CONSIDERATION. (Hansard, 20 April 1887)

§ THE CHAIRMAN OF COMMITTEES (Mr. COURTNEY) (Cornwall, Bodmin)

This Bill came before me as Chairman of Committees as an unopposed Private Bill, containing a clause not now inserted; but proposed to be introduced authorizing the payment of interest out of capital. As the House will remember, that subject is one which has been carefully considered in a full House on several occasions. Eventually a Standing Order was adopted which prohibited the insertion of such a clause unless the Committee, in view of special circumstances, thought it convenient that it should be inserted, and then it was to be inserted subject to certain conditions. Well, I confess I think that is a rather unfortunate position in which the question should be placed, because it lays down the general principle that payment of interest out of capital is not to be permitted; but allows the Committee to put aside that principle, if the special circumstances in the opinion of the Committee warrant its being set aside. The effect of that, I imagine, is this—that whenever the clause is inserted it raises a certain presumption—a slight presumption it may be, but, still, a certain presumption—that the case is one in which not only the Committee think the clause might be inserted, but that there is a real argument of a solid character in favour of its insertion. It seems to give the influence of the Committee in favour of the scheme, and might possibly be understood to recommend it to investors. Now, I think it extremely undesirable that a Committee of this House should discriminate in that way as to whether this clause should be inserted or not, the inference being, when the clause is inserted, that there is a sort of credential given to the proposal, and, indeed, that 1301 there is almost an invitation on the part of the Committee to the public to subscribe. So much as to the general principle which I only mention now because I think that sometime hereafter it may be expedient that the Standing Order should be reconsidered with a view to make it either one thing or the other. But with respect to this particular case it came before me, as I said, as an unopposed Bill with this provision inserted. The case appeared to me to go further than we had hitherto considered it right to sanction, at all events in dealing with unopposed Bills. The cases we have hitherto considered and sanctioned have been generally of a very simple character—small subsidiary lines which have been promoted by landowners in the district, and where the landowners have generally taken payment for the land they have been selling in shares of the Company; where there is no suspicion that contractors are promoting the line, and where it is simply a small local matter, supported exclusively in the locality. Under such circumstances, the Committee on Unopposed Bills have several times sanctioned the insertion of this clause. But this Bill is in a different position. The Bill relates to a very large undertaking—for making a railway under the bed of the Mersey, connecting Liverpool and Birkenhead. That railway has been made. It is working, and carries considerable traffic. But the connections—especially on the Cheshire side—are not made, connecting that railway to the Cheshire lines and other lines on that side. Under this Bill the promoters desire to obtain power to make this connection, and it is suggested—probably in perfect accuracy and good faith—that if these connections are made there will be, not only a large accession of passenger traffic, but a considerable accession of goods traffic, so that the extension will be very profitable to the line, and ultimately redound to the benefit of the original shareholders. But the original shares are now at a considerable discount, and it is represented that it will be impossible for the shareholders to provide the additional capital if they were to do so in the form of ordinary shares; and if they were to be put forward as preference shares the proposal would embarrass the ultimate financial organization of the Company, and would tend to depreciate the ordi- 1302 nary shares. It is, therefore, proposed that this extension of the undertaking should be recognized as a new undertaking, that the capital should be raised separately, and that power should be given to pay interest on the capital so raised during construction. I thought this was a case which very much extended the principle embodied in these cases which have been sanctioned hitherto. I thought, therefore, that we had not sufficient authority as a Committee on Unopposed Bills to sanction the clause. We accordingly rejected it, leaving it to the House to determine when the case came before it—as we understood it would be brought forward—whether the clause should or should not be re-inserted. I have now, therefore, to leave it to the House to decide whether or not the insertion of the clause should be authorized, and to give a leading to the Committee in future cases of the same kind. There, perhaps, I might stop; but I am unwilling to sit down without adding—I now speak as a private Member and not in any official capacity—that I should myself be in favour of the insertion of this clause in the Bill. I belong to what has come to be considered, I am afraid—at all events at present—an old-fashioned school of economists who are in favour of the greatest liberty to people to make good or bad investments according to their own wisdom or un wisdom, provided that the nature of the arrangement is perfectly open. We go, in short, upon the principle—Caveat emptor. If it is provided that the conditions of the investment should be made known, I should myself be, in principle, in favour of allowing that freedom to investors. I think I may say that our recent experience has done away with some of the apprehensions that have been raised as to the possibility of unwary investors being entrapped into bad investments in consequence of the offer of this payment of interest out of capital. We have had one or two great undertakings, of late, in which the principle has been sanctioned, and the proposal to invest with the advantage of raising interest during construction has afterwards been put before the public; but the public have not accepted the proposal. The public may have been wise or unwise in so declining to accept of these proposals; but the conclusion, at all events, is 1303 clear that, the mere inducement of paying interest out of capital is not in itself sufficient to induce investors to disregard other conditions of the investment, and go into an undertaking they thought might be financially unsound. The greatest example familiar in recent times—the Manchester Ship Canal—may or may not be an undertaking which promises great ultimate profit. I pronounce no opinion upon that, nor do I say how far the persons who have declined to subscribe may have been wise or unwise. But the conclusion is clear, from that illustration, that the public are not led by this offer of payment out of capital to subscribe where, under other conditions, they would not have subscribed. That experience rather warrants us in allowing greater freedom than we have hitherto done. In these last observations I am speaking entirely in my private capacity and not in any official character. But I seek the guidance of the House upon this question so that we may understand what we shall do on future occasions; therefore, I submit the whole question as to what shall be done in this case to the decision of the House.