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Perrott Bankruptcy, Part 1: The bankruptcy Opens

posted by Emily Kadens

Thank you to Bob Lawless for the far too generous introduction and to the Credit Slips bloggers for the opportunity to regale you with stories of bankruptcies past.  I know this a bit out of the usual stream of discussion on this blog, but I will try to keep things interesting. 

One of the things that strikes me about the history of bankruptcy (to say nothing of modern bankruptcy rhetoric) is the omnipresent ambivalence about the bankruptcy mechanism.  On the one hand, countries that developed bankruptcy laws did so because the elite perceived it to be good for commerce—pre-modern bankruptcy only being available to traders.  At the same time, though, people were offended by the notion that debtors could get away without honoring their commitments. 

This ambivalence comes out forcefully in the fear of “fraudulent bankruptcy.”  This concept meant different things in different countries.  French law, for instance, distinguished between those honorable debtors who were forced into insolvency (in French called faillite, or "failure") through circumstances not of their own making, and those dishonorable debtors whose irresponsible spending and borrowing habits caused their downfall.  The latter were called banqueroutiers, and were considered to have perpetrated a fraud on their creditors and were consequently subject to criminal prosecution. Seventeenth- and eighteenth-century England did not make a comparable distinction between types of bankruptcy.  Instead, one would commit the crime of fraudulent bankruptcy by failing to follow the requirements set out in the statutes, for instance by refusing fully to disclose assets.  In principle, the punishment for this crime was death by hanging.  In a later post, I will talk more generally about the use of capital punishment for fraudulent bankruptcy in England.  For sheer entertainment, I want to start with a multi-post account of the bankruptcy and eventual execution of John Perrott in London in 1761.  In 1819, this case was remembered by a parliamentary commission debating the abolition of capital punishment for bankruptcy as the most famous fraudulent bankruptcy of them all.

On January 17, 1760, John Perrott, a cloth merchant of some sort—accounts vary on this point—called his creditors together at the Half Moon Tavern in Cheapside, London, to inform them that he could not pay his debts.  Through 1758, Perrott had done business on a cash basis.  In 1759, he suddenly began to buy on credit and do business in significantly larger amounts than before.  But he had built a good reputation for honesty during the nearly 13 years he had been trading for his own account in London, and his creditors let his debt mount.  Although the creditors were favorably impressed with his forthrightness at the January 17 meeting, they nonetheless decided to sue out a commission of bankruptcy. 

This was likely not the outcome Perrott wanted.  He had some kind of major fraud in the works, and the scrutiny of a bankruptcy proceeding was going to reveal it.  What he was probably aiming for was the sort of scheme that was often lamented in the treatises, where a debtor put out word that he was insolvent and about to "commit bankruptcy," and the creditors rushed in to cut deals.  The debtor, who was not in fact insolvent, then walked away with the money he had been absolved from repaying. 

At the moment when the creditors decided to take out a commission of bankruptcy on Perrott, he was not yet legally a bankrupt.  To become a bankrupt, one had to commit an "act of bankruptcy."  The statutes listed about 18 bankruptcy acts, which all amounted to intentionally avoiding creditors or evading their demands.  While the bankrupt had to commit the requisite act, he had no control over the commencement of proceedings.  Only a petitioning creditor could start a bankruptcy.  By law, it was improper for the bankrupt to collude with a creditor to commit an act of bankruptcy and therefore provide grounds for suing out a commission.  In practice, such collusion was hard to detect.

And so it seemed to be with Perrott.  At his eventual criminal trial, the prosecution showed that on January 18, William Hewitt, merchant and creditor, visited Perrott’s warehouse and was "denied" by Perrott's apprentice.  Testimony was elicited to show that Perrott had instructed his apprentice to tell Hewitt he was not available, when he in fact was present.  Hewitt then sued out the commission.  In cross-examination, Perrott (the defendant himself would still challenge witnesses at this time) tried unsuccessfully to box Hewitt in to admitting that his visit to Perrott and Perrott's instructions to his apprentice had all been staged.

The creditors moved quickly after Perrott committed the requisite act.  A commission of bankruptcy was awarded and issued by Chancery on January 19, and five commissioners were appointed on the same day.  Bankruptcy commissioners were gentlemen and esquires of supposedly unimpeachable probity, chosen from a list kept in Chancery, whose task it was to oversee the bankruptcy proceeding.

The commissioners' first act, (after dealing with the preliminaries of making an official finding that Perrott was a trader within the definition of the bankruptcy statute and had committed an act of bankruptcy), was to set times for three creditors' meetings and announce them in the London Gazette.  By statute, these meetings had to take place within 42 days of "gazetting" the bankruptcy.  The first order of business at the meetings was to appoint assignees, usually from among the larger creditors, to receive the bankrupt's assets.  The next matter was to receive proof of the creditors' debts.  The third was to examine the bankrupt and other witnesses to determine the extent of his debts and assets.

Things did not go well with the Perrott bankruptcy right from the start.  He failed to come to the first meeting on January 26, 1760.  At the second meeting, on February 4, he showed up and swore an oath that he needed more time to prepare his disclosure.  He was given until February 26.  His deposition on the latter date disclosed several discomfiting pieces of information.  First, though his early account books were fine, during 1758 they began to become confused, and by 1759 they were in "total disorder." Second, in 1759, his annual business and the amounts for which he contracted suddenly and unaccountably increased dramatically.  Third, he did business through a broker such that he did not know the identity of the buyers, and the buyers did not know his identity.  More significantly, he had during 1759 ordered his broker to sell at 15-20% below prime cost.  Both Perrott and his broker claimed that no records were kept of their transactions.

When the commissioners arrived for the final creditors meeting and examination of Perrott on March 4, they were served with an order, for which Perrott had petitioned, from the Lord Keeper–the royal officer entrusted with physical custody of the Great Seal and at that time vice chancellor of England—requiring the commissioners to extend the time for Perrott to make his final discovery for 46 more days.  The last meeting was rescheduled for April 19, but in the meantime, the commissioners examined several witnesses, and the picture of Perrott’s activities became increasingly disturbing.

This is where I will pick up in the next post.

Comments

For a fictional account along similar lines (but in a T&E context), I highly recommend Anthony Trollope's Mr. Scarborough's Will.

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