ap pointment may be left to the committee of inspection. In either case the appointment is subject to confirmation by the Board of Trade. Before such an appointment may be confirmed, the trustee-elect must also furnish security to the satisfaction of the Board of Trade, and such security must be kept up to the amount originally fixed, or to such lesser amount as that department may require throughout the tenure of the trusteeship, failing which the trustee is liable to be removed from office. Where the credi tors fail to appoint a trustee the Board of Trade may do so, but such appointment may at any time be superseded by the creditors.

The trustee is required to take immediate possession of the bankrupt's property, including deeds, books and accounts, and has the powers of a receiver in the high court for the purpose of enforcing delivery. After payment of the costs of administra tion it is his duty to distribute the estate in dividends as speedily as possible.

Where any part of the property is held subject to onerous obligations, such as the payment of rent, etc., the trustee may disclaim the same, subject in certain cases to the leave of the court, and the disclaimer operates to determine all interest in or liability in respect of the property on the part of the estate. The trustee is required to keep a record book (which is commenced by the official receiver), containing minutes of the proceedings in the bankruptcy, and a cash book in the prescribed form, in which all receipts and payments by him must be entered. All monies received must forthwith be paid into an account at the Bank of England, entitled the "Bankruptcy Estates Account," which is under the control of the Board of Trade, unless where in special circumstances the sanction of that department is ob tained to the opening of a local banking account, but in no cir cumstances must estate monies be paid to the trustee's private account. When monies are required for the purpose of the estate, special cheques or money orders are issued by the Board of Trade on the application of the trustee.

In his administration of the estate the trustee is subject to control by the committee of inspection, the creditors, the court, and the Board of Trade. The committee is appointed by the creditors and must consist of not more than five or less than three creditors. The Board of Trade is required to take general cognizance of the conduct of trustees, to enquire into any com plaints by creditors, and, in the event of any trustee not faith fully performing his duties, to take such action, including the power of removal, as may be expedient.

The trustee's accounts must be audited by the committee of inspection not less than once in every three months; and once in every six months, as well as at the close of the administration, the record and cash books mu.,t also be submitted, with the vouchers and the committee's certificate of audit, to the Board of Trade for final audit. If it appears that the trustee has retained more than f 5o in hand for more than ten days without a satisfactory explana tion he may be removed from office, surcharged with interest at the rate of 2o% per annum, and lose all claim to remuneration.

The trustee's remuneration is fixed by the creditors or by the committee, if so authorized by them. It must be in the nature of a percentage on the amount of the realization and on the divi dends. If one-fourth of the creditors in number or value dissent from the resolution, or if the bankrupt satisfies the Board of Trade that the remuneration is excessive, the Board may review the same and fix the remuneration. A trustee may not receive any remu neration for services rendered in any other capacity, e.g., as solici tor, auctioneer, etc., beyond that voted to him as trustee; nor may he share his remuneration with the bankrupt, the solicitor, or other person employed about the bankruptcy, or receive from any per son any gift or other pecuniary or personal benefit in connection therewith.

A trustee receiving remuneration is not allowed the costs of any other person in respect of duties which ought to be performed by himself. All bills of solicitors and other agents employed must be taxed before payment, as being in accordance with the prescribed scales of costs; and the taxing master must satisfy himself that the employment has been properly authorized before the work was done. All bills of costs must be delivered to the trustee within seven days of the request for the same, otherwise the estate may be distributed without regard to such costs.

When the property, so far as it is capable of realization, has been realized and distributed, the trustee must apply to the Board of Trade for his release, forwarding to each creditor a notice of his having done so, together with a copy of his final accounts.

Small Bankruptcies.

When the official receiver reports or the court is otherwise satisfied that the debtor's property is not likely to realize more than £30o the court may make an order for the summary administration of the estate ; in which case, if the debtor is adjudged bankrupt, the official receiver in the ordinary course becomes and remains trustee and certain other modifica tions are effected with the view of simplifying and accelerating the procedure. The chief of these modifications are as follows, viz., the Board of Trade acts as committee of inspection; there is no advertisement of the proceedings in a local paper; in legal pro ceedings all questions of law and fact are determined by the court without a jury ; adjudication may be made on a report by the offi cial receiver before the first meeting of creditors where no compo sition or scheme is proposed ; meetings of creditors may be held in the town where the court sits or the official receiver's office is situ ated ; notice to creditors of meetings other than the first meeting and application by a debtor for his discharge are dispensed with in the case of creditors for amounts not exceeding £2. Costs, other than a solicitor's charges, may be paid without taxation, and the time for declaring the first dividend is extended to six months; but the whole estate must be realized and distributed within this period if practicable. No modification, however, is permitted in the pro cedure relating to the public examination and discharge of the bankrupt. Notwithstanding that an order has been made for sum mary administration, the creditors may at any time, by a resolu tion passed by a majority in number and three-fourths in value of those voting at the meeting, appoint a trustee in place of the offi cial receiver, in which case the summary order ceases to be operative.