BANKRUPTCY. When a person is unable to pay his debts, his property is, in certain circumstances, taken possession of by the official receiver or trustee in bankruptcy, who realises it and distributes the proceeds amongst the creditors. Such a proceeding is called bankruptcy, and the debtor is known as the bankrupt.
The law of bankruptcy in England is contained in the Bankruptcy Acts of 1883 46 47 Vict. c. 52) and 1890 (53 & 54 Vict. c. 71).
Where a debtor has committed an act of bankruptcy (see OF BANKRUPTCY), a creditor, or creditors, whose debt or debts amount to not less than 1, j50, may petition the Court which has bankruptcy jurisdiction over the debtor, to make a receiving order (see RECEIVING ORDER), with the object of having the debtor's estate administered under the bankruptcy law for the benefit of the creditors. A bankruptcy petition may also be presented by the debtor himself. A debtor is not adjudged a bankrupt imme diately upon the making of a receiving order, but a general meeting of creditors (see MEETING OF CREDITORS) is held shortly after the order is made, to consider whether a composition or scheme of arrangement shall be entertained or whether he shall be adjudged bankrupt.
After a receiving order is made, the debtor must make out and submit to the official receiver (that is, the official of the Court who takes control of the debtor's estate) a statement of his affairs. (See Section 16 of the 1883 Act, under RECEIVING ORDER. See also OFFICIAL RECEIVER.) As soon as convenient after the expiration of the time for the submission of a debtor's statement of affairs, the Court shall hold a public sitting for the examination of the debtor, but the Court shall not declare that his examination is concluded until after the day appointed for the first meeting of creditors. (See PUBLIC EXAMINATION OF DEBTOR.
If a debtor intends to make a proposal to his creditors for a composition in satisfaction of his debts, or a proposal for a scheme of arrangement of his affairs, he must, within four days of submitting his statement of affairs, or within such time as the official receiver may fix, lodge his proposal with the official receiver, embodying the terms of the composition or scheme and setting out particulars of any sureties or securities proposed. (See COMPOSITIONS.)
If the debtor's proposal is accepted by the creditors, the receiving order is dis charged. If a trustee is not appointed, the official receiver acts as trustee for the purpose of receiving and distributing the composition, or for the purpose of carrying out the terms of the scheme. A creditor under a com position or scheme must lodge his proof of debt with the trustee.
If the composition or scheme is not accepted within fourteen days after the conclusion of the debtor's examination, or such time as is allowed by the Court, or if the creditors resolve that the debtor be adjudged bankrupt, or if they do not pass any resolution, the Court shall adjudge the debtor bankrupt (see ADJUDICATION OF BANKRUPTCY), and thereupon his property shall vest in a trustee (see TRUSTEE IN BANKRUPTCY), and be divisible amongst his creditors.
The bankruptcy of a debtor, whether it takes place on his own petition or that of a creditor, dates back to the time of the act of bankruptcy being committed on which the receiving order was made against him. (Section 43 of the Bankruptcy Act, 1883. See under ADJUDICATION OF BANKRUPTCY.) The creditors may appoint a committee of inspection to superintend the administra tion of the bankrupt's property by the trustee. (See COMMITTEE OF INSPECTION.) A trustee may be authorised by the Board of Trade to open a local banking account. (See Section 74 and rule 340 under TRUSTEE IN BANKRUPTCY.) Where the committee of inspection ap prove, the trustee of a bankrupt's estate may pledge any deeds belonging to the estate, if the money is required for payment of the bankrupt's debts.