[BILL 102.] COMMITTEE. (Hansard, 1 May 1879)

§ MR. COURTNEY
confessed that the Bill appeared to him to be one of very doubtful benefit, although it might be equally true that nothing positive could be said against it. It enabled a Company which had accumulated profits and a reserve fund, to divide them amongst the shareholders, so as to reduce the capital stock by the amount re-paid. The hon. Baronet who had charge of the Bill (Sir John Lubbock) had endeavoured to show that the creditors would have an increased security in case of the company being one of limited liability, for he said they could come upon this further reserve. But in the case of a non-liability Company the Bill would not have that effect, but would diminish the security of creditors. It would slightly diminish the security of the creditors, because shareholders would be more likely to divide accumulated profits than they were before. There appeared to him to be this objection to the Bill—that it would cause considerable difficulty to some classes of persons interested in shares of Companies in the event of any distribution taking place under the provisions of the Bill. Considerable questions would arise between persons who might be entitled for life and in remainder to the shares, as to whom the money so divided belonged. But the main objection to the Bill was that it proposed that when one thing was done it should be called by another name. It proposed that accumulated profits should be divided; but it proceeded to say that they should be returned as capital. The entries on the books of a Company would, therefore, not correspond in reality with what had been done. The Bill did not enable a Company to do more than it could do at present; but it did enable them to do that, and call it by another name. In fact, a Company was enabled to perform 1568 a transaction by a different name in the books from what it in reality was. He trusted that Parliament would not give its sanction to what was a misrepresentation.

§ SIR JOHN LUBBOCK
thought the remarks of the hon. Member (Mr. Courtney) were made under some misapprehension. The cases the Bill was intended to meet were when Companies started with a large amount of paid-up capital, and sometime afterwards, finding they had more than they wanted, they desired to return it to the shareholders. Under the existing Companies Acts, that process was impossible, except by complicated arrangements, which were so difficult as to be almost out of the question. There were Companies at the present time which had accumulated profits, by which they were in possession of a larger sum of money than they required, and they were anxious to return it to the shareholders in the manner indicated by the Bill. He did not think any difficulty would arise in the way suggested between tenants for life and in remainder; he might, however, say that they did not propose to give directors any further power of returning money to the shareholders than they had at present. But it was considered an advantage by persons connected with Companies that they should be enabled to do that in the manner provided by the Bill. They considered that were this money returned by way of bonuses or of dividends, it would probably give rise to a considerable amount of speculation; and those bonâ fide interested in the welfare of Companies preferred to make payment to the shareholders in this form. In the case of non-limited Companies, the Bill would make no difference whatever to the public, who were neither benefited or injured; but in the case of limited Companies, so far as the public were concerned, they would be in a better position than before. It did not seem to him that there was any reason for saying the Bill proposed to sanction one proceeding and call it by a wrong name, and he hoped that the clause would be agreed to, and the Bill passed through Committee.

§ THE LORD ADVOCATE (Mr. WATSON)
, in moving that the Chairman do report Progress and ask leave to sit again, said, that in the case of a 1569 non-limited Company there would not be any great objection to the Bill; but, at the same time, it must be felt that the objection raised by the hon. Member for Liskeard (Mr. Courtney), that the Bill enabled a Company to perform an operation of one sort and to call it by a different name, was well-founded. In the case of limitation by shares or by guarantee, the effect of this proceeding would be to substitute for paid-up capital simply the personal liability of the shareholders for the time being. In the event of money being so returned to the shareholders, there would be no guarantee of its remaining safe in their hands, or of their continuing members of the Company; and, in that case, the only security creditors would have would be the personal liability of shareholders, who might be quite unable to repay it.

§ SIR JOHN LUBBOCK
observed, that the hon. and learned Solicitor General had looked into and approved the Bill. With respect to the remarks of the right hon. and learned Lord Advocate, he trusted that if he considered the matter he would come to the conclusion that they did not apply. Admittedly, in the case of a non-limited Company they did not apply; and in the case of a limited Company, even if the shareholders were unable to pay the amount of the share to which they would be liable, the public would not be injured; because it was only proposed that the shareholders should be able to act in the manner provided where they were at present able to return the money by way of dividend or bonus. It was clearly an advantage to the public to have the liability of the shareholders increased by the amount returned to them, rather than that the shareholders should receive it by way of dividend. The money was now payable as dividend or bonus; but, in that case, the public could not get it back again. The Bill proposed to enable Companies to return the money as paid-up capital, and thus to give the public an additional security.

§ THE LORD ADVOCATE (Mr. WATSON)
remarked, that what was proposed 1570 to be done was really to give limited liability Companies a power to increase the amount of their unpaid-up capital. It was a matter of serious consideration how far that ought to be permitted in the case of a Company already trading with the public. It was a matter which deserved careful consideration, as to whether a Company should be permitted to extend its liability for unpaid-up capital at any moment. The approval of the House to this clause was tantamount to permitting a limited Company to diminish its paid-up capital and to increase the amount of its unpaid stock at any period without consulting its creditors, and for the purpose only of augmenting its own credit. It appeared to him that that involved a great deal of very debatable and very doubtful matter. If this process were done for the sake of increasing the credit of the Company, he was not sure that it would be to the public advantage; and it was not quite accurate to say that the Bill only enabled a Company to do what it was entitled to do already, because it enabled a Company to do that which might be conpetently effected already, and to give a wrong name to the transactions. He did not say that the Bill should be rejected; but he considered there was matter for very careful consideration in it—namely, whether limited Companies should be permitted to extend their credit without check in the manner proposed.

§ MR. J. W. BARCLAY
asked if they might not take a practical example of how the Bill might be used in the case of the limited liability Companies known as Mortgage Companies? The articles of association of such Companies frequently provided, for instance, for shares of £10, with £2 to be paid up; and the Company undertook, under their articles of association, that their borrowing should not exceed their unpaid capital. It would be a very serious thing, if the public had lent money to such Companies on the security of £2 being paid up, and then £1 of the paid-up capital were afterwards returned. The liability on the shares would then be 9 to 1, instead of 8 to 2, and the security, instead of being greater, would be weaker. He should support the Motion to report Progress, because he thought it desirable that the Bill should be further discussed.

§ SIR JOHN LUBBOCK
said, his hon. Friends opposed the Bill on exactly opposite grounds. This money could at present the returned to the shareholders by way of dividend and bonus, and, therefore, the public could not be damaged by this Bill. Then the right hon. and learned Lord Advocate complained that the public would have aright to call for more money if required. He appeared to object to this in the interests of the shareholders; but, then, this change could be never made, except with the consent of the shareholders and of the Court. Everything would, in fact, be done in the most open and straightforward manner, and everybody would know what was taking place. If the shareholders did not wish to give this additional security, they need not; and if they wished to do it, why should they not be permitted to do so?

§ THE LORD ADVOCATE (Mr. WATSON)
replied, that if the shareholders were allowed to do this in one case, he did not see why they should not be allowed to do it in all.