ACTS OF BANKRUPTCY. When a debtor commits an act of bankruptcy, the Court may, on a bankruptcy petition being pre sented either by a creditor, or by the debtor, make a receiving order for the protection of the estate. The act must have been committed within three months before the presentation of the petition.
The various acts of bankruptcy are detailed in Section 4 of the Bankruptcy Act, 1883 : " (1) A debtor commits an act of bank ruptcy in each of the following cases : " (a) If in England or elsewhere he makes a conveyance or assignment of his property to a trustee or trustees for the benefit of his creditors generally : " (b) If in England or elsewhere he makes a fraudulent con veyance, gift, delivery, or transfer of his property, or of any part thereof : " (c) If in England or elsewhere he makes any conveyance or transfer of his property or any part thereof, or creates any charge thereon which would under this or any other Act be void as a fraudulent preference if he were adjudged bankrupt.
" (d) If with intent to defeat or delay his creditors he does any of the following things, namely, departs out of Eng land, or being out of England remains out of England, or departs from his dwelling house, or otherwise absents himself, or begins to keep house : A debtor commits an act of bankruptcy if execution against him has been levied by seizure of his goods under process in an action in any court, or in any civil pro ceeding in the High Court, and the goods have been either sold or held by the sheriff for twenty-one days.
Provided that. where an interpleader summons has been taken out in regard to the goods seized, the time elapsing between the date at which such summons is taken out and the date at which the sheriff is ordered to withdraw, or any inter pleader issue ordered thereon is finally disposed of, shall not be taken into account in calculating such period of twenty-one days. (As amended by Section 1 of the Bankruptcy Act, 1890.) If he files in the Court a declaration of his inability to pay his debts or pre sents a bankruptcy petition against himself If a creditor has obtained a final judgment against him for any amount. and execu tion thereon not having been stayed, has served on him in England, or, by leave of the Court, elsewhere. a bankruptcy notice under this Act, requiring him to pay the judgment debt in accordance with the terms of the judgment, or to secure or compound for it to the satisfaction of the creditor or the Court, and he does not, within seven days after service of the notice, in case the service is effected in England. and in case the service is effected elsewhere, then within the time limited in that behalf by the order 1 giving leave to effect the sere ice, either comply with the requirements of the notice, or satisfy the Court that he has a counter-claim set off or cross demand which equals or exceeds the amount of the judgment debt, and which he could not set up in the action in which the judgment was obtained : " (h) If the debtor gives notice to any of his creditors that he has suspended, or that he is about to suspend, payment of his The phrase " begins to keep house " in sub-section (d) means to shut himself up in the house, or to refuse to see his creditors with the intention of delaying them.
An available act of bankruptcy means any act of bankruptcy available for a bankruptcy petition at the date of the presentation of the petition on which the receiving order is made (Section 168).
By an act of bankruptcy a bill which has been given in payment of a debt becomes immediately payable, and where any person liable upon a bill commits an act of bank ruptcy a holder can present a petition upon his debt. (Ex parte Raatz, 1897, 2 Q.B. SO.) When an act of bankruptcy has been committed by a customer, a banker must not pay any further cheques drawn upon his account.
A banker should exercise caution in deciding whether or not a customer has committed an act of bankruptcy, for there are circumstances which, at first sight, might lead him to conclude that such an act had been committed, but which may be found not to fulfil the legal requirements of an act of bankruptcy. For example. where a debtor called a meeting of his creditors and offered a composition, it was held not to be a sufficient notice of suspension and a mere statement by the debtor that, in certain events, he will be obliged to suspend pay ment, is not sufficient. When a banker has any doubt on the matter he should take immediate steps to find out the exact posi tion, and, in the meantime. should safeguard himself by not allowing any increase in an overdraft to take place.
In Ponsford, Baker f Co. v. Union of London and Smith's Bank (1906, 2 Ch. 444), Lord Justice Moulton said with reference to a man who has committed an act of bank ruptcy : " Until commission of the act of bankruptcy he was, of course, the beneficial owner of whatever assets lie possessed, but by the act of bankruptcy his title to be regarded as such beneficial owner is no longer absolute, but is contingent on no bankruptcy petition being presented within three months of the date of the act of bank ruptcy which leads to a receiving order being made. If such receiving order be the whole of the assets vest in his trustee as from the date of the act of bankruptcy. He is, therefore, in the position that should such a contingency occur he is from the date of the act of bankruptcy something less than a mere trustee of his assets for the creditors in his bankruptcy. Until this state of suspense has been removed either by a receiving order or by lapse of time, he has no right to deal with those assets that were in his hands, and can give no title in them to any transferee with notice. Similarly with regard to the debts and other chores in action which form part of his estate, he cannot collect them or give a valid discharge for them,and any one making a payment to him with notice of the act of bankruptcy does so at his peril." (See BANKRUPTCY, RECEIVING ORDER.)