§ Order for Second Reading read.
§ (8.5.) THE PRESIDENT OF THE BOARD OF TRADE (Sir MICHAEL HICKS BEACH, Bristol, W.)
For some time past there has been, I think, a general feeling in the country, and especially among the commercial community, that abuses have arisen under the operation of the Companies Acts for which it is extremely desirable that Parliament should find a remedy without doing anything to restrict the principle of freedom of association for the conduct of industrial and commercial enterprise. I hoped at one time to place before the House a measure not only amending the Companies Acts on all those matters in which they are admittedly defective, but also effecting a consolidation of the law. But the more I reflected on the matter the more I felt that, having regard to the difficulty and complexity of the subject and to the number of other matters with which the House has to deal, any attempt to pass a comprehensive measure of that 1398 kind could not be successful. I feel sure that to attempt a large and general measure of that character would be to prevent, or at any rate retard, any real reform of the law. For this reason I have been content to prepare the limited measure which I now ask should be read a second time. It deals with a part of the law which is admitted to be defective, and which the commercial community, at all events, is most anxious to see improved. I hope that hon. Members who take an interest in the subject and may desire other changes, such, for instance, as an improvement of the law, relating to the formation of companies and a consolidation of the law itself, will not allow their views to prejudice their consideration of the measure I now bring before the House. I shall continue, on the part of the Government, to bear these subjects in mind, and endeavour to deal with them also at as early a date as possible. I would ask that this measure should be simply considered on its merits, believing, as I do, that should Parliament pass it, it will promote and not impede a further amendment of the law. I cannot more shortly state the objects of the Bill than by reading the statement in the Memorandum which has been circulated with the Bill:—To extend the policy of the Companies Act, 1867, by giving jurisdiction in the winding up of companies to County Courts and other local Courts, and to assimilate, as far as circumatances will admit, the law and procedure in the winding up of insolvent companies to the law and procedure in the bankruptcy of individual debtors, particularly by applying the principle embodied in the Bankruptcy Act, 1883, of separating, so far as practicable, administrative from judicial functions, and of subjecting to public examination persons who are responsible for the loss caused to the creditors by the insolvency.As to the first of these objects, I have to say that the limit of £5,000 proposed in the Bill must be considered as a merely tentative proposal, made with a view to discussion and consideration, and the Standing Committee on Trade, to which I hope the measure will be referred, can increase that limit or alter its application in any way they think right. As to the second object, I wish to say that the Bill only carries out a principle which has been recognised by Parliament in the Judicature Act of 1875, by which it is provided 1399 that the same rules should be observed in the administration of the assets of insolvent individuals and insolvent companies with regard to the respective rights of creditors and the proof of debts and liabilities. We propose to carry out this principle in the way I have described by adapting the procedure in bankruptcy to the winding-up insolvent companies. Now, it may be asked why this change is necessary? Sir, I very much doubt if any hon. Member will defend the present system as being in any way satisfactory, except, of course, to the liquidators and solicitors who profit by it. The present system is as injurious to the public at large as any system could well be. In the first place, it is injurious to the creditors. Surely the chief object of winding-up proceedings in a case of insolvency should be to protect the salvage; yet there is nothing which the present procedure is less calculated to do. "Winding-up," in fact, is a misnomer, for companies are not wound up. As long as assets remain which can be utilised, not, I am afraid, so much for the creditors as for the persons employed as liquidators and solicitors, so long is the winding-up process continued, and even when the assets have apparently come to an end, the proceedings are kept open in the hope that from some unknown quarter further assets may come, only to go into the same pockets. Why is this? The liquidators and solicitors under the present system are paid by time. The liquidator is not appointed by the creditors; he is often a person self-appointed, or at any rate appointed without the control of the creditors. The result has been that in certain cases the liquidation of companies has been kept going from year to year, insuring a very comfortable annuity to the firms employed, and even to their successors. From a Return obtained by the right hon. Gentleman the Member for West Birmingham, and ordered by the House of Commons to be printed on December 12, 1888, it appears that of the Joint Stock Companies ordered to be wound up in which the liquidation proceedings were pending, about 22 per cent. had been in liquidation upwards of 10 years, and about 20 per cent, upwards of five years, but under 10. Of the 674 cases, open on the 31st of December, 1886, 147 1400 cases had been pending over 10 years, 125 had been pending over five years and under 10, and 385 had been pending five years and under. There appeared to be one case still pending in which the order to wind up was made in 1863. The result of the system is excessive cost in the process of winding up. This cost is due to the delay which occurs and to the clumsiness of the procedure, which involves constant applications to the Court. This procedure is especially onerous in the case of insolvent companies from the country, necessitating, as it does, the employment of solicitors and counsel, which results in enormous bills. One bill brought to my notice, covering I do not know how many sheets of paper, amounted after taxation to £1,107 for four years' work in winding up a company. It included an item of £57 merely for drawing up the bill and having it taxed, and this case, be it observed, was a short winding up in Chancery. Another defect of the system is the absence of supervision over liquidators. The parties interested can get no information; even Parliament has failed to obtain information when it has asked for it. From the Return of 1888, already quoted, I find that out of 71 cases ordered to be wound up by the Court of Chancery during 1867, 19 years before the date of the Return, it was only found possible to furnish details of receipts and expenditure in 25, showing clearly that there could not have been any proper audit. In those 25 cases the costs were much higher than in similar cases in bankruptcy, though in only three of them did the assets realised exceed £5,000. Compare this with the Stannaries Court, in which there is practically an official liquidator. There, in 1867, 19 companies were wound up. Full particulars of receipts and expenditure were given in each case, and the costs were much less than in Chancery. I do not know whether the hon. and learned Member (Mr. Warmington), who has given notice to move the rejection of the Bill, will defend the present system, or find fault with the proposals we make for remedy; but I think I have said enough to show that nothing could be worse or more discreditable than the existing system. I do not say that the procedure established by the Bankruptcy Act of 1883 1401 is perfect; but it is infinitely superior to the system which exists in the winding up of companies, both in expedition, efficiency, and economy. Estates are wound up in bankruptcy twice as fast by non-official and three times as fast by official Trustees as they were under the previous law. The Bankruptcy Act of 1883 established an organisation all over the country which, with a slight additional expenditure, might undertake the work imposed on it by this Bill. I think the Bill, if passed, will be of great benefit to the creditors of insolvent companies. But that is not all. Besides the question of salvage, there is also the question of diminishing the number of wrecks, and I have a hope that the Bill may tend to improve commercial morality. It is not too much to say that in the winding up of insolvent companies there are no officials charged with the impartial and independent duty of investigation or the punishment of fraud, so that offences punished in bankruptcy are ignored in winding up. There is a special danger in the recent tendency to convert private businesses into Limited Liability Companies. I saw the other day a long list of small businesses so converted in the past year, and among them there was actually one, with a capital of £5,000, for carrying on a chimney-sweeper's business. Practically, I suppose there is no occupation that is not considered a legitimate field for the enterprise of a Limited Liability Company. What is the result of this? There may, no doubt, be legitimate reasons for such a conversion. But there are in too many cases reasons of quite a different kind; and certainly we should not permit that the Limited Liability Acts should be used by unscrupulous traders not only to resuscitate their own fortunes for a time, but to escape the penalties which would otherwise await them as private traders at the hands of the Official Receiver. I trust the Bill will succeed in exposing and punishing some of the frauds and malpractices which too often prevail in the formation of companies, and thus deterring promoters from attempting them. The principle upon which the Bill is based is that a man who undertakes to manage other people's affairs should have the same sense of responsibility as in managing 1402 his own, and that legislation should be deterrent both to fraud and to negligence. I do not propose to enter into the details of the Bill. I only ask the House to affirm the principles on which it is based. Its details are doubtless open to criticism, and may be susceptible of improvement. We shall welcome any suggestions for that end from Members who have special experience, and especially from the hon. and learned Member for Stockton; and I trust that the House will be willing to remit the Bill to the Standing Committee on Trade that this Session may not close without completing a reform which I believe will be of great value to the commercial interest of the community.
§ Motion made, and Question proposed, "That the Bill be now read a second time."—(Sir Michael Hicks Beach.)
§ (8.55.) SIR HORACE DAVEY (Stockton)
I do not rise in any spirit of hostility or carping criticism to the Bill, because I quite recognise that the present system of winding up requires reform. But I may be permitted to doubt whether this Bill is likely to effect that reform. The right hon. Gentleman has a little exaggerated the evils of the present system, which is based on the Companies Act, 1862. We have now had nearly 28 years' experience of the working of that Act, and during that period Judges of the greatest eminence have devoted their minds to the simplification of procedure, and to making it as valuable as possible for the objects sought. Judges like the late Master of the Rolls, Sir George Jessel, and others I could name, have applied themselves to the work of improving the operation of the Act; and I do not think that the evils of delay to which the right hon. Gentleman has referred exist to anything like the extent to which at first they certainly did prevail. The Judge has practically unlimited powers, which are exercised to bring liquidations to a speedy close, and to bring liquidators to account, as, to my own knowledge, they have often been brought to account to their own sorrow. It is not so simple a matter to wind up a company as may at first sight appear. It is not like winding up the estate of an individual trader who has become bankrupt. Companies which are wound up in the Chancery Division are in very many in stances such as have carried on a large 1403 and extensive business, far greater and more extensive than any business carried on by independent traders, and these companies often have assets which are only capable of realisation at any price by careful administration, and by what is called carefully "nursing" the assets. Although it is undoubted that more delay has taken place in the winding-up of companies in times past than was necessary, that is not so now. The House must not suppose it can introduce a millenium of winding-up. A company's affairs cannot be wound-up in six months or a year, or even in many cases in less than two years. I think I recognise one of the companies to which the right lion. Gentleman has referred. But the assets of that company were of a very peculiar character, and undoubtedly required a long time for winding-up. I have no doubt that a great many people profited by the winding-up of that Company, but I think the right hon. Gentleman did a little exaggerate the defects of the present system. Whatever may have been the case in the past, Judges, chief clerks, solicitors, and liquidators have combined to do their best under the rules of the present system. But my complaint against the Bill is that it does not effect the reform the right hon. Gentleman has shadowed out. If the right hon. Gentleman had brought in a Bill complete in itself, which would tell those who read it what is the system, method, and procedure, I do not think I have even to make any objection to it, but I must put in my humble protest on behalf of those who have to administer the law. We who sit here in the House of Commons, or the other House, and pass Acts of Parliament, are sometimes a little oblivious of those other people who have to construe and administer those Acts, and on their behalf I put in a protest against the manner in which the Bill is constructed. The right hon. Gentleman said that nothing could be worse than the present system. But the Bill leaves the present system exactly where it is. There is not one word in the Bill which in any way repeals or abolishes the present system. What the Bill does is to make a number of new enactments, sometimes superseding, sometimes overlapping, sometimes partially superseding and partially overlapping, the provisions of the present Acts. I do not hesitate to 1404 say that a more formidable task for the unfortunate Judge who may have to administer the new system which the Bill would introduce cannot be imagined. He will have the present system. There is nothing in the Bill in any way puts an end to the Companies' Acts and the rules made under them, which form the present code for winding-up companies; then the Bill makes a number of enactments, some of which are partially identical with the enactments in the Companies' Acts 1862 and 1867; it also introduces other provisions, for example those in reference to examination of persons connected with the management of the company, and the Judge will have to say which set of sections is or is not repealed, and there will be two concurrent systems under this Bill if it becomes law. The result will be to increase the confusion and to throw disturbance into what is now, after the efforts of the Judges and the experience that has been obtained, a working system, and you will, I feel quite confident, raise a number of questions as to the effect which certain enactments in this Bill has upon certain enactments in the present Acts—how far they are repealed or are still in force. That is not all. We have had considerable experience lately of the evil and dangerous effects of a measure which incorporates in it a number of clauses from some other Bill, the result of which is that, instead of finding in the pages and clauses what its enactments are, one has to look to two, three, four, or more Acts of Parliament which are incorporated by reference, but you have to change their language and adopt them to this Act, and then questions arise as to how much is incorporated, how much is altered, and how the incorporated clauses are to be read with reference to the existing law and the enactments in the Bill itself. I am not speaking on behalf of a popular Party or one who receives much consideration in the House of Commons, but I do wish to enter a protest—and I hope my hon. and learned Friend the Attorney General will support me—on behalf of those who have to construe Acts of Parliament which we pass—sometimes with a light heart. I can assure the House that it is no easy task for those who have to advise upon or Judges who have to administer the 1405 law to construe Acts of Parliament under this system of legislation by reference. Remember that where there are difficulties it leads to litigation, and litigation means expense. I will venture to make an appeal to the President of the Board of Trade on this matter—and I can assure the right hon. Gentleman that I am making it in no carping spirit. It is that he will give us a Bill which we can all understand—an Act which even laymen can take into their hands and read and understand. At present anyone reading this Bill would, in order to understand it, have to refer back to the Act of 1862 and find out how far the clauses of that Act are repealed or incorporated. As a fact, nothing is expressly repealed in this Act. There may be provisions impliedly repealed, but I think we are entitled to ask that the law in regard to the winding-up of companies should be put in such a state that those who have to advise upon or administer the law—solicitors, counsel, liquidators, as well as laymen and creditors—can understand it when they read it. It is a question which ought not to be left in doubt what is the relation of this Act to the Act of 1862 and the existing Companies' Acts. As this Bill now stands anyone reading it is compelled to go back to the Act of 1862, which is not repealed, and the winding-up clauses of which are consequently still in force. First he would have to see how the company can be wound up, and he would have to bear in mind such points as consulting the creditors and the contributories; then he would have to find out what were the powers of liquidators under the Act of 1862 and compare them with the powers conferred under this Bill, and then would arise all sorts of questions re cases where they differed as to whether any of them were repealed. I will go a little further. The Act of 1862 provides a means by which directors, managers, and auditors can be examined and brought to book, and anyone acquainted with winding-up proceedings in the Chancery Courts knows that this was proved a most powerful and successful provision. But you have something new here. You have in the 9th section similar powers, but it is not the same power as in Section 165 of the Act of 1862; in some cases it is wider, in other cases it is less wide. Yet 1406 Section 165 remains unrepealed. Who is able under these circumstances to advise an unhappy creditor who wishes to find out the law as regards directors and others guilty of malfeasance by comparing Section 165 of the Act of 1862 with Section 9 of this Bill. This is merely an illustration of the evils and great inconvenience to all concerned through legislating in this manner. Let us for goodness sake have an Act of Parliament which embodies in itself all the provisions which are applicable to the subject, in the interests not only of those who have to administer the law, but also of those who have to obey the law and whose interest it is to understand the law. As to the incorporation of the bankruptcy clauses, I think it is a very great improvement on the present system of winding-up, by providing for an official audit of the liquidators' accounts. At the present time, as wc all know, creditors do not take enough interest in these things to audit the accounts; they prefer to write off the debt and take such dividend as is offered. They may be right, or they may be wrong from a commercial point of view, but I entirely approve of the provisions to be incorporated in this Bill, securing an official audit of liquidators' accounts, and I should even go further than the Bill, because I would impose upon liquidators the duty not only of rendering accounts to the Board of Trade, but also of sending a printed copy of the accounts, or an abstract of them, to every creditor. If the creditor chooses to throw them into the waste paper basket, that is his look out. The Bill, I admit, looks very seductive, but again I have to complain that, if it is passed, it will not give all the necessary information on this point; it will be necessary to refer to the Bankruptcy Act itself. And these provisions from the bankruptcy laws are incorporated "so far as applicable." Who is to say how far they are applicable? Of course the Court—and it will be a nice task for the Court to take clauses which are drawn alio intuitu and apyly them to a totally different state of things. Why could not we have these clauses, so far as capable of being adapted to the winding up of companies, printed over again in the Bill as the clauses which the Government think ought to be applicable, and why should not the 1407 Government draftsman adapt the clauses to the case of the winding-up of companies instead of leaving the unhappy creditor or contributory to get the Court to do so at his own expense? The criticisms I have made upon the Bill I have put forward in no spirit of hostility, for I recognise that the system of winding up at present in use is capable of great improvement, and I cordially approve of the institution of an efficient audit being provided for liquidators' accounts. I also think that the means of bringing fraudulent persons to justice may be very much improved. But I do plead for a Bill which we can understand. I cannot understand the present Bill, but before it is passed into law I earnestly hope that it will contain the whole provisions of the law with regard to winding-up, and that those responsible for this measure will take the trouble to go through the whole of the present code and repeal all provisions which are intended to be no longer applicable.
§ (9.16.) MR. WARMINGTON (Monmouth, W)
My reason for placing the Motion which stands in my name upon the Paper was not because I am averse to any improvement in the present law, but because I wish to render an emphatic protest against any important Amendment of the law being rushed through without ample explanation. And I am glad to say that I have succeeded in obtaining from the right hon. Gentleman the President of the Board of Trade an explanation of the reasons which moved him to introduce this measure. I am bound to say that those reasons are not entirely satisfactory, and I gather that his information has boon dawn from one source only. I should think it had been drawn from persons who might be creditors of a company, but who have otherwise had no experience of the mode in which the business of winding-up companies is conducted. It is a great pity that a Bill which proposes to amend the procedure of winding-up companies should be prepared by persons—if it was so prepared—who are not familiar with the working-of the present system. The present system, Sir, is a code in itself. Tfiere is, in the Act of 1862, a set of clauses exclusively confined to the mode in which companies shall be wound up. And the right hon. Gentleman has, in this House, rather given currency to the 1408 opinion that the only persons to be considered in the winding-up are creditors. I think the attention of the House ought quite as much to be directed to a most unfortunate body of persons who are called contributories; and who are in the first instance shareholders. The right hon. Gentleman will, I perhaps, allow me to say that he is wrong if he thinks that he can prevent the fraud unless he begins at the right end. Fraud is much more rife at the birth of companies than it is at their burial, and if the right hon. Gentleman wishes really to prevent fraud in regard to Joint Stock Companies, I would humbly request his attention to a Bill which is to be presented to this House, and which deals with that subject; and ask him to give his friendly assistance to prevent directors going scot free who have been parties to prospectuses containing false statements on the plea that they did not know that the statements were false. Then I think we may have some sort of guarantee that fraud will not be so prevalent as it is now. As I understand it, although the right hon. Gentleman had not the courage to say so, this is, in truth, a retrograde step. Probably his researches have not gone so far as to enable him to tell the House of the system that was in operation before 1862. That system was then a system of bankruptcy, and it was because of the crying scandals associated with it, and because it was more costly than winding-up in the Chancery Court, that the Companies' Act of 1862 was framed. There are, undoubtedly, a great many points on which the present procedure could be amended, and I agree that the right hon. Gentleman has hit one. When the Act of 1862 was passed, it was considered that the persons directly interested, viz., the creditors and the contributories of a company being wound up should themselves take such an interest in the procedure as to see that the official charged with the winding-up did his duty. Unfortunately that has not been so, and there has been no controlling officer. The learned Judges have more than once regretted that omission, and in some instances have endeavoured to supply it by calling in the aid of an officer, who acts partly under the direction of the Court and partly under the control of the Attorney General. The Official 1409 Liquidator is now bound to do very much what the right hon. Gentleman said he ought to do, but there is no one to see that he does his duty. He has now the duty of preserving an accurate file of every proceeding that occurs in the Court. He must keep every account and every paper connected with the winding-up. But, unfortunately, that enactmentin the Companies' Act of 1862, unless you have a conscientious liquidator (and notwithstanding the observations of the right hon. Gentleman there are many most conscientious), becomes a dead letter. I know a great many windings-up of Companies where liquidators, persons of great experience and high character, have, although there is no one to compel them to do their duty, kept a perfect record, which has been open, free of expense, to everybody interested. Therefore I welcome the amendment of law, by the installation of an officer whoso duty it shall be to see that the liquidator does his duty, although I confess that end is to be secured by means most cumbrous. My learned Friend the Member for Stockton says there will be difficulty in construing the Act of Parliament. Yes, Sir, but persons who are charged with the winding-up of companies are not expected to have to go to learned counsel like my hon. and learned Friend. They expect to find their duty written in the Act of Parliament under which they are acting; and if this Bill is passed, this point will at once strike a liquidator. He will say "I have two sections dealing with the same subject. Which am I to obey? My hon. Friend puts only one case that he may have to obey one or the other; but that is not quite the full fact. He may have to obey both, for there is nothing in this Bill to say that the provisions, so far as liquidators are concerned, are not cumulative, and in addition to the powers given to liquidators under the Companies Act of 1862. Thus you put on the officials whom you are going to create the new difficulty of ascertaining how they are to discharge their duties. But not only does this Bill deal with procedure; it also amends the law, and it does so in a most unsatisfactory fashion. There is to be, according to the Bill, what is called a Report, and that Report is to be made by a prescribed officer who is to have the 1410 right of making the Report on information that is given to him unsworn. He may get it from any documents, and he is to be allowed, without having submitted any part of the information to the test of an oath, to brand the directors or other people as men of fraud. That is a new and altogether unheard of proceeding in the jurisprudence of this country: that any official shall be able to charge with or to say that another man has been guilty of fraud and broach of trust without that charge having been investigated and put to the test of an oath. Not only that, but I think the framer of this Bill had a notion that there was no such people as contributories. I do not think the word contributory is to be found in the Bill from the beginning to the end. This is the way in which the Bill is prepared. A man is to be deemed a fraudulent man for issuing a false prospectus—to whose damage? The fraudulent statement in a prospectus as a rule—in 99 cases out of 100—is not to the prejudice of the creditors, but it is to the prejudice and damage of the poor people who believe; in the statements and on the faith of those statements subscribe for shares. By the 9th clause of the Bill it is provided that if any person among other things "signs or makes himself responsible for any false or misleading prospectus, notice, statement, or balance-sheet," to the prejudice "of the company or of the creditors of the company" he is to be made liable to contribute such sums as the Court thinks just. But what is he to pay for? Is he to pay for the damage done to the company or to the creditors? But they are not the people who are damaged by the fraudulent statement. The people damaged are the contributories. The company gets the benefit of the fraud, and it is the money the shareholders contribute because of the fraud that goes into the coffers of the company. It is absurd to say that the company- is damaged by the fraudulent statement in the prospectus, and it is very unlikely that the creditors are damaged because fraudulent persons usually take care that such companies shall exist for such a period as that those who are creditors at the date of winding-up are creditors of a comparatively recent date and were not creditors at the time when the company was 1411 started. The person who wants protection is the contributory, not the creditor or the company itself. It is said that the Bill has been introduced to amend the law in that respect, but I do not think it will have that effect. I am only noticing this in order to draw the attention of the right hon. Gentleman to this matter. Let me make a suggestion. I have not the experience of my hon. Friend the Member for Stockton, nor have I the experience of the hon. Gentleman who advised the President of the Board of Trade, but I venture to think it will be much easier to take Part 4 of the Act, 1862, which constitutes the code of procedure with regard to the winding-up of the companies, and to introduce it in this Bill with such Amendments as the right hon. Gentleman thinks fit. This is another suggestion I am able to make for a reason which perhaps he does not know. If the right hon. Gentleman will alter the title of the Bill or extend the ambit of it so as to make it a measure not simply amending the procedure of the winding up of companies, but dealing also with the law as to the liability of directors and others issuing prospectuses or notices for applications for shares, then I think that the right hon. Gentleman can rely, not only on the cordial co-operation of both sides of the House, but on the efforts of all those in the House who have the advantage of being practically acquainted with the law of companies.
§ (9.32.) MR. TOMLINSON (Preston)
I understood the right hon. Gentleman to say, in moving the Second Reading of the Bill, that should any part of the Bill be open to observation, it might be alluded to at this time. There is one part to which I think it is especially desirable to call attention before the Bill is read a second time. I cannot help adopting to a great extant the view of my hon. and learned Friend, that the Bill does not seem to be framed on an exhaustive examination of the existing law of winding-up. Those who know anything of the law of winding up are aware that by the Companies Act there are two modes of winding up—voluntary and compulsory. This Bill only deals with the compulsory mode, but there is a well-known process of carrying on the voluntary winding up of a company under the supervision of the Court. It seems to be assumed by 1412 the promoters of the Bill that every company whieh fails to carry on its business does so because of misfeasance, but in cases where companies become either insolvent, from causes not culpable, or are unable to carry on their business it is often found convenient to adopt an amicable mode of winding-up, and then if difficulties arise to obtain an order for carrying on liquidation under the supervision of the Court, and as the Bill is now framed it may become the object of interested persons to begin proceedings for voluntary winding-up, in order to save themselves from coming within the more penal provisions of the Bill. I think this point ought not to be lost sight of when the Bill is considered by the Standing Committee.
§ (9.35.) MR. A. O'CONNOR (Donegal, E.)
Sir, no one will dispute the great evil for the remedy of which this Bill is proposed for consideration, but I question whether it is advisable to deal with the subject in the piecemeal, scrappy manner proposed by this measure. Only a small portion of the Company Law is dealt with by the right hon. Gentleman's Bill, and yet the changes proposed are very important and in some respects radical. The proposal of the Government complicates that which is already more or less complicated and difficult, and it distributes the work connected with the winding-up of companies in a manner which will unquestionably lead to a great many appeals and a great deal of unnecessary litigation, and whether the time now occupied in winding-up companies will be shortened is a point on which I feel considerable doubt. In the Bills of Exchange Act, 1882, you had a complete revision of the law, and a codification of it which was a model of drafting, and which has left very little room for doubt or ambiguity. There is another aspect of the matter which strikes me as worthy of consideration. It is proposed by this Bill to throw upon the County Court an additional amount of work. The County Courts, as revised in 1846, were in the first instance intended only as Courts for the recovery of small debts, and in the year 1865 their jurisdiction was extended, so that equity cases to the amount of £500 were included. Since 1865 we have had considerable additions to the jurisdiction of the County Court—the Labourers and 1413 Workmen's Act, 1875; the Employers' Liability Act; the Married Women's Property Act; the Agricultural Holdings Act; and last, and greatest of all, the Bankruptcy Act, under all of which there are questions which have to be decided in the County Court. The amount of work thrown on the County Courts is out of all proportion to that which was at first contemplated, and I think it might be worthy the consideration of the Government whether the County Courts as now constituted and—I say it with all respect to the existing Judges—as now manned are in many cases the fit Courts on which to heap up the immense accumulation of judicial business now being borne by them. Certainly this Bill will considerably increase the work of those Courts. It is perfectly true that under the Building Societies' Act, 1874, and the Industrial Provident Societies' Act, 1876, a certain amount of winding-up business does now come within the province of the County Courts. But this Bill will very considerably increase that amount of work. What is likely to be the result of this proposal? Not only will there be a considerable number of appeals, but there is likely to be a disinclination to meet many of the difficulties which will probably arise as the outcome of this Bill. You may have a block of business because of a very natural postponement of questions arising in the County Courts. The County Courts Act of 1888 gave extension of jurisdiction with regard to matters of settlement, besides which power has been given to remove cases below £100 to the County Courts. In the very first six months of that Act there were between 600 and 700 cases removed from the High Court to the County Courts. Two Metropolitan County Court Judges had each between 50 and 60 cases removed to them. I am sure if the right hon. Gentleman inquires into the matter he will find there is ample ground for re-consideration as to whether it is wise to extend the jurisdiction of these Courts, not only with regard to this particular Bill, but with regard to the varied business which is now thrown upon them.
§ (9.43.) MR. H. H. FOWLER (Wolverhampton)
I am sure, Sir, on both sides of the House there will be a general concurrence in the objects of the measure 1414 as set out in the Memorandum. The principles set forth there are good, but they seem to me to be carried out in a very unsatisfactory, defective, and misleading manner in the Bill itself. A very short time ago one of the Judges of the High Court called the attention of the Legislature to the danger and difficulty involved in the modern process of drafting Acts of Parliament by incorporating other Acts, and the Judge severely condemned this most unsatisfactory mode of legislation. But the system had grown under the administration of the present day to quite an intolerable extent, during the last two or three years. We shall have placed upon the Table next week, the Civil Service Estimates for the coming year, and the hon. Members will find that a very large sum is paid for the work of preparing Bills, in addition to which there was a largo sum last year for extra assistance in drafting particular Government Bills. As a plain matter of business, considering the amount which we pay our draftsmen, we are entitled to a different class of article from that which is placed on the Table of the House. We are entitled to know what is within the four walls of the Bill, and what it proposes to deal with, not only in the interests of the public and the suitors, but in the interests of the judges themselves. The Bill should contain what the law is. We shall hear the Attorney General shortly, but you have already heard in this debate one of the first advocates at the English Bar, one of the most scientific lawyers of the day, the hon. and learned Member for Stockton (Sir H. Davey), saying that he cannot understand this Bill. For my own part, I do not understand the Bill; and if it be passed in its present form it means a a crop of litigation. The gist of the whole thing is that the procedure with respect to the bankruptcy of a trader is one thing and the winding-up of a company is a totally different thing. The principle may be the same, but the procedure must inevitably and necessarily be very different. If the Attorney General will turn to page 6 of the Incorporated Statutes, he will see one of the many clauses which I say I cannot follow:—Subject to the provisions of this Act the liquidator shall, in the administration of the property of the company and in the distribution thereof amongst its creditors, have regard to any directions that may be given by resolution 1415 of the creditors at any general meeting, or by the committee of inspection, and any directions so given by the creditors at any general meeting shall in case of conflict be deemed to over-ride any directions given by the committee of inspection.There is already a Code under the Companies' Acts, providing how the property of the company is to be dealt with. I am speaking in the presence of lawyers, who will contradict me if I am wrong, but I am certain that a conflict will arise immediately there is any attempt to put that clause into force. Another peculiarity of the drafting of the Bill is the enormous power resting in the hands of the Lord Chancellor for making rules. Everything is to be done by rule. The House is deprived of its legislative control, and. it is put into the hands of some rule, making authority which constructs a Code which Parliament might or might not approve. On page 3 you have the first time of its introduction put into the Bill some prescribed officer, who is to do something, and who is to become the liquidator of the company. And then there is to be a meeting of creditors, and no one seems to be worthy of consideration in this Bill except the creditor. When you call a meeting of a bankrupt's creditors, you do not care about the man himself; he is there. But in the case of joint stock companies, in the majority of instances, the creditors are paid in full. It is the poor unfortunate shareholders who are swindled; they are the people imposed upon by prospectuses. There is not a single line to provide for these gentlemen; not a word about calling the shareholders together. They are to have no protection, though I think they are really persons for whom Parliament is bound to provide. There is another important omission in this Bill to which I would call the right hon. Gentleman's attention. These three modes of winding-up—a voluntary winding-up, a compulsory winding up, and a voluntary winding-up under the supervision of the Court. This Bill does not apply at all to a voluntary winding-up, and possibly two-thirds of windings-up are voluntary. Now, I am sure the President of the Board of Trade wants to pass a satisfactory Act which will work, and we are anxious on this side of the House to give it every assistance we can. The course I would suggest is that the Bill should be read a second time and then re- 1416 mitted to the draftsmen to put in what is to be the law. We have already the Code of 1862; we must not have two Codes in force at the same time. Clause 9 is a very oppressive clause, for it makes the Report to be primâ facie evidence of misconduct. There is to be no verification or cross-examination. You have simply to say A or B has done what? There are several things, of course, which A or B must have done—fraud, misappropriation, misfeasance, and breach of trust. Suppose a director has been a party to the carrying on of the business of "a company after having reason to believe it was insolvent." What is meant by "having reason to believe?" Or suppose he has been a party "to any rash or hazardous speculations." Who is to decide whether a speculation is rash or hazardous? What one may think prudent another may think rash or hazardous. I think there are a great many defects in the Bill itself, so far as the phraseology of it and the scope of it are concerned, and I think it has graver defects in respect of the incorporation of the existing law. Another defect is the power given to the Lord Chancellor; and we know that it is not the Lord Chancellor and that it is not the Board of Trade, but a subordinate of the Lord Chancellor and a subordinate officer of the Board of Trade to whom you will practically delegate the power of legislation. I think, if we give this Bill a Second Reading, that we ought to have an understanding from the Government that the Bill will be re-considered and put in workable shape before it is sent either to the Committee on Trade or the Committee on Law, which ever the Government may think fit.
§ (9.53.) THE ATTORNEY GENERAL (Sir R. WEBSTER, Isle of Wight)
Sir, although in the exercise of the privileges of debate, some of the observations of hon. and right hon. Gentlemen have been of a technical and some of a severe description, yet I accept them in the spirit in which they were intended, and I believe it is the wish of hon. and right hon. Gentleman opposite to assist Her Majesty's Government in amending the law as far as they can. I wish at once to join in the just tribute of the right hon. Gentleman the Member for Wolverhampton to the great experience and ability 1417 of my hon. Friend the Member for Stockton (Sir H. Davey). I am prepared to say, in this or any other place, that if he had one opinion and I another on any point of law connected with this Bill I should be perfectly satisfied I was wrong. At the same time, while conceding the advantage he possesses over me, I venture to think that he has gone a little too far when he says that he cannot understand this Bill. One other observation I must notice. It has been said that this Bill has been prepared by persons who have only considered one side of the question, and without obtaining information from others. That is an absolute and entire mistake. I must take the blame of any defects of the Bill, of course, so far as the legal points are concerned. The best authorities and the persons most skilled in these matters have been consulted. One word on behalf of the draftsmen. The right hon. Gentleman has had experience of the Government draftsmen, and whatever may be said as to the mode of drafting, I do not think we ought to under-rate the extreme learning and ability or industry of those gentlemen, having regard to the burdens put upon them. Let me say a few words in reference to the leading points. The first and main objection taken to the Bill is that it does not codify the law; codification means dealing with an Act of Parliament of 270 sections, or the winding-up part consisting of 99 sections. I say, without the slightest hesitation, that if we had undertaken to codify and amend the law fit the same time it would have been hopeless to try and carry the Bill in this or in any one Session. On that point I appeal to the authority of the right hon. Member for Mid Lothian, who, speaking in answer to the right hon. Member for Wolverhampton, said that it is utterly impossible to pass a consolidating and amending law at the same time; that it is necessary first to amend the law and then to codify it.
§ MR. H. H. FOWLER
What my right hon. Friend the Member for Mid Lothian objected to was the introduction of any Amendments into a Consolidation Bill. He said a Consolidation Bill should be a Consolidation Bill pure and simple.
§ SIR R. WEBSTER
In another form of words that is exactly what I am attempting to convey to the House. As to the codification of the law, if we are to 1418 wait for that, pressing evils will long remain unredressed. The right hon. Gentleman has taken exception to the power of the Lord Chancellor to make general rules for carrying into effect the objects of this Act, and repealing or modifying general orders and rules applying to the winding-up of a Company.
§ SIR H. DAVEY
What I pointed out was that they did not repeal the winding-up sections which are over-ridden.
§ SIR R. WEBSTER
The hon. Member referred to these sections, and he subsequently referred to the rules. I accept his explanation of what he intended, but he directed the attention of the House to the fact that we had not dealt with the existing rules. Well, I am sure, so far as the rules are concerned, the hon. Member will be the first to say that nobody could have framed them and that nobody could say what rules are to be repealed and what are to stand until an amending Bill has been passed. If there is objection taken to temporary officials having to do with the framing of rules, I would point out that that matter is always safeguarded by legislation; but under the circumstances it cannot be said that the Government have been guilty of an omission in not introducing a provision for the amendment of the rules. Then is it or is it not prudent to write at large in the Bill clauses as they are intended to stand, or is it prudent to refer to previous Acts where these clauses appear? As to the incorporation of the Act of 1862, it practically depends on this main consideration whether we have still got left as operative and unrepealed a body of law in itself sufficient to be self contained, or whether that which we are engrafting on the old system becomes in itself the main body of the law. I think it is scarcely just after the speech of the right hon. Gentleman the President of the Board of Trade, to suggest that this Bill is drafted in a cast-iron shape as if intended to be the final view of Her Majesty's Government, because in his opening remarks my right hon. Friend said he was aware that the clauses made changes in the phraseology and scope of previous legislation, but that his desire was to get the assistance of experts in the matter, so that the provisions might be moulded in the best form. Whatever may be the strictures passed in Clause 9, those who have had experience in the matter think that 1419 amendment of the law in that direction is required, as the number of persons who defraud companies and make away with their assets is increasing. The hon. Member for Monmouthshire said we had made a great mistake as sub-Section 9, Clause 9, relates to matters in regard to which the Legislature should give a remedy to shareholders. If he looks at Sub-section 9 he is right, but I think, in fairness to the much abused draftsman, he should have observed the governing words, "And that loss and damage has b3en thereby caused to the company and its creditors."
§ MR. WARMINGTON
Those are the words I pointed to. A company is one thing, and the shareholders another.
§ SIR RICHARD WEBSTER
It is only in cases in which the act complained of has caused damage to the company and its creditors that the remedy is given, therefore, it is absurd to say we intend to transfer a remedy that ought to be given to the shareholders to the company and its creditors. I am simply endeavouring to show that there is some ground for supposing there was an evil the framers of the Bill desired to meet. The hon. Member for Donegal (Mr. A. J. O'Connor), whom I admit has rendered himself thoroughly acquainted with the subject, thinks we are overloading the County Courts. The President of the Board of Trade indicated in his speech that the limit of £5,000 has been introduced as a figure on which discussion may take place, though the point is essentially one for consideration in Committee. It does not affect the principle of the Bill. As to the objection that certain clauses are not written out at large in the measure, I say at once that I should be prepared—though there is no necessity for the re-modelling or re-drafting of the Bill before it is considered—if the Grand Committee who deal with the Bill are of opinion that certain provisions in the Bankruptcy Act, or certain powers of the Companies' Act, should be incorporated or applied to the procedure here contemplated, to take the responsibility of writing out those clauses and putting them in the Bill. However, I do not think the Committee will desire that to be done. I am certain that if the President of the Board of Trade had come down to the House with a Bill consisting of 40 or 50 clauses, there 1420 would have been much greater opposition to the Second Reading. If seems to me that a wise discretion has been exercised in putting the Bill in such a shape as will accomplish the amendment of the law at which the Government aims. The hon. and learned Member for Stockton has referred to the 27 years' experience which we possess of the working of the Act of 1862, but it is perfectly clear that that experience has brought out some defects, and that the decisions of the Judges show that there are matters which require amendment. But it seems to me that before we attempt to codify the law we ought to cut out the rotten branches and endeavour to engraft new. Therefore, I think the argument based on experience is a strong justification of the course which has been adopted by my right hon. Friend in endeavouring to introduce into this Bill particular matters of amendment which he desires to press forward without entering upon a gigantic scheme which would eventually come out in the shape of a Bill for codifying the law. Voluntary liquidations are advisedly excluded from the Bill, and as to contributories, their omission is not due to carelessness, but it was thought, rightly or wrongly, that they ought not to be included as Members of the Committees proposed, I think the House will agree with me, however, that these are matters for discussion not on the Second Reading of the Bill, but in Committee. If I have failed to notice any point that has been raised during the debate, I hope it will not be thought I have done so out of any disrespect to hon Members, and, in conclusion, I have only to express a hope that a Bill which is brought in to introduce improvements into the law in some important particulars will be allowed to go before the Standing Committee.
(10.10.) MR. PRITCHARD MORGAN (Merthyr Tydvil)
It seems to me that this Bill is framed for the express purpose of encouraging litigation. There is not a clause which does not refer to one or two other Acts of Parliament that it is intended to incorporate. Under Clause 8 no power is given to the "prescribed officer" to report whether or not the officers of the company, whoever they may be, are knowingly or wilfully guilty of any of the offences referred to in the Act. The clause first appoints the 1421 prescribed officer as a judicial officer and afterwards transforms him into a prosecutor. The intention of Clause 9 seems to be to prevent people having anything to do with companies, either as officers or as shareholders. There is no allegation in Sub-Section (a) that it is necessary that there should be any intent "whatever to mislead. It seems to me to be a principle of the English law that no offence is to be attributable to a man unless there is intent of some sort or other. Suppose a man came from America and brought with him a report from a banker stating that on a certain property there were 5,000 head of cattle, and in consequence of that report certain persons became shareholders in a company; the mere fact of the report not being true would render them liable to make good the default of other people of which they were totally ignorant. Sub-Section (b) as to the misapplication of money seems to be intended to be read with Sub-section (e), which refers to rash or hazardous speculations. This, in my opinion, would put a stop altogether to the formation of companies for the carrying on of speculative business. Another sub-section provides that if a company postpones payment of any debt they will be unable to give a mortgage because that would be giving undue preference. I consider that the Bill ought to be consolidated with the Companies' Act, and with the Bankruptcy Act, if necessary, so that we could have one Act dealing with the whole subject. As it is, the measure could not be safely construed except on the advice of the highest legal practitioners. On that account alone I regard it as objectionable. Every measure of this kind ought, in my opinion, to be complete in itself, so that an ordinary layman may take it up and understand it without having to read through a number of other Acts.
§ Question put, and agreed to.
§ Bill read a second time.
§ Motion made, and Question proposed, "That the Bill be now referred to the Standing Committee on Trade, &c."—(Sir M. Hicks Beach.)
§ (10.12.) SIR H. DAVEY (Stockton)
I would ask the right hon. Gentleman whether, having regard to the views which have been expressed, he will consider the expediency before the Bill goes to the 1422 Standing Committee of inserting in it the clauses which it is proposed to incorporate in language fitting the case of winding-up. Surely there is great practical convenience in that course.
§ SIR M. HICKS BEACH
I quite appreciate the wishes of the hon. and learned Gentleman, and should be glad to meet his views. His suggestion can, I think, be carried out before the Select Committee, but there are obvious reasons why it may not be desirable to have to move two Motions at this stage. I trust the House will consent to send the Bill to the Grand Committee to-night.
§ (10.13.) MR. H. H. FOWLER (Wolverhampton)
I understand the right hon. Gentleman to say that he will move these Amendments in the Grand Committee, and of course we accept that. I would ask the right hon. Gentleman whether the Bill had not better go to the Grand Committee on Law instead of to the Grand Committee on Trade.
§ SIR M. HICKS BEACH
No, Sir; both my hon. and learned Friend and myself are on the Grand Committee on Trade.
§ Question put, and agreed to.