By avoiding Scylla it fell into Charybdis. To give any majority of creditors the power to release a debtor from his obligations to non-assenting creditors without full disclosure of his affairs, and without any exercise of judicial discretion or any investigation into the causes of the failure, or the conduct of the debtor, would in any circumstances have been to introduce a new and mischievous principle into legislation, for it would necessarily destroy the essential feature of such arrangements, that they are voluntary contracts, the responsibility for which lies solely with the parties entering into them. But to give such a power to creditors whose claims were subject to no independent investigation was to invite inevitable confusion and failure.
Yet this was the dominating principle of English bankruptcy 1861. legislation for nearly thirty-five years. Its effect under the act of 1849 was, however, to some extent modified by subsequent decisions of the courts that to make a composition arrangement binding it must be accompanied by a complete cessio bonorum; but this qualification was removed by the act of 1861 which made such arrangements binding without a cessio and reduced the majority required to make a deed of arrangement binding on all the creditors, to a majority in number and three-fourths in value of those whose claims amounted to £10 and upwards. The result was an enormous increase in fraudulent arrangements. The then attorney-general, Sir Robert Collier, in introducing an amending act in 1869, described the abuses which had grown up under the 1849 and 1861 acts, as having the effect of enabling a bankrupt to "defraud those to whom he was indebted and to set them at defiance"; while Lord Cairns, the lord chancellor, in the House of Lords expressed the opinion that the large increase which had taken place in the annual insolvency of the country during the preceding years could not "be attributed to depression of trade but must be traced to the enormous facilities which are given to debtors who wish to be released from their debts on easy terms." And yet in the legislation which ensued these facts were entirely ignored or lost sight of.
It is indeed a curious illustration of the difficulties which have 1869. attended bankruptcy legislation in England that the very measure (the act of 1869) which was introduced to remedy this deplorable condition of affairs, was twelve years afterwards denounced in parliament by the president of the Board of Trade (Mr Joseph Chamberlain) as "the most unsatisfactory and most unfortunate of the many attempts which had been made to deal with the subject" and as "the object of the almost unanimous condemnation of all classes." How was this? Under the act of 1869, the procedure under a bankruptcy petition was certainly rendered effective. Meetings of creditors were presided over and creditors' claims were, for voting purposes, adjudicated upon by the registrar of the court; the bankrupt had to pass a public examination in court, which although chiefly left to the trustee appointed by the creditors, afforded some opportunity for investigation; and the bankrupt could not obtain his discharge without the approval of the court and in certain circumstances the consent of the creditors.
An independent official, the comptroller in bankruptcy, was appointed, whose duty it was to examine the accounts of trustees, call them to account for any misfeasance, neglect or omission, and refer the matter to the court for the exercise of disciplinary powers where necessary. These provisions were well calculated to promote sound administration, but they were, unfortunately, rendered nugatory by provisions relating to what were practically private arrangements on similar lines to those which had rendered previous legislation ineffective. In some respects the evil was aggravated. Deeds of arrangements were nominally abolished, but under sections 125 and 126 of the act a debtor was empowered to present a petition to the court for liquidation of his affairs by "arrangement," or for payment of a composition, whereupon a meeting of creditors was summoned from a list furnished by the debtor, and without any judicial investigation of claims, a majority in number and three-fourths in value of those who lodged proofs of debt, and who were present in person or by proxy at the meeting, might by resolution agree to liquidation by arrangement or to the acceptance of the composition.
Such resolution thereupon became binding upon all the creditors, without any act of approval by the court, any judicial examination of the debtor, or any official supervision over the trustee's accounts. The debtor was not permitted to present a bankruptcy petition against himself, and consequently his only method of procedure was that which thus removed the matter from the supervision and control of the court, and as about nine-tenths of all the proceedings under the act of 1869 were initiated by debtors, it followed that only about one-tenth was submitted to proper investigation. It is true that the creditors might refuse to assent to the debtor's proposal, and that any creditor for £50 or upwards could present a petition in bankruptcy, but even where this course was adopted, the proceedings under the petition were, as a rule, stayed by the court if the debtor subsequently presented a proposal for liquidation or composition, and the creditor was left to pay the expenses of his petition if the requisite majority voted for the debtor's proposal.
So far, therefore, as the act was concerned, every inducement was held out to the adoption of a course which took the examination of the debtor, the conditions of his discharge and the audit of the trustee's accounts, out of the control of the court.
The establishment of a bankruptcy court, with its searching Causes of failures of Acts. powers of investigation and its power of enforcing penalties on misconduct, can only be defended on the ground that the administration of justice is a matter affecting the interests of the community at large. But apart from the injury done to these interests by reducing the administration of justice to a question of barter and arrangement between the individuals immediately concerned, one of the chief reasons why the acts of 1849, 1861 and 1869 proved failures, lies in the obvious fact that the creditors of a particular estate are not, as appears to have been assumed, a homogeneous or organized body capable of acting together in the administration of a bankrupt estate. In the case of a few special and highly organized trades it may be otherwise, but in the great majority of cases the creditors have but little knowledge of each other or means of organized action, while they have neither the time nor the inclination to investigate the complicated questions which frequently arise, and which are therefore left in the hands of professional trustees or legal agents.