Insolvency in Bankruptcy: A Synthesis

Insolvency as now generally defined in our Bankruptcy Act came into being in 1898.' Section 1(19) of the Bankruptcy Act provides that a person shall be deemed insolvent "whenever the aggregate of his property . . .shall not at a fair valuation be sufficient in amount to pay his debts." 2 Before this creation of 1898 the common law, 3 equity 4 and traders, 5 defined insolvency as an inability to pay debts as they mature, or words of simpler import.Since that definition prescribed by the Bankruptcy Act, the world outside of bankruptcy has largely ignored this divergence and has continued the original meaning without apologies, as evidenced by the Uniform Fraudulent Conveyance Act,' the Uniform Sales Act' and the Uniform Commercial Code.'All of these include in their definition of insolvency an inability to pay debts as they become due.The Bankruptcy Act itself found a greater use for the status of insolvency as a determinative factor and so finds its sections monotonously repetitive of the provision "insolvent or inability to pay debts as they mature."' To be sure, its own restrictive definition is alone applicable in certain instances," 0 but whether that is desirable is questionable.At least, the complete abandonment of the "liabilities exceeding assets" concept of insolvency would work no havoc.Because at the present time the two concepts, i.e., the balancing of t Candler Professor of Law, Emory University, Atlanta, Georgia, member of the United States Conference Advisory Committee on Bankruptcy Rules.1. COLLIER, BANKRUPTcY 1.19(1) (14th ed.1960).2. Bankruptcy Act § 1(19), 11 U.S.C. § 1(19) (1958).3. GLENN, CRDITORS' RIGHTS AND REMEDIES § 370 (1915).4. Finn v. Meigham, 325 U.S. 300, 303 (1944) ; Dabney v. Chase Nat'l Bank, 98 F. Supp.807, 814 (S.D.N.Y. 1951), aff'd. in part and rev'd. in part on other grounds 196 F.2d 668 (2d Cir.1952), opinion supplemented on otier grounds 201 F.2d 635 (2d Cir.1953) cert.dismissed 346 U.S. 863 (1953).5. 4 REMINGToN, BANKRUPTCY § 1686 (6th ed.Henderson 1955).6. UNIFORM FRAUDULENT CONVEYANcE ACT § 2. 7. UNIFORM SALES ACT § 76(3).8. UNIFOPM COMMERCIAL CODE § 1-201(23).It should be noted that the Code includes in its definition of insolvency the words "within the meaning of the federal bankruptcy law."Ibid.9. E.g., Bankruptcy Act § § 3(a) (5), (d), 75(c), 77, 83, 115, 130(1), 323, 423, 623, 11 U.S.C. § § 21(a)(5), (d), 203(c), 205, 403, 515, 530(1), 723, 823, 1023 (1958).10. E.g., Bankruptcy Act § § 3(a) (3), (c), 5(b), (k), 19, 60(a) (1), (b), 67(a) (1), (c), 137, 179, 216(8), 11 U.S.C. § § 21(a)(3), (c), 23(b), (k), 42, 96(a)(1), (b), 107(a) (1), (c), 537, 579, 616(8) (1958).The special fraudulent conveyance section of the Bankruptcy Act contains its own distinctive definition of insolvency.Bankruptcy Act § 67(d)(1), 11 U.S.C. § 107(d)(1) (1958).