page_title: United Kingdom insolvency law
section_title: History
hierarchical_section_title: United Kingdom insolvency law / History
caption_attribution_description: English: The first Marshalsea prison on Borough High Street, Southwark, showing the south front of the north side, 1773.
context_page_description: United Kingdom insolvency law regulates companies in the United Kingdom which are unable to repay their debts. While UK bankruptcy law concerns the rules for natural persons, the term insolvency is generally used for companies formed under the Companies Act 2006. "Insolvency" means being unable to pay debts. Since the Cork Report of 1982, the modern policy of UK insolvency law has been to attempt to rescue a company that is in difficulty, to minimise losses and fairly distribute the burdens between the community, employees, creditors and other stakeholders that result from enterprise failure. If a company cannot be saved it is "liquidated", so that the assets are sold off to repay creditors according to their priority. The main sources of law include the Insolvency Act 1986, the Insolvency Rules 1986, the Company Directors Disqualification Act 1986, the Employment Rights Act 1996 Part XII, the Insolvency Regulation 1346/2000 and case law. Numerous other Acts, statutory instruments and cases relating to labour, banking, property and conflicts of laws also shape the subject.
  UK law grants the greatest protection to banks or other parties that contract for a security interest.
context_section_description: The modern history of corporate insolvency law in the UK began with the first companies legislation in 1844. However, many principles of insolvency are rooted in bankruptcy laws that trace back to ancient times. Regulation of bankruptcy was a necessary part of every legal system, and is found in the Hammurabi Code (18th century BC), the Twelve Tables of the Roman Republic (450 BC), the Talmud (200 AD), and the Corpus Juris Civilis (534 AD). Ancient laws used a variety of methods for distributing losses among creditors, and satisfaction of debts usually came from a debtor's own body. A debtor might be imprisoned, enslaved or killed or all three. In England, the Magna Carta 1215 clause 9 set out rules that people's land would not be seized if they had chattels or money to repay debts. The Bankruptcy Act 1542 introduced the modern principle of pari passu (i.e. proportional) distribution of losses among creditors. However, the 1542 Act still reflected the ancient notion that people who could not pay their debts were criminals, and required debtors to be imprisoned. The Fraudulent Conveyances Act 1571 ensured that any transactions by the debtor with "intent to delay, hinder or defraud creditors and others of their just and lawful actions" would be "clearly and utterly void". The view of bankrupts as subject to the total will of creditors, well represented by Shylock demanding his "pound of flesh" in Shakespeare's Merchant of Venice, began to wane around the 17th century. In the Bankruptcy Act 1705, the Lord Chancellor was given power to discharge bankrupts from having to repay all debts, once disclosure of all assets and various procedures had been fulfilled. Nevertheless, debtors' prison was a common end. Prisoners were frequently required to pay fees to the prison guards, making them further indebted, they could be bound in manacles and chains, and the sanitary conditions were foul. An early 18th century scandal broke after the friend of a Tory MP died in debt prison, and in February 1729 a Gaols Committee reported on the pestilent conditions. Nevertheless, the basic legislative scheme and moral sentiment remained the same. In 1769, William Blackstone's Commentaries on the Laws of England remarked it was not justifiable for any person other than a trader to "encumber himself with debts of any considerable value." And at the end of the century, Lord Kenyon in Fowler v Padget reasserted the old sentiment that, "Bankruptcy is considered a crime and a bankrupt in the old laws is called an offender."
  Since the South Sea Company and stock market disaster in 1720, limited liability corporations had been formally prohibited by law. This meant people who traded for a living ran severe risks to their life and health if their business turned bad, and they could not repay their debts. However, with the industrial revolution the view that companies were inefficient and dangerous, was changing. Corporations became more and more common as ventures for building canals, water companies, and railways. The incorporators needed, however, to petition Parliament for a Local Act. In practice, the privilege of an investor to limit their liability upon insolvency was not accessible to the general business public. Moreover, the astonishing depravity of conditions in debtors prison made insolvency law reform one of the most intensively debated issues on the 19th century legislative agenda. Nearly 100 Bills were introduced to Parliament between 1831 and 1914. The long reform process began with the Insolvent Debtors (England) Act 1813. This established a specialist Court for the Relief of Insolvent Debtors. If their assets did not exceed £20, they might secure release from prison. For people who traded for a living, the Bankrupts (England) Act 1825 allowed the indebted to bring proceedings to have their debts discharged, without permission from the creditors. The Gaols Act 1823 sent priests sent in, and put the debtor prison jailors on the state's payroll, so they did not claim fees from inmates. Under the Prisons Act 1835 five inspectors of prisons we
caption: The Marshalsea debt prison, one of numerous London prisons, where insolvent debtors including Charles Dickens' father, was closed after the Debtors Act 1869. Imprisonment for debt is now contrary to the ECHR, Protocol 4, article 1.
exif: {"Image Software": "Picasa", "Image DateTime": "2014:06:18 22:40:39", "Image ExifOffset": "2174", "Image XPAuthor": "sarah", "Image Padding": "[]", "Thumbnail Compression": "JPEG (old-style)", "Thumbnail XResolution": "72", "Thumbnail YResolution": "72", "Thumbnail ResolutionUnit": "Pixels/Inch", "Thumbnail JPEGInterchangeFormat": "4514", "Thumbnail JPEGInterchangeFormatLength": "5899", "EXIF ExifVersion": "0220", "EXIF DateTimeOriginal": "2009:03:25 00:06:00", "EXIF ExifImageWidth": "1174", "EXIF ExifImageLength": "881", "Interoperability InteroperabilityVersion": "[48, 49, 48, 48]", "Interoperability RelatedImageWidth": "1188", "Interoperability RelatedImageLength": "899", "EXIF InteroperabilityOffset": "4378", "EXIF ImageUniqueID": "d0b74942f8b807e1e5a6f47753c7cda2", "EXIF Padding": "[]"}