1. Extreme Weather and the Development of Australian Personal Insolvency Law

Extreme weather and natural disasters played an important role in the development of modern personal insolvency law. The term ‘bankruptcy’ derives from the Italian ‘banco rotto’, or ‘broken bench’. It is thought to refer to the medieval European custom of breaking a merchant’s table in two, when he was unable to pay his debts. The first English bankruptcy laws were enacted in 1542, during the reign of Henry VIII. These laws were extremely punitive, allowing for debtors to be arrested, imprisoned, set upon a pillory in a public place or even maimed, through the removal of an ear. It was not until 1705 that English law offered any meaningful relief to distressed debtors. The 1705 law made a radical departure from previous bankruptcy law by offering bankrupts release from their debts, on the condition that they relinquished all their property for distribution among their creditors. This innovation was intended to create an incentive for debtors to cooperate, rather than running away, hiding assets or making secret payments to preferred creditors, such as family members.^[1]

Yet this change was also prompted, in part, by a series of extremely savage storms in 1703 and 1704.^[2] These storms, which affected the most populous areas of England and its ships as far away as Barbados, caused immense destruction and ruined many English merchants. The writer Daniel Defoe, best known for his novel Robinson Crusoe, described these unprecedented natural disasters in a pamphlet on bankruptcy, published in 1706. It was ‘as if,’ he wrote, ‘Heaven had particularly stretcht out its Hand to touch us in the most sensible article, our Trade,’ sending ‘unusual Tempests which made strange Havock among our Shipping … more than any former History can remind us of …’^[3] The ‘Great Storm’ of November 1703 was particularly catastrophic, drowning of one fifth of the sailors of the English sovereign fleet, destroying buildings across England and wrenching millions of trees from the ground.^[4] Defoe observed that in the wake of this disaster, the ‘Multitude of Insolvents increased to such a Degree,’ and the harshness of the law fell ‘so severely on the miserable and unfortunate … that it began to move the Nation to Compassion’.^[5]

Australian bankruptcy law has also been shaped, in significant ways, by natural disasters. In the early 1800s, the colony of New South Wales passed a series of laws that went well beyond their English precedents. These laws made debt discharge widely available and abolished imprisonment for debt, more than 20 years before this change occurred in England. This ‘revolutionary’^[6] reform was triggered by a drought, which endured from 1827 to 1829 and devastated the pastoral economy. Laws to deal with debt became a high priority and pragmatism was essential. In 1828, the Sydney Monitor reported that ‘extreme drought is the cause, immediate or remote, of the embarrassments of nine debtors in the Colony out of ten’.^[7] In 1830, a writer to the Sydney Gazette, identified only as ‘a friend to trade’, wrote that ‘[t]he necessity of some Act for the relief of insolvent debtors … becomes every day more apparent by the crowded state of our gaols, which hold, pent up within their walls, many an honest debtor, whose failure has been the result of the late unprecedented drought’.^[8]

In 1830, the temporary Debtors’ Estates Distribution Act 1830 (NSW) gave courts the power to release imprisoned debtors and to discharge their debts. Following another severe drought from 1838 to 1840, the colony was plunged into economic crisis, involving the failure of six banks.^[9] This crisis became the catalyst for further, lasting bankruptcy law reform. The New South Wales Insolvency Acts of 1841 and 1843 transformed the law ‘irrevocably’, treating debtors in ‘a recognisably modern manner’.^[10] They offered relief, in the form of debt discharge, to a much wider class of people than English bankruptcy laws at the time.