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whether he will disclaim or not, and he has not within twentyeight days thereof given notice that he disclaims the property. Similarly, in the case of a contract, after such application, if the trustee does not, within twenty-eight days, disclaim the contract he will be deemed to have adopted it.

Effect of Disclaimer.-When the trustee disclaims property or contracts, such disclaimer operates to determine, as from the date of disclaimer, the rights, interest, and liabilities of the bankrupt and his property as or in respect of the property disclaimed. It also discharges the trustee from all personal liability in respect thereof as from the date the property vested in him; but it does not, except so far as is necessary for the above purposes, affect the rights or liabilities of any other person.

Vesting Orders.-Any person having an interest in the property disclaimed may apply to the court and, at its discretion, obtain an order vesting the property in or delivery of the property to himself, or a trustee for him, on such terms as the court thinks just. But, where the property is of a leasehold nature, the court will not make a vesting order except upon the terms of making that person

(a) Subject to the same liabilities and obligations as the bankrupt was subject to under the lease at the date when the bankruptcy petition was filed, or

(b) If the court thinks fit, subject only to the same liabilities and obligations as if the lease had been assigned to that person at that date.

If the person interested, whether under-lessee or mortgagee, declines to accept a vesting order on such terms he will be excluded from all interest in and security upon the property.

Similar provisions apply, under Section 54 (5), to contracts. The court may, on the application of any person who is entitled to the benefit or subject to the burden of a contract with the bankrupt, make an order rescinding the contract on such terms as to payment by or to either party as to the court may seem equitable. But it was held in Ex parte Holthausen (1874) that where a person has purchased and paid the bankrupt for property without notice of any act of bankruptcy, the trustee is bound to convey the property to the purchaser. If, under this provision, any damages are payable under the order to any such person, he may prove for them as a debt under the bankruptcy.

Any person injured by the operation of a disclaimer is deemed to be a creditor of the bankrupt to the extent of the injury, and may accordingly prove the same as a debt under the bankruptcy.

Secured Creditors.

A secured creditor is a creditor who holds a mortgage, charge or lien on any property of the debtor. A secured creditor, by the second Schedule to the Act, has three courses open to him(1) He may realize his security and prove for the balance due to him, after deducting the net amount realized. (2) He may surrender his security and prove for his whole debt.

(3) He may state in his proof the particulars of the security, the date when it was given, and the value at which he assesses it, and is entitled to receive a dividend only in respect of the balance due to him after deducting the value so assessed. Where the security is so valued, the trustee may at any time redeem it on payment to the creditor of the assessed value, unless such creditor is the petitioning creditor; or, if he is dissatisfied with the value at which it is assessed, he may require the security to be offered for sale, on such terms as may be agreed or as the court may direct. The creditor may require the trustee to elect whether he will redeem or not, and the trustee must then elect within six months. The creditor may, if he can show that he valued on a bona fide mistaken estimate, amend his valuation and proof, and rank for dividend accordingly.

The above courses, obviously, are likely to be pursued only where the security is not sufficient to meet the whole of the debt due. If it is sufficient the creditor will, of course, retain his security and not prove at all. Where the security has been assessed, the trustee has the option of purchasing the security at that assessed value, plus twenty per cent. Reference should be made to the rule in ex parte Waring. (z)

Where any goods of the debtor are held by any person by way of pledge, pawn or other security, the official receiver or trustee may, under Section 59, after giving notice of his intention, inspect the goods; and, where such notice has been given, that person is not entitled to realize his security until he has given the trustee a reasonable opportunity of inspecting the goods and of exercising his right of redemption, if he thinks fit to do so.

Proof of Debts.

By Section 30 all debts and liabilities, present or future, certain or contingent, to which the debtor is subject at the date

(z) See post, p. 325.

of the receiving order, or to which he may become subject before his discharge by reason of any obligation incurred before the date of the receiving order, are deemed to be debts provable in bankruptcy. If any debt or liability does not, by reason of being subject to any contingency, bear a certain value, an estimate should be made by the trustee of its value, and any person aggrieved by any such estimate may appeal to the court.

Debts not provable.-Certain debts are not provable, viz., (1) Demands in the nature of unliquidated damages arising otherwise than by reason of a contract, promise, or breach of trust.

(2) Debts or liabilities contracted by the debtor, subsequently to the date of an available act of bankruptcy, within the knowledge of the creditor.

(3) Debts contracted after the date of the receiving order. Set-off.-Under Section 31, where there have been mutual credits, mutual debts or other mutual dealings between the debtor and any other person proving or claiming to prove a debt, an account must be taken of what is due in respect of such mutual dealings, and the balance only of the account can be claimed or paid respectively; but the creditor is not entitled to the benefit of any set-off where he had, at the time of giving credit to the debtor, notice of an available act of bankruptcy.

Interest on Debts.-Under the provisions of Section 66, where the debtor has agreed to pay interest on a debt, or in some cases even if not agreed, such interest may be proved for with the amount of the debt up to five per cent. per annum. Any excess of interest above five per cent. may be proved for, but will not be paid until after all the debts proved in the estate have been paid in full.

Postponement of Payment of certain Debts.-Certain debts which by Section 3 of the Partnership Act, 1890, are deferred until the claims of other creditors have been satisfied, may be proved for; but, as stated, payment will be postponed. Similarly, by Section 36 of the Bankruptcy Act, a husband or wife may prove for money lent to the wife or husband, as the case may be, for use in their trade or business, but payment is postponed until all claims of the other creditors have been satisfied.

Lodging Proofs of Debt.-Every creditor must prove his debt as soon as may be after the making of the receiving order. This may be done by delivering, or sending through the post, to the official receiver or the trustee, an affidavit verifying the debt, made by the creditor or some person authorized by him. The affidavit must contain or refer to a statement of account showing

the particulars of the debt, substantiated by vouchers. The trustee must then, within twenty-eight days, either admit or reject the proof, or require further evidence to be produced. If he rejects the proof he must send written notice to the creditor stating the grounds of rejection, and his decision is open to revision by the court.

Provable non-provable Debts.-Where a debt is incurred with a person who at the time had notice of an available act of bankruptcy, the creditor is barred from proving owing to his knowledge, and he gets nothing because he cannot prove his debt. The discharge of the bankrupt frees him from all claims of such a creditor.

Non-provable Debts.-The following debts are not provable in the bankruptcy—

(1) Family debts;

(2) Statute-barred debts;

(3) Damages for tort unless they have, before the date of the Receiving Order, become liquidated;

(4) Debts which in the opinion of the court cannot be estimated;

(5) Provable non-provable debts mentioned above.

Distribution of the Bankrupt's Property.

It is not necessary for the trustee to wait until he has realized the whole of the estate, in order to distribute it amongst the creditors. When he has realized part, he may distribute the proceeds, after paying expenses and preferential debts and retaining a certain amount for contingencies.

Order of Payment of Debts.-The order of payment of debts would be

(1) Expenses of the official receiver and certain fees. (2) Deposit of the petitioning creditor and his costs.

(3) Any allowance made to the debtor.

(4) Expenses of the trustee and the committee of inspection.

(5) Remuneration of the trustee.

(6) Moneys or property in the hands of the bankrupt as an officer of a Friendly Society (Friendly Societies Act, 1896, Section 35), and deposits in Savings Banks under similar circumstances (Savings Bank Act, 1863, Section 14).

(7) Preferential payments as in the case of winding-up of companies, (a) which rank equally among themselves

(a) See ante, p. 287.

and are payable in full, unless the property is insufficient to meet them, in which case they abate in equal proportions between themselves.

Preferential Claim in case of Apprenticeship.-Where a person was apprenticed or articled to the bankrupt, a proportion of the premium may be repaid. The amount varies according to the time during which he has served. But, instead of repayment, the trustee has power to arrange a transfer of the indenture or articles to some other person.

Landlord's Power of Distress.-A landlord to whom rent is due may distrain before or after the bankruptcy upon the goods or effects of the bankrupt. But, if distress is levied after the commencement of the bankruptcy (i.e., the date when the bankrupt committed the earliest act of bankruptcy on which the petition could have been founded), it is available only for six months' rent accrued due prior to the date of the adjudication, but the landlord may prove under the bankruptcy for any surplus due. If he has distrained earlier than three months prior to the receiving order, the distress is good for the whole of the rent due; but if he has distrained within the three months prior to the date of the receiving order, all debts of preferential creditors must be met out of the proceeds. If the balance in hand after paying the preferential debts is not sufficient to satisfy the landlord's claim, he stands in the place of the persons to whom the payments had been made, and may prove in the bankruptcy and be paid as a preferential creditor. In no other case has a landlord any priority over other creditors. If the trustee should remain in possession of the premises without disclaiming, the landlord may distrain for rent accrued after the adjudication, in the ordinary way.

Debts payable pari passu.-Apart from the above debts, all others proved in the bankruptcy, except deferred creditors, are paid pari passu (proportionately to the amount available), together with interest (if funds will allow) at the rate of four per cent. per annum from the date of the receiving order. The amount payable as dividend depends on what is left after payment of the expenses and preferential debts. Notice of the trustee's intention to distribute a dividend must be given to the creditors and the Board of Trade, and it must be advertised in the London Gazette.

Deferred Creditors.-The following are deferred creditors :(1) A wife who has advanced money to her husband for use in his trade or business.

(2) A person who has lent money in return for a rate of interest varying with the profits.

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