Bankruptcy

Bankruptcy is the state of person who has been adjudged by a court to be insolvent. The court orders the compulsory administration of a bankrupt's affairs so that his assets can be fairly distributed among his creditors.

To declare a debtor to be bankrupt a creditor or the debtor himself must make an application known as a bankruptcy petition either to the High Court or to a country court.

If the petition is accepted the court makes a bankruptcy order. Within three weeks of the bankruptcy order, the debtor must usually submit a statement of affairs, which the creditors may inspect. This may be followed by a public examination of the debtor. After the bankruptcy order, the bankrupt's property is placed in the hands of the official receiver. The official receiver must either call a creditor's meeting to appoint a trustee in bankruptcy to manage the bankrupt's affairs, or he becomes trustee himself. The trustee must be a qualified insolvency practitioner. He takes possession of the bankrupt's property and, subject to certain rules, distributes it among the creditors.

Our society has a history of harsh treatment of debtors. At one time it maintained prisons to punish persons unable to pay off their obligations. Our Constitution, however, took a more enlightened approach. The authors of the Constitution offered an alternative to imprisoning such individuals or, perhaps just as debilitating, leaving them to suffer under overwhelming debt loads for years. In the USA, Congress is given the power to "establish . . . uniform Laws on the subject of Bankruptcies throughout the United States." In other words, Congress was authorized to provide a procedure whereby citizens overburdened with debt could be discharged (released) from their obligations.

The word bankrupt is not used in the Bankruptcy Code. Instead, the word debtor is used. This omission was intentional perhaps to avoid applying the stigma of the term it replaced to those who seek the protection of the code.

The word bankruptcy, however, has acquired a legal meaning. It refers to the procedure by which debtors' eligible assets are utilized to discharge them from some, if not all, of their obligations. Note that the discharge of debts through bankruptcy is available to a debtor only once every 6 years and that the debtor's credit record typically reflects the discharge for 10 years. However, neither government bodies nor private employers can discriminate against someone who has gone through bankruptcy (for example, by firing). Nevertheless, seeking protection under the Bankruptcy Code provisions is an option that should be considered only as a last resort.

UNIFORM COMMERCIAL CODE

a) The Uniform Commercial Code (U.C.C.) is concerned with certain commercial transactions in, or regarding, personal property, and contracts and other documents concerning them. U.C.C. in force in 49 of the 50 states of the United States, represents an effort to codify "The Law Merchant".

There is a distinct difference between a code and other statutory enactments. A code is a comprehensive, systematic collection of statutes in a particular legal area. The Uniform Commercial Code contains and governs much of the law applicable to ordinary commercial transactions. A code, because of its comprehensive and integrated character, is its own best reference for interpretation. Non-code enactments are often fragmentary, and interpretation of them varies widely.

b) The purposes of the Uniform Commercial Code are set out in one of its initial passages. These purposes are as follows:

• to simplify, clarify and modernize the Law governing commercial transactions;

• to permit the continued expansion of commercial practices through custom, usage and agreement of the parties;

• to make uniform the law among the various jurisdictions.

It was also hoped to encourage resolution of commercial conflicts with a minimum of litigation. This purpose has largely failed.

c) Proposals for uniform legislation for sales of goods have been made since the 19^th century. One of the UCC’s sponsors, the National Conference of Commissioners on Uniform State Laws, has been in existence since 1892 and has drafted approximately 170 Uniform Acts. In the early 1940s the National Conference took on its most ambitious assignment: the creation of a uniform code of laws covering most commercial areas. It enlisted the help of the American Law Institute, whose membership comprised hundreds of the country’s leading judges, lawyers, and law professors. A decade later the first edition of the Uniform Commercial Code (UCC) appeared. It has since been adopted in whole or in substantial part by nearly all the states, and significant portions have been updated as the need arose.

d) The UCC is divided into twelve articles. The first ten articles contain the substantive provisions, summarized below and discussed in detail at various points throughout the text.

Articles 10 and 11 address the mechanism of enacting the Code, such as effective date, repeal of conflicting statutes, and transaction between repealed statutes and the Code.

The ten substantive articles are:

Article 1 General Provisions

Article 2 Sales

Article 2A Leases

Article 3 Commercial Paper

Article 4 Bank Deposits and Collections

Article 5 Letters of Credit

Article 6 Bulk Transfers

Article 7 Warehouse Receipts, Bills of Lading and Other Documents of Title

Article 8 Investment Securities

Article 9 Secured Transactions; Sales of Accounts and Chattel Paper

e) The UCC is neither mandatory nor comprehensive in its coverage. Generally, the parties are free to alter the effect of Code provisions by agreement. Further, the Code, to the extent it does not address a specific issue, is liberally supplemented by legal principles existing outside the UCC.

Contract law may cover agreements relating to transfers of merchandise, land, buildings, services, and other things tangible and intangible. The law of sales deals

only with transfers of rights in and to "goods" - a term referring to a relatively narrow class of items that we will define in a moment.

Also, the UCC's law of sales often requires knowledge beyond that demanded of the layperson by the law of contracts.

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