WHY NEW ZEALAND IS A BANKRUPTS' PARADISE

NZ Truth, Issue 1103, 20 January 1927, Page 1

WHY NEW ZEALAND IS A BANKRUPTS' PARADISE

XCEPT, of course, m the most flagrant cases where fraud is obvious. Annually m the Dominion scores of. bankr v p t cy meetings are held where the charges are 5 made that tho bankrupt has (ailed to keep .books or that he has

contracted debts prior' to his bankruptcy without having reasonable prospects of .paying., Such omissions constitute offences under the Act, but how many prosecutions are instituted? Surprisingly few. . And the reason is that — on account of the inherent public sympathy for the unfortunate bankrupt— it is hard to get a jury to convict, except m the clearest cases. The Crown Solicitor is fully aware of this human element, and that is one of the reasons why so few certificates, on the recommendation of official assignees, , are granted. Thus is the Act,' where the penal . clauses are concerned, reduced, m many cases, to im potency. "N.Z. Truth" makes the statement that the penal _ clauses of the Act are largely inoperative after due consideration and exhaustive inquiry among^ business and banking circles in 'Christ-, church, and also after a full discussion of the subject with the official assignee himself m that city (A. W. Watters). CREDIT AD LIB. What the remedy is no orje seems able' to say. Admittedly the whole question is rather involved, but. when It com*s to causes/ "Truth" blames -m large, measure the mad stampede of commercial concerns to rush credit ad lib. on to all who ask for it, and the loose system of bookkeeping that pass, es muster these days for "accountancy" m the back parlors of tho'average small trader. " The ease with which '-'big credit" can be obtained by incompetent and insolvent people m business is ro- : sponsible for- many bankruptcies, and -business firms who give that credit too often are content to secure custom without making exhaustive inquiries as to the financial standing s and business capacity of tlie new customer who wants to open a credit account. ■-.' , v The result of this system— born of the intensive commercial competition of the day— is revealed every week m almost every city 7 and town m the Dominion m a „ . . long.processi.on of bankrupts at the T bar of their = creditors. And the firms who, have to face the loss do not like it. There is v a .big body of opinion that the Act slipuld'be tightened up,' bii.t instead ') of - the. dissatisfied credit9rs shouting about their loss at- creditor's' meetings and clamoring for the. prosecution of the bankrupt when they think things have hot been run "on the square," what they should do is to face the facts and blame themselves f or . letting the bankrupt ' have

(From "N.Z. Truth's" Special Christchurch Representative.) THE bankruptcy legislation of the Dominion-r-so far as many of the, penal clauses are concerned— is- a back number, and unworkable. , Where the Act- regards the suspicious bankrupt .as a criminal, and provides for his prosecution, the man m the street merely regards him as the unfortunate victim of. adverse circumstances and hard lv ck. i A distinction with a difference where the Act and the • popular view aye concerned.

almost unlimited credit without first satisfying themselves that he, was financial and of good business capacity. There have been one or two cases In Christchurch m recent Tnonths Where some of the creditors'" and angry, have cailed for tion, but, all to no purpose, because unless a case is one of flagrant fraud it Is the hardest thing m the world to get the Crown Solicitor to issue a certiflca.te! authorising a prosecution. The reasons for this are not far to seek. * In the first place, creditors may believe they have been "sold a pup," and they may entertain and give voice to strong suspicions concerning the honesty of the bankrupt's conduct, but suspicion is not proof. . And when it _ copies to proving fraudulent practice before a common jury things are not always what they seem at first glance. '■ . 7 .\. [ Another thing to be considered is

that the jurymen are .not the bankrupt's creditors and cannot regard him as a criminal. Business firms who are "victimised" are very prone to condemn the Act, but m taking up that attitude they are neither honest to themselves nor impartially fair to the bankrupt. The Act is sufficiently comprehensive to protect business firms

arid restrict— if not actually pre-. 7. vent— fraudulent arid; flagrant dis? horiesty. . ' The trouble does not- lieTso much iri the\Act as m, the remote, possibility of impressing a common jury that a bankrupt is, di-honest.. The provisions are contained m- the Act to, facilitate prosecutions, , but trie human element— the popular sympathy for the bankrupt who has lost his'allis too strong always to ensure the working of the penal provisions, y _ W, A. vWatters, official assigheie T at _ Christchurch, • emphasised what T\he termed the "human element"; m v y all: bankruptcy, cases ''■' yyhen dis--7 cussing Ttbe matter vyithT"T.ruth." More than price. Watters'^ application for a prosecution has been turned dowri flrit by the Crown Solicitor. .''Why?" "Truth" wanted to know. "WelWin the first place, it is most difficult j|o draw the line between really

fraudulent bankruptcies and what may be: called sheer muddling inen_ciericy;'' he replied. - v "Then again, you have to contend with the human element l^ a very strong one, top. . "It has to. be remerribered^ : that T'a. bankrupt who faces ti-ial does not have to appear before a jury of his creditors, but before twelve- ordinary men; and it is surprising the amount of public sympathy there is for the -bankrupt who has lost all his. money, and wljo'is regarded as a victim of misfortunes "Before we can hope, to succeed with any prosecution 'we have to have the clearest of evidence, and • where there is the slightest doubt the bankrupt is given the benefit of it. It is only right that • he should be given the benefit of that doubt/ ...'' : ' : Watters is df opinion that very rarely is a bankrupt an intentionally dishonest man-— one, that is, who sets out ■

purposely to defraud his creditors; : He takes the view— and it is ohe : born of many years' experience-f-that the great majority of bankrupts start off m business with the:verybest of intentions, but—lacking/the business.training to carry on successfullyr-' they strike bad .t.imes, ; living on m the confident hope that matters .'• will .fight themselves m due course.

Credit .ad lib. can be had for the asking m almost any big Christchurch business house. .'•■■'.' .- ' This not only applies to the wholesale houses, but to the large retail establishments as well. - ..... On all hands credit' is simply forced'upon customers; such -is the. .T system that there is no inducement to pay cash '"at all;. • '.7T7.T -Cash, customers are riot valued, .a sis proved by the fact that m soriie of the, leading- Christchurch retail , business, houses^ customersL are. quoted ;_% per cerit.. discount on monthly accounts. T'Th.s phase of tlie credit system, how r: ever, is only a side-issue to the main question of bankruptcy. T - • • . Watters) dealing with business credit so far as .it affects the purchase of goods for the carrying on of a business, thinks that creditors have a lot to blame themselves for if they rind themselves left when a bankrupt files his petition. -' l T , ■

But more responsible than the widespread and easy credit system is the lack o*f proper training m keeping books of -account. The Bankruptcy Act contains a* penal clause providing- ..' for the prosecution of .people who fail to keep proper books prior to their- 'bankruptcy;''... ■But seldom is 'recourse' had to the powers conferred by the clause. Why ? ' Simply because of' the human element that creeps into the question,and also because . there are so many people who .do. not" keep proper uooka that the point; when raised before a jury, is apt to be clouded by such a haze of doubt that the chances of , a conviction are remote. One of the greatest difficulties m the way .of prosecuting bankrupts is that they are largely 7 civil actions, and it is an extremely hazardous undertaking to pkove' fraudulent intent. '-, , - patters remarked that m the ;.&- eat' majority of cases where grave/dissatisfaction was expressed by the; Creditors all they <had to goVon was bare suspicion. . ._, '■ ' 7 ■'. y- ■ ;V■ 77 ■ ' t ' -; They were simply dissatisfied butfrnere- dissatisfaction arid suspicion without proof is valueless .>, m a court of .law. It is largely this absence of clear proof that Is instrumental 'iri'-; the-' .-re-, fusalof certificates by- the Crown taw Office, because prosecutions cost money, and there is no reason or logic m throwing money away on futile proseedings. - 'All things considered; "N.Z. . Truth" is of the opinion that „ hot -.■, ■ /withstanding all that can be said ' about the/restrictions on bankrupts, v tfiis country'is something of an" El : Dorado for the defaulting tlebtor 7 who files. '•■■■■'. T" The: Act may, mi n cold comprehensive enough, but its' weakness lies m the -fact that it is— in its penal . clauses, at any rate— frarne'd for the individual , who is pre-judged as a criminal. . ';'... FINAL ARBITER; .And if there is one thing the-man/lir. the street cannot conceive it is that the unfortunate business man or speculator, who has invested his capital, . lived on credit tto carry: him through to better times, arid." failed, ia a criminal. '77 ■ •:• .7' :■-.'■ ■ :'lt simply M.dbes^ not go down except m the most .flagrant cases, and; while the Act regards the suspicious bankrupt m the- light of a criminal, it can. never hope to 7 operate successfully. on' all. points. Boiled down to its essence the position^ amounts .to this. £^ Act is m many- cases inoperative for the simple reason that the final arbiter of a bankrupt's fate— when it comes Tt6 the . criminal dock-— is a common jury, and apparently the Crown Solicitor is of opinion thß.t m the majority of cases the Crown would" have no chance .of circumventing that human element arid I establishing the case on cold fact. I. Meanwhile,^ instead of worrying about the Act, business people' would j be well advised to. make more jJefCr.ch--1 ing inquiries before giving* credit i broadcast. • t ..;.■:■■'. ■.-■ ;■:.'■•-, -y .. .$ .-.v.