must apply to the court for authority and instructions. He is responsible for all his acts directly to the court appointing him, until he is finally discharged. He is not relieved, however, from liabilities incurred toward third parties. He is also liable for any fraud or negligence resulting in injury to the property subject to his management. To assure faithful performance of his duties, a receiver is usually required to execute a bond, the amount of which is fixed by the court and is determined by the value of the property to be entrusted to his care. Receivers are also required to account to the court for all receipts and disbursements and are permitted to make no expenditures which will seriously diminish the funds entrusted to their charge without the consent of the court. Courts of equity are particularly strict in their requirements of accounts and records. Receivers cannot even be compelled to account to any party to a suit except through the intervention of the court. Compensation of Receivers.-A receiver in bankruptcy under the Federal Act, when conducting the business, may receive an amount as the court shall allow, not exceeding 6 per cent on the first $500 disbursed to creditors by them directly or through the trustee to whom such moneys and property were turned over by the receiver; 4 per cent on an amount in excess of $500 and less than $1,500, 2 per cent on that from $1,500 to $10,000, and 1 per cent on amounts exceeding $10,000. In event of a composition settlement, his compensation is limited to onehalf of 1 per cent on the amount paid creditors. When acting as a mere custodian of the property and not carrying on the business, his commission is limited to 2 per cent on all disbursements up to $1,000 and one-half of 1 per cent on amounts in excess of $1,000. With respect to receivers in equity, some states regulate by law the matter of compensation, while in most states it is left entirely within the discretion of the court from which the appointment is derived, and is determined by the circumstances of the particular case. Some receivers under certain circumstances may be ordered, or may voluntarily consent, to serve without a salary. The fees of receivers appointed by Federal courts of equity are also left entirely within the discretion of the court. Because of absence of statutory provisions regulating fees of receivers in equity, their compensation frequently exceeds the corresponding fees allowed in bankruptcy. A second probable explanation lies in the difference in the scope of activity. Termination of Receiverships.-A receiver in bankruptcy remains in control of the bankrupt's estate until the first meeting of creditors which is to be called within 30, but not less than 10, days after the debtor has been adjudged a bankrupt. At this meeting a trustee is elected to whom all assets belonging to the insolvent estate in the possession of the receivers are transferred immediately. In all equity cases, receiverships are terminated by the appointing court when the necessity for the office ceases to exist. The cessation of the necessity for a receiver's functions does not in itself discharge the receiver. A formal order must be issued by the court to that effect either on his own application, when showing justifiable cause for the granting of the discharge, or by authority of the court itself to terminate that which it has itself created. SELECTED REFERENCES BREWSTER, S. F.: "Legal Aspects of Credit," Pt. VII, chaps. 38 and 39. Federal Bankruptcy Act, chap. 5. HAGERTY, J. E.: "Mercantile Credit," Chap. 20. LYON, H.: "Corporation Finance," Pt. II, pp. 223–230. CHAPTER XXVI BANKRUPTCY Conception of the Term.-The etymology of the word "bankruptcy" is somewhat in dispute. Among the various explanations offered is the following, which seems both plausible and authoritative. During the existence of the temple in Jerusalem, Hebraic custom required the deposit in the temple on certain occasions of sums of money. This money had to be in Hebraic currency, but since Roman coins were generally used at the time, money changers established places of business consisting of tables or benches (banks) on which they displayed their supply of Hebraic coins which were to be exchanged for Roman money. Money lending was another function which was later added to the practice of money changing. Some of these ventures proved unsuccessful and creditors, therefore, drove the failing money lender from his table or bench. Thus, he found himself "bench-broken" or "bench-rupted," bankrupted.1 Bankruptcy today, not unlike the days described in the preceding paragraph, consists of a condition coupled with an outward act. The condition is insolvency of the debtor, while the outward action to indicate the existence of that condition is a decree of bankruptcy handed down by a bankruptcy court instead of a physical act of destroying the bench. Thus, bankruptcy may be defined as a legal process whereby an insolvent debtor is declared a bankrupt, and his assets seized and equitably distributed among his creditors, after which he is discharged from further liability. Early Legislation.-During the early days of the American Republic no crime brought so many to the jails and prisons as the crime of debt. Persons likely to get into debt were for the most part defenseless and dependent, and consisted of the great body of artisans, laborers, and servants. As one historian put it, "one hundred years ago the laborer who fell from a scaffold or lay sick of a fever was sure to be seized by the sheriff the 1 Ettinger and GOLIEB, "Credits and Collections," pp. 331-332, moment he recovered and be carried to jail for the bill of a few dollars, which had been running up during his illness at the huckster's or the tavern." The early laws were of a drastic nature, designed primarily for the protection of creditors. Because of the dependency of most debtors on their daily wages for their daily subsistence, a creditor's right of action against a debtor's property bore little significance. Hence, the surrender of the person of the debtor for his imprisonment was considered necessary to protect the interests of creditors. Many of the early bankruptcy laws provided the death penalty for the debtor and this was commonly imposed prior to the nineteenth century. No debtor had the right to petition himself into bankruptcy and be discharged from his obligations. The laws merely provided that creditors could under certain circumstances throw the debtor into bankruptcy, seize his property, and divide it among themselves. The balance had to be paid thereafter in the best way possible, else the debtor went to jail or prison. Nineteenth Century Legislation.-Beginning with the nineteenth century, the views respecting the relationship between debtors and creditors underwent a decided change. The spirit of commercial interdependence had given rise to the idea that the creditor is in a sense a partner of the debtor. In accordance with this development and with the conception of business ethics, a more humanitarian feeling toward insolvent debtors was implanted in the hearts of the public at large, and new laws were consequently passed, first prohibiting the death penalty, and later abolishing imprisonment for debt. These laws merely held the debtor responsible to the extent of the amount of the property he possessed at time of failure. Today the commercial world has progressed even much farther than the law. Creditors have established organizations, called "adjustment bureaus" and described elsewhere, for the assistance of failing but honest debtors, where cases are settled in a friendly manner without the publicity, expense, and delay of the courts attending bankruptcy proceedings. These quasi-public organizations not only cause the best results to be realized expeditiously, but also aid the debtor, in that they obviate the necessity of placing upon him the stigma of bankruptcy. Article 1, Section 8, of the United States Constitution, provides that "Congress shall have power to establish . . . uniform laws on the subject of bankruptcy throughout the United States." This has been interpreted to mean that a Federal Bankruptcy Act supersedes any act of the states, although the right to make a general assignment for the benefit of creditors is not precluded by the passage of the Federal Bankruptcy Act. Statutes providing for the discharge of a debtor from further liability, either to all creditors or to those who have actually proved their claims, upon the assignment of his property for their benefit, are entirely suspended by the Federal act.2 Under the power granted by the aforementioned clause of the United States Constitution, Congress has passed four different bankruptcy acts, in 1800, 1841, 1867, and 1898, respectively. The one in effect at the present time is that passed in 1898, and amended in 1903, in 1906, and in 1910. Purposes of Bankruptcy Legislation.-Obviously, the necessity for bankruptcy legislation arises from the nature of presentday trade and is based on the principle that much of our commerce is built on credit and that credit implies risk. Accordingly, the most honorable merchant may be ruined without actually committing any crime. It is to relieve such an honest debtor from the load of his debt and to save him from going to an almshouse, as well as to distinguish between fraudulent bankruptcies and honest misfortunes, that bankruptcy legislation has been enacted. The purposes of present-day bankruptcy proceedings may be summarized as follows: 1. To establish judicially the insolvency of debtors. 2. To provide facilities for locating and collecting the debtor's assets, either upon his own request or that of his creditors. 3. To provide for the uniform administration of insolvent estates by taking such administration out of the hands of state courts. 4. To provide remedies and punishments to insure the orderly administration of the properties in accordance with the intention of the law. 5. To provide means whereby the debtor may, upon agreement of his creditors, retain his assets on payment of a certain agreed percentage of his indebtedness. 6. To effect a distribution of the bankrupt's assets equitably among the creditors. 7. To discharge debtors, if not guilty of fraud, from further 2 BREWSTER, S. F., "Legal Aspects of Credit," p. 500. |