Bankruptcy in Canada in the 1930s

Articles on this website generally attract reduced readership if they are about bankruptcy rather than liquidation; or if they are about overseas law rather than local; or if they go into history, rather than the present.

This article covers all three – nevertheless an interesting paper[1] on the history of Canadian bankruptcy law in the 1930s depression era, with relevance to current debates about bankruptcy in Australia today.

The paper was given recently by a visiting Canadian professor, Thomas Telfer, at QUT Law School, Brisbane.

The first Superintendent of Bankruptcy

The focus of the paper is on the appointment in Canada of the first Superintendent of Bankruptcy, in 1932, a position similar to that of our Inspector-General in Bankruptcy.

The position was created in the context of Canadian trustees in bankruptcy having no formal status, or need for qualifications, or regulation, similar to that applying in present day New Zealand. They were generally accountants, not lawyers.

There was widespread abuse of the bankruptcy laws by these trustees and by bankrupts alike, often involving dishonesty and corruption. The Superintendent was given broad investigatory and supervisory powers over the bankruptcy regime in order to address this.

The scene in Canada over which the Superintendent was appointed was not good.  In order to solicit work, trustees would write directly to insolvent debtors and asked them to “sign documents without being told that they were declaring bankruptcy”. In some cases, bankrupt estates “were actually administered by persons who had been convicted of offences or who were bankrupt.” Often the debtor’s own accountant became the trustee.

A review in the early 1930s found evidence of fictitious creditor claims being filed to “control the election of the trustee.” There were complaints of trustees favouring debtors “by not searching too severely for fraud, in order to gain the reputation of being favourable to debtors.” There were also regional differences; Québec had “different” business practices given its “large foreign element in business chiefly from Central Europe”.

The appointment of the Superintendent in 1932 changed that, and while it was welcomed by some, others opposed the appointment and called for his removal.

Trustees perhaps did not like receiving letters from the Superintendent, such as this one, not dissimilar to ones trustees might receive today:

“I am very much surprised indeed that my three previous requests for these reports have apparently been ignored. I would therefore ask you to kindly furnish me by return mail with your explanation of these omissions. I may add that if the required reports are not immediately forthcoming, I shall be obliged to take further action with regard to these matters”.

Canada’s attitude to debt and bankruptcy

Other aspects of Canada’s attitude to debt in the 1930s are explained in this paper. As in Australia, a certain stigma is attached to a person who is or has been bankrupt.  This history is instructive by way of comparison with the present debates in Australia about bankruptcy, and in particular to its proposed reduction to one year. [Canada’s minimum bankruptcy period is 9 months).

Discharge from bankruptcy favours creditors

For a long period, until 1919, Canada had no right of discharge from bankruptcy.  This had created collection difficulties for creditors as debtors often hid or transferred assets or fled to the US, as there was no incentive for them to cooperate with their creditors. Discharge came to be seen by creditors as needed as a means of improving the standard of debtor conduct and as a new way to enhance collection efforts.

Voluntary bankruptcy as evil

But bankruptcy was seen negatively, and in fact one politician said that there was one “evil” that the Bankruptcy Act “will not cure, and that is immorality”

“It allows a number of people to free themselves of their obligations with a view to regaining their virginity.”

Another saw voluntary bankruptcy as wrong:

“…if you allow the debtor to make a voluntary assignment very often he takes advantage of that privilege in order to defraud his creditors and save what he can from the wreck….if the privilege of voluntary assignment was taken away you would do away with the bankruptcy canvassing racket…it seems to me that the initiative should rest with the creditors, who are the people most concerned”.

Poverty relief

This was in the political context in 1930s Canada of the dole being “kept below the living standards available from the worst paying seasonal or unskilled work in each district in order to prevent people in those districts from preferring the dole”.

The paper is commended; email me for a copy.

Today

Suffice to say that the Superintendent position remains, but that there is no official trustee in bankruptcy.  All bankruptcies in Canada are administered by private trustees, and, as explained, bankrupts can be discharged after 9 months.

Australia

For a comparable social and legal history of bankruptcy in Australia, including as to the history of the position of the Inspector General, see Officially Receiving: A History of Bankruptcy Administration in Australia, AFSA, 2011.

Photo: Professor Telfer was given a copy of Officially Receiving, courtesy of the Inspector-General in Bankruptcy, Mr Hamish McCormick, presented by Mr Tim Cole, of AFSA Brisbane. The session was hosted by Professor Rosalind Mason, of QUT Law School Brisbane; and Michael Murray, Visiting Fellow, QUT.

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[1] The New Bankruptcy “Detective Agency”? The Origins of the Superintendent of Bankruptcy in Great Depression Canada, Thomas GW Telfer Western University, Faculty of Law, Canada. QUT Faculty of Law Seminar 29 October 2018, Brisbane.

 

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