COMMITTEE. LEAVE. (Hansard, 22 June 1857)

§ MR. LOWE,
in moving that the House reslove itself into Committee to consider the laws relating to Joint-stock Banks with the view of a Bill being brought in to amend those laws, said, that at that late hour (twenty minutes to one o'clock) he would trouble the House with very few words on the subject. The law relating to Joint-stock Banks was in a very unsatisfactory state. Great difficulties were interposed by the law in the way of forming a company, and when it was formed it gained no privilege by its formation except a bare licence to trade, and was still subjected to almost every possible inconvenience which the law could accumulate upon it. Persons desirous of forming a company had first to petition the Crown, for the grant of a charter. That petition was referred to the Board of Trade, which ascertained that all the requisites had been complied with. A charter was then granted containing a considerable number of conditions which formed great difficulties in the way of bonâ fide companies, but which were uniformly eluded, as in the case of the Royal British Bank, by companies not bonâ fide. That charter, which was obtained after very great delay and expense, gave a mere licence to trade, but no privilege whatever. As long as the 195 company went on prosperously it went on just like every other corporation, but should it fall into difficulties, the unfortunate shareholders were sure to discover that they were not invested with any kind of privilege whatever, but are subject to all sorts of legal processes. They are handed over to be wound up either by a Court of Bankruptcy or by a Court of Equity, or by both together, a fight taking place as to which of the Courts shall have the privilege of winding them up. As if that was not enough, the common law jurisdiction is also put in force against the shareholders, so that, in addition to being wound up by two Courts, they are sued at common law for payment of the debts due from the Company. The object of the Bill which he desired to introduce was to remedy these evils, and the manner was very simple. It consisted, in fact, merely of repealing so much of the Joint-stock Companies Act of last year as enacted that Joint-stock Banks should not come within its operation. In future, therefore, Joint-stock Banks might be formed like any other Joint-stock Company, by a memorandum, and the application of the few simple provisions contained in that Act. There would be a register of the shareholders which would be primâ facie evidence of the persons who were to be called upon to contribute. Such a bank would be liable to certain powers of inspection by one-fifth of the shareholders, and in case it came to be wound up, as soon as it was handed over to the Court which was to wind it up all actions against the shareholders would be stopped. It was proposed to retain the present limitation of shares in Joint-stock Banks to £100, and the proposed Bill would not make any alteration in the law, which at present required the liability of shareholders of Joint-stock Banks to be unlimited.

§ MR. MALINS
entirely approved the general object of the Bill, but regretted that it was not proposed to limit the liability of the shareholders in Joint-stock Banks as well as in other joint-stock undertakings, He hoped that what were understood to be the right hon. Gentleman's own views on this subject had not been overruled; but, if so, he trusted the Government would not consider that this subject had been finally decided. He felt satisfied that it was necessary for the good conduct of Joint-stock Banks, and 196 in order to induce persons of substance to join them, to provide that such persons should not forfeit the whole of their property upon the failure of these undertakings.

§ MR. COWAN
asked whether it was intended that this Bill should apply to Scotland?

§ MR. LOWE
Yes.

§ MR. ROEBUCK
said, he was surprised to hear that the principle of limited liability was not to apply to Joint-stock Banks. He recollected very distinctly some observations made by the right hon. Gentleman when he brought in his Limited Liability Act. The right hon. Gentleman said then, that for his own part he did not see why that principle should not apply to Joint-stock Banks; and he must have seen by what had since occurred that unlimited liability did not hold out any security to the depositors, and, in fact, worked altogether pure unmingled mischief. Take the case of the London and Westminster Bank. The capital now amounted to £1,000,000; the deposits are £15,000,000. Suppose that bank should fail (which was, however, a very improbable supposition), although unmitigated ruin would fall on the shareholders, did any body believe any advantage would accrue to the depositors from the unlimited liability? In the case of the Royal British Bank the only result had been an amount of misery which should make the House shudder at its own work. From what had fallen from the right hon. Gentleman on a former occasion his views on this subject were evidently clear-sighted enough; it was apparent that he thoroughly understood the work he was about; and it was supposed that he would work out the regeneration of the law on this subject. He (Mr. Roebuck) was sorry the right hon. Gentleman had departed from that which, no doubt, in his heart he believed to be right, and had bowed to a prejudice which pervaded a great many minds, but ought not to have influenced his.

§ SIR JOHN SHELLEY
added the expression of his great disappointment that the Bill did not extend to Joint-stock Banks. It was perfectly outrageous that the only Joint-stock Companies to which the principle of limited liability would not now apply should be banking companies.

§ MR. HENLEY
said, it must not be forgotten that the great confidence reposed by 197 the public in Joint-stock Banks, and the vast deposits entrusted to them, arose from the fact that the depositors believed they could come upon the last acre and the last shilling of every shareholder. The public were weak enough to suppose that the proprietary of these banks would be honest enough (he would almost say) to fulfil the engagements they had entered into in the prospectuses they had so widely circulated when the concern was set afloat. If a private banker failed, you "made no bones" with him. His last acre and his last shilling were seized upon, and as far as his estate went the claims of the depositors were satisfied. It was otherwise, however, with a Joint-stock Bank. Directly a crisis came, the shareholder said, "It is very hard that we should be ruined. If we were called upon for £2,000 or £3,000, we would not mind paying it; but sooner than part with all, we will make away with our property or go abroad." The result was that the creditors were bandied about from court to court; the lawyers got a great deal of money, and the creditors and depositors very little. If the creditors of these banks were to be deprived of any means of going against the shareholders, he hoped some clause would be introduced, preventing the latter from making away with their property before the winding-up was effected. As the law now stood, every shareholder in the Royal British Bank had apparently been able to disappoint every creditor, and nobody had paid anybody anything.

§ COLONEL SYKES
was of opinion that unlimited liability was calculated to prevent a man of capital from entering into any speculation, and regarded it, therefore, as impolitic to throw overboard the principle of limited liability.

§ MR. WYLD
said, that in the case of the British Bank, the debts were £500,000, while the assets were £250,000, and that, as the law now stood, the shareholders were liable for the balance between the debts and the assets. The consequence was, that the shareholders endeavoured to shield themselves from the payment of the debts altogether, whereas, if their liability had been limited, they would have come forward and paid their debts.

§ MR. ROEBUCK
said, the difference between the shareholder in Joint-stock Banks and private bankers consisted in the circumstance that the shareholders had nothing to do with the management of the 198 business, while, with respect to the latter, the contrary was the case. He also thought it imprudent to make the holder of a single share liable for all the debts of a bank. Such a system deterred parties from joining in Joint-stock concerns. If the law was inefficient, the depositor had a fictitious security, and all the misery that the unfortunate shareholder endured afforded no substantial benefit to the depositor. If there was a greater liability attached to directorship, it might be beneficial. It might be said, that by making the responsibility of the director too great they would drive from the directory all respectable men. This was a difficulty; but he still thought that the directors who managed a concern ought to have a heavier liability than the mere shareholders, who had nothing to do with the management of the bank.

§ MR. HENLEY
said, the shareholder was unable to obtain credit for the bank by pledging his individual responsibility. He took his share of the profits, and therefore there was no honesty in saying that he would not be prepared to meet his liabilities.

§ MR. BUCHANAN
said, it was well worth while delaying till they ascertained how the limited liability system would work before it was introduced into banking. He believed the system of limited liability was vicious in principle, and that our commercial prosperity was in a great degree owing to the fact that our merchants, traders, and bankers were responsible for any concern with which they connected their names.

§ MR. HANKEY
would express his regret that the right hon. Gentleman (Mr. Lowe) had departed so far from principles that had been adopted by that House.

§ MR. KINNAIRD
said, he must object to the discussion of such a measure as this at a quarter past one o'clock in the morning.