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Practical Suggestions for the Amendment of the Bankrupt Law of Scotland.* By JAMES M'CLELLAND, President of the Institute of Accountants and Actuaries, Glasgow.

THE movement for the reform of the bankrupt law, which excited for some years so much attention in legal and mercantile circles, both in England and Scotland, resulted, so far as the latter country was concerned, in the enactment of the statute of 1856. This Act has done much for the amendment and improvement of the law, has introduced changes highly beneficial to the public, works expeditiously and economically, gives the creditors thorough possession and control of property wherever situated in the three kingdoms, effectually superintends, through the new office of Accountant in Bankruptcy, the management by trustees, and at the same time gives fair protection to the unfortunate trader, whose embarrassments may have arisen from mistaken judgment or unforeseen events, while it exercises a beneficial control over all traders whose transactions are shown to have been of an unfair or dishonest character. From the returns of Mr. Esson, the accomplished Accountant in Bankruptcy, it appears that the normal age average of a sequestration is about two years; that the expense of management, including all legal expenses, averages about 16 per cent.; and that the realisation for division among the creditors averages about 78 per cent. of the funds administered and collected. These returns show great improvements on the experience of former Acts, and prove the operation of the new law to be most beneficial for the commercial community.

Many parties in the West of Scotland, where nearly two-thirds of the cases in bankruptcy are administered, think there are some additions to, and amendments of, the law still necessary, which it is the object of this Paper briefly to bring under the notice of the Association. The first of these amendments relates to an alteration of the law for the administration of trusts sanctioned by the Act of 1856. Accession to Private Trusts.-Under this Act there are arrangement clauses, the object of which is, on certain conditions, to enable the creditors to stay proceedings, and realize the estate under a trust or deed of arrangement. Professional Trustees have found so many obstacles occur in accomplishing the object the statute has in view, that they have been obliged in many cases to abandon proceedings, and, to the loss of creditors, work out the sequestration in the ordinary manner under the Act.

The clauses alluded to imply, however, that sequestration must always be resorted to as an initiatory step, and on this account they have been found to be difficult to work in practice, and to lead in many cases to serious deterioration of the assets, and have hitherto been rarely resorted to, so much so that it is understood that out of 3,000 sequestrations which have been awarded since the passing of the Act of 1856, only 61 cases have occurred where the clauses in question have come into operation.

*For references to the Transactions on this subject see foot note, page 188.

Now, frequent cases of insolvency occur in which sequestration would often be fatal to the interests of the creditors. Under the present law, to wind up the estate extrajudicially, the concurrence of every creditor is needed. A creditor for £50, refusing to concur in the proceedings of the general body for winding up under trust, has the power of placing any concern, of whatever magnitude, under sequestration.

The power thus held by a single creditor often operates very prejudicially. In such trades as iron and wood ship-building, iron founding, manufacture of steam-engines, railway, gas and water plant, and in iron and coal mining operations, great loss would often be caused by sequestration, involving, as it does, sometimes the forfeiture and sometimes the abandonment of favourable contracts and leases, and thus rendering the large capital invested in such establishments comparatively valueless, when detached from such contracts and leases.

In our large and increasing foreign trade, cases often occur in which the assets lie on one side of the world and the debts on another. It will be obvious, even to the uninitiated, that bankruptcy, in the majority of these cases, must prove very detrimental to the interests of the creditors.

The remedy proposed for this state of matters is to engraft on our present bankrupt law the clauses contained in the Act of 1861 for England, applicable to trust deeds, executed for the benefit of creditors, for compositions, and for what are called in that country inspectorship deeds.

The chief points embodied in these clauses are:—

1. That a majority in number, representing three-fourths in value of the creditors of £10 and upwards of a debtor, shall approve of the deed.

2. That trustees, appointed under such deeds, shall concur in and execute the same.

3. That the deed shall be published under certain notices, and registered.

4. That the debtor shall make oath that the proposed concurrence has been obtained, which shall also be certified by the trustee.

5. That thereupon possession of the insolvent's property shall pass to the trustee, and that the management shall be subject to supervision of the Bankruptcy Court, as if the proceedings had been conducted under the Act.

These clauses have been found to work beneficially for all parties, as amply shown by the return of cases occurring under the new law, since its adoption in 1861.

It appears that for the year ending 1862, the number of bankruptcies and insolvencies, coming under the Act, were 12,457, of which there were worked under the Act, 9,549; and under the trust deed clauses, 2,908; total, 12,457.

It appears then that in one year, under the English law, about

25 per cent. of insolvent cases have taken advantage of the clauses alluded to; while under our law only 2 per cent. have done so in five years.

The views now expressed in regard to the amendment of this portion of the bankrupt law have been carefully considered by various public bodies in Glasgow, including the Merchants' House, the Chamber of Commerce, the Faculty of Procurators, and the Institute of Accountants and Actuaries, and with their practical knowledge of the working of the laws of bankruptcy and insolvency, all of them have come to the conclusion that the proposed assimilation of this portion of the Bankrupt Law of Scotland with that of England would be highly beneficial.

Distribution of the Assets of the Partners of an Insolvent Company. According to the law on the subject now existing in Scotland, the assets of the partner of a company are applied in payment of his own individual debts, pari passu with the debts owing by the company, diminished only by the company assets. The condition of Scotland, and the state of trade at the period when the law prescribing the above mode of banking was made, are so different from the combinations and extent of trade as now existing, that it is thought the time has come for dealing with this question of the private assets of a partnership in a different manner from what they have hitherto been dealt with. In former times, the bankruptcies occurring were, in the great majority of cases, parties carrying on business in their individual capacity. These cases were the rule, the insolvencies of parties associated for trade as companies were the exception. In the present day the rule is entirely altered. Trade and all descriptions of business have so much increased, with so many ramifications and stupendous interests, and the division of labour is so great, that it is found to be absolutely necessary that associations of more than one individual should take place to profitably carry on trade or merchandise.

When a bankruptcy occurs in one of these associated firms, the individual partners always owe private debts of greater or less amount, and it is generally found that the only assets belonging to them are household effects. The value of these generally amounts to a very moderate sum, and after exhausting the company assets the creditors of the company have the right of proving on the individual estates along with the private debts of the partners. It is clear from the operation of the law as it now stands, that the creditor of the private estate will get a mere pittance in dividend, while the joint or company creditors will carry off the largest share. It is believed that this state of the law works very injuriously for a large class of industrious tradesmen who supply the partners with the necessaries, clothing, and luxuries of life, and in coming to claim in bankruptcy the tradesmen find a mere pittance set apart for them in payment of family supplies.

To remedy this state of matters, the bankrupt often appeals to relations and friends to supply the necessary funds to clear off such debts, and failing such appeal it is not uncommon to find, that anticipating a suspension of payments, the partner, without relation to company necessities, draws funds from the common till, sufficient to pay individual responsibilities. When the suspension occurs and the cash-book comes to be looked into, such abstraction of the funds produces an uneasy feeling in the minds of creditors, and one hostile to the debtor. The present state of the law, and the desire on the part of the debtor to preserve credit in his family with the tradesmen with whom he is dealing, make it a sort of temptation for him to commit this delinquency.

The remedy for this state of matters has long been recognised in the Statute Law of England. In that country the law says that the separate or private assets of a debtor, having one or more partners in the trade or business carried on, shall be applied, in the first place, in liquidation of his private debts, and after the liquidation of such debts, should a reversion of assets arise, the proceeds thereof are handed over for distribution among the joint or company creditors. From inquiries made among the leading solicitors practically engaged in the administration of the bankrupt law throughout the centres of population, including London, it is found that this portion of the English bankrupt law works equitably and efficiently in by far the largest portion of cases coming under the Act.

Taking, therefore, the experience of England, the remedy proposed is to assimilate on this head the laws of the two countries, and in any amendment of the present Bankrupt Act for Scotland, to enact that the assets of the individual partners of a company should, under sequestration, be applied to the payment of private debts, and that the surplus of assets, if any, should be handed over for division among the joint or company creditors.

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Administration of Assets of Bankrupt Estates in Foreign Countries and Colonial Settlements.-All parties who are in the least degree cognisant of the working of estates under bankruptcy are that the greatest difficulty often prevails in administration of assets situated in foreign countries belonging to creditors. The utmost difficulty has been found in the management of this important branch of bankruptcy.

The machinery under the present statute is ample for such management when the property is situated in any portion of the three kingdoms, and gives the creditors unlimited control over every portion of such property of the bankrupt.

The statute also provides for the recognition of the trustee's title in all Her Majesty's colonial possessions; but it is generally found that this enactment is insufficient to give the trustee a proper control, though the necessity of such control over the management and collection of the assets is apparent when, as it often happens, the debts and obligations of a company are owing in Great Britain, while the property and assets are all situated in foreign coun