Bankruptcy in UK Law

If the debtor was adjudicated bankrupt, then as from the date of the act of bankruptcy neither the debtor nor any such person claiming under him who could not bring himself within the protective provisions of the Bankruptcy Acts had any title at all; as from that date title was vested in the trustee. Outside the law of bankruptcy no similar ambulatory title was known to the law.

These, in effect, are the considerations dwelt on in the authorities to which I have referred, and they amply account for the strictness of the rule against "extortion" which has been laid down and firmly maintained by the Courts in bankruptcy, and for the penalty for breach of that rule which it has been found necessary to provide in the shape of disqualification from founding any subsequent bankruptcy proceedings, upon any debt in relation to which a charge of "extortionate" conduct has been made good.

The respondents relied in the alternative, on the second issue, on the inherent jurisdiction of the Grand Court. If the Grand Court had no statutory jurisdiction to act in aid of a foreign bankruptcy it might have had some limited inherent power to do so. But it cannot have had inherent jurisdiction to exercise the extraordinary powers conferred by section 107 of its Bankruptcy Law in circumstances not falling within the terms of that section.

The purpose of bankruptcy proceedings, on the other hand, is not to determine or establish the existence of rights, but to provide a mechanism of collective execution against the property of the debtor by creditors whose rights are admitted or established.

The important point is that bankruptcy, whether personal or corporate, is a collective proceeding to enforce rights and not to establish them. But these again are incidental procedural matters and not central to the purpose of the proceedings.

The English common law has traditionally taken the view that fairness between creditors requires that, ideally, bankruptcy proceedings should have universal application. There should be a single bankruptcy in which all creditors are entitled and required to prove. No one should have an advantage because he happens to live in a jurisdiction where more of the assets or fewer of the creditors are situated.

The policy behind the anti-deprivation rule is clear, that the parties cannot, on bankruptcy, deprive the bankrupt of property which would otherwise be available for creditors. It is possible to give that policy a common sense application which prevents its application to bona fide commercial transactions which do not have as their predominant purpose, or one of their main purposes, the deprivation of the property of one of the parties on bankruptcy.