Romalpa and the banks

This meeting discusses the issues related to Romalpa and its effect on lenders in great depth. It is worth reading the entire meeting report if you are looking for a greater understanding on how Romalpa affects lenders, the arguments for and against it being void in insolvency, and the implications of Romalpa on different types of debts(e.g. book debts).

The Committee pointed to the fact that only 2% of receivers and liquidators had commercial experience. It then sought to deal with the question of whether insolvency was inevitably bound with finance?  It then discussed, by giving examples of different transactions, the extent to which  Romalpa clauses should be void in an insolvency situation. This is because the committee thought that Romalpa might not enable the banks to recover their securities because the title of a company’s assets was not vested in the debtor.

An alternative view on Romalpa was that merchants did not really care about it, and if it was used, then it was up to the banks to check the extent to which their security was eroded. The committee then recognised that there were two points of view: one in favour of Romalpa because it is a good protection for unsecured creditors, and one against Romalpa and all other preferences.

In the end, the committee concluded that Romalpa clauses registered within six months of liquidation should be void, as this will do away with the majority of the dangers. Other members of the committee favoured the protection of freedom of contract, but advocated for a system of registration of Romalpa.

Then, the committee discussed whether there should be a centralised or an in-house system of registration. The committee seemed to be in favour of an inner company registration or disclosure of any Romalpa-type dealings. There was an agreement among the committee hat Romalpa clauses should only apply where the original goods remained  in their original state.

The committee established that the onus of proof should be on the claimant to establish that the goods were theirs. The committee then discussed the position with regards to charges on shares.

Bankruptcy and company winding-up initiation procedures

The committee sought in this section to highlight the anomalies between the two systems. It then examined the possibility of merging the two procedures into one. The main difficulty to overcome was the question of publicity and the stigma associated with bankruptcy- especially that of individuals. Therefore, it was necessary to have a voluntary liquidation option for individuals.

Meeting 5 - 27-6-77