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,[7] 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 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.[8] 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 were employed. The Insolvent Debtors Act 1842 allowed non-traders to begin bankruptcy proceedings for relief from debts. However, conditions remained an object of social disapprobation. The novelist Charles Dickens, whose own father had been imprisoned at Marshalsea while he was a child, pilloried the complexity and injustice through his books, especially David Copperfield (1850), Hard Times (1854) and Little Dorrit (1857). Around this very time reform began.
The difficulties for individuals to be discharged from debt in bankruptcy proceedings and the awfulness of debtors prison made the introduction of modern companies legislation, and general availability of limited liability, all the more urgent. The first step was the Joint Stock Companies Act 1844, which allowed companies to be created through registration rather than a Royal Charter. It was accompanied by the Joint Stock Companies Winding-Up Act 1844, which envisaged a separate procedure to bring a company to an end and liquidate the assets. Companies had legal personality separate from its incorporators, but only with the Limited Liability Act 1855 would a company's investors be generally protected from extra debts upon a company's insolvency. The 1855 Act limited investors' liability to the amount they had invested, so if someone bought shares in a company that ran up massive debts in insolvency, the shareholder could not be asked for more than he had already paid in. Thus, the risk of debtors' prison was reduced. Soon after, reforms were made for all indebted people. The Bankruptcy Act 1861 was passed allowing all people, not just traders, to file for bankruptcy. The Debtors Act 1869 finally abolished imprisonment for debt altogether. So the legislative scheme of this period came to roughly resemble the modern law. While the general principle remained pari passu among the insolvent company's creditors, the claims of liquidators expenses and wages of workers were given statutory priority over other unsecured creditors.[9] However, any creditor who had contracted for a security interest would be first in the priority queue. Completion of insolvency protection followed UK company law's leading case, Salomon v A Salomon & Co Ltd.[10] Here a Whitechapel bootmaker had incorporated his business, but because of economic struggles, he had been forced into insolvency. The Companies Act 1862 required a minimum of seven shareholders, so he had registered his wife and children as nominal shareholders, even though they played little or no part in the business. The liquidator of Mr Salomon's company sued him to personally pay the outstanding debts of his company, arguing that he should lose the protection of limited liability given that the other shareholders were not genuine investors. Salomon's creditors were particularly aggrieved because Salomon himself had taken a floating charge, over all the company's present and future assets, and so his claims for debt against the company had ranked in priority to theirs. The House of Lords held that, even though the company was a one man venture in substance, anybody who duly registered would have the protection of the Companies Acts in the event of insolvency. Salomon's case effectively completed the process 19th century reforms because any person, even the smallest business, could have protection from destitution following business insolvency.
The financial collapse of 2007–2008 led to a bank run on Northern Rock, the first since Overend, Gurney & Co in 1866. Northern Rock, Lloyds TSB and RBS were nationalised for £650bn. After this, the Banking Act 2009 created a specific insolvency regime for banks, but with reduced lending, and economic activity a large numbers of businesses failed.
The difficulties for individuals to be discharged from debt in bankruptcy proceedings and the awfulness of debtors prison made the introduction of modern companies legislation, and general availability of limited liability, all the more urgent. The first step was the Joint Stock Companies Act 1844, which allowed companies to be created through registration rather than a Royal Charter. It was accompanied by the Joint Stock Companies Winding-Up Act 1844, which envisaged a separate procedure to bring a company to an end and liquidate the assets. Companies had legal personality separate from its incorporators, but only with the Limited Liability Act 1855 would a company's investors be generally protected from extra debts upon a company's insolvency. The 1855 Act limited investors' liability to the amount they had invested, so if someone bought shares in a company that ran up massive debts in insolvency, the shareholder could not be asked for more than he had already paid in. Thus, the risk of debtors' prison was reduced. Soon after, reforms were made for all indebted people. The Bankruptcy Act 1861 was passed allowing all people, not just traders, to file for bankruptcy. The Debtors Act 1869 finally abolished imprisonment for debt altogether. So the legislative scheme of this period came to roughly resemble the modern law. While the general principle remained pari passu among the insolvent company's creditors, the claims of liquidators expenses and wages of workers were given statutory priority over other unsecured creditors.[9] However, any creditor who had contracted for a security interest would be first in the priority queue. Completion of insolvency protection followed UK company law's leading case, Salomon v A Salomon & Co Ltd.[10] Here a Whitechapel bootmaker had incorporated his business, but because of economic struggles, he had been forced into insolvency. The Companies Act 1862 required a minimum of seven shareholders, so he had registered his wife and children as nominal shareholders, even though they played little or no part in the business. The liquidator of Mr Salomon's company sued him to personally pay the outstanding debts of his company, arguing that he should lose the protection of limited liability given that the other shareholders were not genuine investors. Salomon's creditors were particularly aggrieved because Salomon himself had taken a floating charge, over all the company's present and future assets, and so his claims for debt against the company had ranked in priority to theirs. The House of Lords held that, even though the company was a one man venture in substance, anybody who duly registered would have the protection of the Companies Acts in the event of insolvency. Salomon's case effectively completed the process 19th century reforms because any person, even the smallest business, could have protection from destitution following business insolvency.
The financial collapse of 2007–2008 led to a bank run on Northern Rock, the first since Overend, Gurney & Co in 1866. Northern Rock, Lloyds TSB and RBS were nationalised for £650bn. After this, the Banking Act 2009 created a specific insolvency regime for banks, but with reduced lending, and economic activity a large numbers of businesses failed.
