HC Deb 10 May 1878 vol 239 cc1705-12

, in rising to call attention to the Report of the Committee upon the Joint Stock Companies Acts of 1862 and 1867, and to move— That, in the opinion of this House, further provision is required for securing the bonâ fide character of undertakings registered under and for enforcing the returns required by the Joint Stock Companies Acts, said, the inquiries which had been made before Select Committees upstairs, and the Reports of those Committees, showed the need there existed for legislation on the subject. Considerable evidence was given before the Committee as to the very great sufferings caused by the abuses committed under the provisions of the Joint Stock Companies Acts. Many millions sterling of paid-up capital had disappeared, no one knew where. Since 1862, 12,879 Companies had been started, with a nominal capital of £1,590,000,000. A large portion of that had been paid up and lost. No doubt, a great deal was spent in liquidations; but there remained a large sum unaccounted for. The Registrar appointed under the Joint Stock Companies Acts had given evidence before the Committee, and a reference to it would show the abuses to which the Acts were open, and the lamentable consequences resulting from them. He (Mr. Gregory) would only trouble the House with two cases as instances of them. One Company had been registered with a nominal capital of £100,000,000, of which only seven shares of £20 each appeared to have been taken, and it did not appear that even that sum had been paid up; and another to which the seven persons, whose names were registered as forming the Company, had subscribed only 1s. each. Then, again, there was great laxity even in enforcing the existing law. Of 12,800 Companies, formed during a period of seven years, 5,500 had failed to make the Returns required by Act of Parliament, although those Returns were very limited in their character, as there was no obligation, or any power or authority to require those Returns. The Companies at present enjoyed practical immunity in failing to make Returns. His own view was, not only that the present Returns should be enforced, but that much fuller Returns should be required, particularly in reference to the amount of money borrowed by Companies which had obtained registration. The chief remedy suggested for these abuses was that, at the time of registration, stronger guarantees of bona fides should be required than were now demanded; and among these guarantees was that some fixed amount of capital should be paid up before registration was granted. This course was recommended by Mr. Harding, Mr. Turquand, and Mr. Price, three of the most experienced accountants in London; and he (Mr. Gregory) thought that, if adopted, it would prevent much of the ruin that had arisen from the formation of bubble Companies. Parliament authorized these undertakings—and, therefore, the public had a right to look to Parliament for some protection. It had been said that the public ought to look after itself. If they let the public alone altogether, that would be all very well; but, when the Companies received the authority of Parliament to appear before that public, to prefer limited liability to exercise powers of sueing and being sued, and to urge the facilities for carrying on their business provided by the Acts, there ought to be some care taken in the interests of the public. It had been said that there was a sensible diminution in the amount of speculation, but he did not think that was so, because the Registrar said that last year there were formed 1,200 Companies, with a capital of £70,000,000; and, although there might be a slight diminution, he believed, that as soon as the depression ceased and trade revived, there would be a repetition of what had gone on before. This was the time to consider the matter, and to provide against the temptations that would be furnished by returning prosperity. A paper had been put into his hand relating to 44 Companies which had been formed in the town of Oldham alone, and it exhibited a most melancholy state of things; for there was not one of them that had not borrowed cent per cent from the authorized capital, and some of them had borrowed double that sum. The returns of the Companies were nil, their profit and loss account showed little but their indebtedness, their mills were stopping, and the unfortunate shareholders would have to subscribe the full amount of their shares in order to pay off the debts incurred. The remedies he proposed were suggested by the Select Committee—that the bonâ fide character of an undertaking should, to some extent, be guaranteed by the subscription of a certain proportion of the capital before the Company was launched, and the Act requiring periodical Returns should be strictly enforced. He firmly believed that, without checking or prejudicing undertakings of a bonâ fide character, it would have a great effect in preventing those that were not; and it would also operate against what was a gross and flagrant abuse—namely, what were known as directors' qualifications, under which gentlemen lent their names to these Companies in consideration of an allotment of shares on which they did not pay one shilling. He might be told that any remedies he had to propose should have been embodied in a Bill; but he felt that this was not a matter to be undertaken by a private Member, but was one which should be taken in hand by the Government. The hon. Gentleman concluded by moving the Resolution of which he had given Notice—

Amendment proposed, To leave out from the word "That" to the end of the Question, in order to add the words "in the opinion of this House, further provision is required for securing the bonâ fide character of undertakings registered under and for enforcing the returns required by the Joint Stock Companies Acts of 1862 and 1867,"—(Mr. Gregory,) instead thereof—

Question proposed, "That the words proposed to be left out stand part of the Question."


said, the point raised was, no doubt, one of great interest, for it must be within the knowledge of every Member of the House that very great abuses had resulted from the enlarged powers of forming Companies which had been originated by the legislation of the right hon. Member for the University of London (Mr. Lowe). The principle of that legislation was that persons might, by complying with certain legal formalities, form themselves into a Corporation, without being obliged to obtain a Charter or an Act of Parliament; and the consequence of the formation of a Corporation was that its funds and not its individual members were liable for its debts. No doubt this privilege, which was a great advance on the former state of things, had been abused, and considerable disaster had been occasioned to individuals; but the Limited Liability Acts were not the first under which speculators had found dupes, and what the House had to consider was whether, looking broadly at the matter, the effect of the Companies Act of 1862, which was a consolidation of the Act of 1856, with one or two later Acts, had, or had not, been beneficial? In his opinion, the result, on the whole, had been eminently beneficial. The question, whether the abuses which might happen were such as to make Parliament again interfere to prevent them by legislation, was one of great difficulty. It was, he thought, a sound principle, that a man should not be responsible for more than he agreed to subscribe. The hon. Member for East Sussex (Mr. Gregory) spoke of the liability conferred by these Acts being practically unlimited, but that was a popular and not an accurate way of stating that people sometimes contracted to pay more than they expected to be called upon to pay. If, however, a man took a £100 share, on which at first he was only asked to pay £5, he had no right to complain if he was afterwards asked to pay the remaining £95, and he had to thank the Legislature that he was not responsible to the extent of the whole of his fortune. Had he been so responsible—as he would have been under the former law—he would have appreciated the difference between unlimited and limited liability. If people would speculate they must take the consequences, and nothing which Parliament could accomplish would ever do more than create a false security by making such people trust to the law instead of their own common sense. The borrowing powers of Parliamentary Companies were limited to one-third of their share capital and the debentures of the good railways were first-class securities; but, notwithstanding this provision, there were railway debentures which were worthless. The value of an investment was determined by its intrinsic merits, not by the legislation of Parliament. Indeed, Parliamentary limitations had in many cases—as in that of the London, Chatham, and Dover Railway Company —operated prejudicially, as they had prevented the Companies from borrowing the money necessary to complete the works required to enable them to earn dividends, and had driven them into debt, on what were termed Lloyd's Bonds, far exceeding what they would have required to borrow on more legitimate security. There was great difference of opinion in the Committee as to whether any practical good could be done by the interference of the Legislature. The minority were of opinion that to attempt to give Parliamentary guarantees would only create the same evils in a different way; and though the majority thought that something should be done, they had not favoured the House with any practical suggestions. Though, upon the whole, the operations of the Acts of 1862 and 1867 were satisfactory, yet there were points in those Acts which required amendment; and he hoped that the noble Lord now at the head of the Board of Trade, and the Attorney General, would take the trouble to read through the Report of the Select Committee and consider whether something should not be done. He had no hesitation in saying that the 38th section of the Act, which had been so fruitful of litigation, had done quite as much harm to innocent individuals as it ever did good, by protecting against imprudence. This section was one instance of a well-meaning, but unfortunate, attempt, to prevent people from the consequences of their own folly. The truth was, if the law were properly administered, it was strong enough to cope with rascality, when proved; and the more they multiplied forms and the more they induced persons to believe that they could find safety behind those forms without the exercise of their own caution and good sense, the more they opened the door to rascals, and the more they enabled scoundrels to carry on their nefarious business. The more simple the law could be made in that respect the better. It might not be without advantage to look at what was done in other countries. The difference between our law in regard to Joint Stock Enterprises, and that which prevailed in foreign countries, consisted chiefly in this—we had full liberty to establish a Company with any amount of capital and for any conceivable purpose; while, on the Continent, they did not allow the creation of large Public Companies without the authorization of the Government. But on the Continent and in several of the States in America there was an intermediate system between Chartered Public Companies and private partnerships unknown to us. Some of the witnesses before the Committee recommended, as one means of remedying some of the scandals or absurdities of the existing system, the adoption of a class of partnerships in which the liability of members was limited, not, as here, to the sum they might agree to contribute, but by the sum in hard cash which they actually invested in the enterprise. In France, such a partnership was called en commandite, the manager or gérant, being liable to his last farthing, and the other members of the firm only to the extent of their actual contributions. This secured to creditors the certainty that they gave credit to something actually existing and tangible, and to creditors and partners alike the guarantee that the managing partner would use all due care on account of his personal responsibility; while, at the same time, it assisted enterprise by providing capital free from the perils of unlimited liability. He believed such a system, if introduced into this country, would be very considerably availed of. Up to this time the proposal had not found general favour—though many able men had spent much time in recommending it. He hoped the Attorney General would turn his attention to this subject.


thought, that if Parliament passed as many measures as there were Members in the House, it would never cure the evil until the people who invested in trading Companies lost every halfpenny they possessed. This arose, not from the wickedness of Parliament, but from the wickedness of those who had the management of such concerns. There was no wonder that people who invested in them lost their money. He did not refer to banks or Railway Companies; but in iron mines, collieries, and manufactories of all descriptions, nothing was easier than to get up a Limited Liability Company. People were anxious to get 10 per cent for their money, and they put it into a limited liability company. The concern got on very well for a year or two, but the directors were not always the best principled men; they did not look to the proper working of the business, but to jobbing in the shares. No dividend was paid after the first year or two; the concern came to grief; the shares fell from £100, perhaps, to £3; the directors then bought them up, and the result was that people who had invested their all lost everything they had and died of a broken heart. No Act of Parliament, he feared, could prevent this.


believed the House would agree with him in thinking that, considering the very short time he had been connected with his present Office, it would be unsuitable for him to enter into a general discussion of this important subject. The question was, undoubtedly, an important one, and affected very many of the inhabitants of these islands. He might, however, congratulate his hon. Friend the Member for East Sussex (Mr. Gregory), not only on the interesting speech which he had made, but on the important speeches which had been made on the other side. He hoped his hon. Friend would not think that the Board of Trade had entirely neglected the subject to which he had called attention. Since the Report of the Committee had been made, that Board had endeavoured to enforce proper Returns from all existing Companies which had been created under the Acts of Parliament, and had also endeavoured to obtain from the Court of Chancery Returns of the various Companies which had been ordered to be wound up; and he thought that those Returns would lead to useful action in legislation. He was glad that his hon. and learned Friend the Member for Coventry (Sir Henry Jackson) had put in a protest against over-meddling on the part of the Government or Parliament; but he very much appreciated, also, the spirit in which the hon. Member for Cardigan (Mr. D. Davies) had treated the matter, and it would be well that people should take his remarks to heart. His own feeling was that we should be exceedingly jealous about over-interference. He saw with horror the danger of too much interference, and with still greater horror, as time went on, the number of ignorant people, and of people less ignorant, who thought, owing to Government interference, that the State was taking the whole responsibility on its own shoulders of seeing that commercial undertakings were sound, and that they need not trouble themselves about the matter. For his own part, it would be his duty, and also his pleasure, to read the evidence of the important Committee which sat last year, and to consider carefully their Report; and he would not fail to turn over in his mind the suggestion of the hon. and learned Member for Coventry with regard to what was going on in France. Of course, he could give no pledge whatever as to what the Government would do in regard to future legislation; but he would consider the whole subject carefully, and he trusted his hon. Friend who had brought forward the subject would be content with what had passed.

Question put, and agreed to.

Main Question proposed, "That Mr. Speaker do now leave the Chair."