A History of Insolvency – part two

A History of Insolvency – part two...

Ancient Greece

According to the Constitution of the Athenians by Aristotle which describes the constitution of ancient Athens over a number of centuries, debtors who were unable to pay were required to surrender their land to their creditors and to become slaves to cultivate the surrendered land for their creditors’ benefit, although only a sixth of the produce was required to be applied in payment of the creditors’ debts. If the debts were in excess of the value of debtor’s assets the debtor and his family would become the creditor’s slaves.

The laws were applied with such enthusiasm that by the sixth century BC debt-slavery was epidemic. In response the Athenian legislator Solon introduced the Seisachtheia Laws which immediately cancelled all unpaid debts, retrospectively freed all enslaved debtors and reinstated to them all seized property. The Laws also illegalised the use of personal freedom as security for debts.

Early Middle-Eastern Religious Societies

Historians have suggested that insolvency law was rendered unnecessary in ancient societies with religious prohibitions against the charging of interest. The most familiar prohibition is that found in the Quran but similar prohibitions are found in Judaism and Christianity although that in Judaism applies only between Jews and the Christian prohibition is strictly against usury, rather than the charging of interest per se.

According to Deuteronomy Chapter 15 verses 1 – 3 all debts were required to be forgiven after 7 years and anyone who sold themselves into slavery was required to be released after the same period, although such laws applied solely between Jews.  There also appears to have been a tradition of debt release by official proclamation amongst the rulers of Jerusalem. In 432 BC Nehemiah, who was Babylonian–born and no doubt aware of the old Mesopotamian traditions, proclaimed the cancellation of the debts of all Jews who owed money to their fellow citizens.

The Quran provides for debt relief by permitting a debtor time to pay. Verse 280 of the Surat Al-Baqara (the second chapter of the Quran) states: And if someone is in hardship, then [let there be] postponement until [a time of] ease.

Early Roman Law

The Roman Law of Bankruptcy slowly developed through the Republic and Empire until it was finally written down in the Corpus juris Civilis issued in around 530 AD by order of Justinian I.

The earliest Roman laws dealing with debtors permitted a debtor only to pledge his own body as security by contract and if he defaulted the creditor could seize him and treat him as he thought fit, including imprisoning, beating or starving him. However, the debtor appears to have not lost his legal status as a freeman and in the event of war he was required to be released temporarily to serve in the Roman army. If a creditor did not have the benefit of the debtor’s contractual pledge then he was entitled to obtain a judgment from a Magistrate which seized the debtor for the creditor, producing a similar situation as if the defaulting creditor had been granted the contractual right.

The Twelve Tables dating to around 450 BC first codified Roman Law. The code appears to have extended the debtor laws substantially by permitting a creditor to seize a debtor in respect of a debt remaining unpaid for 30 days and bring proceedings against him before the Magistrate. The Magistrate could order that the debtor be kept in bonds for 60 days during which time he would be brought before the Court on three successive market days and his debts publically announced.  At the end of the period the debtor was liable to be sold into slavery or put to death and if he had more than one creditor the creditors themselves were entitled to cut from his body a share proportional to their debt. Whilst there is some academic debate as to whether the law was applied literally, the balance of opinion is that the creditors had the actual right to kill or dismember the debtor rather than to participate rateably in his property or the sum raised from his sale into slavery.

The laws as set out in the Twelve Tables continued in full force until 326 BC when the Lex Poetelia Pairia abolished the provision for death or dismemberment and excused convicted debtors from being placed in bonds. At the same time voluntarily enslaved debtors were freed and the right to such a pledge illegalised so that creditors were required to proceed with the now more lenient judicial route of enforcement.

From the third century BC onwards, probably as a response to a serious debt problems and associated disorder  amongst the plebeians, many laws were introduced to alleviate the position of debtors, some even introducing debt relief by providing for release of debts by a half or three quarters. Magisterial proceedings in respect of unpaid debts continued but sanctions were successively relaxed until imprisonment for debtors was abolished by Constantine in 320 AD.

In early Roman Law there was no right for a creditor to proceed against a debtor’s property. However in around 100 BC there was introduced a procedure for possession and sale of the property of a debtor who had fraudulently concealed himself from his creditors, known as the Rutilian Procedure. From this time the law developed quickly and widely as will be explained in the Part Two of this series of articles.

Lewis Onions

Lewis Onions

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