§ House again in Committee (according to order).
§ Clause 7 (Particulars to be disclosed by prospectus).
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Amendment moved, to omit Sub-section 1, and insert the following words:—
Any contract, provision, or arrangement entered into before the complete registration of a registered company whereby any liability is imposed on the company to pay money or money's worth to any person or to confer any advantage, pecuniary or otherwise, on any person (other than such moneys and advantages as are payable to or conferred on all the shareholders of the company) shall, unless notice of such liability is given in any prospectus of the company, or unless such liability is adopted by a general meeting of the company summoned to decide on such adoption, be void to all intents as against the company."—(The Lord Thring.)
LORD THURLOWsaid, he could not help thinking that if this proposed clause were adopted as it stood, and the 4th sub-section repealing Section 38 of the Companies Act, 1867, were to remain as it stood in the Bill, a very great safeguard to the investing public would be struck away.
§ LORD BRABOURNEwas of opinion that the clause would not have the effect,—no doubt intended by its authors—namely, to insure greater care in the issue of the prospectus. If any person who was a party to such an issue was bound under a penalty to disclose the particulars of a great many things which were "within his knowledge," the result might be either that respectable persons might be deterred from becoming Directors of perfectly good undertakings, or that those who became Directors would take care not to allow matters to be "within their knowledge" which might bring them within the provisions of the clause.
§ The LORD CHANCELLOR (Lord HALSBURY)said, he thought that the section proposed by the noble Lord was a very valuable one, and he would be 505 glad to incorporate it in the Bill, but he could not consent to omit Sub-section 1. He would accept the clause in addition to, and not in lieu of, that sub-section.
§ Amendment, to omit Sub-section 1 (by leave of the Committee), withdrawn.
§ New Clause agreed to.
§ On the Motion of The Lord CHANCELLOR, Amendment made, in page 3, line 39, by omitting ("is party to,") and inserting ("authorizes").
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LORD THURLOW moved at the end of Sub-section 3 to add—
Excepting in the case of such ordinary trading or business contracts as may be either too numerous to recite or might be prejudicial to the interests of the company to disclose.
He said, he thought it very undesirable to allow persons to frame a prospectus with the view of contracting themselves out of the law; but it might be impossible in the contents of a prospectus to give all the contracts which might have been entered into.
§ LORD HALSBURYsaid, he quite saw what the noble Lord meant by the Amendment, and he recognized the importance of the matter. If the noble Lord would withdraw the Amendment he would consider the question.
§ Amendment (by leave of the Committee) withdrawn.
§ Clause, as amended, agreed to.
§ Clause 8 (Copies of prospectus to be filed with registrar).
LORD THURLOW, in moving to omit the words "signed by," and to insert "bearing the names of," pointed out the great inconvenience that might arise if a Director were ill or abroad, and contended that some such amendment of the clause ought to be made in order to enable Companies to carry on their business.
§ Amendment moved, in page 4, line 39, leave out ("signed by,") and insert ("bearing the name of").—(The Lord Thurlow.)
§ LORD HALSBURYsaid, he was afraid he could not accept the Amendment. If the Amendment were agreed to, it would be very difficult to fix the responsibility for the statements in the prospectus on anyone.
§ LORD HERSCHELLsaid, that, in his opinion, unless the clause was amended, 506 it would often have the effect of paralyzing the business operations of a Company.
LORD THURLOWhoped the noble and learned Lord would reconsider the point. He could not quite agree that the clause, if amended in the way he suggested, would afford no protection. His reading of the law was that every Director was legally responsible if his name appeared on the prospectus.
§ THE EARL OF SELBORNEsaid, he might point out that people's names had often been put on lists of Directors who had never consented to act in that capacity.
§ LORD HALSBURYsaid, he had known cases in which gentlemen whose names had appeared on prospectuses had absolutely repudiated their responsibility.
§ LORD HERSCHELLsaid, that the remarks of the noble and learned Lord only referred to new Companies. As he had said already in the case of established Companies, if a Director was ill or at the other end of the world, it would be impossible to carry on their business if the clause stood.
§ LORD HALSBURYsaid, he would agree to introduce words into the clause which would confine the effect of the clause to the first issue of a prospectus.
§ Amendment (by leave of the Committee) withdrawn.
§ Clause agreed to.
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Moved to insert the following New Clause after Clause 8:—
On and after the commencement of this Act it shall not be lawful for any company to recognise or permit any dealings in or transfers of the shares of the company previous to allotment; and any company so infringing under this section shall render itself liable to a fine of £50 in each case of such infringement, and may be held to be guilty of a misdemeanour."—(The Lord Thurlow.)
§ LORD HALSBURYsaid, he would accept the clause in substance; but it would, he thought, require amendment.
§ Clause amended, by the omission of the words ("and may be held to be guilty of a misdemeanour,") and agreed to.
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LORD THURLOW moved the following as a New Clause:—
On and after the commencement of this Act it shall be lawful for any company to issue
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any portion of its capital at such a premium or at such a discount as may have been sanctioned at a general meeting of the shareholders of the company by a majority of not less than two-thirds of their number present and voting or duly represented by proxies.
§ He thought that this was a matter of some importance. It had exercised the minds of the London Chamber of Commerce and other great Bodies, and he thought their Lordships ought to deal with it.
§ THE EARL OF SELBORNEthought the clause would be highly objectionable unless it was confined to the issue of new capital.
THE EARL OF CRAWFORDsaid, he hoped the House would decide this question one way or the other, as at present the law on the matter was very unsettled.
§ LORD HALSBURYsaid, some of their Lordships would probably have to settle this point in their judicial capacity. He could not accept the clause, but would consider the point with which it dealt before the Report stage.
§ Clause (by leave of the Committee) withdrawn.
§ Clause 9 (Restriction on allotment of shares and debentures) agreed to.
§ Clause 10 (Prohibition of purchase of shares by company) agreed to.
§ Clause 11 (Liability of directors, &c. in respect of qualifying shares).
§ Amendment moved, to leave out Clause 11, and insert the following Clause:—
- "(1.) The articles of association of the company shall state the number of shares required as qualification for holding the office of a director of the company, and every case whore a director, as a vendor or otherwise, acquires such qualification otherwise than by payment in cash, in the same manner as public subscribers, shall be fully disclosed on the prospectus.
- (2.) Any default in complying with this section shall render the person so defaulting liable to a fine not exceeding ten pounds for every day during which the default continuos."—(The Lord Thurlow.)
§ LORD BRABOURNEsaid, that it was most undesirable, as well as unfair, that Directors should be placed in a different position from all the other shareholders, and compelled to pay up the whole of the capital which they might have invested in the Company, whilst other shareholders might only be called upon 508 to pay up half, one-third, or one-fourth, according to circumstances. If this proposal were seriously made, it should also be provided that interest should be paid to the Directors upon the sum which they were thus obliged to pay in advance of everybody else.
§ LORD HALSBURYsaid, that the objections taken to the clause, as it stood in the Bill, were from the Directors' point of view. The object of the clause was to insist on the Directors really paying for their shares, and to insure their really taking an interest in the concern. He maintained that the Directors should have a real and not merely a colourable qualification, as was suggested. He could not, therefore, support the Amendment.
§ LORD HERSCHELLsaid, that taking as an example the case of a bank which was converting itself into a Company, it would be absurd to require the partners not only to give up the concern to the new Company, but to pay cash for their shares as well.
§ LORD BRABOURNEcould not allow it to be said that his objection was "from the Directors' point of view." He spoke on behalf of the shareholders, whose interest it was to get good Directors, and good Directors would not submit to troublesome or onerous conditions. The truth was that this Bill was founded upon benevolent principles, but would be most inconvenient in its operation. It aimed at two impossible things—one, to prevent foolish people from investing their money foolishly; the other, to aid commercial operations by embarrassing and restricting them. This kind of legislation was very injurious to commercial enterprize, which commercial men could carry on much better if they were allowed greater freedom of action. He (Lord Brabourne) knew that this remark was more suited to the second reading of the Bill than to one of its clauses; but this clause was an example of the whole, and was really one of so absurd a character that it was impossible it could receive the sanction of Parliament.
§ On Question, "That Clause 11 stand part of the Bill?" Their Lordships divided:—Contents 23; Non-Contents 29: Majority 6.
§ Clause struck out.
§ New Clause agreed to.
509§ Clause 12 (Audit of accounts of companies) agreed to.
§ Clause 13 (Balance sheet).
§ LORD HERSCHELLsaid, he bad great doubts as to this clause, because it compelled every Company to make disclosures which many Companies now perfectly solid and substantial found it their interest not to make. In these days of keen competition many Companies, as part of their constitution, did not give more than limited information, and the shareholders were perfectly content it should be so.
§ LORD HALSBURYexplained that he was now in communication with the Board of Trade, with the view of meeting the objections which had been urged, and he suggested that the matter should be postponed till Report.
§ Clause agreed to.
§ Clause 19 (Provisions as to valuation of plant, &c.).
§ LORD THURLOW moved to omit the latter part of the clause requiring that there should be appended to the balance sheet "a detailed statement of cost of all items which have been added to capital account since the issue of the last balance sheet." He objected to this provision as vexatious in its character, and prejudicial to the interests of Companies.
§ Amendment moved, in page 6, line 37, leave out from ("property") to end of the sub-section.—(The Lord Thurlow.)
§ LORD HALSBURYsaid, this clause had been urged upon him by a great number of persons who had shown that people were constantly being defrauded, and particularly the working classes, by the plant belonging to certain Companies being grossly misrepresented in respect of its value.
LORD THURLOWsaid, he hoped the noble and learned Lord would seriously consider this matter before Report. In many cases it would be absolutely impossible to give the information.
§ LORD THRINGsaid, he was in favour of the Amendment.
§ Amendment agreed to.
§ On the Motion of Lord THURLOW, Amendment made, in page 6, sub- 510 section (2), line 43, by leaving out from ("deducted") to end of the sub-section.
§ Clause, as amended, agreed to.
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On the Motion of Lord BASING, the following New Clauses were inserted after Clause 14:—
(Power to amend memorandum of association with consent of the court.)
Any company limited by shares may, by special resolution, so far modify the conditions contained in its memorandum of association as to extend the objects of the company or to increase its power for carrying out its objects; provided that the extended objects shall be of a similar nature to those for which the company was established, but no such resolution shall come into operation until an Order of the Chancery Division of the High Court of Justice confirming the resolution, either wholly or partially, shall have been registered by the Registrar of Joint Stock Companies in the manner hereinafter mentioned.
(Company to apply to the court for an order confirming resolution.)
A company which has passed a special resolution as provided for in the last-mentioned section, may apply to the court, by petition, for an order confirming the resolution; and on the hearing of the petition, the court, if satisfied that the consent of every creditor of the company has been obtained, or his debt or claim has been discharged, or has determined, or has been secured in the manner provided by sections thirteen and fourteen of the Companies Act, 1867, and that the several classes of shareholders, if any, other than ordinary shareholders, have to the extent of three-fourths at least in number and value of such shares assented thereto, may make an order confirming the resolution on such terms and subject to such conditions as it deems fit.
(Order of the court to be registered.)
The Registrar of Joint Stock Companies upon the production to him of an order of the Chancery Division of the High Court of Justice confirming the resolution, and the delivery to him of a copy of the order [and of a minute approved by the court showing that the consent of creditors had been obtained or security given as provided by sections thirteen and fourteen of the Companies Act, 1867] shall register the order [and minute] and on the registration the special resolution confirmed by the order so registered shall take effect. Notice of such registration shall be published in such manner as the court may direct.
The registrar shall certify under his hand the registration of the order [and minute] and his certificate shall be conclusive evidence that the requirements of this Act with respect to the subject matter of the order have been duly complied with.
§ Clause 15 (Report by liquidator on winding up, and proceedings thereupon).
§ LORD HERSCHELLsaid, he would suggest the employment of the Official 511 Receiver as liquidator in the winding up of Companies. The Official Receiver was a public official having no interest but that of the public. In the Bankruptcy Act very strict provisions were inserted requiring reports from time to time, meetings of creditors, declarations of dividends, or reasons why the dividends were not declared. Under the existing system the liquidation of Companies lingered on, and there was no such strict insistance on periodical reports as was exacted from the Official Receiver in Bankruptcy. A great deal of scandal would be avoided if the system which he recommended were introduced. At all events, the liquidation of small Companies should be carried on in bankruptcy. In the case of large Companies it was not of so much importance; but he really did not see why the time of the Official Receiver should not be utilized, and there would be this advantage—that he would be an independent officer. The whole subject required consideration.
§ THE EARL OF SELBORNEsaid, he did not know whether what his noble and learned Friend had suggested could be done by the present Bill; but he expressed a hope that his noble and learned Friend on the Woolsack would be able to deal with the subject in a comprehensive measure.
§ Clause agreed to.
LORD THURLOW, in moving to insert after Clause 15 a new clause, said, that, under the present law, the liquidator became master of the situation during liquidation; there were no means of bringing him to book and making him account from time to time for what was going on. It would give more satisfaction if the liquidator were placed more in the position of a servant of the shareholders whose interests were at stake, and if the shareholders were enabled to dismiss him if they chose and appoint a new liquidator.
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Moved to insert, after Clause 15, the following New Clause:—
Where a company is being wound up voluntarily the liquidator shall, once in every year during the liquidation, call a general meeting of the shareholders of the company, giving not less than eight days' notice, and submit a printed report and balance sheet of the affairs of the company, and of the proceedings during the year, for the approval and confirmation of the shareholders; and it shall be competent to
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the shareholders, by a majority of not less than three-fourths of those present or represented by proxies, to pass such resolutions bearing on the conduct of the liquidation as they may deem expedient: Provided that any such resolution be subject to confirmation by a three-fourths majority vote at a subsequent shareholders meeting to be called by the liquidator within not less than eight nor more than sixteen days from the date of the first meeting."—(The Lord Thurlow.)
§ LORD HALSBURYsaid, he would not absolutely object to the clause; but he thought if the matter was to be dealt with it should be on wider lines. The proposed clause only dealt with a small part of a much larger subject which undoubtedly required consideration.
§ THE EARL of SELBORNEthought the clause might be adopted now without the least prejudice to the larger treatment of the question hereafter.
§ Clause agreed to, and added to the Bill.
§ Remaining Clauses agreed to, with Amendments.
§ House resumed; Bill to be printed as amended. (No. 236.)