Saturday, 28 February 2009

Barristers, Bankruptcy and the case of Serjeant Finch

The Bar Standards Board has recently issued a guidance  statement for barristers explaining what they should do if they are subject to a bankruptcy order or individual voluntary arrangement. Pursuant to paragraph 905(c) of the Code of Conduct a barrister (whether in practice or not) should report promptly to the Bar Standards Board if:
"1. Bankruptcy proceedings or directors disqualification proceedings are initiated against him or her 
2. A Bankruptcy order or directors disqualification order is made against him or her 
3. He enters into an IVA with his or her creditors."

This statement raises an interesting issue which has a direct historical parallel. In 1620 a case came before Lord Chancellor Verulam, that involved Sir Henry Finch, a Serjeant-at-Law (Finch and others v. Hicks and others (1620) Tothill, 113). Sir Henry was not an advocate in the case, but the debtor. His sons, John and Nathaniel were sureties for their father’s debts and were liable with him pursuant to a number of bonds that secured the indebtedness. A commission was appointed to compound the debts following an enforcement action by Sir Henry’s creditors pursuant to the bonds. Sir Henry’s professional income had not been enough to placate his creditors, and Ritchie reports that as a consequence of the creditors actions the sons, “were abridged of their liberty.” The Finch family sought relief in Chancery. An injunction was granted by Frances, Lord Verulam, to the Finch brothers and Sir Henry that stayed the actions of the plaintiff creditors. For further details and details of other early composition cases see here.

Picture Credit:

Insolvency Service evidence session before the UK Parliament's Business and Enterprise Committee - January 2009

Stephen Speed, Inspector General and Agency Chief Executive, and Graham Horne, Deputy Chief Executive, Insolvency Service gave evidence to the Business and Enterprise Committee on Tuesday 27 January 2009 at 10.30am. You can view their submissions here.

Picture Credit: Insolvency Service, BERR, 2009.

New Citizens' Advice Bureau Debt Research

CAB has published a new piece of research on debt which focuses on their client base. The report is entitled, "A Life in Debt." Here are the headline findings:

"In July 2008, 52 Citizens Advice Bureaux in England and Wales surveyed 1,407 new debt clients.  We found that:
  • On average CAB debt clients owed £16,971 in 2008, two thirds higher than in 2001.
  • More than half of the clients in 2008 had four or more priority debts, such as mortgage or rent arrrears, fuel bills or council tax arrears.
  • One client in ten had ten credit debts or more.
  • Forty five per cent of the homeowners had mortgage or secured loans arrears in 2008, up from 30 per cent in 2004.
  • Thirty per cent of the homeowners spent half or more of their monthly income on housing costs.
  • Two thirds of the homeowners with mortgage or secured loans arrears were in priority need for rehousing.
  • Forty three per cent of the CAB debt clients in 2008 were in fuel poverty because they spent more than 10 per cent of their income on fuel.
  • Half of CAB debt clients were in water proverty because they spent more than three per cent of their income on water.
  • More than half of the clients (58 per cent) had no spare money to pay their credit debts.
  • Clients who had spare money to pay their debts would take on average 93 years to repay them in full.
  • Nearly a third of CAB clients could be eligible for the debt relief order (DRO) a new alternative to bankruptcy which comes into force in April"
The report makes very interesting reading for policy makers and is another timely contribution from the CAB policy team. 

Picture Credit: Citizens Advice Bureau, 2009.

Friday, 27 February 2009

Insolvency Service event - Seminar on the Reform of the Debtor Bankruptcy Petition Process

Following on from the consultation exercise in January 2008 entitled Bankruptcy: proposals for reform of the debtor petition process’, the Insolvency Service is now hosting a invited audience seminar to update interested parties on the progress of the project. As the invite letter notes, "Over the last 12 months the Insolvency Service have continued to explore in detail the removal of the courts from the order-making process in debtor’s own bankruptcy petition cases.  The aim of the seminar is to update... on our latest findings and to generate an informative and active discussion between the Insolvency Service and stakeholders on ways in which The Service can take the project forward.  The day will also include a presentation by District Judge Jordan on the current experiences of the court services in dealing with debtor’s own petitions."

Copies of the original
consultation document and summary of responses can are available on the Insolvency Service website.  The seminar will be held on Friday 20 March 2009. It should be a very interesting sessions with some very positive outcomes. 

Picture Credit: Muir Hunter Museum of Bankruptcy, KU (GP).

2009 Insolvency Silks

The Ministry of Justice announced the latest appointments to the rank of Queen's Counsel last Friday. A number of barristers who specialise in insolvency and related matters will shortly be going to Ede & Ravenscroft or Stanley Ley to obtain their new silk gowns and full-bottomed wigs. Raquel Agnello QC of 11 Stone Buildings and David Marks QC of 3-4 South Square, are among the 104 new appointments who will now practice within the bar following the Queen's approval.  

Picture Credit: Muir Hunter Museum of Bankruptcy, KU (GP).

New Comparative Paper on Insolvency Practitioner Complaints Handling

Professor Adrian Walters has recently posted his latest research, co-written with Professor Mary Senevirante, on insolvency practitioner complaints handling systems and discipline onto SSRN and sent out hardcopies to interested parties. This comparative research builds on their earlier work for the Insolvency Practices Council on IP complaints handling. The work makes fascinating reading. It will be interesting to see how their findings are received at the Sussex conference

This is the latest in a string of timely contribution by the Insolvency Practices Council. When did this body come into being? The Insolvency Service and the Recognised Professional Bodies (RPBs, i.e. ACCA, ICAEW, IPA, SRA, LSS, ICAI, ICAS, Secretary of State, etc) set up a Working Party in 1997 to review the Insolvency Act 1986 provisions that regulate insolvency practitioners. Uppermost in the minds of the Working Party was the concern that the Insolvency Act 1986 was working in the public interest. They were specifically interested in the public perception of insolvency practitioners and wanted to ensure that insolvency practitioners (IPs) were working in a system that ensured efficient administration and that the needs of all insolvency stakeholders were taken into account. From these noble beginnings the Insolvency Practices Council was born in 2000. The Working Party opined that external consideration of professional standards and ethics, with a view to best practice recommendations from individual lay persons who were outside the Insolvency Service and the RPBs, might help engender greater public confidence in insolvency practitioners. With these laudable aims in mind the IPC was constituted to help ensure that the insolvency profession could meet the targets set by the Working Group. The Annual Reports of the IPC always make very interesting reading and usually contain a number of recommendations to improve IP practice in various areas. It would be helpful if these annual reports were retained in digital format on their website.

The IPC stated remit is to ‘investigate and examine the professional and ethical standards of the insolvency profession.' Technically therefore its remit does not stretch as far as the investigation and examination of the whole plethora of other interested and impacting elements, such as debt advice clinics, as these are not staffed by IPs. The work of debt advice clinics is very important is relation to personal indebtedness and whilst technically not within an insolvency procedure and therefore attracting the input of an insolvency practitioner.

Picture Credit: Muir Hunter Museum of Bankruptcy, KU (GP).

March Conferences - ILA (Cardiff) and the Joint Insolvency Conference - INSOL Europe Academic Forum and Sussex Law School

The forthcoming insolvency law conference at Sussex University hosted by Dr Paul Omar should be a very interesting event. I look forward to seeing you there! The full details can be seen here. The title of the conference is the: Joint Insolvency Conference - INSOL Europe Academic Forum and Sussex Law School - Looking Forward to the Cork Report + 30, and it is being held on the 26 - 27 March 2009.

The Insolvency Lawyers Association (ILA) 2009 annual conference clashes slightly with the Sussex event. Starting on the 27 March, the conference goes through until the 29 March at the St David's hotel and Spa, Cardiff Bay. An interesting set of speakers have been lined up for this conference as well, including, Lord Neuberger, Ken Baird, Paul Girolami QC, Philip Jones QC, Rita Lowe, Alan Bloom and Chief Registrar Baister.

Picture Credit: Sir Kenneth Cork (1913-1991), by John Whittall, oil on board, 1991, © National Portrait Gallery, London.

Problems when in Administration - Land of Leather

Land of Leather are currently in administration. It seems from their website that they are having some issues with their internet service provider as it is now diverting to the DFS website despite it still being entitled Does this indicate a possible outcome for the troubled company? If administration is going to be used to promote a rescue culture it is essential, in the modern age, that companies use the internet to promote their wares, not least to generate new business or to help with the continuance of trade. If customers cannot buy the product then further problems will be generated. Will DFS now be taking customers that would have ordinarily gone to Land of Leather? We are not privy to the corporate structures that exist behind these two well known furniture brands but it will be interesting to see how this administration develops.  

The Social Science Research Network (SSRN) and insolvency scholarship

I have been aware of the SSRN for some time but have only just got round to PDFing my article drafts and posting them up on the site. I am kicking myself for not doing this before as I have received some really helpful comments and communications generally from academics in Australia, American and Italy. Without this tool this would not have happened and I would be totally unaware of some the work now being undertaken, particularly in American, on the personal side of the subject, and even more importantly, on the history of the subject. For example, Professor Emily Kadens at the University of Texas Law School is working on bankruptcy and the death penalty and in particular the trial of John Perrott, a lacemaker of Ludgate Hill, who was executed at Smithfield in November 1761 for concealing, embezzling and removing his effects. Her article is eagerly awaited. As a direct result of the SSRN site my own research has also now been cited and discussed on some other blogs which are bankruptcy orientated, legal history orientated and news related. This has lead to some really fruitful exchanges which simply would have not occurred beforehand. 

Other English insolvency academics who do not exhibit my ludite tendencies have however used the SSRN site for sometime. Professor Riz Mokal and Professor John Armour have particularly comprehensive entries and their work has been downloaded frequently,  leading to very high rankings indeed. With the future direction of the REF research assessment exercise this species of engagement is essential for any English law academic. There are also entries for Professor Ian F. Fletcher, Professor Vanessa Finch, Professor Adrian Walters, Dr Sandra Frisby, Professor Andrew Keay, Professor Rebecca Parry, and Dr Paul Omar. SSRN is not reserved for academics! There are also entries from the practitioner field. Look Chan Ho, for example, scores very highly on the download count with a large portion of his publications on the site.

For students of the subject, which we all are for the entirety of our engagement, the resource should not be missed! Any intending user will have to be careful with copyright considerations when uploading their material. Advice can be sought no doubt from senior colleagues or the Authors' Licensing and Copyright Society (another essential sign up!) 
Picture Credit: Muir Hunter Museum of Bankruptcy, KU (GP).

Law and History Review: 27:3

An interesting paper which touches on debtor treatment has recently been published in the Law and History Review. Here is the abstract: 

Shannon McSheffrey, Sanctuary and the Legal Topography of Pre-Reformation London
Through an examination of St. Martin Le Grand, a privileged territory in the heart of late medieval London, Shannon McSheffrey argues that pre-Reformation English sanctuaries must be understood not only in the context of complex intertwinings of conceptions of kingship, justice, mercy, and Christian religion, but in the quotidian practice and observance of the sanctuary space by those who lived in and around the sanctuary. By 1400, a number of English religious houses had come to offer permanent sanctuary to accused criminals, political refugees, debtors, and aliens. These small territories, which exercised varying extents of juridical and political autonomy, considerably complicated the jurisdictional map of late medieval England. Determining and recognizing the boundaries of the sanctuary territory was difficult: the bounds of the precinct were marked in some places by walls and gates, but in other places by notional, and often disputed, lines in the middle of streets. The meaning of the sanctuary was constituted through claims, counter-claims, and royal confirmations; through precedent and custom; and through how particular kinds of individuals--those “privileged” of the sanctuary--inhabited and used the territory. Although the royal free chapel and sanctuary of St. Martin Le Grand, like other English sanctuaries, was felled along with a host of ecclesiastical institutions in the dissolutions of the English Reformation, McSheffrey argues that we cannot understand its late medieval and early Tudor history teleologically, through the hindsight of its dissolution. Sanctuary, and the sacrality that underpinned it, continued to function in the early sixteenth century, not as an obsolete relic of earlier conceptions of law, punishment, and the role of the church, but because it dovetailed closely with late medieval and early Tudor conceptions of law, kingship, and Christian charity.

Thursday, 26 February 2009

Debtor Treatment

Imprisonment for debt and hanging were of course not the only treatments that were known to insolvents. Numerous other methods of punishment were used.

An Act for the better relief of the creditors against such as shall become bankrupts (1604) stipulated that if a bankrupt refused to provide information on examination by the Bankruptcy Commissioners as to the whereabouts of his possessions, once lawfully convicted he would be made to,

“stand upon the pillory in some publick place by the space of two hours, and have one of his ears nailed to the pillory and cut off.”

Being placed in the pillory often resulted in death for the unfortunate incumbent. The use of the pillory was abolished in 1837.

Whipping was used by the Bankruptcy Commissioners to obtain information from debtors who did not freely speak of the whereabouts of their property. In one early bankruptcy bill introduced by Sir Francis Crane a suggestion was made that some bankrupts should be whipped to death. Punishment could also include transportation for life and imprisonment with hard labour. Sir Edward Coke noted on the 24th March, 1621, that,

“theise men take up mony when theay intend to break…The Banckrupt to be whiptt to death, but I like not lawes written in bloud.”

From another source we are told that Sir Edward thought that, “they deserved it.” ‘They’ being bankrupts in this context. Whipping was not unusual during the period. We are told that it was the punishment that befell William Finch, Anthony Sherlock and William  Woodcock, who were convicted of petty larceny after stealing some horse tack and a ewe respectively.

One of the least callous treatments forced upon debtors was the wearing of conspicuous apparel or as Ford has observed, “distinguishing garb.” The garments ensured that debtors were singled out from ordinary individuals. This led to stigmatisation which one commentator has called a “happy expedient.” In Scotland, insolvents were forced to wear an outfit consisting of a yellow and brown bonnet and tights whilst sat in the public square between ten and twelve o’clock after adjudication of their bankruptcy. In France insolvents were forced to wear a green hat.

In Rotterdam and Leyden debtors were not forced to wear distinguishing garments, indeed the opposite was true. They were forced to undertake public penance in their “undermost garments.” The debtor would undertake this before the Town House for a proscribed period of days for one hour a day from half past eleven until half past twelve. In Spain insolvents were made to wear an iron collar “one finger thick.”

Satisfaction could also be made to the creditor through debtor servitude, this was certainly a feature of Roman insolvency law.

Picture Credit: Muir Hunter Museum of Bankruptcy, KU (GP).

Debtor Sanctuary

In modern English law we have moratoriums, or breathing spaces, in both corporate and personal insolvency procedures. These allow the debtor some respite from their creditors so that the debtor can rearrange their affairs and compose with their creditors. There is historical evidence of a similar idea, known as Debtor Sanctuary. Historically however, debtors did not go to a sanctuary to then pay back a portion of their debts. They went to avoid them entirely.

Sanctuary existed throughout the medieval period through until the late seventeenth century as a device that allowed an individual to seek sanctuary in a jurisdiction other than the secular common law jurisdiction. This prevented execution against the debtor’s body so that he would not be taken off to debtors’ prison. Once a debtor was in a sanctuary their creditors were forced in relation to their money to, “ go whistle them.”

There were two main types of sanctuary, first, those controlled by the church, and secondly, the secular or civil sanctuaries. It was in the later of these two categories that the debtor might find himself or herself.

London and its surrounding environs contained other sanctuaries or privileged places such as Whitefriars, the Minories, Salisbury Court, Fulwood’s Rents, Mitre Court, the Savoy, Baldwin’s Gardens, Deadman’s Place, the Clink, Montague Close, and the Mint. Writing in 1636 Powell also identifies: Ram-Alley, “a garrison of olde soldiers, every one of the which is able to lead a whole army of younger debtors”, as well as, Milford-lane, Duke Humphrey, Ely-Rents, Cold Harbour, the Fryers and Great Saint Bartholomewes. In the City of Westminster there was a sanctuary in St’ Peter’s, Westminster.

An Act of 1626 paints a stark picture of the position of sanctuary within the metropolis some two years after the supposed abolition of sanctuary. The statute notes,

“the many and notorious and scandalous practices used in many pretended privileged places in and about the Cities of London, Westminster, and the Borough of Southwark, thereby defrauding and cheating great numbers of people of their honest and just debts.”

Sanctuary was not available to those “dead in law”, i.e. those who have sought the sanctuary of the churchyard due to a judgment of felony. Sanctuary was abolished in 1723 for civil matters. However, as late as 1819 Scotland was mooted as a possible place of debtor sanctuary for the poet Thomas Moore who had incurred a civil debt to the Admiralty.

Picture Credit: Muir Hunter Museum of Bankruptcy, KU (GP).

Imprisonment for Debt

The father of modern insolvency law, Basil Montagu, once observed:

Who could believe that, in England, in the 17th century, it was reported by a committee of the House of Commons, that a woman died in prison after having been confined forty-five years for a debt of £19?”

However, imprisonment as a treatment for debtors was not new to the seventeenth century. This particular kind of debtor treatment has a long history, going back at least as far as the thirteenth century in England. Some commentators have cast doubt on the benefit of this treatment arguing, “…it is a true Proverb, a Prison pays no Debts…”

In the thirteenth century there was some reluctance to imprison individuals for debt, except those who owed money to the Crown. This was because imprisonment denied the Crown access to the citizen’s body for war or for general service. The Crown’s privilege for imprisoning its debtors was soon extended to the merchant classes. From the 14th century we see individual execution against the debtor’s body as a consequence of failure to adhere to credit obligations.

Metropolitan institutions such as the King’s Bench and Queen’s Bench prisons, Ludgate debtors’ prison, the Marshalsea, Newgate prison, the Fleet prison, and the Clink, all have their predecessors in county towns across the country where provincial debtors were often imprisoned in the town gatehouse or in some instances specially constructed debtors prisons. There were also ‘Sponging Houses’, a form of halfway house between debtors’ prison and freedom, where Bailiffs would detain debtors at great expense so as to extract what little money the debtor had left.

The rationale for imprisonment for debt was not punishment for non-payment of the sum owed to the creditor. For creditors it was a coercion measure designed to extract payment from the debtor or his family and friends. For the debtor it was perhaps a, “system of escape from an intolerable load of debt”.

The fact that the debtor had to reside in conditions that were exactly the same as felons has caused some commentators to argue that whilst not treated as criminals, debtors were treated like criminals. Conditions within debtors’ prisons could be harsh both in the Metropolis and in the provinces, leading some debtor prisoners to escape. One seventeenth century commentator highlighted barbarous practices by the Gaolers such as the ravishing of debtors’ wives and daughters, torture, starvation, disease and theft.

Eventually the counter-productive nature of imprisonment for debt was recognised by the legislature. The principle objections levelled at the process can best be seen in a pamphlet published in 1641 where it was observed that imprisonment for debt was:

“1. against the law of God, 2. Against the Law of Man: and the most ancient fundamental Common Laws of this Kingdome. 3. Against the Law of Conscience and Christian Charity. 4. Against the practice of other Countries. 5. against the Creditors owne profit. 6. To the prejudice of the King and Commonwealth.”

The clamour for reform had reached a countrywide crescendo during the 18th century with many pamphlets and petitions were published on the topic of abolition and reform. In 1869 imprisonment for debt was abolished.

The hopeless state of debtors’ prisons is perhaps summed up most eloquently by Samuel Johnson writing in 1758. He observed:

“It is vain to continue an institution which experience shows to be ineffectual. We have now imprisoned one generation of debtors after another, but we do not find that their numbers lessen. We have now learned, that rashness and imprudence will not be deterred from taking credit; let us try whether fraud and avarice may be more easily restrained from giving it.”

Freedman’s analogy of “punishing a cow for giving no milk by shutting her up from pasturage” is perhaps apt. 

Picture Credit: Muir Hunter Museum of Bankruptcy, KU (GP).

The historical forebears of Insolvency Practitioners - the Commissioners in Bankruptcy

The first English bankruptcy statute, An Act Against Such Persons As Do Make Bankrupts (1542 or 1543 - a moot point) created, the first tribunal for the disposition of a bankrupts’ assets. From 1571 this distribution was carried out through a new Chancery officeholder, the Commissioners of Bankruptcy who drew their authority from the Lord Chancellor. They were the forebears of the modern insolvency practitioner and had to have a number of qualities according to Sir Edward Coke: “wisdome, honesty, and discretion.” 

By the beginning of the nineteenth century there were about 70 Commissioners, divided into 14 separate lists. These included Basil Montagu (pictured above as a youth) who was appointed a Commissioner in Bankruptcy in 1805. He later became the first Accountant-General in Bankruptcy in 1832, a precursor of the current Inspector General. In each bankruptcy case the commissioners were obliged, before acting, to take an oath “to execute their duty faithfully, impartially and honestly, according to the best of their skill and knowledge without favour or affection, prejudice or malice.” They were required to administer the oath to each other and to keep a memorial thereof signed by them all.

Far too often in practice lip service only was paid by many bankruptcy commissioners to the fiduciary obligations imposed upon them. It was not uncommon at a time when a voluntary petition was not permitted, for a debtor to collude with a friendly creditor in the presentation of a petition with a view to the appointment of some compliant bankruptcy commissioners. This type of scandalous behaviour brought the whole system into disrepute.

Within days of becoming Lord Chancellor in 1801, Lord Eldon, at one time a bankruptcy commissioner himself, made a statement in open court “expressing strong indignation at the frauds committed under cover of the bankrupt laws, and his determination to repress such practices”. He continued:

“the abuse of the bankrupt law is a disgrace to the country; and it would be better at once to repeal all the statutes than to suffer them to be applied to such purposes. There is no mercy to the estate. Nothing is less thought of than the object of the commission. As they are frequently conducted in the country, they are little more than stock in trade for the commissioners, the assignees, and the solicitor. Instead of solicitors attending to their duty as ministers of the Court for they are so, commissions of bankruptcy are treated as a matter of traffic: A, taking out the commission; B. and C. to be his commissioners. They are considered as stock in trade; and calculations are made, how many commissions can be brought into the partnership. Unless the court holds a strong hand over bankruptcy, particularly as administered in the country, it is itself accessory to as great a nuisance as any known in the land; and known to pass under the forms of its law.”

Picture Credit: Muir Hunter Museum of Bankruptcy, KU (GP).

Debt and Literature

The subject of debt has featured prominently in literature. Portia’s vivid depiction of the fate of a non-paying merchant in Shakespeare’s The Merchant of Venice, is arguably the most famous literary illustration of the consequences of indebtedness. Portia describes what might happen to a fictional Venetian debtor who did not pay their creditor:

 “this bond is forfeit,

And lawfully by this the Jew may claim

A pound of flesh, to be by him cut off”

 Shakespeare may have been influenced by the “terrible law of the Twelve Tables” which advocated a cruel choice for the debtor. The Roman debtor could choose between banishment beyond the Tiber or having their body divided amongst their creditors in proportionate pieces to their respective claims, which has a curious echo in later English insolvency jurisprudence. The debtor and his family could also be imprisoned, chained and pressed into hard labour. Perpetual banishment into foreign slavery beyond the Tiber could also befall a debtor and his family.

Debtor servitude was a feature of many early societies. Forcing a debtor to work to make repayment to his creditor was seen as both a recovery mechanism and a prohibitive measure against irresponsible credit use.

This rather strict approach to debtor treatment by the Romans has a forerunner in the ancients. As Maine observes in the context of early contract law, “I mean the extraordinary and uniform severity of very ancient systems of law to debtors, and the extravagant powers which they lodge with creditors.”

But perhaps the most famous portrayal of debt in literature comes in the nineteenth century and particularly in relation to imprisonment for debt, what Weiss has called, “the Hell of the English.” Classics such as Bronte’s ‘Shirley’, Dickens’ ‘Little Dorrit’ and his ‘Dombey & Son’, Eliot’s ‘Mill on the Floss’, Gaskell’s ‘North and South’; Thackeray’s ‘The Newcomers’ and Trollope’s ‘The Way We Live Now’ all discuss and are frequently critical of the debtors’ prisons. Mr Micawber in Dickens' "David Copperfield" is sent to the King's Bench prison for debt. He is freed following an application under the Act for the Relief of Insolvent Debtors. This perhaps shows a positive side to Dickens' treatment of the insolvency laws.

The critical approach of many of the authors is perhaps best summed up by Johnson who observed:

"Since poverty is punished among us as a crime, it ought at least to be treated with the same lenity as other crimes: the offender ought not to languish at the will of him whom he has offended, but to be allowed some appeal to the justice of his country. There can be no reason why any debtor should be imprisoned, but that he may be compelled to payment; and a term should therefore be fixed, in which the creditor should exhibit his accusation of concealed property. If such property can be discovered, let it be given to the creditor; if the charge is not offered, or cannot be proved, let the prisoner be dismissed." (Idler, no.22, September 16, 1758.)

Picture Credit: Muir Hunter Museum of Bankruptcy, KU (GP).

Saving our collective heritage - Insolvency documents as historical record

The practical application of modern insolvency laws and insolvent estate management is our daily concern. There are however other demands on our professional time. With a never-ending deluge we are immersed with, inter alia, a constant flow of new statutory amendments, new judgments, practice directions, professional guidance, consultation papers, scholarly and practical articles and so forth. It is as much as a busy practitioner can do, after a long day at the office, to reach for her copy of Corporate Rescue & Insolvency on the train journey home, thus ensuring she is up to date on the latest issues. Why then does this blog entry discuss the old law and documents pertinent to our subject? Principally because the cold hand of time is pressing and storage space is at a premium in the Royal Courts of Justice, Insolvency Service and National Archive. Important documents regarding the history of our subject may be lost if a thorough audit is not undertaken speedily.

The importance of bankruptcy records as indicators of social, as well as economic history, is an axiom and work has already been undertaken on the extant bankruptcy records in the National Archive (Marriner) and Guildhall Library (Edwards) as well as more generally (Rubin). This work is encouraging in itself, but not for the picture it presents, for there are already grave lacunas.

No records of bankruptcy proceedings appear to exist prior to 1710 at the National Archive (NA). The bankruptcy materials at the NA are contained within the B1 series, which contains 14 volumes. All other material remains in the Office of the Registrars of Bankruptcy (Giuseppi and Scargill-Bird) and the Insolvency Service, which retains contemporary material, making sporadic deposits at the NA. A full audit must be undertaken to see what other gaps exist in primary source documentation. What material for example did the World War II bomb, which landed on Carey Street, destroy? An audit will hopefully discover what is still extant and also ensure that no important documents from this point onward are lost. There is a pressure on storage space at the current locations. This storage pressure must not cause undiscriminating destruction. The picture is not entirely bleak. The recent deposit of the entire solicitor’s file for the famous Poulson case would have been lost if it had not been retained by one of the solicitors who acted in the case. Happily this set of documents now resides in the NA. The bankruptcy public examination transcripts alone are a mine of information.

The Muir Hunter Museum of Bankruptcy at the Centre for Insolvency Law and Policy, Kingston University, is engaged in a large scale cataloguing exercise of both its own collection and insolvency records held elsewhere (e.g. NA, Office of the Registrars of Bankruptcy, Insolvency Service, Official Receivers offices, local courts, local archives, private archives, etc). It is the primary source material held at these locations that is so very important. How will future practitioners learn from our contemporary experiences if they do not have a full historical record? It would be a tragedy if one of the final position papers presented to the Cork committee on “inter-planetary insolvency” was lost. In three hundred years time when a Martian liquidation is afoot how would our descendants know how the learned committee would have dealt with the issues at stake? More seriously, it is only by shedding a light on the dark recesses of our laws that we can come to appreciate how and why they have developed over time.

Without a full and rigorous historical foundation, we cannot assess our current laws in anything other than a superficial light. An historical examination is of high value as it allows us to scrutinize the development of policy, whether proactive or reactionary, and the mechanisms through which those policies were enunciated from the very foundation of our subject. Furthermore, we can examine how those policies and statutes actually affected debtors, creditors and society in general in an arc over a specified time period. It is only once an elucidation of past approaches and techniques has occurred, and a reconstruction of the aims of the legislature is undertaken, that we can learn and benefit from the experiences of our forefathers. An exposition of the law itself will be achieved, but perhaps also an elucidation of our nation’s history more generally.

If the documentary evidence to help achieve this examination is lost then we are all the poorer for it. The formation of an Insolvency Records Committee, would be welcomed as it will help to ensure that no records of use are lost to both current and future practitioners and scholars alike. The pro bono activity of the practitioner members of this committee would be commended.

The work of the committee will be exacting. There are issues around selection, including most importantly – who has the knowledge to discriminate with such a varied group of documents? Will the selectors been too subjective? Or like magpies, will they hoard vast quantities of superfluous and irrelevant material whilst condemning the gems to oblivion? Storage and retention of the material is also an important consideration. There appears to be no Practice Direction guidance regarding the destruction or retention of insolvency documents. This issue must be addressed. Perhaps the court could be given the power to make an order in each case to destroy the files after 10 years if they are not of national importance. This sort of measure is important especially in the light of the voluminous numbers now passing through the system on the personal side. A yardstick or set of standards for what should be retained must be hammered out.  This is a national issue which also encompasses the local courts with bankruptcy jurisdiction and there is of course a duality of files with both the Official Receiver’s office and Courts both retaining separate sets of files. The Muir Hunter Museum of Bankruptcy will take materials for cataloguing, archiving and storage, but questions around digitisation of the records, confidentiality, Freedom of Information Act considerations and so forth must be considered.

It is hoped that this laudable task is approached with a balance of individuals with the relevant skills and expertise to ensure that appropriate documents are selected. Practitioners themselves are obviously the most important gatekeepers to such a project. If on a day-to-day basis their work brings to the fore a novel and useful point illustrated in a tranche of documents, the task of conservation must fall on them to save it for our collective insolvency heritage, or as with Poulson, to hang on to it for future dissemination.     

Picture Credit: Muir Hunter Museum of Bankruptcy, KU (GP).

The insolvency lexicon – an embarrassment of riches?

The terminology of insolvency law is voluminous. There are at least eight terms of art describing the different species of insolvency practitioner (e.g. officeholder, administrator, nominee, supervisor, trustee in bankruptcy, liquidator, provisional liquidator, receiver, and, administrative receiver). In addition to this superabundance of titles there is also a second important issue regarding terminology and insolvency law, namely, negativity. Insolvency and its associated terms of art have a long history of negative use and perception that continue to percolate through into modern insolvency practice. It could be argued that the seepage of negative terminology from the position of factual insolvency across into the system of legal rules designed to deal with that insolvent estate, namely the law of insolvency, is itself corrosive. For well over 500 years terms of art associated with the legal state of insolvency and what we would now call the law of insolvency have given rise to at best notions of wrongdoing and ill-usage and at worst presumptions of criminal intent. What is it about the law and practice of insolvency that gives rise to such negative perceptions? Does the failure of the financial estate simply carry through to the management, pursuant to the insolvency laws, of that insolvent estate, i.e. is the administering law somehow tainted with what has passed before? The law of insolvency and terms associated with the legal state of impecuniosity have long provided a fruitful source for comment and sometimes derision. These have ranged from negative, such as Lord Mishcon opining that, “insolvency is not a very thrilling or amusing subject” to the more amusing, such as Oscar Wilde observing, “one must have some sort of occupation nowadays. If I hadn’t my debts I shouldn’t have anything to think about.” The damaging baggage of bankruptcy in contemporary thought can conceivably be traced to the work of Charles Dickens and his expositions of imprisonment for debt throughout the 19th century. These separate jurisdictions certainly seem to have been muddled into one in popular perception. However, the negative perception goes much further back to the reign of James I, for in 1624 it was opined that, “the trade of bankrupting is the worm that eateth out the heart of all commerce and trade. Without casual loss, it is a wilful wrong.” Although perhaps, “allowance must be made for the extravagant language of the time.” (Aylmer). Attempts have been made to move away from the negative perceptions. This is most obviously evidenced by the seminal Cork Report’s (Cmnd 8558) huge impact on the underlying purpose of corporate insolvency. The mantra to be repeated following the enactment of the Insolvency Act 1986 would henceforth be: rescue, rescue, rescue. Indeed, the leading professional body that regulates insolvency practitioner changed its name from the Society of Practitioners of Insolvency to the Association of Business Recovery Professionals with a symbol of R3 signifying the three new great virtues of insolvency law: rescue, renewal, and recovery. We no longer have insolvency departments, but corporate recovery specialists, who curiously have personal insolvency work within their ambit. This new approach to insolvency law has brought with it a change in judicial attitudes to the administration of insolvent estates. We now have much more emphasis in the corporate sphere on the so called, “rescue culture”, that “seeks to preserve viable businesses [which] is fundamental to much of the Act of 1986” (Powdrill v. Watson).American use of bankruptcy as a term for both personal and corporate procedures has also muddied the waters on this side of the Atlantic. To the annoyance of many an insolvency practitioner and lawyer, the media use the term frequently in a non-technical sense, i.e. applying it erroneously to companies. This term first entered the legal lexicon in the 1530s and until the late 19th century applied strictly to traders. It has since its genesis perhaps been misused. The judiciary have even been guilty of such misuse - “it is not as if bankruptcy leads to the debtor's incarceration as it might have done 150 years ago. That is not to underplay the unpleasantness, seriousness and stigma of bankruptcy.” (West Bromwich Building Society v Crammer). Learned commentators have also been guilty, in his new layman’s text, Professor Muir Hunter QC notes, “Winding up or liquidation, is the process by which a limited company or a partnership is made bankrupt.” Perhaps this usage sits with the author’s intention to explain the processes in a clear, understandable manner and this brings us to the very crux of the language issue within insolvency law and practice. We might not perhaps want to go as far as Bentham and sweep all of these terms of art away and start afresh; but is the advice giving function of insolvency professionals unduly hampered by our verbose insolvency vocabulary? Perhaps however the technical minutiae and chicanery of this chancery subject may encourage and indeed cause a growing canon of terms to be deployed. 

Picture Credit: Muir Hunter Museum of Bankruptcy, KU (GP).

Bankruptcy and the Death Penalty

The last thing you want when you are on trial for your life is one of your own character witnesses saying that you are, “the greatest rogue in England.” This is what happened to Richard Towne in 1712, the second victim of a bankruptcy statute of 1705 that introduced capital punishment into English law. Severe treatment had come before. From 1604 a debtor could be placed in the pillory for non-disclosure of assets to the Commissioners in Bankruptcy. The debtor’s ear was then nailed to the pillory and cut-off. By the early eighteenth century this treatment was not deemed sufficiently effective, so the treatment was escalated to a pitch of “Gothic Barbarity” implementing the, “heaviest infliction of the law.” From 1705 a debtor could be hung for non-disclosure of his assets. The Old Bailey Session Papers, show that as many as six people may have met such an end.


John Restow was the first person to be tried for contravening the statute of 1705 in 1711. Restow was a Linen draper living in Whitechapel who was declared bankrupt. He attempted to defraud his creditors by moving his goods beyond their reach. He did this in the dead of night using carts to take both his personal and business effects to the riverbank. They were then loaded on to a cargo boat for transference to a sloop anchored at Lee, for onward transmission to an unknown destination, outside the reach of his creditors. Or so Restow thought, for his creditors pursued him and his goods to the sloop. He was imprisoned and found guilty by the jury. He was put to death. 

Richard Towne, a tallow chandler, was the second person to be put to death. Towne fled to Holland with his books of account, goods and writings in an attempt to escape his creditors. He amassed a not inconsiderable sum which included eight hundred guineas. With this booty he boarded a lacquer boat for Holland. The money fell overboard during the voyage whilst Towne was vomiting. But Towne was hampered by his own constitution, sea-sickness and the weather conspiring to hamper his escape attempt. The boat put in to shore whereupon Towne was arrested and subsequently put to death.

William Montgomery was the third person to meet his end in this manner following a trial in 1752. Montgomery had claimed to be living in Rotterdam. He was instead resident in London for the duration of the time he had purportedly been in Rotterdam, “with intent to cheat and defraud his creditors.” Several witness testified to this effect, namely that he had been in London for the entire time, in some instances living, “within twenty yards” of one of his creditors. Montgomery was found guilty and sentenced to death.

In 1756 an embroiderer named Alexander Thompson of Bury Street, Westminster, came before the sessions. He had failed to surrender himself to be examined by his Commissioners in Bankruptcy at the Guildhall, “to make a full discovery and disclosure of his estate and effects, when and where the creditors are to come prepared to prove their debts.” His defence of being in the north of Scotland and therefore being unaware of the bankruptcy commission was not successful and he was sentenced to death.

John Perrott, a lacemaker of Ludgate Hill, was executed at Smithfield in November 1761 for concealing, embezzling and removing his effects. Submitted in evidence against Perrott was the following:

“I went pursuant to the order of Mr Cobb, and Mr Maynard, from the Assignees, to examine his room [in Newgate]; and Mr Hewitt, and Mr. Salkall, went with me. Upon examining an old trunk in his room, I found a bit of cloth, tied up with some white tape; I cut it, and felt something pretty thick; in it was a bit of silk tied up; I opened that, and there I found five half bank notes. I seeing some old print upon one of them, I looked at it, and said, I am sure this is not for less than a thousand pounds…” 

Perrott was sentenced to death upon this evidence and more and was duly hanged.

James Bullock was an early nineteenth century wine and spirit merchant. The problem for Mr Bullock’s creditors was that he fled from his place of abode, “to injure his just creditors.” He also failed to deliver up to his Commissioners in Bankruptcy his goods and effects. He was however allowed, “his necessary wearing apparel and his wife’s and children.” Bullock made a strong defence, as one might expect for a man arguing for his life. Addressing his fellow traders on the jury Bullock observed that the bankruptcy statute under which he was being tried was “severe.” This tension, between the men of the jury, who themselves might one day face the severity of the bankruptcy laws, and the need to ensure full disclosure of assets, must have weighted heavily on the minds of those judging Bullock.

In 1824 the death penalty was reduced to transportation for life or imprisonment and hard labour for a term not exceeding seven years. Often a defendant who was found guilty of a capital offence had his sentence commuted to transportation. To combat this species of bankruptcy fraud the death penalty was seen by the enlightened minds of the early 19th century as being too severe. For a full exposition see here.

Picture Credit: Muir Hunter Museum of Bankruptcy, KU (GP).

The 2008 fourth quarter insolvency figures

The Insolvency Service has published the 2008 fourth quarter insolvency statistics. They make interesting reading. On the personal side, "There were 29,444 individual insolvencies in England and Wales in the fourth quarter of 2008 on a seasonally adjusted basis. This was an increase of 8.2% on the previous quarter and an increase of 18.5% on the same period a year ago." 

The press comment on this has been fairly negative in the main, especially in a recent article by Ross Clark in the Spectator. He cited some of my research in his article. My response letter to his argument that feckless debtors are pushing the insolvency figures upwards was subsequently published in the following edition of the Spectator with some minor editing. Most importantly they did not include a sentence that cited Income Payments Orders (IPOs) and Bankruptcy Restrictions Orders (BROS) as accompanying provisions to the Enterprise Act 2002 discharge reforms which make bankruptcy a relief and rehabilitation tool which is not, when fully considered, especially liberal. As you can see I have argued that the recent increase in the figures is arguably due to the fall out from recent lending activities and not solely due to a group of irresponsible debtors. This species of debtor must however make up some portion of the figures. But they are not the sole driver. 

Adopting a debtor friendly approach or a creditor friendly approach to these vexed issues is problematic and too often people tend to fall down on one side of the fence or other. We must be careful not to draw conclusions without evidence. More research on the drivers of bankruptcy and personal insolvency generally is required, especially in light of the recent upsurge. The ESRC funded work currently being undertaken at Nottingham Trent University in this regard is eagerly awaited. 

In the meantime I offer the following thoughts. The effect of the Enterprise Act 2002 (EA) personal discharge provisions has been hotly debated, with camp one arguing that the statistics cited above show that the reduction in the automatic discharge period from three years to a maximum of one year has given rise to an increase in redress to the insolvency laws. Camp two offers a counterblast based on the premise that the figures are indicative of sustained and heavy credit usage coming home to roost, coincidentally at around the same time as the legislative change. Whether the change in the discharge provisions has encouraged indebted individuals to seek redress to the insolvency laws is a matter for debate, the credit increase figures are however clearly demonstrable. If the change has encouraged anybody, it is not the legislature’s intended recipients, namely entrepreneurs, but consumer debtors. Whether or not the consumer debtor actually chooses to become indebted because of a perceived liberal discharge regime is also a moot point. The other changes encompassed in the EA and elsewhere regarding, inter alia, Income Payment Orders, Bankruptcy Restriction Orders, and so forth must also be factored into the discussion.  

The total bankruptcy figures for the last three years (2004:35,898, 2005:47,291, 2006:62,812) do seem to support the camp one thesis, especially when compared with the three years prior to the enactment of the EA (2001:23,477, 2002: 24,292, 2003: 28,021). But camp two will take solace in the Bank of England overall personal credit level increases for the last ten years.  The second main point on the large increase in personal insolvency statistics must focus on the manifest swelling of the individual voluntary arrangements (IVAs) figures. Total IVA usage for the whole of 1999 (7,195) was just over half that for the first quarter of 2007 (13,233) alone. What has driven this voluminous increase? Is it the camp two credit thesis as outlined above, i.e. credit growth, or something else? 

It has been argued in some quarters that this increase has been driven by the marketing activity of the IVA specialist firms, giving rise to greater awareness of insolvency procedures amongst the wider public. This in turn, so the argument goes, has also had an effect on the bankruptcy increases. Whilst the legislature in enacting the IVA did not have consumer debtors in mind when they enacted the regime, it could be argued that consumer use is not misuse, but a necessary corollary of lending practices, i.e. a pressure valve is needed to relieve the casualties of over-indebtedness and IVAs seem to be answering the call. Space does not allow a discussion of county court administration orders, deeds of arrangement, and the proposed debt relief orders, but clearly these regimes must also be borne in mind. 

According to the latest figures IVAs are still increasing but the rate is slowing. Following the 4th May 2007 statistics release, learned commentators observed that this slowdown was due to the banks tightening up on their IVA approval criteria and that the exponential growth will decrease. This may be true with the full IVA, i.e. the procedure that the 1986 legislation promotes as an alternative to bankruptcy for entrepreneurs, pursuant to the legislature’s original intention. However, with the introduction of a new little brother regime in the coming year or so, i.e. the simple individual voluntary arrangement (SIVA), the two arrangement regimes taken together might even surpass bankruptcy as the predominant personal insolvency choice. 

What is the practical effect of these increases? The first issue to consider must be the re-sourcing of the administrative machinery that has to deal with these insolvent estates, be that the courts, Insolvency Service or insolvency practitioners. Are the courts and the Insolvency Service going to continue to be adequately financed to manage with paperwork volume and such like? Should different forms of financing be mooted? For example, would a levy on the burgeoning IVA specialists be acceptable?  The levy could be used to spread the costs of overall personal insolvent estate administration. Insolvency statistics make interesting reading for a multiplicity of reasons, not least as a marker to determine administration costs as outlined above. However, they also give rise to wider social and economic issues. Are the figures moving us towards a position where we might conclude that personal insolvency is not just a social problem but on a macro-economic level, a full blown economic issue? The recent increases in creditors’ bad debt provision may lead us to such a tentative conclusion.

Picture Credit: Muir Hunter Museum of Bankruptcy, KU (GP).