INSOLVENCY AND TRADE.
AREPORT just issued on the dismal subject of the working of the Bankruptcy Acts during 1894 is one of those publications of which the inside is more interesting than the exterior. In the first place, the statistics of failures, though the figures presented seem appallingly large to those who are not used to the enormous totals of commercial compilations, are satisfactory as showing once more that even in 1894 we had got through the worst period of depression, and that the way was already being cleared for that revival which is really with us at last, at any rate in some branches of our trade. It appears that during 1894 the number of receiving-orders made in England and Wales was 4,762, the liabilities involved amounted to £6,963,806, and the assets realised £2,349,267; so that the creditors of the various defaulters are estimated to have lost an aggregate sum of £4,614,539. With regard to deeds of arrangement, it seems that the number regis- tered was 3,894, the liabilities came to £6,419,099, and the losses of creditors were £4,311,316. Some 9 millions seem an enormous amount to be written off to bad debts in the course of a single year, especially as we learn later that there is still a serious gap in the general statistics of insolvency owing to the lack of adequate information with regard to the large class of limited companies which annually go into voluntary liquidation. But the fact remains that matters were even worse in 1893, when there were 112 more receiving-orders, and 44 more deeds of arrangement, liabilities were larger by X1,683,328, and the total loss sustained by creditors was larger by £1,173,612, amounting to £10,869,101. The Report observes that "the foregoing figures, and the fact that during the present year the failures continue to show a progressive decrease upon the figures of 1894, confirm the generally prevailing impression that the condition of business is slowly improving ; and the year 1893 may probably be regarded as indicating the high-water mark of insolvency over a considerable period." It is pointed out, however, that the decrease of the liabilities of defaulters is "not by any means uniformly characteristic of all the various classes of trades Two of the largest decreases, viz , those of financial agents and stockbrokers, showing together a reduction of liabilities amounting to more than a million sterling, may probably be regarded as the result of more favourable con- ditions in the stock and share markets, while the next two largest decreases, namely, those of the grocery and pro- vision and the drapery trades, are signs of a somewhat healthier condition in the retail trades The in- crease in the failures of promoters and directors of com- panies, is probably due to an increasing indisposition on the part of the public to take part in speculative and illusory schemes (at least outside of the mining market)." Let us hope that this discreet " indisposition " may go on increasing, and may extend its scope even to the one department that has hitherto been outside its influence.
Turning to the causes of insolvency, the Report enumerates many of the obvious pitfalls, such as ex- cessive credit given to customers, and misplaced confidence in employes, into which the trader is liable to tumble. Instances of the working of the various causes are given, and afford a very interesting picture of the seamy side of life, well worthy of the attention of novelists who delight in grey effects. But the subject to which we wish to call attention at present is that of " reckless speculation in produce, carried on when the debtor knows himself to be insolvent, and when, therefore, his transactions are governed by no prudent considerations." It would be unfair, perhaps, to point out that speculation by an in- solvent debtor can hardly be the cause of his insolvency, though philosophers do tell us that the effect is prior, "by nature," to the cause. A "bull" in the pages of a Blue-book is as welcome as that pun which once relieved the solemnity of Liddell and Scott's Lexicon, but has been expunged by the reforming zeal of recent editors. And this " cause " is at any rate a very important consequence of insolvency, and one which is perhaps entitled to consideration by a practical Legislature; for, as the Report points out, its action affects the general trading public as well as the individual creditors of the defaulter. " The economic laws which underlie the operations of commerce largely lose their force when the sense of responsibility is withdrawn from commercial transactions, and it can hardly be doubted that the sense of responsibility is greatly weakened, and in many cases destroyed, when a debtor, finding himself insolvent, plunges into reckless operations, his main object being not to conduct his business on recognised principles of prudence and honesty, but to gamble at the risk of others than himself, or perhaps merely to create new means of obtaining financial accommodation at any cost to those with whom he deals." It is evident at once that the effect of such operations is to disorganise the market in which they are carried on, and to depress unduly the price of the commodities in which the " unscrupulous insolvent trader" is gambling. Knowing that he is in- solvent, he disregards all the laws of commercial caution and prudence, simply because he cannot make his position worse, but may, by some happy turn of fortune's wheel, win his way back to solvency. And so he snaps his fingers at economic dogmas, and upsets the machinery of supply and demand, with the comfortable conviction that he may as well be hanged for a sheep as for a lamb. To clip such a gentleman's wings would be no interference with freedom of competition. Just as we maintained last week, in dealing with the question of prison-made goods, that attempts to restrain compulsory or artificially stimulated production abroad, do not constitute any violation of the principles of Free-trade, so in matters of domestic commerce, the law would be fully justified in checking the depredations of these reckless bandits, who hinder legitimate trade by unduly depressing prices and cheating the efforts of merchants who are endeavouring to make a profit on sound business principles. Com- petition is no longer free, when, in the words of our Report, "the prices of commodities are largely deter- mined, not by the natural laws of supply and demand, but by the action of a comparatively few reckless competitors who have nothing to lose, but everything to gain, by carrying on business transactions even at a loss."
It seems that the law, as it stands at present, does not adequately recognise the difference between the trader who immediately announces his default on finding that he is no longer able to meet his obligations, and the trader who is only urged to reckless speculation by such a discovery ; at any rate, the distinctions that it draws are not sufficient to deter the latter from his enterprise. And we also gather that even the existing law is not administered as firmly as it might be. The Report states that " the creditors of particular estates as a rule are inclined to regard the practice of trading, after full knowledge of in- solvency, as too common to excite any strong feelings of resentment, and it is sometimes very difficult to induce some of the Courts or of the Official Receivers to regard the practice as one of a serious character." This being so, an unassuming, but very effective and practical reform would be wrought, if it were clearly laid down by law that traders who continue to trade after full knowledge of their insolvency may be, and must be, dealt with sharply. The difficulties attending such a reform are obvious, and one is at once pulled up short by the ques- tion,—Where is the trader to stop ? But the matter is admirably summed up by the Inspector-General. " It is," he says, " no doubt in many cases difficult for a merchant or trader to discern the precise moment when his liabilities exceed his assets, and it is not contended that every bank- rupt should be held strictly responsible for taking a san- guine view of his affairs, while honestly attempting to retrieve an embarrassed position. But the point which I desire to emphasise is that where a debtor has once realised that his capital is lost, and that he is trading entirely at the risk of his creditors, any deliberate attempt to carry on his business by selling goods at a loss for the sake of keeping himself afloat, is, and ought to be, recog- nised as far more injurious to the commercial interests of the trading community as a whole than some even of the specific bankruptcy offences which are dealt with under the criminal law."
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