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Be Insolvency of Benedict de Cboos.
D. C., Negombo, 61.
Insolvency—Certificate of conformity—Offence under e. 1, eub-e. S ofOrdinance No. 7 of 1853—False statement by insolvent in hie examinationas to his trade—Carelessness and misfortune—Report of assignee.
A person who commenced a business without being brought up to it andupon borrowed capital; who acted carelessly, rashly, and imprudently inseveral respects; who did not keep proper accounts, and whose insolvencywas not brought about by misfortune, should not be refused a certificatealtogether, if he was not guilty of actual fraud.
The Judge is not bound to act merely on the report of the assignee,but must satisfy himself whether an insolvent is entitled to a certificateof conformity or not.
The case of Presslie (1 N. L. R. 821) explained.
The case of a trader is very different from the case of a cleric orsuperintendent of an estate drawing a small monthly salary, and a Courtin the former case should act with greater caution and eiroumspectionbefore issuing a certificate of conformity which would enable a trader toat once re-commence his trade, should he desire to do so.
HE following judgment of the District Judge (Mr. E. F.
Hopkins) sets out the facts of the case and the reasons why
he refused to grant a certificate of conformity to the insolvent:—
“ Benedict de Croos, the insolvent in this case, married a richman’s daughter and is the father of five children. He and hisfamily live with his father-in-law, who supports them all andallows the insolvent Bs. 50 a month as pocket money.
" In April, 1889, the insolvent opened a cloth boutique at(ochchikada, a village near Negombo, where there is a largebazaar and many boutiques.
“ He commenced business by borrowing Bs. 1,000 from ManikanChetty (the first creditor in the list) at 15 per cent. He. had nocapital of his own, and admits that he did not apply to hisrelatives for funds to start on.
“ With the borrowed Bs. 1,000 and goods to the value of anotherBs. 1,000 procured on credit he opened his boutique.
“ According to his own account he lost from the beginning, andcontinued borrowing. . On ll'th March, 1902, he declared himselfinsolvent, and his balance sheet shows liabilities amounting toBs. 7,915.11, against assets valued at Bs. 2,800, viz., the stock inthe boutique* This valuation is however far above the sum actuallyrealized, for the gross proceeds sale were only Bs. 1,531.96,reduced by expenses to the net amount of Bs. 1,398.39. Detailedaccounts of the steps leading to this position are not forthcoming,doubtless because the insolvent kept ho proper books, and I am
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asked by the insolvent on these materials to grant him a certificate 1903.of conformity, the position being this. In April, 1889, be openeda boutique with stock and cash (both borrowed) amounting to February 3.Bs. 2,000. At the end of three years he has stock which realizesBs. 1,398.89, and he owes Bs. 7,915.11. The only excuse is thepassage marked A in the assignee’s report to the effect that theinsolvent, who traded on credit, could not oompete with othershopkeepers who traded on cash! I- should think it was quiteunnecessary to make experiment in order to arrive at such anobvious conclusion 1
" In my opinion the facts recorded are of themselves amplysufficient to justify the Court in refusing the insolvent theprivileges of the Ordinance.
“ The effect of a certificate of conformity is to wipe out alldebts contracted by the insolvent, and to enable him to startafresh absolutely unhampered.
“ What does the insolvent offer in return? He surrenders hisshop goods—all purchased with the money of his creditors, for hedid not put a single cent of his own into the business.
“ Has he been ‘ unfortunate ’ in the meaning of the preambleof the Ordinance? Certainly not. He is provided with board andlodging for self and family and Bs. 50 a month as pocket moneyfor himself. To vary the monotony of this life of lotus-eating, heat the expense of his creditors started business in an amateurishfashion and tried a costly experiment, viz., Can a man trading onborrowed capital compete with cash traders? The inevitableresult followed, but where does the ‘ misfortune ’ come in?
“ But, as it is apparently the general impression that aninsolvent must get somekind ofa certificateunless fraud is
proved against him,theopposingcreditorsinthis casehave
formulated certain charges against the insolvent, which I shallnow consider, though quite apart from these charges, I considerthat the insolvent is not entitled to protection.
“ The first is of breach of sub-section 2, section 151, and issupported by passages marked B, C, and D of insolvent’s exami-nation.
“ It is indisputablethatthe insolvent didnotkeep hisbooks
regularly or properly,butI thinkthis wastheresult ofsheer
carelessness, and not of any intention to conceal the stats of hisaffairs.
“ The next is under sub-section 3, and this is clearly proved bypassage E of insolvent’s examination, where he admits that hemade a false statement regarding his affairs to induce a creditorto lend him money.
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“ The third is under sub-section 9. I am of the same opinion' inthis matter as I. was regarding the first charge. The insolventhas completely neglected to keep proper. books, but I do not thinkit was with a fraudulent intent.
" As regards general conduct and reckless trading, it is almostsuperfluous to comment. As already pointed out, the trade embarkedin by the insolvent could at no time have held out any hopes ofprofit. From the very beginning there was an increasing loss.
“ As regards general conduct, I think it necessary to drawattention to passages F, G, and H in the insolvent’s examinationregarding the transfer of the shop goods to the insolvent’s wife’scousin on a deed. The excuse given is not credible, and I cannotcredit the insolvent’s statement that no consideration passed. Noris the subsequent transfer by Odris Fernando Pinno to AnnamalaiChetty explicable, except on the assumption that the insolventwished to defraud his creditors. True it is that the remainder ofinsolvent’s stock-in-trade has been sold, but it is by no meanscertain that Annamalai Chetty may not yet claim the proceeds tothe detriment of the other creditors.
“ To sum up. I am of opinion that the insolvent has shown nocause why the privileges of Ordinance No. 7 of 1863 should beextended to him. I further hold that he has committed an offenceunder sub-section 3, section 167. I also consider him to have beenguilty of reckless trading, and I find that he acted fraudulently intransferring his stock-in-trade to Odris Fernando Pinno.
“ I therefore refuse to grant him a certificate of conformity, andwithdraw the protection of the Court.”
The insolvent appealed. The case was argued on 29th January,1903.
Dornhorst, K.G., for insolvent, appellant.
H. J. C. Pereira, for opposing creditor, respondent.
Gut. adv. vult.
3rd February, 1903. Layabd, C.J.—
In this case the District Judge has refused to grant the insol-vent a certificate of conformity on two grounds: first, becausethe insolvent has shown no cause why the privilege of theOrdinance No. 7 of 1853 should be extended to him; and secondly,because he finds that he has committed an offence under sub-sction 3 of section 151.
I will first deal with the second resison. The Judge has foundthat the insolvent contracted the debt to Odris Fernando Pinno bymeans of fraud and false pretence. I have read over the insol-vent’s examination and more particularly the passage marked E
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by the Judge. He appears to admit that he made a false state- la-ment in alleging that his trade was good. It does not appear,**
however, from the evidence as recorded, as to whether this false February 3.statement induced the creditor to make the loan, or whether the lAYabd, C.Jstatement was made after the debt had been contracted. It isfurther urged by respondent that the passages marked by theDistrict Judge F, G, and H and the insolvent’s deposition showan intention on the part of the insolvent to defraud and defeat hiscreditors by the execution of a fraudulent conveyance of all hisstock-in-trade. The transactions there recorded are at the mostsuspicious. The appellant’s counsel points out that the insolventhas deposed that idle object of executing the conveyance was toget his affairs settled, and certainly the action of AnnamalieChetty in remaining quiet and making no claim to the insolvent’sstock-in-trade when sold supports that contention.
Section 131 of the Ordinance No. 7 of 1853 renders it obligatoryupon the Court either to refuse or suspend the certificate of aninsolvent for certain offences enumerated in that section.
This case, however, does not fall, in my opinion, within therange of that section. Had it done so, I should however share thedoubts expressed by Lord Justice Turner in the case of Ex parteManico (3 De 0: M. and G. 50), whether the punishment awardedby the District Judge against the bankrupt had not gone too far,for, as he there says, "if the Court in cases of this description,where only one of the offences enumerated has been Committed,is bound to inflict the extreme penalty, I know not what is to bedone where every one of the offences has been committed.’’ I
I will now deal with the first ground. In a portion of bisjudgment the District Judge appears to suggest that no insolventis entitled to a certificate under the Ordinance unless he canestablish that he is " unfortunate ” in the meaning of the preambleof the Ordinance. In a late judgment of this Court we pointedout that the operative part of this Ordinance is not limited by thepreamble, and that the Judge issuing a certificate of conformityof the third class has not to certify that the inslovency Jias beenbrought about by misfortune. Undoubtedly, however, in everycase in which a trader has been declared insolvent under the pro-visions of section 124 the Judge has to see whether the insolventhas conformed* to the Ordinance, and to consider his conduct as atrader before as well as after his insolvency. The Judge has, Ithink, in this case properly found that the ' insolvent carriedon trade recklessly, has neglected to keep proper books ofaccount, and that his general conduct as a trader is open tosuspicion.
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1003. The insolvent commenced a business without capital, to which^ k® k&d not been brought up, he acted carelessly, rashly, andFebruary 3. imprudently in several respects, and he further did not keep proper— books of account. I am however not satisfied from the evidence' ' ' that he was guilty of any actual fraud, though some of thetransactions appear to me to be suspicious. Taking all the cir-cumstances into consideration, I think that $he demands of justicewill be satisfied by suspending the certificate of the insolvent fortwo years from the date of this judgment, and directing that, whenissued, it shall be of the third class.
In coming to this conclusion, I desire to add I have not lost sightof the judgment of Chief Justice Bonssr in the case of Preasliereported in 1 N. L. B. 321, cited by appellant’s counsel. In entirelyagree with the' views expressed by Chief Justice Bonser in thatcase. I have no more sympathy than he has with creditors whoallow a man in receipt of a wretched monthly salary to run up bigaccounts, and I feel with him that if. they lose their money theyhave only themselves to blame. I further concur with him inholding that, before adjudicating over an application for a certifi-cate, the Court should have before it the report of the insolvent’sassignee.
It is however for the Judge to decide in each case whether theinsolvent is entitled to a certificate or not, and the Judge is notbound to act merely on the report of the assignee. The Court mustsatisfy itself before issuing a certificate of conformity that aninsolvent is entitled to one (In re Armitage, 5 S. C. G. 216).
The case of a trader is very different from the case of a clerk orsuperintendent of an estate drawing a small monthly salary, anda Court in the former case should act with greater caution andcircumspection before issuing a certificate of conformity whichwould enable a trader to at once re-commence his trade, should hedesire to do so.
Moncreiff, P.J.—I am of .the same opinion.
Re Insolvency of BENEDICT DE CROOS