Bankruptcy-Fraudulent preference-Complete disclosure ,of all' facts in a
scheme of composition is necessary-Equality of all qreditOl's if. the basic

                principle of bankruptcy laws                                     

Opposition to a' scheme of composition, was withdrawn by reason Qf
the offer of a 8'uarantee. but the guarantors did not disclOse to all the
creditors that the, debtor had pledged goods to them to ~e their liability
. undef the guarantee. The Court of Appeal held that although it is prob-
~bie there was no intent to defraud, the pledge, Was' Unenforceab~e bY. the
/ ~arantors. It was the guarantors' duty to communicate' to the other
. creditors every circumstance that might have affected theu- consent. to the

                scheme of composition.                                        

Re Robinson (1876) 1 Ch. D. 537.

• Court: Bell CJ., Owen _and Hamilton-Grierion 11.

Appeal

November 1927. Owen J.: It is beyond argument that, where
there is a bankruptcy, or an' arrangement or composition with creditors,
the principle that should be adopted is equality-all creditors should
share and share alike. If one or two creditors, unknown to the other
creditors-not unknown to one or two, but to the general body-
enter into an arrangement by which they get for themselves from the
debtor, or from anyone on behalf of the debtor, any collateral ad-
vantage whatever, that arrangement may be set aside.

In the present case the opposition to the scheme of composition
on the part of George Baghdadi was withdrawn, by reason of the
guarantee offered by the' plaintiffs. This contract of guarantee was
made with the knowledge and consent of the other creditors, and they
were entitled to assume that all the circumstances surrounding that
contract had been disclosed to them. The learned Judge has found as
a fact, however, that all the creditors were not aware of the fact that
the plaintiffs had obtained a mortgage or pledge of the debtor's goods,
to secure their own liability under the guarantee, and that, in effect,
therefore, Messrs Haggar were securing payment of their share in the
scheme of composition in a way that directly affected the security the
other creditors had for the payments due to them, namely the goods
in the debtor's shop, which they had restored to him to enable him to
carry on his trade.

Whilst it is probable that there was no intention to defraud it is
impossible to assume that the creditors as a body would have agreed
to this transaction had they known of it. It is not so much a question
of fraud of creditors as the necessity for complete' disclosure of the
arrangement by which the opposition of fellow creditors to a scheme
of composition is bought off.

The transaction in itself was harmless enough, and if the mort-
gage, pledge, bill of sale, whatever it is called, had been made to
secure payments by a guarantor of the debtor's instalments to all the
creditors, it would, in my opinion, be unimpeachable even if none of
the creditors knew about it (cf., Re Robinson (1876) 1 Ch. D. 537),
but, as I have said, being made for the benefit of one creditor only,
it offends against the principle of the necessity' for full disclosure in
such cases, and further against the policy of the Bankruptcy Laws.

In concluding that the plaintiffs were not entitled to succeed,