CHAPTER VI.

BANKRUPTCY.

THE principal remaining case, after those connected with marriage and death, in which property is considered in special connection with a person is that of bankruptcy. In that term I include all the modes in which a concursus or competition of creditors is formed against the property of a living person, or of a firm or company having a legal personality, whether the technical name in the particular instance be bankruptcy, insolvency, sequestration, cessio bonorum, winding up, or any other, and whether the persons who administer the property for the creditors are technically called trustees, assignees, curators, liquidators, syndics or any thing else, all which names may be considered as comprised when the term trustees is used. And in the present chapter those questions of private international law shall be discussed which arise out of the collection and distribution of the debtor's property in such competitions, leaving those which concern his discharge, usually but not always connected with such competitions in national law, until we arrive at the modes of extinguishing obligations.

We must note at the outset the existence of two currents of opinion or practice on the subject. One, which maintains the unity of bankruptcy, has always been the favourite of legal science. "As the bankruptcy," said Savigny in 1849, “has in view an adjustment of the claims of a number of creditors, it is possible only at one place, namely at the domicile of the debtor, so that the special forum of the obligation is here displaced by the general personal forum."* And since it is pecuniary interests that are concerned, there has not here been that tendency to replace domicile by nationality, as determining the seat of the general personal forum, which is displayed in matters relating to the person and family relations of an individual. Indeed in those countries in which the bankruptcy laws can be applied only to traders, it is not generally even the domicile but the principal

*Syst. § 574, Guthrie 209.

trade establishment which determines the forum of a bankruptcy. The other current sets in favour of separate bankruptcies for the collection and distribution of the debtor's property in each jurisdiction in which he may happen to possess any, and this current sets most strongly in legislation, which is apt to be influenced as well by the feeling of national distinctness and independence as by the desire of satisfying the needs of the creditors who claim the protection of the respective enacting authority.

The management of a bankruptcy from the first point of view is explained by Savigny in the following passage, written with reference to the then state of Prussian law, of which he approves. "By this law there is always only one bankruptcy, and that at the domicile of common debtor. The judge in bankruptcy procures by requisition the co-operation of the Prussian courts in whose territory parts of the estate are situated. If parts of the estate are abroad, then the judge has to inquire whether there are public treaties. If there are none, he must propose to the foreign judge to co-operate in the bankruptcy in Prussia, in the same way as has already been indicated in regard to Prussian courts. If this fails the curator has to watch the interest of the creditors in this country" [Prussia] "in the special bankruptcy abroad. All treaties concluded subsequently to this law rest on the principle that only one bankruptcy is to take place, and that as a rule at the domicile of the debtor. The goods of the common debtor situated in the other state must be sold, and the proceeds handed over to the court of bankruptcy. In this all the creditors must appear. The marshalling (ranking) of the creditors is determined for the purely personal claims according to the law of the forum, for all real rights according to the laws of the place where the thing is situated. There is a difference only in this respect, that by the modern treaties (since 1839) real rights in things situated out of the country of the bankruptcy can be insisted on also at the place where the thing is situated, before its surrender to the judge of the bankruptcy. If this is done by hypothecary creditors, the things hypothecated are to be sold. there, the money paid to the creditors, and only the surplus if any is to be paid into the court of bankruptcy.'

There was no doubt a time when among the judges in different European provinces the custom was widely spread of assisting each other's proceedings in bankruptcy as thus indicated by

*Savigny § 374, Guthrie 213.

Savigny, except that there was always a great body of authority against allowing the operation of a foreign bankruptcy to extend to immovables, as Savigny, by no means alone in that matter, would make it do so far as concerns the satisfaction out of them of purely personal claims. But that system has waned under the influences which have been mentioned as leading to the second point of view, which we have now to illustrate. For that purpose we need not dwell on the Prussian law of 1855, which in the absence of treaty gave Prussian creditors a preference against the assets in Prussia, while still directing that the surplus of those assets after satisfying home claims should be transmitted, not to the foreign bankrupt, but to the trustees in his foreign bankruptcy. We may come at once to the bankrupt law of the German empire, that of 10th February, 1877, taking effect in 1879, which contains the following clauses.

§ 4. Foreign creditors stand on the same footing as domestic ones. It may be determined by an order of the chancellor of the empire, with the consent of the federal council, that measures of retorsion shall be applied to persons belonging to foreign states and their assigns.

§ 5. From the commencement of the bankruptcy [this may be prior to any judicial proceeding, and dates as in England from what we call the act of bankruptcy.-J. W.] the common debtor loses the power of administering and disposing of his estate belonging to the bankruptcy.

The right of administration and disposition is exercised by an administrator in bankruptcy.

§ 39. Those assets which with regard to execution against them belong to the class of immovables are to be applied in separate satisfaction, so far as a real or special right to preferable satisfaction out of them exists. The laws of the empire and of its component territories determine what is comprised in the immovable estate, as well as the claims to be satisfied out of it and their order.

§ 207. When a debtor whose foreign assets are affected by a bankruptcy possesses assets in the empire, execution may be had against the latter. Exceptions may be made to this rule by an order of the chancellor of the empire, with the consent of the federal council.

§ 208. Process of bankruptcy may be applied to the assets possessed within the empire by a debtor who has no general personal forum within it [that is, who is not subject to German jurisdiction through political nationality or domicile.-J. W.] when he has in the empire an establishment for manufacture, commerce, or any other mode of earning, at or from which business is immediately concluded.

The same is the case when a debtor who has no general personal forum within the empire works within it, whether as owner, usufructuary, or tenant, any property furnished with buildings for dwelling on and working it.

The process can only be had in that court in the district of which the establishment or the property is situate.

When a bankruptcy has been commenced abroad, no proof of insolvency is necessary for commencing the process in the empire.

Thus the preference of the home creditor, which marked the Prussian law of 1855, has disappeared, except by way of retorsion; but a particular German bankruptcy is instituted on the ground of a business establishment without a general personal forum, and in the absence of any exercise by the imperial chancellor and federal council of the powers reserved to them, by which they can give effect to treaties, a foreign bankruptcy does not prevent execution being obtained in Germany by particular creditors. Thus the unity of bankruptcy is not admitted, and, as a consequence, extraterritorial effect on property is not allowed to bankruptcy.

In France the practice of the courts as contrasted with scientific opinion, though the latter is much divided, may be summed up as adverse to the unity of bankruptcy, which nevertheless is the principle of treaties concluded with Switzerland in 1869, and with Belgium in 1899. But even the practice of the courts secures a considerable measure of effect to foreign bankruptcies by means of the view of the nature of an adjudication which is generally entertained on the continent. This is that it transfers no property of the debtor to the trustee or syndic, but is a judgment in favour of the creditors, operating abroad either by its own force as chose jugée or, when execution on it is required, by being declared executory as it is termed, or clothed with an exequatur, in the same manner as other foreign judgments. Subject to that condition, the trustee or syndic appointed by it will be in the same position as those acting under domestic adjudications, and, like the German administrator under § 5 of the law of 10th February, 1877, will as the representative of the creditors enjoy the administration of the bankrupt's estate without the latter being disseised of the property in it, and will be empowered to bring on behalf of the creditors all the actions which the bankrupt could have brought: French court of cassation, 12th January, 1875. Having that position, the foreign trustee, so long as no separate domestic bankruptcy intervenes, can obtain any part of the bankrupt's estate in spite of an attempt by a foreign creditor to attach it; but since Art. 14 of the Code Napoleon gives the French creditor an absolute right. to sue his foreign debtor in France, an attachment by him must be allowed to proceed, yet again, since French law itself aims at the equal distribution of a bankrupt's estate, no other effect will be allowed it than that of a security for the dividends to which the French creditor may become entitled in the foreign

bankruptcy court of appeal of Paris, 13th August, 1875. Even previous to the adjudication being declared executory the foreign trustee, at least if the fact of his being such is not disputed, can oppose whatever might prejudice his eventual rights: court of appeal of Paris, 7th March, 1878. And he may thus defeat an attachment, though he cannot without the exequatur get an order for payment or delivery to himself: court of appeal of Milan, 15th December, 1876.

The English courts have always been unable to follow precisely the continental jurisprudence in this matter, because our judges never co-operate with foreign judges in the manner referred to by Savigny in the passage above extracted, nor have we the process of declaring foreign judgments executory. It will be explained in a later chapter that a foreign judgment is never admitted to execution in England, but is sued on as a cause of action consequently it is not possible for us to recognize a continental adjudication of bankruptcy.in the only character which it has in its own country, that of a judgment affecting the administration of the bankrupt's estate but not disseising him of the property in it. Again, our system of bankruptcy has no root in the Roman law as to the appointment of curators; it has not merely been modified but was founded by statute, and it operates by way of statutory assignment of the bankrupt's property to the trustees; so that even were it possible for us to declare a continental adjudication executory, it would not run parallel with our own adjudications. There has however been no want of substantial liberality on our part, a foreign adjudication being allowed to operate in England as to movables through the fiction. of its being an assignment in its own country, combined with the maxim mobilia sequuntur personam. Thus it has been classed among what in these islands more especially it is usual to call universal assignments, and indeed much of the British learning on that class is to be found in the cases on bankruptcy. It was in a Scotch case on bankruptcy that Lord Meadowbank gave expression to the often quoted dictum, "the legal assignment of a marriage operates without regard to territory all the world over."*. It may be remarked in passing that the notion of assignment is as applicable to the British system of winding up companies as it is to bankruptcies technically so called, for the estate of the company is impressed with a trust which the

* In Royal Bank of Scotland v. Cuthbert (1813), 1 Rose 481, 17 F. C. 79, 2 Buchanan 336.