COMMITTEE. LEAVE. (Hansard, 21 May 1857)

THE ATTORNEY GENERAL
begged the patient indulgence of the House while he called its attention to a measure of a somewhat peculiar character, because it intended to deal with an existing state of things, and was therefore, to a certain extent, retrospective. He had a Resolution to move on which would be founded a Bill to amend the particular Act under which public companies were liable to be made bankrupt, and also to amend the Winding-up Acts. The spirit of the enactments 686 which he wished the House to accept was precisely the same as that of the Bill passed last Session with regard to all joint-stock companies with the exception of banking and insurance companies. The Act of last year, he might observe, was introduced after the greatest consideration, and would, he trusted, prove very beneficial in its operation. The present state of the law respecting banking and insurance companies was this:—There was now a great conflict between the remedy of bankruptcy and the remedy, as it was called, of winding-up under the Acts passed for that purpose. It was a most unfortunate peculiarity of this country that we did not confide to any one tribunal the duty of administering complete justice on an entire subject, but gave to different tribunals the charge of its fragmentary parts. Where a joint-stock banking company fell into difficulties and became insolvent two things had to be effected. The one was the payment of its creditors and the putting of its assets in their power. The other was the determination of the measure and relative proportions in which individual shareholders should contribute to make up the deficiency in the fund available for meeting the company's obligations. It would be imagined that both of these processes might be conducted by one tribunal. But, in fact, when a public company became insolvent the duty of winding-up the estate for the payment of the creditors might belong to the Court of Bankruptcy, while the operations for apportioning the contributions required from the various shareholders and for settling their respective equitable rights could only be effected through the medium of another tribunal—the Court of Chancery, under the Winding-up Acts of 1848 and 1849. In a company consisting of many shareholders particular individuals might be called upon to pay the debts of the concern in unequal ratios. For example, one shareholder, whose fair contribution was only £2,000, was liable to be called upon by the creditors for say £20,000, and could be compelled to pay it too. And the question was, how could this person come upon his fellow-shareholders, who were equally liable, to recover the remaining £18,000? The difficulty attending the solution of this point, and the mode of working it out, had led to the introduction of the Winding-up Acts of 1848 and 1849. Then there arose from this state of the law a conflict between the two jurisdictions, of 687 which the whole community had recently had a most painful and distressing exhibition brought before their eyes in the notorious case of the Royal British Bank, to which previous reference had been made, and in which it would be recollected that all the several branches of that great tribunal, the Court of Chancery, were occupied for a considerable period, not in determining either the rights of the creditors or the liabilities of the shareholders, but in deciding between the claims of the official managers under the Winding-up Acts, and the rival claims of the assignee under the bankruptcy to have the benefit arising from the cutting up and distribution of the estate. Thus, for a considerable time our Courts were engaged, not in the actual administration of justice, but in settling the preliminary question in which of our courts that justice must be sought. Another serious evil arising from the same conflict of jurisdiction lay in the liability of the shareholders of the insolvent company to as many actions as there were creditors. What was the consequence of this state of affairs? Keeping to the example of the British Bank as an illustration, the creditors of which were about 6,000 in number, and the shareholders some 280 or 300, at present every single creditor had a right, after certain preliminaries, to bring an action to recover his claim against every single shareholder. Thus they had 6,000 creditors multiplied by 300 to represent the number of actions which the existing law allowed to be brought as the consequence of the failure of this particular company. What was the practical result? He held in his hand an exceedingly long list of actions, from which he found that one creditor, for a sum of less than —150, had commenced no fewer than twenty-five different suits. He had a second list giving the number of shareholders who had fled the country; and a third—which was also very long—giving the number who had become bankrupts. Many others had, no doubt, made settlements of their property and arrangements as to their effects in the hope of evading the consequences of this state of the law, because they found it utterly impracticable, with 6,000 creditors, and 300 shareholders, to come to any mutual understanding. Common sense would dictate that somebody should have the power of representing the interests of the shareholders, and somebody else the power of representing the rights of the creditors, 688 with the view to an arrangement by which the liabilities of the shareholders should be determined, and each of them rescued from what was perhaps even worse than the original loss—namely, the accumulated costs of the innumerable actions, which seriously aggravated the first misfortune of the unhappy shareholder. He (the Attorney General) had, therefore, to submit to the consideration of the House a remedy in regard to the existing state of things and for all future cases of this description. Let the creditors of a banking, or any other public company, not included in the late Acts, be called together by advertisement, and be enabled, subject to certain conditions and under the approval of the Court, to choose one or more persons to represent their interests; and let those persons be armed with authority to make any arrangement with the representatives of the shareholders for the purpose of obtaining that amount of contribution from each individual shareholder which might be right or practicable. When this was done, let the shareholders be protected from liability to actions on the terms—of immediately making application to the Court, having the direction of the proceeding, and submitting to such conditions as it might think fit to attach to the privilege of immunity from action by the creditors. In the case of a bank a shareholder was placed by the existing law in a situation of peculiar hardship, because as soon as the bank was made bankrupt he was liable to pay the whole of its debts, although the whole of the company's available assets might have been seized by the creditors. It was most unjust to leave a man liable to pay the entirety of the debts, when, probably, in the course of three or four months the whole of the difference between the dividend realized under the bankruptcy and the full amount of the debts might be forthcoming by means of contributions levied under the Winding-up Act rateably upon the shareholders. Suppose the assets realised 7s. in the pound, was it not most unjust to permit a shareholder to be sued for the whole 20s.? His liability ought to be confined to the 13s. Under the present Bill the Court would give protection against this oppression upon the terms of the shareholder giving security for a reasonable amount. The Bill resolved itself into two propositions. Instead of the interests of the most important and largest creditors being destroyed by the refusal of some one or two creditors of inferior 689 amount to concur in an arrangement, it was proposed to empower the majority of the creditors, in number and value, to appoint a person to carry a just and equitable arrangement into effect. At present a person might be a creditor at the time of the bankruptcy for some £40 or £50. An attorney came to him and said, "Sell me your debt;" the rights of the creditor were transferred to the attorney for a consideration, and some 200 or 300 actions were brought upon that miserable debt. As many hon. Gentlemen were no doubt aware, this was done in the case of the Royal British Bank. The shareholders found it impossible to meet the demands of the creditors with any chance of settling the claims or making a fair compromise. The object of the Bill was to enable the creditor to be represented, and by that mean to bind the whole body of creditors to advantageous terms. The other proposition was this—to enable a shareholder, as soon as terms had been agreed upon, to apply to the Court for protection against vexatious proceedings, by giving security to answer the amount which, so far as he was concerned, should be required of him to carry out the arrangements already agreed upon by the representative of the creditors. He believed that the Bill would be beneficial alike to creditors and debtors, because while the former would be more likely to obtain payment of their debts, the latter would be saved from ruinous litigation. The Bill would apply to all existing as well as to future companies, and would therefore supply a grievous defect in the Bill of last Session. The hon. and learned Gentleman concluded by moving, that the House resolve itself into Committee to consider the said Acts.

§ MR. MALINS
believed that many of the provisions of the contemplated measure of the hon. and learned Gentleman were almost identical with those of a Bill which came down from the Lords last Session, but which unfortunately he was not able to carry beyond a second reading. If it had become law he believed that much of the misery which had been occasioned by the failure of the Royal British Bank might have been avoided. Many of the unfortunate shareholders had fled the country, not to avoid payment of their fair share of the debts of the bank, but to save themselves from the entire ruin which might have been brought upon them by the multiplicity 690 of actions alluded to by the hon. and learned Gentleman. The object of the Bill was to effect a compromise of the existing law, but he would suggest an improvement. By the present law the person as well as the property of the creditor could be taken. The course adopted was an exhausting process; for instance, a call was made on 350 shareholders, to which only 200 responded; a second call was then made, which reduced the number to say 100, and on that 100 a third call was made. He would suggest that directly an order to wind-up was made, the right of creditors to sue individual shareholders should cease. It might be said that if this were so the shareholders would leave the country or make away with their property. At present, however, under the Act for the Abolition of arrest under Mesne Process a creditor had the power, by permission of a Judge, to arrest a debtor who was about to leave the country, and he would give the same power to creditors in this case, under a Judge's order, to arrest shareholders where there was evidence to show that they were about to abscond to avoid their liability. Such a provision as he had suggested would get rid of the enormous evil disclosed in the case of the Royal British Bank, where there were 350 shareholders, abundantly able to pay all their debts, and where, if the right of sueing individual shareholders had not existed, he believed the affairs of the bank might have been wound up, calls made, every creditor satisfied, and the shareholders set perfectly free. The Bill which came last year from the Lords was unfortunately lost owing to the opposition of many hon. Gentlemen from the other side of the Channel, who were under the impression that he supported it in order to favour some of the shareholders in the Tipperary Bank—which was far from his intention. That Bill, if it had passed last year, would have saved the shareholders of the British Bank from almost all their troubles, and he accused the Government of a want of moral courage in connection with it. Because there was a great feeling against the measure on the part of those whose support Ministers desired to have, they left the battle solely in his hands, with the result he had indicated. This was the sort of support which private Members got in attempting to improve the law. Now, however, the Government was obliged to come forward and do that which it refused 691 to do last year. Still he should support the present measure, though the details of course would require consideration.

MR. DEASY
thought the House was much indebted to the hon. and learned Gentleman (the Attorney General) for the introduction of this measure. If it had been the law at the time of the failure of the Tipperary Bank he believed the creditors would have got at least 10s. in the pound, whereas now they would not receive one-fourth of that sum. He hoped the hon. and learned Gentleman would accede to the suggestion made from the opposite side of the House, as it was a provision which would greatly increase the benefit that would be derived by both debtors and creditors from this enactment.

§ MR. WYLD
said that, had the Bill been in operation last year, the creditors of the Royal British Bank would have been in receipt of, if not of the whole, at least of a very large portion of their claims. As it was, £17,000 had been expended upon law costs in the attempt to recover from the shareholders the amount to which they became liable, while one-third of the more wealthy shareholders were at this moment living in exile abroad. A large proportion of these persons would have offered a composition, and if some individual had been empowered to give discharges a considerable part of the whole debt would by this time have been paid. Both the debtors and the creditors of the Royal British Bank must feel much indebted to the Attorney General for the time and care he had bestowed upon this measure, and he only hoped that much time would not be suffered to elapse before it was passed into a law.

THE ATTORNEY GENERAL
said, that the object which the hon. and learned Member (Mr. Malins) desired to see accomplished was practically effected by the Bill, for the moment the Winding-up Order was made, or an adjudication in Bankruptcy took place, the advertisement for the creditors would be issued. That advertisement operated immediately as an injunction against all proceedings without the leave of the Court. The shareholders would be cited when the creditors applied to obtain that leave; they would have to propose terms, or to show adequate cause why the court should not make an order, and thus both parties would be properly protected.

THE ATTORNEY GENERAL
having formally moved a Resolution:— That the Chairman be directed to move the House, That leave be given to bring in a Bill to amend the Act seven and eight Victoria, chapter one hundred and eleven, for facilitating the Winding-up the affairs of Joint Stock Companies unable to meet their pecuniary engagements; and also, the Joint Stock Companies Winding-up Acts, 1848 and 1849.

§ SIR HENRY WILLOUGHBY
wished to ask the hon. and learned Gentleman how he proposed to treat the question of fees? The contest between the rival judicatures of Chancery and Bankruptcy in the case of the British Bank seemed to be nothing more than a contest between the officers of two courts of law, which should pray upon the carcass, and he should like to know how the hon. and learned Gentleman would deal with such a case as this?

THE ATTORNEY GENERAL
hoped that no long time would be suffered to elapse before some comprehensive measure on the subject of Bankruptcy and Insolvency was introduced, in which due provision would be made with regard to fees, but that in the present Bill he did not propose to interfere with them.