Scottish Court of Session Decisions

On 15th November 1897 the estates of John M'Gregor Bremner, cycle agent, Aberdeen, were sequestrated by the Lord Ordinary on the Bills. The sequestration was remitted to the Sheriff of Lanarkshire, and William Brodie Galbraith was appointed trustee on the bankrupt's estate.

In February 1900 the bankrupt, whose estate had not realised sufficient to pay any dividend to the creditors, presented a petition in the Sheriff Court at Glasgow for his discharge in terms of the 146th section of the Bankruptcy Act 1856.

A report by the trustee dated 5th December 1839 was produced. In it the trustee stated that after the bankrupt's estates were sequestrated “the bankrupt gave up a state of his affairs which showed—Liabilities, £2392, 11s. 5d.; assets, £1621, 15s., showing a deficiency of £770, 16s. 5d. after deducting preferable claims. In the month of June 1897 the bankrupt converted his business into a limited company, the terms of sale being that he was to receive £3079— £2079 in cash, and the balance of £1000 by an allotment of shares. He received the purchase price in the manner indicated, but he paid away the whole cash received in liquidating his liabilities, and the 1000 shares allotted to the bankrupt as part of the purchase price have realised nothing. Under these circumstances, therefore, the bankrupt's estate has not realised sufficient to meet the expenses of sequestration and the trustee's fee. The trustee has further to report that the bankrupt has attended the diets of examination, and complied with all the provisions of the statute; that he has made a satisfactory discovery and surrender of his estates; that he has not been guilty of any collusion, and that the bankruptcy has arisen from innocent misfortunes or losses in business, and not from culpable or undue conduct.

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No creditor appeared to oppose the application.

The Bankruptcy (Scotland) Act 1856 (19 and 20 Vict. cap. 79), sec. 146 (which deals with the discharge of a bankrupt without compensation, and provides that a bankrupt may be discharged with consent of his creditors, and after two years without consent), enacts, inter alia, as follows:— … “And the bankrupt may also present such petition on the expiration of two years from the date of the deliverance actually awarding sequestration without any consents of creditors; and the Lord Ordinary or the Sheriff, as the case may be, shall in each of the cases aforesaid order the petition to be intimated in the Gazette and to each creditor; and if, at the distance of not less than twenty-one days from the publication of such intimation, and on evidence being produced of concurrence as aforesaid, where such concurrence is required, there be no appearance to oppose the same, the Lord Ordinary, or the Sheriff, as the case may be, shall pronounce a deliverance finding the bankrupt entitled to a discharge; but if appearance be made by any of the creditors or by the trustee, the Lord Ordinary or the Sheriff, as the case may be, shall judge of any objections against granting the discharge, and shall either find the bankrupt entitled to his discharge, or refuse the discharge, or defer the consideration of the same for such period as he may think proper, and may annex such conditions thereto as the justice of the case may require: Provided that no discharge shall be granted to the bankrupt where under the provisions of this Act he is only entitled to apply for a decree of cessio; and provided also, that it shall not be competent for the bankrupt to present a petition for his discharge, or to obtain any consent of any creditor to such discharge, until the trustee shall have prepared a report with regard to the conduct of the bankrupt, and to shew how far he has complied with the provisions of this Act, and in particular whether the bankrupt has made a fair discovery and surrender of his estate, and whether he has attended the diets of examination, and whether he has been guilty of any collusion, and whether his bankruptcy has arisen from innocent misfortunes or losses in business, or from culpable or undue conduct; and such report may be prepared by the trustee, upon the requisition of the bankrupt, at any time after the bankrupt's examination, but shall not be demandable from the trustee till the expiration of five months from the date of the deliverance actually awarding sequestration; and such report shall be produced in the proceedings for the bankrupt's discharge, and shall be referred to by its date, or by other direct reference, in any consent to his discharge.”

The Bankruptcy and Cessio (Scotland) Act 1881 (44 and 45 Vict. cap. 22), enacts as follows:— Section 6 — “Notwithstanding anything contained in the Bankruptcy Acts the following provisions shall have effect with respect to bankrupts undischarged at the commencement of this Act, and to bankrupts whose estates may be thereafter sequestrated, that is to say (1) A bankrupt shall not at any time be entitled to be discharged of his debts, unless it is proved to the Lord Ordinary or the Sheriff, as the case may be, that one of the following conditions has been fulfilled: ( a) That a dividend or composition of not less than five shillings in the pound has been paid out of the estate of the bankrupt, or that security for payment thereof has been found to the satisfaction of the creditors; or ( b) That the failure to pay five shillings in the pound, as aforesaid, has in the opinion of the Lord Ordinary or the Sheriff, as the case may be, arisen from circumstances for which the bankrupt cannot justly be held responsible. (2) In order to determine whether either of the foresaid conditions has been fulfilled, the Lord Ordinary or the Sheriff, as the case may be, shall have power to require the bankrupt to submit such evidence as he may think necessary, in addition to the declarations or oaths, as the case may be, made by the bankrupt under sections one hundred and forty and one hundred and forty-seven of the Bankruptcy (Scotland) Act 1856 (19 and 20 Vict. cap. 79), and the report made by the trustee under section one hundred and forty-six of the said Act, and to allow any objecting creditor or creditors such proof as he may think right.” …

On 10th February 1900 the Sheriff-Substitute ( Spens) ordered a copy of the petition and the trustee's report to be sent to the Accountant of Court in order that he might have an opportunity of reporting whether the bankrupt had fraudulently concealed any part of his estate or effects, or whether he had wilfully failed to comply with any of the provisions of the Bankruptcy Statutes.

On 27th February the Accountant of Court reported that “in his opinion the trustee's report, so far as regards the two points specified in the Sheriff's interlocutor, is correct, and that there is nothing unfavourable to the bankrupt to report on these two heads. No dividend has been paid to the creditors.”

On 14th March the Sheriff-Substitute ( Guthrie) allowed the petitioner a proof to instruct that the failure to pay 5s. in the £ had arisen from circumstances for which he could not justly be held responsible.

The bankrupt and the trustee were examined at the proof. Their evidence showed that on his appointment the trustee made up a state of affairs showing liabilities £2698, 14s. 2d. and assets £2552, 14s. 2d., estimated to realise £1156, 19s. 2d., and that the failure to pay 5s. in the £ was occasioned by the book-debts of the bankrupt, estimated to realise £457, realising £300 short of the estimate, and 1000 shares of £1 each in a cycle company called Bremner & Company, Limited, which formed part of the bankrupt's estate estimated to realise £400, realising nothing at all.

The trustee deponed that if the bankrupt had stopped payment at the time when his business was turned into a company

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he would have paid more than 5s. in the £.

On 24th April the Sheriff-Substitute ( Guthrie) pronounced the following interlocutor:—“Finds that it is not proved that the petitioner's failure to pay or secure to his creditors a dividend of 5s. in the £ is due to causes for which he cannot justly be held responsible: Therefore dismisses the petition, and decerns.”

Note.—“ Reference is made to the note to the interlocutor of yesterday's date in D. G. L.'s Petition for Discharge.”

Note referred to:— “It often seems to be forgotten in applications like this that the Act of 1881 contains a very stringent provision with regard to the discharge of bankrupts, and very often a bankrupt appears with a young agent and presents very vague and unsatisfactory evidence in support of his petition for discharge. A heavy onus lies on the bankrupt where he does not pay 5s. in the £, and I am afraid that in many cases the onus is not discharged, and the discharge is granted in direct violation of the statute. I am unwilling to adopt a harsher construction of the statute than has been usual, and in most cases I have adhered as closely as I could to the existing practice. But bankrupt's agents must be warned that the Act has to be enforced, and that a mere good-natured statement by the trustee glossing over a course of reckless trading, or a general statement that the bankrupt has made a full disclosure and has given all assistance in realising, are quite irrelevant and insufficient. At the same time I consider that the Act often presses too hardly, and I have, after some hesitation, come to think that it is one thing to find that the bankrupt can be ‘justly held responsible’ at the date of the bankruptcy, and another that he can be justly held responsible five or ten or fifteen years afterwards. The words ‘at any time’ in the beginning of the clause of the Act of 1881 may be thought to exclude this view, and may even have been introduced with that intention. But I think that it is fair to read the Act as meaning that the bankrupt's ‘responsibility’ is to be estimated at the date of the petition being presented or adjudicated upon, and until better advised I propose to act on that interpretation.” …

The petitioner appealed, and argued that his inability to pay a dividend had been brought about by the depression in the cycle trade, for which he was not responsible.