Saturday, February 28, 2009

History of Bankruptcy Discharge

Having disposed of Justice de Grey,  I can now happily return to work on a piece on the origin of bankruptcy discharge in eighteenth-century England.  The Act of 4 & 5 Anne which included the first discharge provision was passed in mid-March 1706, though the literature often lists it as 1705.  Until 1752, England used Easter dating, where March 25 was the first day of the new year, so an act officially dated March 1705, actually--as far as we would date things--happened in March 1706.  Unfortunately, most of the main events in the story of this Act occurred in the first part of the year, and to complicate matters, some newspapers did not use Easter dating, so putting together a chronology of the documents has been a bit of a hassle.  I just want to mention a few intriguing aspects of the Act.  The impetus for it was the truly spectacular scam of a certain wholesale clothier named Thomas Pitkin.  Along with some accomplices, Pitkin gathered a lot (some sources say £70,000, others say £100,000) of cloth and other merchandise on credit, then hid it and absconded.  I've located some letters obligatory that he drew very shortly before fleeing, so I suspect he was gathering in cash, as well.  In any event, his fraud fell apart within days after he disappeared (or maybe it didn't.  There is a complaint in the manuscript journal of the House of Lords a year later that Pitkin's main partner in crime, Thomas Brerewood, was riding around town in his coach claiming that the creditors were the ones who were dishonest.  Also Pitkin appears to have gotten off scot free).  Pitkin's creditors petitioned Parliament for a statute condemning him and trying to get them their money back.  Parliament passed this law in March 1705.  In the debates in the House of Lords, one member proposed adding a more general clause addressed to fraudulent bankruptcy, but it was rejected.  (This is not apparent in the printed journal but only in the manuscript committee minutes.)   The House then ordered the common law judges to draw up a bill based on the rejected clause, and two days later an Act to prevent frauds frequently committed by bankrupts was read for the first time.  The House of Lords passed it, and sent it to the House of Commons, which had not read it the requisite number of times before Parliament was prorogued on March 14.  Virtually the same bill was re-introduced and read once in the House of Lords in November 1705 but was then dropped in favor of a longer version raised in the House of Commons in early 1706.  That version eventually became law in March 1706.

Fraudulent bankruptcy, it should be noted, had nothing to do with how the debtor became a bankrupt.  Thomas Pitkin could have pulled off his scam and yet still not been a fraudulent bankrupt, because fraudulent bankruptcy was committed if, after the creditors put the debtor into bankruptcy (it was not a voluntary procedure), the debtor did not follow the statutes to the letter in turning over his assets and books, submitting to be examined, and otherwise fully cooperating with the bankruptcy commissioners.

What is interesting about the 1706 bankruptcy bill, besides the fact that it arose somewhat accidentally, is that, first, it included not only discharge but also a provision making fraudulent bankruptcy a capital crime for the first time.  The interconnection between the carrot of discharge and the stick of the death penalty has not been given much attention.  The second interesting thing, related to the first, is that the original draft of the bill, from March 1705, had neither discharge nor capital punishment.  The Lords amended the judges' version--which had provided for life imprisonment and regular pillorying--to make fraudulent bankruptcy a felony without benefit of clergy (i.e., a capital crime).  That punishment provision actually fell out of the November 1705 draft, but it was replaced in the House bill.  Discharge appeared toward the end of the  legislative process, though because the House of Commons papers from the period are gone, it's not clear exactly when.  What is clear is that there was a certain amount of resistance to the concept.  As one merchant said in his testimony before the Lords in opposition to the discharge provision, "on his [the debtor's] oath swearing he delivers up all, he is discharged.  The debtor is here made judge, jury and all by his own oath." It's also clear that it was not a new idea.  Bankruptcy advocates had been talking about discharge since at least the late 17th century.  Discharge proved so unpopular that the following year the Act was amended to make it significantly harder to obtain.  For the next century or so, there was the phenomenon of the undischarged bankrupt: the debtor who had given over all his assets to the creditors, made a full disclosure, and still did not get his discharge.  Finally, the Act was written with a sunset provision.  That was one of the two original amendments put into the March 1705 Lords version, and the clause remained in the final bill.  Discharge (and the death penalty) were meant to be temporary, and at one point they were allowed to lapse.  But they were reinstated in 1718.  Between 1712 and 1813, four men were hanged for fraudulent bankruptcy.  Capital punishment was finally abolished in 1820, when punishment was made transportation for life or imprisonment at hard labor for up to seven years.  Discharge became a cornerstone of modern bankruptcy law. 

And now, my month of guest blogging being up, I will discharge my duty of thanking Mary and Dan for this opportunity.  It has been fun.

1 comment:

Charles Gittings said...

Your posts have been very interesting Emily.