used this corporation for the purpose of getting over the difficulty of obtaining a discharge. It seems to me that is the only way that can be met. We have not provided for that. Mr. MICHENER. It would be very difficult for an honest bankrupt, who had an honest discharge and who lived in a small town, to get credit, would it not, if when he made application for credit he had to attach thereto a statement that he had once gone through bankruptcy? I Mr. HAYES. Well, sir, take my country town of Bennington. know country towns as well as I know the pavements of New York, where I have been for 40 or 50 years, and I think the country people are the kindest people in the world. Everybody knows whether Tom Newton went into bankruptcy; everybody knows it. They know he is a square man and that he had hard luck; they all know about it. Those country people know about each other's business in a way that we in New York know nothing about each other. In the small town they know a man, and if he is honest they will help him. Mr. MICHENER. But this same Tom buys his goods in the city. He sends in his order, and he does not buy from a fellow who knows him. When he buys he gets his credit from a stranger, and the minute this Tom sends in an order for goods from one of your wholesale houses and attaches a statement, "I have gone through bankruptcy," it would be some time before he gets his goods. Mr. HAYES. Now, may I ask you, do you not think, sir, that that is right? Do you not think that that man should be open and fair in trade and business-will go to those people and say, "Yes; I went through bankruptcy, and the law requires me to tell you so, but I have started again, and they thought so well of me that they gave me a discharge "? Mr. MICHENER. Is it not somewhat similar to the case of the man who has served time and has reformed? Is it not much more difficult for such a man to get along if he is known to have served time? Mr. HAYES. But do you not think, looking at it from the creditor's point of view, in justice to him, that he ought to be obliged to use his own judgment with full knowledge of the kind of man he is giving credit to? Mr. PERLMAN. But are you not penalizing the honest man? The dishonest man who wants to secure credit may not disclose that fact, that he has gone through bankruptcy. He will know this, that it will take him a little longer than if he had not gone through bankruptcy-and the honest man, telling the truth, will suffer because of delay and investigation? Mr. HAYES. You have to look at it from three points of view. First comes the creditor's point of view, the man who is giving the credit to be protected; you have to look at it from the honest bankrupt's point of view; and you have to look at it from the point of view of the dishonest ex-bankrupt. It seems to me the seller of the goods ought to have the information and not be misled, and I do not believe that a man-why, some of the biggest men in the country have been through bankruptcy. Mr. PERLMAN. But not everybody knows about it. Mr. HAYES. I have a client who lives in this city who is worth about $40,000,000 and he has been through bankruptcy twice. Mr. PERLMAN. Let us see if we can not throw enough safeguards around the situation so we will get to a point where only honest bankrupts will receive discharges. Why should they have to have it heralded around that they have been through bankruptcy, but have been unfortunate? Mr. HAYES. What are you going to do with the situation? Discharges are thrown to the winds. Why? Because Mr. Gilchrist's figures will tell you look at the Law Journal and see who filed the petitions. You will find John Smith (Inc.), Tom Jones (Inc.), and so on, and so on. They meet that provision by that means. Mr. MICHENER. You talk entirely in the language of what takes place in your jurisdiction, New York, when you are talking about the thing to which you are now addressing yourself. While New York is a great commercial center, and while the law must be made to take care of the conditions there, and while those conditions are reflected throughout the country, yet we have, many conditions. throughout the country which are not reflected in New York. Mr. HAYES. I know that, sir. Mr. MICHENER. And you can not make a law which exactly fits all communities. Mr. HAYES, No. But what we are saying is that this thing is not peculiar to New York; it exists in other large cities, and give us a machine in those great cities that has to do a great mass of work, which you can do by machinery, which you can do by hand in many of the smaller communities without interfering with their procedure. This is uniform in a geographical sense. Every State with a city of 500,000 has the same opportunity as any other State with 500,000. I was in hopes when this subcommittee was appointed that you would be able to carry out your original plan to hold hearings in different sections of the country. I do not suppose anything can be done at this session of Congress, but I hope this committee will be extended and it will have an opportunity. This is one of the biggest things before the Congress of the United States, for it concerns the whole business morale of this country. It is national, and it is international in its scope and effect, and it is a great subject, and we have begun by making, so far as I can find out, what is the most thorough investigation that has been made up to date. We base our report upon evidence. There it is, if you wish to read it-evidence from the very highest sources. We have devised a scheme which is not a novelty, but which has been tried and proved and which works to great perfection in England, where a much larger percentage of recoveries is had in bankruptcy proceedings. I think it is something like 10 to 25 per cent more than in this country. It has relieved them of the scandal which has been visited upon our courts of justice here, which is one of the most deplorable things of all. Now, if there is anything better than that, if there is anything that has been tried and found not wanting let us know what it is, but do not scratch on the surface of this great subject. If we are not careful we are going to have the deplorable result of a repeal of the bankruptcy law. Then where would we be? I was surprised to find at the meeting of the American Bar Association last July how many men I met there from the West and Southwest would say that the best thing we can do with this rotten bankruptcy law is to repeal the whole thing. Now, I am not an Anglomaniac, but I can not forget that we have gotten all of our laws from England, and I can not forget that they are very practical over there, and there is very little scandal about the administration of justice, and that we are taking something which has been tried rather than something that had been patched up from something that was found insufficient, or something that is purely theoretical, and my hope is that you will find in your judgment that this is a practical scheme, the best that can be devised, and has the support of the Bar Association of New York, which has two committees on the subject that has a very able report which is before you-and they have not covered as much ground as we have-and also the American Bar Association. Mr. PERLMAN. The first committee of the bar association was dismissed, was it not? Mr. HAYES. It was dismissed, and indignantly dismissed, because that committee said, "Why, it is up to the business men of this country, they don't mind their own business and we are not going to help them. Let them get busy." Mr. PERLMAN. Did the first committee recommend official receivers ? Mr. HAYES. No, sir; it did not. This is what it said, I can find it here. Mr. PERLMAN. It made some recommendations of changes in the rules. Mr. HAYES. One or two rules; yes. But what did that amount to? But such a thing never happened in the bar association before in my time, that the report was turned down and the committee discharged with directions that another committee should be appointed, and the committee that was turned down, there was a dissenting report by Mr. John Wise. Now, at the bottom of all this thing is this: The great philosophical principle here is the Government when it creates a machine to dispose of such a matter as bankruptcy, which has occupied the attention of civilized nations from all time, that it is due to give it competent and efficient and proper guarded machinery, and that we have not what we have talked about demonstrated. There is perfect accord with respect to that, and there is also perfect accord with respect to this fact: That businesses and men do not care and will not go out of their business offices and business places and follow up the intricacies and connivances of dishonest bankrupts; they will cross it off their books, and that is what they do. Mr. PERLMAN. In New York we have a public administrator that is in charge of decedents' estates, most of them small estates. Is it not a fact that the public administrator is a political appointee? Mr. HAYES. Well, I don't remember how he is appointed. I remember that Mr. Hoose (?) was for many years. Mr. PERLMAN. And he was succeeded by Congressman Smith, secretary of Tammany Hall. Mr. HAYES. I don't know. I know I had some business before the public administrator's office a few years ago and I found it. very competent. Although I am a notorious anti-Tammany man, I want to say that Tammany judges, most of whom I have opposed, treat me with absolute fairness. Mr. PERLMAN. I have no reference to Tammany. I refer to the fact that the public administrator-your receiver, I think, would become a political appointee. Mr. HAYES. Well, I have confidence in the courts; they are to be appointed by the courts. The courts now are appointing these people, and with the whole business community watching this matter with such keen interest-take the referees they appoint; take young Mr. Olney, he is a splendid young man, the son of Peter B. Olney. I think we have the idea that in the appointment of officers to assist in the administration of justice that the courts can control that matter. For instance, there is a great deal of opposition to having the Attorney General appoint these official receivers; they are afraid that will bring it into politics. However, if you can not trust the judges of the circuit court of appeals in the different districts to select the best and most efficient instruments that they can get for these appointments, I do not know; it seems to me you have despaired of democratic-republican government. Mr. PERLMAN. Are not the judges now appointing many receivers on the recommendation of many creditors, a great many of them creditors themselves? Mr. HAYES. We had a suggestion the other day by some gentleman that the receiver should be confined to the list furnished by the Credit Men's Association. I don't think that would go far. Mr. MICHENER. You have not included your report in your remarks, have you, Mr. Hayes? I am impressed with the report of the Merchants' Association of New York because of its clarity, because it represents study and is understandable. Mr. HAYES. I think the bill is very enlightening. Mr. MICHENER. Yes; the bills pending are a part of the record; they were put in the record at the beginning of the proceedings. Mr. HAYES. Yes. You will find in that bill that it is a bill very carefully drawn with respect to carrying out these recommendations. STATEMENT OF MR. FRANCIS LOWTHORP, REPRESENTING NATIONAL ASSOCIATION OF CREDIT MEN Mr. LOWTHORP. Mr. Chairman and gentlemen, in view of what has been said about the various activities of various credit men's associations in controlling bankrupt estates and in endeavoring to place insolvents' affairs in their hands, I think most of the credit associations which are affiliated with the national association have in operation throughout the country a system of adjustment bureaus which, as Mr. Perlman has pointed out, are primarily for the purpose of keeping insolvent estates out of the bankruptcy courts, with a view of administration and liquidation of the creditors themselves without the aid of machinery of the courts. The object for which these various bureaus are formed Mr. MICHENER. Now, Mr. Lowthorp, we are not interested in any controversy between the merchants' association and the credit men's associations and do not want to encumber the record with any defenses of either organization. If you have any suggestions with reference to this proposed law that have not been made, we would like to hear them; but I speak for the committee, I think, when I say that your association needs no defense here. Mr. HAYES. May I send to the chairman when I get back a copy of the letter which I received from the interested gentleman in New York? Mr. MICHENER. Yes; we would be glad to have that. Mr. HAYES. I think you have a copy of the American Bar Association reports? Mr. MICHENER. I think we have. If there is nothing further, the committee will recess until this afternoon. AFTERNOON SESSION The subcommittee met at 2.30 o'clock p. m., Hon. Earl C. Michener (chairman) presiding. Mr. MICHENER. We have with us this afternoon Mr. Grenville Clark, of New York, who desires to be heard. The committee will be pleased to hear you at this time. Mr. CLARK. Mr. Chairman, I am here representing the Association of the Bar of the City of New York, which is the oldest bar association in New York City and has a membership of over 4,000 lawyers. The matter of bankruptcy administration has been a subject of acute interest to the Federal bench and the bar and the business community in New York City for some years. This is especially so because the statistics contained in the report of the Attorney General show that somewhat over one-tenth of the bankruptcy proceedings for the whole United States occur in New York City, and the amount of the assets administered is considerably more than one-tenth of all the assets administered in the country. The situation is accentuated in New York also by the very large foreign element among the population, which creates conditions which are doubtless different from those existing in rural sections and in small towns and cities. The conditions doubtless also differ somewhat from those existing in other large centers of population, although it is believed that the problems of bankruptcy administration are probably much the same in all cities of over 1,000,000 population, and possibly in those of over 500,000 population. The first point I wish to make, sir, is that any amendment of the bankruptcy act which fails to distinguish between the conditions existing throughout most of the United States, and especially in the rural districts and in the smaller communities, and the conditions existing in the large centers of population, will not adequately solve the problem. In the small community the very fact of mutual acquaintance between members of the bar and in the mercantile community makes efficient and economical administration much easier. and minimizes the possibility of fraud. The conditions are wholly 1 Statement made but not revised by Mr. Clark. |