§ Order for Second Beading read.
§ The PARLIAMENTARY SECRETARY to the BOARD of TRADE (Mr. G. Roberts)
I beg to move "That the Bill be now read a second time."
The Bill, as hon. Members will be aware, is of a comparatively simple character. The Trading With the Enemy (Amendment) Act, 1916, provides in Subsection (1) for the winding-up of businesses and companies which are carried on wholly or mainly for the benefit of or under the control of enemy subjects. An alternative method of procedure is provided by Section 4 of the Act, which enables the Board of Trade to make an Order vesting any property belonging to enemies, or enemy subjects, in the Public Trustee for the purpose of sale. Where the business is one which it is in the public interest should be maintained, the alternative course of vesting shares held by enemies in the Public Trustee in order that they may be sold to British subjects is frequently adopted. This is done to avoid prejudicing the business which is caused by its winding-up and sale in the winding-up. It has been the policy of the Board of Trade, in dealing with enemy businesses, to secure as far as possible that these businesses shall not come again under foreign control, but that they shall remain British in character. With this 2092 object, when enemy shares in companies, under enemy control are vested in the Public Trustee for the purpose of sale, the, Board of Trade have a regulation to the effect that the regulations contained in the articles of association shall be so altered as to restrict the amount of share capital or of the voting power, which can be held by the foreigner.
Hon. Members are aware that the articles of association of a company can be altered by resolutions passed by the shareholders. In order to make permanent the provisions inserted in the articles of association with the object of insuring British control, it is desirable that the power of the company to alter these provisions by resolutions passed by the shareholders shall be fettered. The object of the Bill, therefore, is to prevent any alteration of any provision in the articles of association of a company which restricts or limits the amount of share capital or voting power which can be held by foreigners, unless such alteration has received the written consent of the Board of Trade. This is accomplished by Subsection (1) of Section 1 of the Bill. The Bill applies to all companies incorporated in this country, whether they have altered their articles of association in order to meet the requirements of the Board of Trade or not. Some few companies have probably altered their articles of association in this way without requirement from the Board of Trade, but there are probably no companies which before the War included any provision in their articles of association for the purpose of limiting the holding of capital by foreigners. Doubts may arise as to whether any particular provision may or may net have the effect of restricting the interest of foreigners in the company, and it is felt desirable that any company which desires to alter its articles in the ordinary way for the purposes of facilitating the conduct of its business shall have a ready and simple method of ascertaining whether or not that alteration requires the consent of the Board of Trade. Sub-section (2) of Section I accordingly provides for the Board of Trade giving a final and conclusive decision as to whether or not their consent is required to any alteration. I think those few observations explain the character und purpose of the Bill, and I trust that it may be accorded the approbation of the House.
§ Mr. RONALD McNEILL
I think it is rather unfortunate, perhaps, that a very large number of Members of the House happened to be upstairs at a very interesting and important meeting at which Mr. Neville Chamberlain was present, just at the moment when the hon. Member opposite was introducing this Bill, and I do not feel at the present moment in a position to offer any valuable criticism upon it. I had the misfortune not even to hear the opening remarks of the hon. Member, but I rather gathered—I hope I am right iii the assumption—that the main purpose of the Bill is to prevent companies who have, during the War, taker steps to purge themselves, if I may so express myself, of enemy influence, from reverting to that old position after the, War—that is to prevent a mock transfer or a mock alteration during the War. In other words, where a company has taken steps to satisfy what I may call the policy of the country during the War, this Bill is to make permanent that alteration. If that is the main purpose of the Bill, I for one certainly should give it a most cordial welcome, but, of course, as the hon. Member will understand, there are a large number of Members who, I think, are interested in this Bill, and they will, of course, have opportunities of discussing it when we get into Committee. I should like to have an assurance, if I may, from the hon. Member that that is the main intention, my only doubt being about the words in Subsection (1) "an alteration of that provision shall not be of any effect." I should have expected to find a less general phrase used there, and that the Bill would have prohibited alteration in a certain direction. But I do not quite see the necessity for prohibiting any alteration at ail. Why, for instance, should it be necessary for the consent of the Board of Trade to be obtained for an alteration which is really carrying out the policy of getting rid of enemy influence in a company? I should have expected to find a prohibition of any alteration of that provision in a certain direction. As it stands, it is a prohibition of any alteration without the consent of the Board of Trade. I do not know whether the hon. Gentleman will give consideration to that point if it should be raised by myself or anyone else in Committee, but that is the only criticism at the present stage I desire to make.
There is a real danger in connection with legislation of this description where it affects foreigners, and when we remember that foreign Governments have also got their laws which relate to British companies or the interests of British people as shareholders in their companies. I do not know whether I make the point quite clear to the House, but it is this: In Italy and in Roumania, and I believe also in Serbia, though I am not quite certain about Serbia, there are laws which state that wherever a foreign country—and, of course, for that purpose Great Britain is; a foreign country—has placed any restriction whatever upon the shareholding of their country in companies carrying on business there, the same restrictions shall automatically apply to the companies carrying on business in their countries. Now we in this House passed an Act—the Companies Consolidation Act, 1908—which was, as it was stated when brought in, to make no alteration in the law, but to be merely a codification of the company law as it then stood. But it turned out, on close investigation, that there were one or two very important alterations in the law which were really embodied in the provisions of that Act, and one or two of them related to the position of foreign shareholders and foreign concerns having businesses in Great Britain. That legislation had effect on a number of concerns with English capital carrying on business in these foreign countries, because, after all, Great Britain is a commercial country, and has got interests in companies registered all over the world, and we have got to look, not merely at some conditions applicable to half a dozen companies probably in the United Kingdom that happen to have a few foreigners here as shareholders, but in pressing legislation of this description we have also got to think of the interests of all our traders and all our investors in all these concerns all over the world. What I do very respectfully ask the Board of Trade to consider in passing this legislation, assuming that another country would do exactly the same thing with their companies there as we are doing, is whether that would be likely to embarrass, or annoy, or cause difficulty or loss to British investments, because I venture to say that if it would we are running a very serious risk indeed in passing such legislation.
There is just one more point to which I want to refer. I would have liked to ask the representative of the Board of 2095 Trade whether there are any substantial numbers of concerns in this country that would fall under this Bill, because I really cannot think that there are. I can scarcely imagine any very large number of companies that have got in their constitution to-day provisions that a certain proportion of their capital is bound to be held by people of certain nationalities. I know of two or three companies that have the distinct provision that at least a certain proportion of the capital and of the voting power has got to be vested in British subjects; but surely that is not the kind of thing to which the Board of Trade objects. It must be just the opposite. I cannot understand the Board of Trade bringing in a Bill to try to stop or restrict British interests in a company. What they clearly want to do, if they want to do anything about it, is to restrict foreigners acquiring more than a certain proportion. I do not know of any undertaking or any concern registered in Great Britain which contains a provision that a certain proportion of its capital is to be held by Germans, or Austrians, or Turks, or that any of those countries is to have a certain voting power. If there is no such company, or if there are only one or two, why are we wasting our time here to-night in passing an Act of Parliament which can absolutely do no good, and which applies to no state of affairs that wants remedying, when at the same time we are running substantial risks of annoying other nations and getting them to impose upon us the identical restrictions and difficulties which we are going to put into this Bill? I can only make these observations in general terms, but in getting up as a private Member to say a word or two about this Bill, I am bound to point out some of the dangers which I see we should be incurring in passing it. At the same time, I am bound to admit I do not know from my experience in London of any cases, and I can hardly conceive any cases where there would be a mischief that this Bill would really be wanted to meet. If, however, there are such cases—and there is any number of them, and it is really desired to pass legislation about them—then I think we ought not only to be told in this House what the Bill proposes to do, but we should get some general idea of the magnitude and scope of these concerns, and the kind of restriction or alteration in the articles of which the Board of Trade seeks power to get rid.
§ Sir G. RADFORD
While I feel well disposed towards this Bill, being, like other Bills, moved by some benevolent intention, yet I am bound to say, from the short discussion that has taken place, I begin to have great doubts whether the Bill is needed. If it is, I think we want some further reasons than have been given, in order to commend it to this House. The object of the Bill is to require the consent of the Board of Trade to certain alterations in companies' articles which have "the effect of restricting or limiting the proportions or amounts of the share capital of the company or of the voting power of the company which maybe held or exercised by or on behalf of foreigners." Let me remark that this is to apply to foreigners who hold shares in British companies, and the word "foreigners" includes all mankind, except the dwellers in these Isles and the Dominions of the Empire. This is a hostile blow to all our gallant Allies, and is, I think, quite unnecessary. I am open to reasonable argument, but I have heard no reason why all foreigners, including our Allies, should be subject to this ban. I wait to be convinced on that point. Then I am bound to say, as I have heard other Members say in this House, that we are at war, and while we are at war the shares of alien enemies in British companies are already well looked after. The Public Trustee sees that the shares of foreign enemies are vested in him. Therefore, with regard to those persons it does not seem to be necessary that we should confer this power on the Board of Trade, which would prevent a company from altering its articles in certain directions, but if the articles were so altered it would not affect the shares of alien enemies, because they are already being looked after by the Public Trustee. I do not see that there is any urgency about this provision at all. I further observe that this measure is not limited to the duration of the War, but it continues perpetually. My hon. and learned Friend near me says that that is a valuable thing, but I do not accept that opinion. In a state of war we are apt to make a change which is not necessary except for the duration of the War, and I should hesitate to alter the; law of the country in perpetuity in order to meet a war-like emergency. For these reasons the House should hesitate before accept- 2097 ing this Bill, at any rate until we get some convincing explanation from the points which I have raised.
§ Mr. J. M. HENDERSON
I consider this measure to be a very pernicious one. You have already dealt with enemy property, but the purpose of this Bill is to limit the power of any foreign shareholder in any British company. That has never been our policy in the past, or even the purpose of the Tariff Reform policy, because their object was to get money into this country, and foreigners will not invest money here unless they have some control over it. How are these proposals going to affect America? It may be that you will have an enormous amount of American investments here in the future. The people of this country have always been in the habit of investing in foreign countries, and if you say to Italy, Argentina, or America. "We are going to limit your rights in any company in which you have invested in this country," they will retort and say, "We will limit your rights in companies in our country." The moment you say that you are going to restrict foreigners hero you will get none of their money here unless they have proper control. We shall want as much capital invested in this country as possible after the War. We want American capital, and to say to Americans that they may put their capital in companies here without having any power of voting and restricting them in that way is absurd.
In America there is no restriction as to voting. You hold shares there, and they ask you to the general meeting in the same way as we do here. The object of this Bill is simply to say that the Board of Trade has got to have power to limit these foreign investments. You have passed a Registration Act for firms, and now you can go to the Registrar at Somerset House and look at the list of shareholders, and I will defy anybody to tell from that list who are foreigners, because many of the shares are held in the names of banks who are the nominees, and, therefore, you do not know the names, and the British customers of the banks alone know the real names. It is a most dangerous thing to allow the Board of Trade to say anything that will limit, hamper, or put any friction in the way of limited liability companies, or in the way of foreigners bringing money here, with regard to which they require certain control, or the reverse operation of us invest- 2098 ing in foreign countries and being so restricted. I know a case in a foreign country of an English company, and under the rule which my hon. Friend wants to impose here they would have to create a company there to deal with their money, and the local company would simply hand over the accounts to the London company. That is not the sort of thing we want. We want to bring all the money we can here, so long as it is not German or Austrian money, and put it into our industries. This is a very pernicious Bill to which I strongly object. I am against giving any Government Department the right over shareholders to frame their articles of association or memorandum of association, and alter them as they think fit from time to time. I object to any Government Department having the right of veto upon the free action of companies in that respect. It has never been so here, and the only people who ought to have any power of altering the law in this respect should be the Members of this House.
§ Mr. PRINGLE
This Bill seems to me to be not only pernicious in its object, but I think it is likely to be futile in its operation. I think it is pernicious because it includes the latest phrase of the Tariff Reform agitation. We have been told in the past that the main object of Tariff Reform was to attract capital to this country, and we all know that what converted the present Prime Minister was a policy which resulted in bringing an immense amount of German capital to this country which is now regarded as evidence of the existence of the "unseen hand." Consequently we must associate the unseen hand with the present Prime Minister. This is the last form of Tariff Reform ratiocination. Consequently, you must deal with companies which have a foreign interest and if there is a provision in the articles of association restricting these foreigners you must prevent the change of that article which would allow of any increase of foreign capital. What is the use of doing that? Why should a company, if it desires to get rid of such a restriction, be prevented from doing it? Is there any public policy in that?
Supposing a company wants fresh capital and it can only get capital from America. We know the straits to which the Government have been reduced, for we have been selling foreign securities. This Act might positively interfere with the exchange operations of the Treasury. 2099 I do not know whether the Government have contemplated that or not. It is quite impossible to see any intelligible reason for the introduction of this strange piece of legislation. I would like to ask if it will have any real effect. If anyone wishes to evade this provision it would be very easy to do it. I see the name of the Solicitor-General on the back of this Bill, but I think he could advise anybody for a very small fee how to evade this Bill, and it would not take him long. On this point I forbear because I do not wish to interfere with the earnings of my learned brethren. No doubt the hon. Member for Carnarvon (Mr. Rees) will be ready to eulogise the virtues of the present Government, and will no doubt say that this is an admirable piece of legislation in harmony with the long line of Liberal traditions, and in the true spirit of the great statesman whom he now so ardently and consistently follows.
Mr. CARADOC REES
In regard to this Bill I am a seeker for information. What I thought this Bill meant to do is this: There has been a Committee of this House dealing with the winding-up of alien enemy firms, and it is only in regard to those firms that there are any restrictions at all in the articles of association such as are dealt with in Clause 1 of this Bill. The idea being that the Board of Trade have insisted upon special articles of association being embodied in the articles of the company that will be taking over enemy businesses. It would be ridiculous to wind up an alien enemy business and then allow loopholes for the aliens to creep back into such businesses. In ordinary companies in this country there are no articles restricting the employment of foreign money, or restricting the voting power of foreign shareholders. In these particular businesses which have been wound up and handed over from alien enemies to British subjects, those British subjects are prevented by certain articles which the Board of Trade have imposed upon them from allowing the alien enemies to creep back into the company?
§ Mr. RENDALL
Will the hon. Member explain exactly if that is really so? Does this Bill apply only to certain companies?
§ Mr. DEPUTY-SPEAKER (Mr. Maclean)
May I point out to the hon. Members that it is not in order for two hon. Members to be on their feet at the same time.
§ Mr. RENDALL
Will the hon. Member for Carnarvon give me his legal opinion as to whether this Bill applies to any other companies except those he has described? I thought this measure applied to all companies.
No other company will want to alter its articles of association in order to give voting powers to foreign shareholders. It is only where such articles are in that the company would want to alter them. This Bill is to prevent alien firms which have been taken over by British subjects from modifying or altering articles of association which have been imposed without the consent of the Board of Trade. The Board of Trade in their wisdom may modify those articles which they insisted upon a company putting in. In this matter I am a seeker for information, and I would like an explanation.
§ Mr. ROBERTS
I presume it is the desire of the House that I should reply to the points which have been raised. I certainly did not apprehend that this would lay me open to tin; charge of having become a tariff reformer. Most of the criticisms which have been advanced are entirely due to a misapprehension as to the scope of the Bill. The Bill, as my hon. and learned Friend the Member for Carnarvon (Mr. Rees) has just observed, is confined in its operations to those companies which are dealt with under the Trading With the Enemy Act, 1916.
§ Mr. ROBERTS
Perhaps the hon. Gentleman will allow me to make my statement. It is perfectly correct to say that no companies other than those have these restrictions in their articles of association, and it is equally true to say that until this legislation was passed no company either contemplated or included such restrictions in their articles of association. Therefore, it may be accepted that it only applies to those companies that have been dealt with under Section 4 of the Trading With the Enemy Act. I stated in my 2101 introductory observations, though perhaps I did not make myself as clear as I ought to have done, that the Trading With the Enemy Act provided two methods of dealing with enemy businesses, namely, either direct winding-up, or, where it was desirable to maintain it, providing for the business being carried on under certain restrictions. In the latter case the Board of Trade have felt that measures ought to be taken to ensure that the business shall not relapse under enemy control. I am advised that the wording of the Bill has the effect of restricting its operations to those companies that are dealt with under the Trading With the Enemy Act. At any rate, that is the intention of the Department. Section 1 reads as follows:Where any provision in the articles of association of a registered company is designed to restrict or limit, or has the effect of restricting or limiting.Until this legislation was enacted no company in this country ever so restricted its articles of association. It is, therefore, plain that the measure only applies to those companies dealt with under the Trading With the Enemy Act. I speak with deference in the presence of hon. and learned Members, but if it should be that the wording of the measure is not sufficiently explicit, I will give an undertaking that I will consult with the Solicitor-General in order to ensure that the wording is made perfectly clear. I recognise that, after all, it will be undesirable to place unnecessary barriers in the way of the flow of capital into this country, but I think we are correctly interpreting the feeling of the House and the desire of the country by enacting that companies which have enemy undertakings and which have been under German influence, gnawing away at the vitals of our commercial life, shall not be at liberty again to carry on their operations in the same way as before the War. It has been found expedient to wind-up these undertakings under legislation passed by this House, and as it is our intention only to apply this measure to companies thus dealt with, I think it may remove any misapprehension.
§ Mr. ROBERTS
I have made inquiries, and I understand that it only applies to the companies thus dealt with, although there are two or three other companies 2102 who have voluntarily altered their articles of association in order that they may claim that they are exclusively British.
§ Question put, and agreed to.
§ Bill read a second time, and committed to a Committee of the Whole House for Monday next.—[Mr. James Hope.]