Business historians are sometimes criticized for not taking sufficient interest in the matter of failure. Commercial failures may be easy to describe, brought about by insufficient resources to meet previous commitments. What's harder to do is to categorize these causes analytically, since they can range from fraud to stupidity, overreaching ambition, or unanticipated competition. Legal historian Thomas Telfer has chosen to approach the subject through an analysis of bankruptcy law in Canada in the first fifty years after Confederation in 1867. He examines not only the changing statutory regime and the case law but also public attitudes towards bankrupts and the pressure groups that sought to determine their treatment.

By the mid-nineteenth century, insolvency—when debtors could not satisfy their creditors—could be dealt with by a declaration of bankruptcy. The weight of common law decisions on the subject rested upon the assumption that lenders were usually families, friends, or neighbors. They could be repaid on a “first come, first served” basis since they had a better claim than distant, faceless creditors. In some cases the insolvent simply fled to the United States, either paying his most persistent creditors or leaving all of them in the lurch. Efforts to deal with the problem by the British North American colonies were unsatisfactory, owing to the ease with which bankrupts could obtain a discharge. The Canadian constitution of 1867 gave jurisdiction over “bankruptcy and insolvency” to the federal government along with the power to regulate “trade and commerce.”

The Insolvent Act of 1869 aimed to create a uniform national regime; it was replaced by further legislation in 1875 but was ultimately repealed in 1880 and not replaced until the Bankruptcy Act of 1919. The author explains why Canada did not maintain a national regime in this important area of commercial law. First of all, bankruptcy was open only to “traders,” who bought and sold, which aroused antagonism from farmers and others not entitled to such relief. Secondly, the new legislation provided for the distribution of remaining assets among all the claimants pro rata, but many people believed that “first come, first served” remained more appropriate. Finally, the most hotly debated question concerned the issue of discharges from bankruptcy. The conviction was widespread that maintenance of business ethics required that people should bear the burden of failure perpetually, while others contended that this only encouraged flight from one's creditors to the United States.

From the time of Confederation onward there were debates about each of these issues, which led first to the repeal and then to opposition to the passage of any new federal legislation. In a nation overwhelmingly rural and agricultural, farmers were able to mount strong opposition to any new legislation that applied only to “traders,” while the debate about the danger to business ethics posed by the possibility of bankruptcy discharges also rumbled on. The repeal of 1880 resulted principally from objections to the equal treatment of all creditors, destroying the previous priority afforded to the earliest claimants, likely to be family members or neighbors. Efforts to persuade the federal government to pass new legislation were unsuccessful. Since the Canadian provinces had jurisdiction over “property and civil rights,” they were able to introduce their own legislation dealing with some of the consequences of bankruptcy.

As the Canadian economy grew, by the turn of the century many lenders increasingly found themselves dealing with local businessmen about whose acumen they might know little; this development helps explain the evolution of credit rating agencies that might provide detailed information. Yet the unpopularity of discharge provisions in any new bankruptcy legislation still provided a serious obstacle to change. Gradually, however, national organizations like the Canadian Credit Men's Trust Association became more influential in lobbying for action. Particularly during World War I the Canadian state became involved in an ever-widening sphere of regulatory activities. As a result of these forces the government was prepared to introduce and pass the Bankruptcy Act of 1919, which created the framework for subsequent legislation. The principle of equitable distribution of assets to creditors on a pro rata basis, and the opportunity for bankrupts to apply for discharge, was restored after a lapse of forty years.

Telfer's careful study relies upon the analysis of not only statutory language and the resulting legal decisions but also the role of public opinion and press groups in shaping outcomes. He also reminds us how much of business thought is shaped by moral and ethical considerations—such as the effect of allowing those who have failed a means to escape from their unmet obligations in certain circumstances.