Encyclopaedia Britannica Volume 3, Part 1, Slice 2 Part 42

Singular to state, marks were chosen by gentlemen and others [v.03 p.0319]

who joined the operative masonic lodges of the 16th and later centuries, and they were as carefully registered in the mark-books as those selected by operatives for trade purposes. The same marks are to be seen in the registers used by fathers and sons, and not always with a slight difference, as some have stated, to secure identification. What should be noted also is that other trades used precisely similar marks and for a like object, so that the idea of their having a mystical meaning, or being utilized for any other object but the one named, seems groundless.

The late George G.o.dwin, F.R.S., F.S.A., &c., drew attention to the subject of "masons' marks in various countries" in a communication to the Society of Antiquaries in 1841, and also at a little later period (vide _Archaeologia_, vol. x.x.x. p. 113). To him is the credit due of first drawing attention to "these signs" in England. It is noteworthy how little such marks are noticed, even in buildings which are visited by archaeologists quite frequently, until a few are pointed out, and then they meet the eye to an astonis.h.i.+ng number. In the _Sessional Papers_, 1868-1869, of the Royal Inst.i.tute of British Architects, No. 9, may be found numerous samples of the marks from various parts of Europe in ill.u.s.tration of the paper by G.o.dwin.

No better plan has been followed in modern times to connect the work done with the worker in stone, and it is probable that a second mark, observable on some blocks, may serve to indicate the overseer. There are even three or more sometimes.

The same system was adopted at the building of Truro cathedral, only the marks were inserted on the bed of each stone instead of at the side as usual, the result being that they ceased to be seen after being placed _in situ_. Mr Hughan obtained copies of these marks from Mr James Bubb, the first clerk of the works, and from his successor, Mr Robert Swain, and had them published in the _Freemason_, 13th of November 1886. He remarked at the same time that "many of these designs will be familiar to students of ancient ecclesiastical and other buildings at home and abroad." Some are interesting specimens.

_A Historical Treatise on Early Builders' Marks_ (Philadelphia, U.S.A., 1885) by Mr G. F. Fort, and _Masons' Marks from Buildings in the Counties of Lancaster and Chester, with Notes on the General History of Masons'

Marks_ (Historic Society of Lancas.h.i.+re and Ches.h.i.+re, vol. vii. N.S.), by W.

Harry Rylands, F.S.A., may be consulted with advantage. The latter declares that "the Runic theory is as unlikely and as untenable as that which places the origin of these marks in the absurd alphabets given by Cornelius Agrippa, who died early in the 16th century." Victor Didron copied some 4000 during a tour in France in 1836 and pointed out their value (_Ann.

Arch_., 1845).

(W. J. H.*)

BANKET, a South African mining term, applied to the beds of auriferous conglomerate, chiefly occurring in the Wit.w.a.tersrand gold-fields (see GOLD). The name was given to these beds from their resemblance to a sweetmeat, known in Dutch as "banket," resembling almond hard-bake. The word is the same as "banquet," and is derived ultimately from "bank" or "bench," meaning table-feast, hence applied to any delicacy or to various kinds of confectionery, a use now obsolete in English.

BANK HOLIDAYS, in the United Kingdom, those days which by the Bank Holidays Act 1871 are kept as close holidays in all banks in England and Ireland and Scotland respectively. Before the year 1834, the Bank of England was closed on certain saints' days and anniversaries, about thirty-three days in all.

In 1834 these were reduced to four--Good Friday, 1st of May, 1st of November and Christmas Day. By the act of 1871, carried through the House of Commons by Sir J. Lubbock (afterwards Lord Avebury), the following were const.i.tuted bank holidays in England and Ireland--Easter Monday, the Monday in Whitsun week, the first Monday of August, the 26th of December if a week-day; and by the Bank Holiday (Ireland) Act 1903, March 17th as a special bank holiday for Ireland (see FEASTS AND FESTIVALS). In Scotland--New Year's Day, Christmas Day, Good Friday, the 1st Monday of May, the 1st Monday of August. If Christmas Day and New Year's Day fall on a Sunday, the next Monday following is the bank holiday. No person is compelled to make any payment or to do any act upon a bank holiday which he would not be compelled to do or make on Christmas Day or Good Friday, and the making of a payment or the doing of an act on the following day is equivalent to doing it on the holiday. By the same act it was made lawful for the sovereign from time to time, as it should seem fit, to appoint by proclamation, in the same manner as public fasts or days of public thanksgiving, any day to be observed as a bank holiday throughout the United Kingdom or any part of it, or to subst.i.tute another day when in any special case it appears inexpedient to the sovereign in council to keep the usual bank holiday. (See further HOLIDAY.)

BANKIPUR, an ancient village on the Hugli river in the Bengal Presidency, near the modern Palta above Barrackpore. It has disappeared from the map, but is famous as the princ.i.p.al settlement of the ill-fated Ostend Company, the one great effort made by Germany to secure a foothold in India. The Ostend Company was formed in 1722-1723, and with a capital of less than a million sterling founded two settlements, one at Coblom (Covelong) on the Madras coast between the English Madras and the Dutch Sadras, and the other on the Hugli between the English Calcutta and the Dutch Chinsura. Both English and Dutch were offended and in 1727, in order to obtain the European guarantee for the Pragmatic Sanction, the court of Vienna resolved to sacrifice the Company and suspended its charter. It became bankrupt in 1784 and ceased to exist in 1793. But in the meantime in 1733 the English and Dutch stirred up the Mahommedan general at Hugli to pick a quarrel. He attacked Bankipur and the garrison of only fourteen persons set sail for Europe. Thus German interests disappeared from India.

BANK-NOTES. For our present purpose we include in this description all paper subst.i.tutes for metallic currency whether issued by banks, governments or other financial inst.i.tutes.

Early bank-notes were simply printed forms in which the amounts were written by hand. They were usually for large amounts (40 and upwards) and were printed upon water-marked paper; and, although no precautions were taken in the engraving to prevent fraudulent imitation, forgeries were comparatively rare. But, when at the end of the 18th century small notes for 1 and 2 were put in circulation, forgery became rife, as many as 352 persons being convicted of this crime in England in a single year; and from that time to the present a constant trial of skill has been going on between the makers of bank-notes and the counterfeiters. Engine-turned ornaments and emblematical figures or views introduced in the engraving, in conjunction with special water-marks in the paper, held the forgers somewhat in check until the discovery of photography put into the hands of the counterfeiter a most dangerous weapon, by the aid of which complicated patterns and vignettes could be perfectly reproduced. To prevent such reproduction Henry Bradbury in 1856 introduced anti-photographic bank-note printing, in which the essential portions of the note were printed in one colour and over this another protective colour was placed. A photograph of a note printed in this way presented a confused mingling of the two colours; but with the advance of photographic knowledge means were found of obtaining a photograph of either colour separate from the other, and it consequently became necessary to introduce a third colour and to secure a special photographic relation between the three colours to prevent their separation.

Photography, however, although the most dangerous weapon of the counterfeiter, is not the only means of imitation available, a fact which is sometimes overlooked. A note may be perfectly secure against photographic reproduction, but from the absence of other necessary features may be easily copied by an engraver of ordinary skill. There are two systems of engraving employed in bank-notes:--(1) line-engraving in which the lines are cut into the steel or copper plates; and (2) relief-engraving in which the lines stand up above the plate as in wood-engraving. In the former, adapted to the process called plate-printing, the ink is delivered from the lines in the plate to the paper pressed upon it; in the latter, adapted to surface-printing, the ink is spread upon the face of the lines and printed as in typography. Plate-printing gives by far the finer and sharper impression, but as there is a perceptible body of ink transferred to the paper from the cut lines, it has been supposed that an impression from plate would [v.03 p.0320] be more easily photographed than one from surface where only a film of ink is spread upon the top of the raised lines. But surface-printing being much less sharp and distinct than plate-printing, imperfect copies of notes for which that process is used are the more likely to escape detection. The plates upon which the early notes were engraved being of copper quickly wore out and had to be constantly replaced. The result was great difference in the appearance of the notes, those printed from new plates being sharp and clear, while others, printed from old plates, were pale and blurred. These differences were a great a.s.sistance to the forger, as the public, being accustomed to variations of appearance between different genuine notes, were less apt to remark the difference between these and counterfeits.

In the early part of the 19th century, Jacob Perkins (1766-1849) introduced into England from America what is known as the transfer-process, in which the original engraving on steel is hardened and an impression taken from it on a soft steel cylinder, which in its turn is hardened and pressed into a soft printing-plate. By this means as many absolutely identical plates can be produced as may be required, and being hardened they will yield a very large number of prints without any appreciable deterioration. Another method of securing uniformity is the multiplication of plates by electro-deposition, the surface of the copper-electrotype plates being protected by the deposit of a film of steel which effectually prevents the wearing of the copper and can be renewed at will.

The water-mark of the paper, on which formerly reliance was placed almost exclusively, puts a difficulty in the way of the counterfeiter, but experience has shown that in ordinary circ.u.mstances it does not in itself afford adequate protection. The means by which it can be imitated are well known, and, since a distinct water-mark is incompatible with strong paper, the life of a water-marked note is much shorter than that of one printed upon plain paper. The best bank-note paper is made from pure linen rags and was formerly made by hand. Machine-made paper is however now largely used, as it possesses all the strength of hand-made and is much more uniform in thickness and texture.

In doc.u.ments which pa.s.s current as money it is obviously the duty of the bank or government issuing them to take all reasonable means to prevent the public from being defrauded by the subst.i.tution of counterfeits; and a bank whose circulation depends upon the confidence of the public must do so in its own interests to insure the acceptance of its notes. This principle is now recognized by all issuing inst.i.tutions, but in practice there is room for improvement in the issues of many important establishments, partly because of the disinclination of the directors of a bank to change the form of an issue to which the public is accustomed, partly because of the difficulty of deciding what is really a secure note, and in certain cases because, owing to exceptional circ.u.mstances, an issue may be practically immune from forgery although the notes themselves present little or no difficulty in imitation. The features essential to the security of an issue are (1) absolute ident.i.ty in appearance of all notes of the issue; (2) adequate protection by properly-selected colours against photographic reproduction; and (3) high-cla.s.s engraving comprising geometric lathe work and well-executed vignettes. In addition it is important that the design of the note should be striking and pleasing to the eye, and the inscription legible.

The notes of the Bank of England are printed in the bank from surface-plates in black without colour or special protection except the water-mark in the paper. They are never reissued after being once returned to the bank, and their average life is very short, about six weeks, so that a dirty or worn Bank of England note is practically never seen. This arrangement, coupled with the difficulty of negotiating forged notes in England, the lowest denomination being 5, accounts for the comparative immunity from forgery of the bank's issues.

BANK RATE, a term used in financial circles to designate the rate of discount charged in the chief monetary centres by the state or leading bank, as opposed to the open-market rate. (See MARKET: _Money market_.)

[Sidenote: Definition.]

BANKRUPTCY (from Lat. _bancus_ or Fr. _banque_, table or counter, and Lat.

_ruptus_, broken), the status of a debtor who has been declared by judicial process to be unable to pay his debts. Although the terms "bankruptcy" and "insolvency" are sometimes used indiscriminately, they have in legal and commercial usage distinct significations. When a person's financial liabilities are greater than his means of meeting them, he is said to be "insolvent"; but he may nevertheless be able to carry on his business affairs by means of credit, paying old debts by incurring new ones, and he may even, if fortunate, regain a position of solvency without his creditors ever being aware of his true condition. And even when his insolvency becomes public and default occurs, a debtor may still avert bankruptcy if he is able to effect a voluntary arrangement with his creditors. A debtor may thus be insolvent without becoming bankrupt, but he cannot be a bankrupt without being insolvent, for bankruptcy is a legal declaration of his insolvency and operates as a statutory system for the administration of his property, which is thereby taken out of his personal control.

[Sidenote: Early methods.]

In primitive communities bankruptcy systems were unknown. Individual creditors were left to pursue their remedies by such means as the law or practice of the community might sanction, and these were generally of a very drastic character. Under the Roman law of the Twelve Tables, the creditors might, as a last resort, cut the debtor's body into pieces, each of them taking his proportionate share; and although Blackstone in quoting this law appears to cast some doubt upon its too literal interpretation, there can be no doubt that the power of selling the debtor and his family into slavery was one which was habitually exercised in Greece, Rome, and generally among the nations of antiquity. Even among the Jews, whose legislation was of a comparatively humane character, this practice is ill.u.s.trated by the Old Testament story of the woman who sought the help of Elisha, saying, "Thy servant my husband is dead ... and the creditor is come to take unto him my two children to be bondmen." The savage severity of these earlier laws was, however, found to be inconsistent with the development of more humane ideas and the growth of popular rights; and tended, as in the case of Greece and Rome, to create serious disturbance in political relations between the patricians, who generally composed the wealthier or creditor cla.s.s, and the plebeians, in whose ranks the majority of debtors were to be found. Later legislation consequently subst.i.tuted imprisonment in a public prison for the right of selling the person of the debtor. Under the feudal systems of Europe the state generally insisted on its subjects being left free for military service, and debts could not therefore be enforced against the person of the debtor; but as trade began to develop it was found necessary to provide some means of bringing personal pressure to bear upon debtors for the purpose of compelling them to meet their obligations, and under the practice of the English courts of law the right of a creditor to enforce his claims by the imprisonment of his debtor was gradually evolved (although no express legal enactment to that effect appears at any time to have existed), and this practice continued until comparatively recent times.

[Sidenote: Commercial objects.]

Without some system of enforcing payment of debts it would have been impossible for the commerce of the world to have attained its present proportions; for modern commerce is necessarily founded largely on credit, and credit could not have existed without the power of enforcing the fulfilment of financial contracts. On the other hand remedies against a debtor's person, and still more against the persons of his family, are not only inconsistent with the growth of opinion among civilized communities, but are in themselves worse than futile, inasmuch as they strike at the root of all personal effort on the part of a debtor to retrieve his position and render a return to solvency impossible. Hence the necessity of devising some system which is just to creditors while not unduly harsh upon debtors, which discriminates between involuntary inability to meet obligations and wilful [v.03 p.0321] refusal or neglect, and which secures to creditors as between themselves an equitable share of such of the debtor's a.s.sets as may be available for the payment of his liabilites.

These are the objects which the bankruptcy laws have primarily in view.

Another object, which has not always been so fully recognized as it might appear to deserve, has marked the most recent legislation, namely, the fostering of a higher tone of commercial morality and the protection of the trading community at large from the evils arising through the reckless abuse of credit and the unnatural trade compet.i.tion thereby engendered. It must be admitted that these objects are of a somewhat conflicting character, and wherever the state has interfered with the view of securing an efficient system of bankruptcy legislation the task has been found to be extremely difficult. Not only have the conflicting interests of the debtor and his creditors to be taken into account, but the method to be adopted in dealing with his property has also given rise to much conflict of opinion, and to a lack of uniformity and consistency in the legislation which dealt with it. The debtor's property was naturally regarded as belonging to the creditors, but it could not be distributed among them until it was realized, and until their respective right and interests were determined by competent authority. In some cases claims to rank as creditors are of doubtful validity. In others the creditor holds securities, the value of which requires investigation, or he claims a preference to which he may or may not be legally ent.i.tled. Creditors have thus conflicting interests as between themselves, and are therefore incapable of acting together as a h.o.m.ogeneous body. Hence the necessity for calling in the aid of professional a.s.signees or trustees, solicitors and other agents, who made it their special business to deal with such matters, exercising both administrative and quasi-judicial functions, in return for the remuneration which they receive out of the property for their services. Professional interests, which are not always identical with the interests of the debtor or the creditors, are thus called into existence, and these interests have from time to time exercised a powerful influence in shaping the course of legislation.

While the law of bankruptcy has therefore been largely the product of commercial development, it has necessarily been of slow and gradual growth, tentative in its character, and subject to oscillation between the extremes of conflicting interests according to the temporary and varying predominance of each of these interests from time to time. No intelligible grasp of the principles which underlie the history of bankruptcy legislation in England, and no satisfactory explanation of the fluctuating tendencies which have marked its progress, are possible without bearing these considerations in view.

_Bankruptcy in England._

[Sidenote: History.]

The subject was originally dealt with in the sole interest of creditors; it was considered fraudulent for a debtor to procure his own bankruptcy. Thus the earliest English statute on the subject, 34 & 35 Henry VIII. c. 4 (A.D.

1542), 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 att.i.tude 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, and under the act of 1825 the debtor was allowed himself to initiate proceedings. Since 1542 about forty acts of parliament have been pa.s.sed, dealing with the many aspects of the subject, and slowly expanding, modifying and building up the highly complex system of administration which now exists.

[Sidenote: Court of 1831.]

The courts exercising jurisdiction originally, consisted of commissioners appointed by the lord chancellor. But in 1831 a special court of bankruptcy was established, consisting of six commissioners with four judges as a court of review, and official a.s.signees attached to the court for the purpose of getting in the distributing the bankrupt's a.s.sets. Non-traders were originally excluded from the bankruptcy court, and a special court called the "court for relief of insolvent debtors" was inst.i.tuted for their benefit, in which relief from the liability to imprisonment could be obtained on surrender of their property, but they were not discharged from their debts, subsequently-acquired property remaining liable. Both of these courts were subsequently abolished, non-traders were permitted to obtain the benefit of the bankruptcy laws, including a discharge, and in 1869 the system of official a.s.signees was swept away, and a new court of bankruptcy created with one of the vice-chancellors at its head as chief judge, and a number of subordinate registrars or inferior judges under him. This court has also now been abolished, and the business is administered by a judge of the high court specially appointed for the purpose by the lord chancellor, with registrars of the high court, who deal with the ordinary judicial routine of bankruptcy procedure in the London district, while similar duties are performed by the county-court judges throughout the country.

[Sidenote: Rights of creditors.]

But the questions which have proved the most difficult to deal with, and which more than any others have been the cause of fluctuating and inconsistent legislation, have undoubtedly been those relating to the share which the creditors ought to have in the administration of the proceedings, and to special arrangements effected between a debtor and his creditors under conditions more or less beyond the control of the court. These two questions are largely intermixed, and the history of English legislation on these points and its results throw much light on the causes of the failure of the many attempts which have been made by the most eminent legal authorities to bring the law into a satisfactory condition. The right of creditors to exercise some control in bankruptcy over the realization of the debtor's property through an a.s.signee chosen by themselves was recognized at an early date, but this right was exercised subject to the supervision of the court which investigated the claims of creditors and determined who were ent.i.tled to take part in the proceedings. Provision was also made for the interim protection of the debtor's property by official a.s.signees attached to the court, who took possession until the creditors could be consulted, and under the supervision of the court audited the accounts of the creditor's a.s.signee. So long as this system continued substantial justice was generally secured; the claims of creditors were strictly investigated and only those who clearly proved their right before a competent court were ent.i.tled to take part in the proceedings. The bankrupt was released from his obligations, but only after strict inquiries into his conduct and under the exercise of judicial discretion. The accounts of a.s.signees were also strictly investigated, and the costs of solicitors and other agents were taxed by officers of the court. But the system was found to be c.u.mbrous, to lead to delay and too often to the absorption of a large part of the estate in costs, over the incurring of which there was a very ineffective control. Hence arose a demand for larger powers on the part of creditors, and the introduction into the bankruptcy procedure of the system of "arrangements" between the debtor and his creditors, either for the payment of a composition, or for the liquidation of the estate _free from the control of the court_. [Sidenote: Acts of 1825, 1831, 1842, 1849.] At first these arrangements were carefully guarded. Under the act of 1825 a proposal for payment of a composition might be adopted only after the debtor had pa.s.sed his examination in court, and with the consent of nine-tenths in number and value of his creditors a.s.sembled at a meeting. Upon such adoption the bankruptcy proceedings were superseded. Dissenting creditors, however, were not bound by the resolution, but could still take action against the debtor's subsequently-acquired property. These powers were not found to be sufficiently elastic and the act failed to give public satisfaction.

Attempts were made by the acts of 1831 and 1842 to remedy the defects complained of by a reconst.i.tution of the bankruptcy court and its official system. But these measures also failed because they were based on the a.s.sumption that judicial bodies could exercise effective control over administrative [v.03 p.0322] action, a control for which they are naturally unsuited, and which they could only carry out by c.u.mbrous and expensive methods of procedure. Under the act of 1849 a totally new principle was introduced by the provision that a deed of arrangement executed by six-sevenths in number and value of the creditors for 10 and upwards should be binding upon _all_ the creditors without any proceedings in or supervision by the court. But the determination of the question who were or were not creditors was practically left to the debtor himself, without any opportunity for testing by independent investigation the claims of those who signed the deed to control the administration of the estate. It is not difficult to see, in the light of subsequent experience, how likely this provision was to encourage fraudulent arrangements, and to introduce laxity in the administration of debtors' estates. A modification of the too stringent conditions of the act of 1825, which would have enabled a bankrupt to pay a composition on his debts, with the consent of a large proportion of his bona-fide creditors, and subject to the approval of the court, after hearing the objections of dissenting creditors, would doubtless have proved a beneficial reform, but the act of 1849 proceeded on a very different principle. Instead of reforming, it practically abolished judicial control. By avoiding Scylla it fell into Charybdis. To give _any_ majority of creditors the power to release a debtor from his obligations to non-a.s.senting 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 circ.u.mstances 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.

[Sidenote: 1861.]

Yet this was the dominating principle of English bankruptcy 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 _cess...o...b..norum_; 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.

[Sidenote: 1869.]

It is indeed a curious ill.u.s.tration of the difficulties which have 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 cla.s.ses." How was this? Under the act of 1869, the procedure under a bankruptcy pet.i.tion 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 pa.s.s 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 circ.u.mstances 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 pet.i.tion 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 pet.i.tion 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 a.s.sent to the debtor's proposal, and that any creditor for 50 or upwards could present a pet.i.tion in bankruptcy, but even where this course was adopted, the proceedings under the pet.i.tion 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 pet.i.tion 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.

[Sidenote: Causes of failures of Acts.]

The establishment of a bankruptcy court, with its searching 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 a.s.sumed, a h.o.m.ogeneous 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. But the appointment of trustees under these acts, instead of being the spontaneous act of the creditors, was frequently due to touting on the part of such agents themselves, or to individual creditors whose interests were not always identical with those of the general body. According to G. Y. Robson, the author of a standard work on the subject, the arbitrary powers conferred by the act of 1861 "led to great abuses, and in many cases creditors were forced to accept a composition, the approval of which had been obtained by a secret understanding between the debtor and favoured creditors, and not unfrequently by the creation of fict.i.tious debts." These evils [v.03 p.0323] were greatly aggravated by the decisions of the court relating to proofs on bills of exchange, under which it was held that the holder of a current bill could prove on the bankrupt estate of an indorser, although the bill was not yet due, and the acceptor was perfectly solvent and able to meet it at maturity. Thus in large mercantile failures, bankers and other holders of first-cla.s.s bills could prove and vote on the estates of their customers, for whom the bills had been discounted, and thus control the entire proceedings, although they had no ultimate interest in the estate. But probably the greatest source of the abuses which arose under the act of 1869 was the proxy system established by the act and by the rules which were subsequently made to carry it out. The introduction of proxies was no doubt intended to give absent creditors an opportunity of expressing their opinions upon any question which might arise. But the system was too often used for the purpose of stifling the views of those who took an independent part in the proceedings. The form of proxy prescribed by the rules contained no limitation of the powers of the proxy-holder and no impression of the opinion of the creditor. It simply appointed the person named in it as "my proxy," and these magic words gave the holder power to act in the creditor's name on all questions that might be raised at any time during the bankruptcy. Hence arose a practice of canva.s.sing for proxies, which were readily given under the influence of plausible representations, such as the holding out of the prospect of a large composition, but which, when once obtained, could be used for any purpose whatsoever except the receipt of a dividend. Thus it frequently happened that the entire proceedings were controlled by professional proxy-holders, in whose hands these doc.u.ments acquired a marketable value.

They were not only used to vote for liquidation by arrangement instead of bankruptcy proceedings, but not infrequently the matter took the form of a bargain between an accountant and a solicitor, under which the former became trustee and the latter the solicitor in the liquidation, without any provision for control over expenditure or for any audit of the accounts.

Even where a committee of inspection was appointed to exercise functions of control and audit, they too were often appointed by the proxy-holders, and not infrequently shared in the benefits. On the other hand, where the amount of debts represented by the proxy-holder was insufficient to carry the appointment of a trustee and committee, the votes could be sold to swell the chances of some other candidate. Hence ensued a system of trafficking in these instruments, the cost of which had in the long run to come out of the estate. The result was that undesirable persons were too frequently appointed, whose main object was to extract from the estate as much as possible in the shape of costs of administration. The debtor was practically powerless to prevent this result. If he attempted to do so he sometimes became a target for the exercise of revenge. His discharge, which under liquidation by arrangement was entirely a matter for the creditors, might be refused indefinitely; and so largely and harshly was this power exercised under the proxy system, especially where it was supposed that the debtor had friends who could be induced to come to his aid, that a special act of parliament was pa.s.sed in 1887, authorizing the court to deal with cases where, under the act of 1869, a debtor had not been able to obtain a release from his creditors. On the other hand, the complaisant debtor, although he had incurred large obligations in the most reckless manner, often succeeded in stifling investigation and obtaining his release without difficulty as a return for his aid in carrying out the arrangement.

The result of such a system could not be other than a failure. After the act of 1869 had been in operation for ten years, the comptroller in bankruptcy reported that out of 13,000 annual failures in England and Wales, there were only 1000 cases (or about 8%) "to which the more important provisions of the act for preventing abuses by insolvent debtors and professional agents applied; the other 12,000 cases (or 92%) escaping the provisions which refer to the examination and discharge of bankrupts, and to the accounts, charges and conduct of the agents employed." It is not to be supposed that all the cases in the latter cla.s.s were marked by the abuses which have been here described. In a large number the proceedings were conducted by agents of high character and standing, and with a due regard to the interests of the creditors. But the facilities for fraudulent and collusive arrangements afforded by the act, and the want of effective control over administration, inevitably tended to lower the morale of the latter, and to throw it into the hands of the less scrupulous members of the profession. The demand for reform, therefore, came from all cla.s.ses of the business community. No fewer than thirteen bills dealing with the subject were introduced into the House of Commons during the ten years succeeding 1869. At length in 1879 a memorial, which was authoritatively described as "one of the most influential memorials ever presented to any government," was forwarded to the prime minister by a large body of bankers and merchants in the city of London. The matter was then referred to the president of the Board of Trade (Mr Chamberlain), who made exhaustive inquiries, and in 1881 introduced a measure which, with some amendments, finally became law under the t.i.tle of the Bankruptcy Act 1883.

[Sidenote: Act of 1883.]

Hitherto the question had been dealt with as one of legal procedure; it was now treated as an act of commercial legislation, the main object of which, while providing by carefully framed regulations for the equitable distribution of a debtor's a.s.sets, was to promote and enforce the principles of commercial morality in the general interests of the trading community. One of the chief features of the act of 1883 is the separation which it has effected between the judicial and the administrative functions which had previously been exercised by the court, and the transfer of the latter to the Board of Trade as a public department of the state directly responsible to parliament. Under the powers conferred by the act a new department was subsequently created under the t.i.tle 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 under the act is annually presented to parliament by the Board of Trade, and although the department is practically self-supporting, a nominal vote is each year placed upon the public estimates, thus bringing the administration under direct parliamentary criticism and control. The act also provides for the appointment and removal by the Board of Trade of a body of officers ent.i.tled official 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. While effecting this supervision and control by a public department directly responsible to parliament, the main objects of the measure were to secure--(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 inexpensive administration of small estates where the a.s.sets do not exceed 300 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 general supervision of the proceedings and control of the funds in all cases. Besides amending and consolidating previous bankruptcy legislation, the measure also contains special provisions for the administration under bankruptcy law of the estates of persons dying insolvent (-- 125); and for enabling county courts to make administration orders for payment by instalments in lieu of immediate committal to prison, in the case of judgment debtors whose total indebtedness does [v.03 p.0324] not exceed 50 (-- 122). It also provides for the getting in and administration by the Board of Trade of unclaimed dividends and undistributed balances on estates wound up under previous bankruptcy acts (-- 162). Lastly, it amends the procedure under the Debtors Act of 1869, dealing with criminal offences committed by bankrupts (which, prior to 1869, had been treated as part of the bankruptcy law), by enacting that when the court orders a prosecution of any person for an offence under that act, it shall be the duty of the director of public prosecutions to inst.i.tute and carry on the prosecution.

[Sidenote: Act of 1890.]

An amending act, under the t.i.tle of the Bankruptcy Act 1890 was pa.s.sed in that year, mainly with the view of supplementing and strengthening some of the provisions of the act of 1883, more particularly with regard to the conditions under which a bankrupt should be discharged or schemes of arrangement or composition be approved by the court. It also dealt with a variety of matters of detail which experience had shown to require amendment, with the view of more fully carrying out the intentions of the legislature as embodied in the princ.i.p.al act. These two acts are to be construed as one and may be cited collectively as the Bankruptcy Acts 1883 and 1890. They are further 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.

[Sidenote: Special Acts.]

Besides these general acts, various measures dealing with special interests connected with bankruptcy procedure have from time to time been pa.s.sed since 1883, the chief of which are as follows, _viz_., the Bankruptcy Appeals (County Courts) Act 1884; the Preferential Payments in Bankruptcy Act 1888, regulating the priority of the claims of workmen and clerks, &c.

for wages and salaries; and the Bankruptcy (Discharge and Closure) Act 1887, dealing with unclosed bankruptcies under previous acts.