Statement on Canadian Insolvency

The history of bankruptcy legislation in Canada shows that the laws passed on this subject have all been of a temporary character. They were to continue for a certain period and were enlarged as occasion required.

The first act of the kind in Western Canada was passed in 1843, which was amended and continued by subsequent Acts until 1856, when it ended. After the lapse of several years the Act of 1864 was adopted and remained in force down to the year of confederation.

Under the British North America Act bankruptcy and insolvency are among the subjects delegated to the legislative authority of the Dominion Parliament. In 1809 it was decided to adopt a uniform system of insolvency law for the confederated provinces, and the old Act of 1864 was re-enacted with certain important additions. The law was to remain in force for four years, but it was extended by statute down to 1875, when a further Act was passed, known as the Insolvent Act of 1875, which repealed the former. Changes were introduced in this Act in the Sessions of Parliament of 1870 and 1877. In 1879, less than four years after its adoption, a Bill was introduced to repeal the Act which was passed by the Commons, but was thrown out by a narrow Government majority in the Senate. The Act was repealed in 1880, and from that day to this no fresh legislation by the Dominion Parliament has been placed on the statute book. During the 28 years of the history of the Dominion of Canada, therefore, 17 or 18 years have passed without any general insolvency law being in operation, and 10 to 11 years with legislation of that character on the statute book.

The Act of 1869 provided for voluntary assignments, whereas the Act of 1875 provided for compulsory assignments. The experience of the latter is said not to have been satisfactory. The law was enacted and came into operation during a time of depression, accentuated by the adoption of a fiscal system, itself detrimental to the growing commercial and industrial interests of the country: Its unpopularity was probably rather due to the abuses of its ad- ministration than to the principle it embodied. By a fraudulent use of the law the beneficent intentions of the Act were thwarted, and it became frequently the means of escape to the dishonest debtor, instead of solely a means of relief to the honest but unfortunate debtor, and it was held to have aided in demoralising the trading community. There can be no doubt, however, that the system of credit then obtaining in Canada was largely responsible for the abuses referred to, the laxity and want of attention of creditors encouraging indirectly over-trading by irresponsible and unfit persons to the injury and disadvantage of legitimate trade and honest traders. Applying moreover to one class of the community rather than to debtors generally, it incurred the opposition of the other classes who condemned it for the abuses to which they saw in practice it was open. The merchant and the banking classes, however, were to the last opposed to the total repeal of the law, but as it was evident that there was little hope for the passage by Parliament of amendments calculated to remedy the defects of the law, the Act was allowed to go by the board, in the expectation of the introduction of new legislation at an early date. In the interval there was the existing local legislation dealing with the distribution of the estates of insolvent debtors to fall back upon for the protection of creditors, notably in Quebec, under the common law, and subsequently in Ontario, under special legislation on the subject. In fact, it is now known that in 187U, the repeal of the 1875 Act was purposely delayed by the action of the Senate for one year, to enable the provinces to adopt suitable legislation of which Ontario immediately gave notice and promptly carried into effect the following year.

The repeal of the Dominion Act had, at any rate, the salutary result of effectively curtailing the loose credit system of the day, and of placing it on a healthier basis, and the subsequent progress and stability of the trade of Canada has directed public attention from the necessity of a general insolvency law, until the last year or two. The following statistical position will assist in explaining this circumstance.