CHAPTER 14 LAW OF BANKRUPTCY Reference should also be made to the following- Where a person cannot pay his debts, and is so hopelessly involved that it seems unlikely that he will be able to straighten his affairs and meet his liabilities, there is a process, known as Bankruptcy, by which the State assumes control of his affairs, takes possession of his property and pays his creditors to the extent that the property permits. When this has been done, and if he has acted honestly, the debtor is released from further liability (with some exceptions mentioned hereafter) in respect of his past debts and obligations. Prior to 1861, only traders were allowed to become bankrupt, but since that date all classes of persons are able to avail themselves of the advantages (and stigma) of bankruptcy. There were many statutes in force, the first dating from the time of Henry VIII; but the law of bankruptcy has now, with a few exceptions, been consolidated by the Bankruptcy Act, 1914, and the rules made thereunder now in force in relation to bankruptcy practice and known as the Bankruptcy Rules, 1915. Where referred to herein, they will be termed "the Act" and "the Rules" respectively. Who may be made Bankrupt. Infants.-If the debt on which it is sought to found the bankruptcy was incurred in respect of necessaries, or is a judgment debt arising out of an action in tort, it is probable that an infant may be made bankrupt, but not by any means certain ; and it is still a doubtful point. But, if an infant is a member of a partnership firm which is made bankrupt, the whole of the partnership assets, including his share, will be available for dis tribution to the joint creditors, although his separate estate will not be touched, and he will be excluded from the proceedings in bankruptcy. Married Women.-If a married woman carries on a trade or business, whether separately from her husband or not, she may be made bankrupt and, if so, the court may even attach any income which she was "restrained from anticipating." (s) Unless, however, she is engaged in trade or business, she cannot be made bankrupt, even if she is possessed of separate property. The husband cannot prove in his wife's bankruptcy, or the wife in the husband's bankruptcy, against other creditors for value. It was held in In re A Debtor (1898) that, where an unmarried woman, who had had a bankruptcy petition presented against her, married during an adjournment, she was not liable to further bankruptcy proceedings. Aliens. An alien is equally amenable with a British subject to the bankruptcy law, provided (1) He is domiciled in England, or (2) He has ordinarily resided in, or had a dwelling house or place of business in England within a year of the presentation of the petition, or (3) He has carried on business in England, personally or by an agent or manager or is, or within the said period has been, a member of a firm which has carried on business in England by means of a partner or partners or an agent or manager. Lunatics.-A lunatic may be adjudged bankrupt with the consent of his committee or the court, or, probably, if he commits an act of bankruptcy during a lucid interval. Convicts. A convict may, at any time, be made a bank rupt. Partnerships.-A partnership, including a Limited Partnership, may be made bankrupt; but not a combination of persons registered under any of the Companies Acts. Joint Stock Companies.-Companies registered under the Companies Acts cannot be made bankrupt. The procedure in such cases is Winding-up. Deceased Persons.-A deceased person cannot be adjudicated bankrupt, but his estate may be administered in bankruptcy. Should a debtor die after presentation of a petition against him, the proceedings will be continued as if he were alive, unless the court should otherwise direct. (s) See ante, p. 35. Procedure. No person can be made a bankrupt until a bankruptcy petition has been presented either by the debtor himself or by a creditor, and a Receiving Order made. If the debtor has resided, or carried on business, within the London bankruptcy district for the greater part of the six months immediately preceding the presentation of the petition, or for a longer period during those six months than in the district of any County Court, or is not resident in England, or if the petitioning creditor is unable to ascertain the residence of the debtor, the petition must be presented to the High Court. In any other case the petition must be presented to the County Court for the district in which the debtor has resided or carried on business for the longest period during the six months immediately preceding the presentation of the petition. By Rule 147, preference is to be given to his business over his residential district. Acts of Bankruptcy. A petition cannot be presented unless the debtor has committed an "act of bankruptcy," which is one of the various acts on which a bankruptcy petition may be founded. The following are the acts of bankruptcy as set out in Section 1 of the Act(1) If in England or elsewhere he makes a conveyance or assignment of his property to a trustee or trustees for the benefit of his creditors generally; (2) If in England or elsewhere he makes a fraudulent conveyance, gift, delivery or transfer of his property, or of any part thereof; (3) If in England or elsewhere he makes any conveyance or transfer of his property or any part thereof, or creates any charge thereon, which would under this or any other Act be void as a fraudulent preference if he were adjudged bankrupt ; (4) If with intent to defeat or delay his creditors he does any of the following things, namely, departs out of England, or being out of England remains out of England, or departs from his dwelling-house, or otherwise absents himself, or begins to keep house; (5) If execution against him has been levied by seizure of his goods under process in an action in any court, or in any civil proceeding in the High Court, and the goods have been either sold or held by the sheriff for twentyone days: Provided that, where an interpleader summons has been taken out in regard to the goods seized, the time elapsing between the date at which such summons is taken out and the date at which the proceedings on such summons are finally disposed of, settled, or abandoned, shall not be taken into account in calculating such period of twenty-one days; (6) If he files in the court a declaration of his inability to pay his debts, or presents a bankruptcy petition against himself; (7) If a creditor has obtained a final judgment or final order (i.e., a decree of a court) against him for any amount, and, execution thereon not having been stayed, has served on him in England, or, by leave of the court, elsewhere, a bankruptcy notice under the Act, and he does not, within seven days after service of the notice, in case the service is effected in England, and in case the service is effected elsewhere, then within the time limited in that behalf by the order giving leave to effect the service, either comply with the requirements of the notice or satisfy the court that he has a counter claim, set-off or cross demand which equals or exceeds the amount of the judgment debt or sum ordered to be paid, and which he could not set up in the action in which the judgment was obtained, or the proceedings in which the order was obtained: For the purpose of this paragraph and of Section 2 of the Act (i.e., dealing with Bankruptcy Notices) any person who is, for the time being, entitled to enforce a final judgment or final order, shall be deemed to be a creditor who has obtained a final judgment or final order; (8) If the debtor gives notice to any of his creditors that he has suspended, or that he is about to suspend, payment of his debts. (9) An order of a court under Section 107 (4) of the Act. (t) In (1) above the assignment or conveyance referred to is of all the debtor's property to a trustee who is to represent all the creditors. An assignment to one or more particular creditors, or for the benefit of a particular creditor or creditors, is not an act of bankruptcy under this head. Under (2) and (3) the conveyance or transfer referred to is one that is at the time fraudulent and, therefore, this is the reason for its constituting an act of bankruptcy. If made for valuable consideration it is valid, and a bona fide voluntary conveyance or gift will not be sufficient ground for the foundation (t) See post, p. 443. of a petition, although the conveyance itself may be set aside. Any fraudulent preference made within three months of the presentation of the bankruptcy petition may be set aside. In the case of (4) it is the intention that has effect. If there is no intention to defeat or delay creditors, the doing of the acts referred to will not amount to an act of bankruptcy. But the question of intent will be inferred from the facts of the case. So, in In re Finney (1874), it was held that where a debtor knows that, if he goes abroad, a necessary consequence will be to defeat or delay his creditors, he has acted with such intention. To "keep house" is to deny access to creditors either by refusing admittance or by withdrawing to a more retired part of the house. 66 The bankruptcy notice" mentioned under (7) requires the debtor to pay the judgment debt or sum ordered to be paid in accordance with the terms of the judgment or order, or to secure or compound for it to the satisfaction of the creditor or the court, and states the consequences of non-compliance with the notice. The notice of suspension or intended suspension of payment referred to under (8) must be given deliberately, but it need not be in writing. The point to consider is what was the debtor's intention. Thus, in Crook v. Morley (1891), the debtor sent a notice to the effect that he was unable to meet his engagement and he invited his creditors to meet him at a specified place and time in order that he might submit a statement of his position. This was held to be a sufficient notice. But in Clough v. Samuel (1905), where a stockbroker told his creditors that he should have a difficulty in paying at the approaching settlement, and suggesting that they closed their accounts with him, it was held not to be sufficient notice of suspension or intended suspension of payment. The Petition. Bankruptcy proceedings are commenced by the presentation of a petition asking the court to make an order, called a Receiving Order, against the debtor. The petition may be presented by the debtor himself or by a creditor or creditors. In lieu of a petition, it is provided by Section 107 (4) of the Act that "Where, under Section 5 of the Debtors Act, 1869, application is made by a judgment creditor to a court having bankruptcy jurisdiction for the committal of a judgment debtor, the court may, if it thinks fit, decline to commit, and in lieu thereof, with the consent of the judgment creditor and on payment by him of the prescribed fee, make a receiving order against the debtor. In such |