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The History of Bankruptcy

Updated on September 5, 2009

Bankruptcy legislation in Britain may be said to begin with a statute of Henry VIII, passed in 1542, which was designed solely to afford relief to the creditors of fraudulent debtors. The first recognition of bankruptcy as distinguished from fraudulent debt appears in an act (1571) of Elizabeth I which provided for the sale for the benefit of his creditors of the goods of a trader who failed to meet his obligations. By acts passed in 1706 and 1712 bankrupts who had paid a dividend might, with the consent of their creditors, be discharged by the Court of Chancery, where bankruptcy jurisdiction lay until a special Court of Bankruptcy was created in 1831. By an act of 1849 composition by arrangement was made possible, and by 1861, the bankruptcy laws covered all insolvents.

Two important acts were passed in 1869, one remodeling the Bankruptcy Court and empowering the county courts to deal with local cases, and the other virtually abolishing imprisonment for debt. Severe punishment of fraudulent debtors was provided for by an act of 1883, which also empowered the Board of Trade to appoint official receivers. The bankruptcy laws were further modified in 1890 and 1913, and existing law is to be found mainly in the consolidating Bankruptcy Act, 1914, as amended by the Bankruptcy (Amendment) Act, 1926, together with the Bankruptcy Rules made under the 1914 act.

Jurisdiction in bankruptcy since the 1914 act lies in the High Court of Justice and such county courts as have not been excluded by order of the lord chancellor. The King's Bench division exercised this jurisdiction until 1921, when it was transferred to the Chancery division. General supervision of bankruptcy administration is the responsibility of the Board of Trade.

In general, any debtor may, in certain circumstances which are defined in the 1914 act, be made bankrupt in England and Wales. Any court having jurisdiction in bankruptcy cases in the district in which a debtor resides or carries on business may make a receiving order against him, either on his own petition, or on that of creditors whose claims amount to £50 or over, and the "acts of bankruptcy" on which the petition is to be founded are defined in the 1914 act. As soon as a receiving order is made, an official receiver is placed in charge of the debtor's property, and the debtor must submit a statement of his affairs to the official receiver. A meeting of creditors is then summoned by the official receiver to decide whether the court should be asked to adjudge the debtor bankrupt. Bankrupt estates are administered by trustees appointed by a majority in value of the creditors.

In Scotland, where bankruptcy was placed on a legal footing by an act of 1696, the estate of a debtor is realized and distributed among his creditors in a process of sequestration governed by the Bankruptcy (Scotland) Act of 1913. This process of sequestration is similar in most important ways to the English bankruptcy process.

Bankruptcy laws in the other Commonwealth countries closely follow the English Bankruptcy Acts. Much of the bankruptcy legislation of these countries is now embodied in consolidating acts, most of which were later amended.

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