Scottish Court of Session Decisions

John Walker jun., who was a bleacher at Partick, was sequestrated on 24th August 1871, and a trustee appointed. He thereafter offered a composition of 2s. 6d. in the pound, and that having been accepted at a meeting of creditors, he was discharged on 12th April 1872. He had previously made the usual declaration on oath that “he had made a full and fair surrender and disclosure of his estate, and had not granted or promised any preference or security, or made or promised any payment, or entered into any secret or collusive agreement or transaction to obtain the concurrence of any creditor to such offer of composition and security. “On 18th February 1876 he died. On 17th July 1877 this petition was presented by two of his creditors (one of whom afterwards put in a minute of disclaimer) to the Lord Ordinary on the Bills, praying his Lordship, under the 151st section of the Bankruptcy Act of 1856, ” to find that the said bankrupt has forfeited all right to a discharge and all benefit under the Bankrupt Act, and to annul the discharge already granted to the said bankrupt. “The 151st section provides—“If the bankrupt shall have been personally concerned in or cognisant of the granting, giving, or promising any preference, gratuity, security, payment, or other consideration, or in any secret or collusive agreement or transaction as aforesaid, he shall forfeit all right to a discharge, and all benefits under this Act; and such discharge, if granted, either on or without an offer of composition, shall be annulled, and the trustee or any one or more of the creditors may apply by petition to the Lord Ordinary to have such discharge annulled accordingly.”

The petitioners averred that the bankrupt had been personally concerned in, or cognisant of, the payment to one of his creditors of a composition of 10s. in the pound, and of the payment of another in full, these payments having been made for the purpose of facilitating the bankrupt's discharge; and further, that the state of affairs handed by the bankrupt to his trustee showed his assets to be less by £3000 than they really were. The petitioners called as respondents the trustee nominated under the trust-disposition and settlement of the bankrupt, the creditors who had, as they averred, obtained the payments mentioned above, and the former trustee in the sequestration.

The Lord Ordinary ( Adam) dismissed the petition as incompetent, adding the following note:—

“ Note.—The Lord Ordinary is of opinion that the petition is incompetent. He thinks that the language of the 151st section of the Bankruptcy Act, under which it is presented, indicates that it was intended to apply to the case of a living bankrupt, and not, as here, to the case of a deceased bankrupt. He does not see how he can find, as craved in this petition, that the deceased bankrupt has forfeited all right to a discharge and all benefit under the Bankrupt Act. The remedy against creditors who have been parties to preferences or payments not sanctioned by the Act, or to secret or collusive agreements, is to be found in the 150th section; and if it be desired to annul the bankrupt's discharge, the section founded on is not necessary for that purpose, as that can be done at common law if necessary.

It appears to the Lord Ordinary that there are good reasons for authorising summary proceedings to annul a discharge in the case of a living bankrupt who is necessarily cognisant of the facts, but that these reasons do not apply to a case like the present, brought against his representatives long after his decease, and who are necessarily ignorant of the facts.

The Lord Ordinary was not referred to any case in which the 151st section was held to apply to the case of a deceased bankrupt.

But the Lord Ordinary would have doubted the relevancy of the averments if the petition had been competent. The bankrupt was discharged on a composition of 2s. 6d. per pound. It is averred that he paid the respondents James Laing & Company a composition of 10s. per pound on their claim of £180, 3s. 9d., and that he paid the claim of Messrs William Hill & Son of £62, 9s. 6d. in full. But there is no specification of any illegal or collusive agreement or transaction in respect of which the payments are alleged to have been made….

The petitioner (there was now only one) reclaimed, and argued—This was not a penal proceeding, but a method of recovering assets for behoof of creditors. That such a proceeding was competent against the representatives of a bankrupt was indicated by the course followed by the Court in the cases of Robertson's Trustee, February 9, 1842, 4 D. 627, and Walker, February 14, 1842, 4 D. 742, where discharges were granted after the death of the bankrupts on declarations being made by their representatives that there had been a full disclosure of the estate by the bankrupts. By the 29th section of the Bankruptcy Act a discharge after the death of the bankrupt was contemplated, and it followed therefore that proceedings to annul a discharge were likewise competent. Cf. also Bell's Comm., 5th edition, 448–50. The competency of such a proceeding was indicated by the Statute 54 Geo. III. c. 137, sec. 68. The quasi-penal character of the application did not render it incompetent. In M'Lachlan v. Likly, November 23, 1830, 9 S. 57, penal interest was exacted after twenty years of acquiescence. The cases quoted on the other side, of M'Turk v. Greig, July 2, 1830, 8 S. 995; Graham, M. 5599; and Mollison v. Murray, December 19, 1833, 12 S. 237, were cases where penalties due by tutors and curators under the Act 1672, c. 2, were held not to transmit against their representatives, but the difference between these cases and the present was, that the effect of recalling the discharge of the bankrupt here would give his creditors the means of recovering a larger composition, whereas there the result was purely penal. Then, in the case of Gibson v. Barbour's Représentative, January 31, 1846, 8 D. 427,

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there was a charge of malversation against a trustee, a personal complaint very different from the charge here, which was one of conduct that very materially affected the estate. Cf. also Davidson v. Tulloch, February 23, 1860, 3 Macq. App. Ca. 783.

The respondent answered—This was a penal proceeding, and could not therefore transmit against representatives—Erskine, iv. 1, 14. The cases of M'Turk, Graham, and Mollison were analogous to the present, and in them liability attaching to tutors and curators was held not to transmit against their representatives. In the case of Cooper v. Fraser, November 5, 1872, 11 Macph. 38, it was held a highly penal proceeding to refuse a discharge. The very terms of the section here founded on showed that it was penal.

At advising—