HC Deb 21 February 1867 vol 185 cc781-91

Order for Second Reading read.

MR. WATKIN,

in moving the second reading of this Bill, repeated the explanation of the circumstances which had rendered it necessary which he made when he introduced it; and stated that it was with his consent about to be referred to a Select Committee. The question was whether they ought not to remove the alarm and difficulty which now existed in regard to debentures, upon which the welfare of so important a branch of the carrying trade depended. It might be said that the proposed measure was bad for the shareholders. That while £450,000,000 were invested in railways, the debenture-debt only amounted to £120,000,000; therefore, it was unfair to legislate in favour of the debenture-holders as against the shareholders. They might, however, remember that the debentures were the core of the railway system, and whatever made the security of the debentures more perfect would enable the companies to borrow at a less amount of interest, and therefore leave a larger amount of money to divide among both the preference and ordinary shareholders. At present a mortgage was given to the debenture-holders on what was termed the general undertaking, and tolls, which meant the fixed property and the tolls. This Bill would also give them a lien on the engines, carriages, and plant movable and immovable, of the company. It would not have any retrospective action, and would, therefore, not affect existing engagements, applying only to the debentures issued after its passing. It might be said that by passing the Bill they would prevent the railway companies who chose to do so from borrowing upon the present security, but he had no objection to insert a clause in Committee to enable the companies to do so. Thus the power would be optional, though he had no doubt it would be universally availed of. On the other hand, if any company wished to make its securities perfect, surely the House ought not to refuse facilities for such a purpose. With regard to the objection that they would deprive the trade creditor of his security, he denied that that was so; but even if it did affect his security he contended that inasmuch as the bulk of the revenue was received in cash, railway companies ought to pay cash for stores, materials, and labour, and not get into debt on their account. There was, however, in fact, a large amount of property left untouched by the Bill which could be seized for trade debts, such as surplus lands and a mass of floating property not absolutely required for the working of the line. There were three classes of claims specially excepted from the operation of the Bill—rates and taxes, compensation for personal injuries, and for loss and damage to property in transitu, and chief rents recoverable by distress. The measure had been submitted to and approved by the highest authorities of the London and North Western, the Midland, the South Eastern, and other railway companies, and also to a noble Lord in "another place" who had given railway questions his especial attention in Parliament, and who considered the measure well worthy the attention of the House, and that its principle was sound. He denied that he had introduced the Bill because he was connected with certain railways, and was anxious to get them out of their difficulties. In point of fact, the capital of the whole of the railway companies in difficulties did not amount to more than £24,000,000, and the debentures to £6,600,000, or about 4½ per cent of the whole capital so invested; and if they excepted the London, Chatham, and Dover, which had introduced a special Bill of its own, the proportion of the capital of railways in difficulty would be reduced to 1½ per cent of the whole. In reference to the complaint that the established railway companies had laid out more capital than, they ought to have done, he would simply observe that the returns to the twelve principal railway companies on the increased capital laid out during six years past amounted to no less than 6¾ per cent per annum, which he contended was a perfect justification on their part. He thought that, considering the class of people who held railway debentures, and the alarm felt by them on the subject, the House ought to support a measure which would put this class of security, good as even at present in most cases it was, on a footing of undeniable and unchallengablc security and safety.

Motion made, and Question proposed, "That the Bill be now read a second time."—(Mr. Watlkin.)

MR. GOLDNEY

pointed out that the third clause of the Bill gave debenture-holders an unwarrantable advantage over all other creditors of a railway company, with the single exception of the tax-gatherer. He could imagine the case of a contractor engaged in constructing a line and desiring payment when the line was finished, but if the railway company had issued debentures the contractor would be unable to put in an execution for payment. The contractor for casual repairs, too, would be in the same predicament under similar circumstances. Instead, then, of calling the measure a Railway Debenture Holders' Bill, he thought it would be more properly described by the title Railway Companies Creditors' Defiance Bill. Hitherto the Legislature had endeavoured to protect such of the public as were creditors against railway companies, but this Bill proposed to remove such protection and nullify all past legislation in this respect.

MR. AYRTON

pointed out that passing the Bill in its present state would be attended with several peculiar consequences. He regretted that the Law Officers of the Crown were not present to give the House the benefit of their experience in considering this complicated legal question. There was no misapprehension on the part of Parliament in its railway legislation. It was competent to make a permanent mortgage of landed estate, and a railway was landed estate earning money by tolls, which afforded the permanent security when a mortgage was made. But one could not well mortgage permanently a fluctuating property. The Bill proposed to add to the legal mortgage of the land estate all the personal property that might happen to be upon it, but if the change were adopted a railway company would not be able to deal with property with a view of taking it off the land. The effect of this would be to place railways in a position of great embarrassment, for that would destroy their credit. He hoped the President of the Board of Trade would consider this Bill on the part of the public, and that the Law Officers would take care that it should have a due regard to the protection of the public interests. He hoped it would be understood that the House in reading the Bill a second time did not thereby assent to the principle of the Bill, but only read it a second time as a matter of form, as they were not yet sufficiently advised as to the measure.

MR. ALDERMAN SALOMONS

admitted that the Bill as it at present stood was crude, but in the interest of capitalists and others who had invested their money in railways as well as in the interests of the travelling public, he assented to the principle that the plant ought not to be removed. The credit of the company would be best maintained, and the convenience of the public insured, by keeping the rolling stock upon the line, and that was the best security for the debenture-holders, who were the first mortgagees.

MR. CHILDERS

said, he thought the thanks of the House were due to the hon. Member for Stockport (Mr. Watkin) for introducing the Bill, and on the understanding that it was to go to a Select Committee, and that they were not pledged to any of its details, he hoped the House would pass the second reading. The hon. Member was not quite accurate, he thought, in some of his statements. It was true that at present a debenture-holder could only come in, as such, through a receiver, but, as a creditor of the company for the amount represented by his bond, he could get judgment and seize the rolling-stock. The general principle the hon. Member had laid down was a sound one—namely, that it was very much against the public convenience that the rolling-stock of the company should be liable, as now, to be taken in execution by individual creditors, whether for works, supplies, or debentures, thereby destroying the reasonable security of the debenture-holder, who was the first creditor. But the great cause of all the mischief about railway securities was the legislation of Parliament itself. We had merely copied the provisions of the old Canal Bills, without noticing the difference between the securities they issued and those of railways; and without weighing the consequence of so large an amount of permanent works being provided by a floating instead of a fixed debt. Under Canal Hills the loans raised were precisely like mortgages of any other landed estates, and were usually for seven or fourteen years, and the total amount was small. Under Railway Bills altogether £120,000,000 hail been taken from the floating capital of the country under much shorter dated securities, which were not mortgages in the usual sense, and could not even be held by many trustees. The result of this had been that in times of pressure, and when doubts arose as to the security of debentures, largo claims were made upon the companies on account of those loans, and though they might be in a solvent condition, they were placed in considerable financial embarrassment. France had adopted a much wiser course in this respect, making the loan capital of its railways raised for very long terms, and redeemable by a sinking fund. He thought that the great mistake had been to prescribe in what way companies should raise their money. We had laid down rules derived from the obsolete legislation of last century; whereas, if our railway companies had been allowed to raise their capital as they chose under the provisions of the Joint Stock Acts much of the present difficulty might have been obviated; at least, no one would have been responsible for it but themselves. One great source of mischief was that railway companies which had found themselves in an unsatisfactory position in raising their capital had, as it was called, "financed" their income, and attempted to apply their current income to capital charges; and he would suggest whether it might not be desirable in some way to compel railway companies in future to keep their capital and income monies separate. In recent debates much had been said about the defective accounts of great national establishments, and he could not help now observing it might also be found that there were weak points in the accounts of great railway companies.

MR. LAING,

as the Bill was to be referred to a Select Committee, wished merely to confirm what had been said as to the extent to which Parliament was responsible for the state of things which had arisen with reference to railway debentures. The present difficulty was mainly owing to a mistaken view taken by Parliament originally on the introduction of railways, as to the nature of railway property. It then thought that a railway, like a canal or a turnpike road, was to be open to all the world; that the company was not to have a monopoly of the carrying business, but that everybody might bring their own engines and carriages on to the line, and run them along it, on condition that they paid the company certain tolls for the privilege. The Legislature gave in that case on the tolls what it then considered to be as good security as a mortgage on a landed estate. That view had since, however, turned out to be entirely erroneous, and he had no hesitation in stating that, if the present state of things had been known to Parliament when it originally dealt with the subject, the mortgages in question would have been made to cover not only the line of railway and the tolls, but also the rolling-stock. The cardinal policy of Parliament, indeed, he thought, had been to make the debenture capital of railways a secure investment, because it went out of its way to impose restrictions on the amount of such capital which could be raised. He could also corroborate the statement that the other restrictions which had been imposed on railway companies in the issue of debentures furnished the main reason why the Continental system—which would have placed the debenture-debt on a much sounder footing—had not been adopted in this country. That system consisted in issuing debentures at long dates with a sinking fund to redeem them, and it was a mode of proceeding which was the safest for all the parties concerned. It was a mode of proceeding, however, which legislation in this country prevented, and we therefore stood in the position of having £120,000,000 of property which had been held out by Parliament as being a security in which trust funds might be invested, while it now, after the lapse of several years, appeared that the legal effect of that security was not what Parliament had contemplated. Such was the pass to which things had been brought by an unexpected legal decision, and it was, he thought, but a simple matter of good faith that all parties should be placed in the position in which they believed they stood when the money was advanced. To the fact that the recent decision, however good it might be in point of law, was totally unexpected he could bear the strongest testimony, but the question was one in dealing with which the public interests must be looked to, and their interest, he maintained, clearly demanded that a railway should by no possibility be shut up by the severance from it of the rolling-stock. That principle the right hon. Gentleman the President of the Board of Trade had very properly laid down a few evenings before, and if the rolling-stock and the line were to go together it would be equally for the advantage of the public and the debenture-holders. The only question then would be how the comparatively small class of other creditors was to be provided for? Tradesmen's bills for current expenses ought never, he contended, to be allowed to exceed two or three months' earnings of a railway, and it would, he thought, be bad policy to declare that £120,000,000 of property should be kept in jeopardy because some persons, with due warning and with their eyes open, chose to go beyond the legitimate credit of a company for its current expenses. That, however, was a point which might be considered in Committee, and it would, no doubt, be deemed right that those creditors also should be duly protected. He looked upon it as impossible, he might add, to overrate the importance of such a Bill as that before the House, because when interest to the amount ½of or 1 per cent higher than ought to be paid according to the natural state of the money-market was charged on the large sum involved in debentures, it became of the utmost consequence to take care that railways which were now solvent might not fall into a position of insolvency. He hoped that the House would, under the circumstances, not hesitate to agree to the second reading of the Bill, and that it would without delay be referred to a Select Committee.

SIR STAFFORD NORTHCOTE

said, he thought the discussion in which the House was engaged a very useful one, and expressed himself as perfectly convinced that Members would act wisely in following the advice with respect to the passing of the Bill which had just been given. He should not, he might add, attempt to argue with his hon. Friend (Mr. Laing) as to how far everybody had been taken by surprise by the recent decision to which he had adverted. He might, however, state that he had heard in several quarters that persons who had paid attention to the subject were quite prepared for the view of the law which was there laid down. There was little doubt, at the same time, that it was not in accordance with the popular impression, and he quite concurred with his hon. Friend in thinking that Parliament should support, as far as lay in its power, the credit of the great security which he mentioned. It was, in fact, impossible to overrate its importance, and he must express his sincere regret if he had said anything which would give rise to the impression that he held a contrary opinion. He could not, however, see that he had uttered a syllable or inserted a single provision in the Bill which was calculated to have that effect. He at the same time fully admitted that in a case like the present it was extremely difficult to control, or even to reason with, a feeling of panic, and that it was highly necessary that hon. Members should be very careful as to anything which might fall from them, or any course which they might take, affecting, or appearing to affect, the security of the debenture-holders. It was a sense of that responsibility which chiefly prompted him to agree to the course proposed of reading the Bill a second time and then referring it to a Select Committee. He thought it was of the utmost importance that the House should assert the principle laid down in the Bill—that rolling-stock should not be separated from the line—and he could not help feeling that in the present feverish state of the public mind in some quarters any attempt to oppose a measure of the kind might conduce to the spread of panic, and to create the impression that Parliament was not anxious to do everything it could to strengthen the position of debenture-holders. He thought, however, that they ought to legislate upon a subject of such delicacy with great care, and not to allow, a Bill dealing only with one point to pass, under the impression that so crude a measure dealt with the whole question. He felt that he ought to inform the House of the views of the Government upon the subject. From the end of last Session, when the question was mooted in various forms in both Houses of Parliament, it was evident that the time was coming when some legislation must take place on the subject, with a view to the proper ascertainment of priorities amongst different classes of people interested. The chief point was to prevent any one class of creditors from injuring the public, and others who were interested in the property, by seizing the rolling-stock, and so stopping the working of the line. It was to prevent such an injury being committed that a noble Lord, who had already been referred to, introduced last year a Bill into the other House to prevent the seizure of rolling-stock. That Bill did not come down to this House. When the present Session opened, it appeared to the Government that it would be better to delay any proposals which they might think fit to make until they had seen the recommendations of the Royal Commission on Railways, the more so as there seemed to be no immediate necessity for legislation, because, as the hon. Member for Stockport (Mr. Watkin) had said, the debentures upon which the payment of interest had been suspended were insignificantly small, and it appeared impossible that the failure of so small a proportion, especially as the causes of the failure were so manifest, should in any way affect the debenture-holders generally. With regard to another question—that of providing proper machinery for winding-up companies when in a state of insolvency—the Government thought that immediate legislation was requisite, and he (Sir Stafford Northcote) had accordingly, a short time before, introduced a measure, the second reading of which had been postponed for a few days; but that measure had reference only to the case of railway companies which were unable to satisfy the holders of debentures. He was extremely sorry if, through any inadvertence on his part, he had done or said anything tending to alarm the holders of debentures. He could only assure the hon. Member that it was unintentional. He had postponed the second reading of the Bill in order that there might be the more time to consider the matter carefully, and to consult some Members who were interested in the management of railways, and he had every confident expectation that after the matters had been fully considered some arrangement might be arrived at by which that Bill or some other like it might be advantageously adopted. What we had to do was to prevent the stoppage of the traffic, and at the same time to secure the rights of all the creditors; for, though the debenture-holders formed a very important class, there were other classes of creditors whose claims had also to be considered. Upon such distinctions the Bill before the House did not, he thought, even attempt to touch. It might perhaps be decided in the Committee that it would be better to pass a Bill dealing with one class first and another afterwards; but, at all events, the Government thought, when they came to look into the Bill laid upon the table by the hon. Member, that it was not one which in its present condition could be advantageously discussed by the House, and that it would be far better to refer it to a Select Committee, by whom all its details would be carefully considered. In answer to an observation made by the hon. Member for the Tower Hamlets (Mr. Ayrton), in reference to the absence of the Law Advisers of the Crown, he might mention that the Attorney General, who was unavoidably absent, thoroughly concurred in the proposal, and had, moreover, expressed his perfect willingness to servo on any Committee that might he appointed. He (the Attorney General) thought it better that the whole question should be calmly and quietly considered in a Committee, and under the circumstances it was not necessary to detain him in the House at great personal inconvenience. He would be ready to co-operate with the hon. Member in his main object—namely, the keeping the line in work, and giving as good a security as possible to the debenture-holders. They ought, too, as far as possible, to consider whether the debenture-holder could not be protected from the carelessness of the directors themselves, for the want of confidence felt by the debenture-holders at the present time might possibly be attributable to other causes than the recent judgment of Lord Justice Cairns, or the speech which he himself had been unfortunate enough to make. He thought it might be desirable to consider all these matters in Committee. Personally, he should like to have awaited the Report of the Royal Commission; but that Report would, no doubt, be soon issued, and it was possible that some Member of that Commission might be willing to serve on the Committee. Whether that were so or not, they would, no doubt, receive from the Members of that Commission every assistance in coming to a decision; and he could only say that the Government themselves were most anxious to co-operate in promoting any measure which would be likely to secure the desired effect.

MR. WATKIN

would only say, in explanation, that the reason why he did not include in the Bill some power of registration was because he did not wish to interfere with any measure which was likely to be brought in by the Government.

Motion agreed to.

Bill read a second time, and committed to a Select Committee.

And, on February 25, Select Committee nominated as follows:—Sir STAFFORD NORTHCOTE, Mr. ATTORNEY GENERAL, Mr. MILNER GIBSON, Mr. LAING, Mr. THOMAS BARING, Mr. KIKKMAN D. HODGSON, Mr. GRAVES, Mr. CRAWFORD, Mr. COLERIDGE, Mr. AYRTON, Mr. SOOURFIELD, Sir FREDERICK HEYGATE, Mr. LEEMAN, Mr. GOLDNEY, and Mr. WATKIN:—Power to send for persons, papers, and records; Five to be the quorum.