Bankruptcy in UK 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 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.

Bankruptcy set-off, on the other hand, affects the substantive rights of the parties by enabling the bankrupt's creditor to use his indebtedness to the bankrupt as a form of security. Instead of having to prove with other creditors for the whole of his debt in the bankruptcy, he can set off pound for pound what he owes the bankrupt and prove for or pay only the balance. …" Although it is often said that the justice of the rule is obvious, it is worth noticing that it is by no means universal.

But in my view, when one of those assets is an undivided share in land in respect of which the debtor's right to an immediate sale is not an absolute right, that is an asset in the bankruptcy which is liable to be affected by the interest of any other party interested in that land, and if there are reasons which seem to the court to be good reasonsfor saying that the trust for sale of the land should not be immediately enforced, then that is an asset of the bankruptcy which is not immediately available because it cannot be immediately realised for the benefit of the creditors.