STATUTORY COMPANIES (REDEEMABLE STOCK) BILL. (Hansard, 6 May 1915)

§ The PARLIAMENTARY SECRETARY to the BOARD of TRADE (Mr. J. M. Robertson)
I beg to move, "That the Bill be now read a second time."
This is an emergency measure framed in the interests of certain statutory companies whom it empowers to issue preference shares or stock, or debentures or debenture stock, so as in each case to be redeemable. Companies by definition are any railway company, canal company, dock company, or water company, or any company incorporated by special Act who are for the time being authorised under such an Act to construct, work, own, or carry on any railway, canal, dock, water, or other public undertaking, and includes any person or body of persons so authorised.
Such companies are in general not entitled to issue redeemable stock. The power, however, to issue redeemable stock is not a new one. Some companies actually possess it. For instance, the L. and S. W. and the L. B. and S. Coast. 1343 Railways; and the L. and S. W. has been able to make use of the powers during the War to the extent of issuing a million stock of 5 per cent. redeemable preference shares. It is obvious that if companies do require to issue stock during the present crisis and have to issue it at war rates, and the stock being not redeemable, an unfair burden would be cast upon them. The effect of issuing stock in that way would be to reduce other stock practically below the minimum price at which it can be sold. In the circumstances it would seem a real emergency measure to give them the power. But the power is strictly restricted. At the end of Clause 1 hon. Members will see:—
"This Act shall apply only to stock authorised to be created, or to be issued before the outbreak of the present War, or after the outbreak of the present War, and before the commencement of this Act; and redeemable stock shall not be created or issued, in pursuance of the powers given by this Act, during the continuance of the present War, and a period of twelve, months thereafter, except with the consent of the Treasury."
I think I can confidently assure the House that the Bill is truly an emergency measure, and I trust it will be found entirely non-controversial.

§ Mr. JOYNSON-HICKS
I am not going to oppose the Bill, but I should like to ask whether there is any very great demand for it and whether the hon. Gentleman has considered the question of company law in regard to the reduction of capital, because I understand the Bill is to enable a company—I will not deal with debentures—to issue redeemable stock. Suppose you add £100,000 to the capital of a company. You put it into the assets, and you hold it out to the world that you have £100,000 more assets for the creditors with whom you are dealing. In this Bill you are going to authorise this company to reduce its capital, and the creditors and other people with whom the company are dealing might find, or they might not know, that they were dealing with a company with £100,000 less assets than they had had before.
I am sure the hon. Gentleman knows that the power to reduce capital is most strictly guarded in ordinary companies. There is no power under the Company Trading Act to reduce capital, except by 1344 petition, and the Court takes great care, by ordering advertisements to be made, that all those likely to be dealing with any company reducing its capital may have ample notice that from that time henceforward that company will have so much less assets and so much less for creditors to go on if default should be made. If this is going to be permitted to gas, water, and dock companies, there is very little to prevent it being applied by a subsequent measure to all limited companies, or all large limited companies. There are many companies to-day whose capital is non-statutory, but whose capital is as large as that of statutory companies, and therefore, if the statutory company is to have the right to issue this capital at the end of the War, it would seem to be equally right that a non-statutory company should have the right to issue redeemable shares. I do not want to oppose, but I am not sure it is desirable that this power should be given without the same stringent conditions of public notice as are required when capital is to be reduced at the present time.

§ Sir PHIPSON BEALE
I should like to ask for a little explanation on this point. As I understand it, this Bill does not actually give a company any new power to issue capital, but it enables them to exercise their existing borrowing powers in a new way. Under the present law, unless it has been altered, these borrowing powers exist in a form in which they can borrow for a time in debentures, and it is only by incorporating the Companies Consolidation Act of 1863 that they get the power to issue it in the irredeemable form of debenture stocks. Therefore, it puzzles me when it is said that it does not give them power outside their borrowing powers, why they want to borrow for a term of years, as against the issue of irredeemable debenture stock. I do not wish to oppose the Bill, but I do not quite fit it in with the existing law relating to the borrowing powers of companies.

§ Mr. BOOTH
I do think this Bill is required, if the hon. and learned Member (Mr. Joynson-Hicks) will allow me; though I speak rather from the investor's point of view. As one who has continually to give advice when investments are made by insurance companies—the House knows that they often have large sums to invest—we do find great difficulty on this point. In many cases investments have gone out of this country in redeemable stock, because 1345 there has not been an opportunity for them in this country. I think this is very urgent. We do not know, many of us engaged in insurance, what difference the War or the termination of the War will make in the condition of business, and it would be a convenience if we had large opportunities for investment in redeemable stock. At the present time we are shut in with Treasury Bills, or investments in railways, but if the concerns at home could offer us redeemable stock then we could arrange from year to year that they would have the right to redeem them, and they would have an opportunity to get our money. It is on the ground of the facility to invest that I hope the Bill will be passed. I do think that considering the extraordinary position of investments on the Stock Exchange, a Bill like this would be very useful to many institutions.

§ Mr. ROBERTSON
It is necessary as the law stands for railway companies that have not already received special powers to receive such powers if they are to issue redeemable stock. As to the reasons for refusing them such powers in the past, I think there was considerable force in the general argument that a railway company should not be allowed to issue redeemable stock, but the old principle has already been infringed. The hon. Member for Brentford (Mr. Joynson-Hicks) argues that there is a danger if you give such powers to such statutory companies as are in the Bill, you will have no argument against non-statutory companies afterward. I do not dispute that the whole question may be raised after the War, and it will have to be considered whether such powers will have to be given; in which case the argument he has brought forward will be an argument against giving them in an indiscriminate way. As the powers given in the Bill are strictly limited to these statutory companies, I think he will agree his objection does not hold against this measure. I do not think he need fear that this measure, as an emergency measure, will be the thin end of the wedge.

§ Mr. JOYNSON-HICKS
I should like to ask whether the hon. Gentleman does not think it would be right that notice should be given of the time for the redemption for any of these preference 1346 stocks, because it is in effect the reduction of the capital of the company? I think something ought to be put in on that point. If the capital is half a million, and they issue £100,000 to-day, when they pay it off they will reduce their capital and their assets available for the payment of creditors will be reduced by that sum. Any ordinary company has to give notice of a reduction of capital, and will the hon. Gentleman consider between now and the Third Reading the giving in of advertisements of the date before the stock is redeemed?

§ Mr. ROBERTSON
I will consider the point before the Committee stage. Clause 1 provides that stock is to be redeemable on such terms and conditions as may be specified in a resolution of the company, passed at a special meeting convened for the purpose. That seems to give publicity, but if we see good reason for making the Amendment the hon. Gentleman proposes between now and Committee, we will put one down.