History of Bankruptcy – Part 6

Written by: Robert DeMarco

Bankruptcy Laws of England – Elizabethan Era

The first bankruptcy law, promulgated in 1542 under the reign of Henry VIII, was a remedy designed solely for the benefit of the creditor and directed at merchants and tradesmen. 34 & 35 Hen. VIII, c. 4 (1542). The 1542 Act, entitled “An Act Against Such Persons as Do Make Bankrupt,” was an involuntary proceeding initiated by the creditors in order to facilitate the complete liquidation of all of the debtor’s holdings. The preamble and section I of the 1542 Act provide ample insight into how debtors of the day were perceived as well as the ramifications of being declared a bankrupt:

Where divers and sundry persons craftily obtaining into their hands great substance of other men’s goods do suddenly flee to parts unknown or keep their houses, not minding to pay or restore to any their creditors their debts and duties, but at their own will and pleasure consume the substance obtained by credit of other men, for their own pleasure and delicate living, against all reason, equity and good conscience …the Lord Chancellor … shall have power and authority by virtue of this Act to take … imprisonment of their bodies or otherwise, as also with their [real and personal property however held] and to make sale of said [real and personal property however held] for true satisfaction and payment of the said creditors, that is to say; to every of the said creditors a portion, rate and rate like, according to the quantity of their debt.

34 & 35 Hen. VIII, c. 4. (1542). Perhaps of greater import, however, is what the 1542 Act did not address. The 1542 Act did not discharge the debtor nor did it exempt future earnings or acquisitions of the debtor from execution for the debt. 34 & 35 Hen. VIII, c. 4 (1542); see generally, Tabb, Charles Jordan, The Historical Evolution of the Bankruptcy Discharge, 65 Am. Bankr. L. J. 325, 331-2 (1991).

The 1542 Act was followed by 13 Eliz., c. 7 (1570). The preamble of the 1570 Act exemplifies the frustration England faced in dealing with bankrupts.

[T]hose kind of persons have and do still increase into great and excessive numbers, and are like more to do, if some better provision not be made for the Repression of them; and for a plain declaration to be made and set forth who is and ought to be taken and demand for bankrupt….

13 Eliz., c. 7 (1570). While it had been the general practice under the 1542 Act to limit its application to merchants and tradesmen, the 1570 Act codified the practice. The 1570 Act is distinct from the 1542 Act in two very important aspects. First, the 1570 Act strengthened the provision respecting fraudulent transfers. No longer would the Commissioner have to settle for turnover of the asset fraudulently transferred. The Commissioner was entitled to collect double the loss to the estate. 13 Eliz. C. 7, sec. VI (1570). Second, the 1570 Act created a perpetual bankruptcy estate. If after liquidation of all of the bankrupt’s assets there was a remainder still owing, not only was that remainder not discharged, but the Commissioner retained the right and authority to seize and sell any property subsequently acquired (by any means) by the bankrupt until all creditors were paid in full. 13 Eliz. C. 7, sec. X (1570).

DATED:  July 6, 2013

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