CLAUSE 1.—Powers under provisions of special Acts and Orders as to capital issues. (Hansard, 12 April 1920)

HC Deb 12 April 1920 vol 127 cc1469-78 1469

§ (1) Where a company are authorised by special Act to raise capital by the issue of stock or the borrowing of money for the purpose of carrying on any gas or water undertaking, or where the powers of a company to raise capital or borrow money for the purpose of carrying on such an undertaking are limited by the special Act, the company may, if they think fit, not with standing anything in the special Act, with the consent of the Board of Trade, which consent may be given subject to such terms and conditions as appear to the Board to be expedient—

(a) offer for sale to the public any such stock and at a price lower than the nominal amount of the stock;
(b) where the special Act authorises the creation and issue of ordinary stock, create and issue redeemable or irredeemable preference stock in lieu thereof;
(c) where the special Act authorises the creation and issue of irredeemable preference or debenture stock, create and issue redeemable preference or debenture stock;
(d) where the special Act authorises the creation and issue of debenture stock or the borrowing of money to a limited extent, create and issue debenture stock or borrow money to an extent not exceeding half the share capital for the time being issued and paid up;
(e) pay a higher rate of dividend or interest on preference stock or debenture stock or money borrowed than that authorised by the special Act:

§ Provided that—

(i) preference stock, whether redeemable or otherwise, shall not be issued under the authority of this Act to a greater extent than shall be sufficient to produce, 1471 including any premium which may be obtained on the sale thereof, an amount equal to the nominal amount of the stock authorised or the amount authorised to be raised by the special Act; and
(ii) no consent given by the Board of Trade in pursuance of this Act shall have effect until a report of the circumstances of the case has been presented to Parliament by the Board of Trade and has lain upon the Table of each House of Parliament for a period of not less than twenty-one days during which the House has sat, and if either House during that period presents an Address to His Majesty praying that consent may be withheld, no such consent shall be given; and
(iii) the provisions contained in the Schedule to this Act shall apply in respect of redeemable preference or debenture stock issued in pursuance of this Act; and
(iv) preference stock issued under the authority of this Act shall not affect any preference or priority as to the payment of dividends or capital enjoyed by any preference stock existing at the date of such issue, except with the sanction of three-fourths of the votes of the holders of that stock present (personally or by proxy) at a meeting of those stockholders specially convened for the purpose; and
(v) debenture stock issued under the authority of this Act shall not affect any priority as to the payment of interest or capital enjoyed by any debenture stock existing at the date of that issue except with the sanction of three-fourths of the votes of the holders of such stock.

§ (2) For the purposes of this Act— The expressions "stock" and "stockholder" include shares and shareholder; The expression "special Act" includes Provisional Orders and Orders having the force of an Act of Parliament.

§ Mr. BRIDGEMAN
I beg to move, in Sub-section (1), to leave out the words "gas or water undertaking," and to insert instead thereof the words, "undertakings to which this Act applies."
The undertakings to which the Act applies are "undertakings for the supply of gas, water, hydraulic power and electricity and tramway undertakings, including light railways constructed wholly or mainly on public roads." As introduced, 1472 the Bill related only to gas and water companies, but a certain number of electricity, tramway and hydraulic power companies pointed out that they were subject to the same disabilities that we were seeking to remove from gas and water companies, and they asked therefore to be included in the Bill. They, of course, the Electricity and Tramways Companies come under the purview of the Ministry of Transport, but the Minister of Transport agreed that they should be included in the Bill. When we were in Committee upstairs, although the Committee were in favour of their inclusion, it was thought it might possibly imperil the Bill by adding them without first ascertaining whether or not they would be considered to be outside the scope of this particular measure. The Committee, therefore, authorised me to ascertain from Mr. Speaker whether these undertakings did come within the scope of the Bill, and if the reply were in the affirmative it was arranged that I should move the consequential alterations on the Report stage. I have moved the first of these, and the subsequent and consequential Amendments will provide that, instead of the Board of Trade, the appropriate Government Department should be inserted, so that the gas and water and hydraulic power undertakings should be referred to the Board of Trade, and the electricity and tramway undertakings to the Ministry of Transport.

§ Amendment agreed to.

§ Further Amendments made: In Subsection (1), leave out the words "Board of Trade" ["with the consent of the Board of Trade "], and insert instead thereof the words "appropriate Government Department." Leave out the word "Board" ["such terms and conditions as appear to the Board"], and insert instead thereof the word "Department." [Mr. Bridge man.]

§ Mr. BRIDGEMAN
I beg to move, in Sub-section (1) (a), to leave out the word "sale" ["offer for sale to the public"], and to insert instead thereof the words "subscription by."
This is not a consequential Amendment, but one which, in Committee, I undertook to raise in suitable words at this stage, after consultation with our legal advisers. The intention is to make it quite clear that, if we do away with the necessity of 1473 issuing the stock by auction or tender, we provide that the company shall not be allowed to make an arrangement with their friends behind the backs of the public for taking up shares at an advantageous price. Paragraph (a) of this Sub-section, amended as proposed, would read as follows— offer for subscription by the public any such stock and at a fixed price lower than the nominal amount of the stock; and all allotments in respect of such stock shall be made as nearly as possible pro rata. That suggestion was made by the right hon. Gentleman the Member for the City of London (Sir F. Banbury), and it was generally agreed to in Committee, but we could not then find exactly appropriate words.

§ Amendment agreed to.

§ Further Amendments made: In Sub-section (1) (a), after "a" ["and at a price lower than the nominal amount of the stock"], insert the word "fixed." After the word "stock," ["amount of the stock"], insert the words, "and all allotments in respect of such stock shall be made as nearly as possible pro rata."— [Mr. Bridgeman.]

Sir HENRY COWAN
I beg to move, at the end of Sub-section (1) (a), to insert the words Provided that the appropriate Government Department may dispense with such of the conditions imposed by this sub-section in the case of any gas undertaking in which it is proved to their satisfaction that the issuing of capital required for such undertaking in strict conformity with the conditions imposed by this sub-section would prejudice the raising of such capital or the obtaining of the best possible price therefor.

§ This Amendment is rendered necessary by the adoption by the House of the three Amendments just moved by my hon. Friend the Parliamentary Secretary to the Board of Trade. The position of the small gas companies under this Act, with the Amendments which have just been carried, would be a very peculiar one. In their case these Amendments would largely nullify the benefits which the Act is intended to confer. These small companies have no free market for their shares. In the past they have been able to finance themselves, and to raise small amounts of additional capital from time to time, by appealing to a restricted local public, and particularly to local tradesmen. Those local people have now no funds available for investment in such 1474 stocks. The conditions under which Business is carried on nowadays are such that, broadly speaking, every trader requires double the capital that he formerly employed for use in his own business. The result is that these small companies will be unable to raise money from the local sources which have hitherto been open to them. The general investor outside the locality knows little or nothing of the concern, and any prospectus that could be issued would present the prospects and position of the undertaking in what would appear to him, as an uninformed outsider, to be a very unattractive form; and the issues of these small companies could not for a moment compete with the very attractive propositions which are constantly being put forward from other quarters. The only quarters from which these small companies can hope to finance themselves in the immediate future are what may be called private quarters, that is to say, insurance companies, trust companies and investment corporations, and, sometimes, private, trustees who are in possession of funds for investment. Investors of that class, however, are not prepared to take up a small portion of a small issue, on the footing that they apply and obtain a pro rata allotment. Small companies applying to such people as these, in order to place their capital, are invariably told, "Yes, we are satisfied that it is a good thing, and, at a price, we are prepared to take it; but we want to take the whole issue, or at any rate a block." The whole issue may be only £10,000 or £15,000, and these institutions will not look at it on the footing that they are to be put into competition with other investors, and to obtain only a pro rata allotment. Underwriting is suggested as a way out of this difficulty, but I am advised, I think on competent authority, that underwriting is probably illegal in the case of a statutory company, and in any case it would be ineffective, because institutions of the kind I have mentioned would not be prepared to underwrite on the footing that they were to take up what was left over; they want a firm offer of as much of the issue as may be required.

§ The public interest is clearly to facilitate the raising of capital by these companies. The hon Gentleman (Mr. Bridgeman), in Committee, said that the whole object of the Bill is to enable the 1475 companies more fully to do their duty by the public. This is not a Bill for the relief of gas companies, although, incidentally, one hopes they may benefit by it, for no other industry has been so hardly hit by the War and the conditions arising from the War No business, however, can be carried on to-day on a pre-War capitalisation, and these companies, and especially the smaller ones, if they are to continue to do their duty by the public, and give to their consumers the service to which they are entitled, must have more capital. They cannot get it unless greater facilities are given them than they would have under the Bill as now amended. During the War they have made no excess profits, their dividends in most cases have almost vanished, and they have no record upon which to appeal to the general public. They have large arrears of repairs, reconstruction and extensions which must be undertaken in the public interest. A dispensing power ought to be given to the Board of Trade, which can be trusted to exercise it in the interest of the public for the limited period during which this measure will be in force. I ask this because, unless the Board of Trade is given power, at any rate, to say that they need not conform to every detail of the method prescribed, in those cases in which the claim can be established to the satisfaction of the Board, these small companies will obtain no relief from this Act, and I am quite sure that that is not the intention of this House nor of the Government. If the hon. Gentleman sees any difficulty in adopting it and making it applicable to all companies, I would ask him to consider whether he cannot, at any rate, accept it provided its application is limited to the case of smaller companies raising not more than £20,000. I am strongly of opinion that the Amendment is reasonable and that the House would be well advised in accepting it. At the same time I have in view the case not of large gas companies, but of the smaller companies, and if the hon. Gentleman will accept it subject to the limitation I have suggested I shall feel that, although he might perhaps have taken a wider and a broader view, at any rate, he will have done something to meet the very real and serious difficulty which the Bill will present unless this provision is inserted.

1476

§ Captain BOWYER
I beg to second the Amendment. It is in general harmony with the Bill and it especially affects the smaller companies which, without this provision, would find it a dead letter.

§ Mr. BRIDGEMAN
The hon. Gentleman (Sir H. Cowan) is quite right in saying the object of the Bill is to enable these public companies to carry out their duty to the public, and I feel a great deal of sympathy with the case he has put forward, because it is clear that the small companies, at any rate, will have very great difficulty in raising fresh capital as the Bill stands. The Amendment seeks, first of all, to allow the smaller companies to get their new capital underwritten, and, secondly, if they do not do that, to get trusts or finance companies or insurance companies to take the whole block of the new shares or debentures. To accept the Amendment in the words in which it appears on the Paper would really enable every company, small or great, with the consent of the Board of Trade or the Ministry of Transport, to avoid all the restrictions which are set forth in the Bill. As a rule, I do not find myself here trying to defend the Board of Trade from having more powers given to it. It is generally the other way. Every power that is given to the Board of Trade is said to be taking it away from the House of Commons and giving an unbusinesslike Government Department a great deal too much freedom in interfering with and directing business. Therefore I am very glad to see that the hon. Gentleman, at any rate, has sufficient confidence in the judgment of the Board of Trade to wish to give us these very ample powers. At the same time, I do not think the House would like the Board of Trade to be able to allow any company whatever, small or great, affected by this Bill to raise their stock or shares in a way totally contrary to the Clauses of this Bill. He suggested that if I could meet him in the way of allowing smaller companies a little more latitude he would be grateful for that, and I am going to propose that they might perhaps allow the Board of Trade this amount of discretion in regard to small companies where the amount they want to raise does not exceed £20,000. The words I suggest are these: Provided that if in any case where the amount of money to be raised does not exceed 1477 £20,000 it is proved to the satisfaction of the appropriate Department that the observance of any of the limitations so imposed on the offering for subscription or allotment of stock would prejudice the success of the issue or the realisation of the best price obtainable, the Department may dispense with such limitations. That would give the Board power in the case of the smaller companies anxious to raise only a small amount, and if the hon. Gentleman would be content with that I should not oppose him.

Sir H. COWAN
It is very rarely that anyone can get all he wants in this world, and I do not pretend that this is all I want. At the same time I think the hon Gentleman has certainly endeavoured to meet me and to deal with a real hardship, and in the circumstances I will respond to his appeal.

§ Amendment, by leave, withdrawn.

§ Further Amendment made: In Sub section (1) (a), after the words last inserted, add the words "Provided that if in any case where the amount of money to be raised does not exceed £20,000, it is proved to the satisfaction of the appropriate Department that the observance of any of the limitations so imposed on the offering for subscription or allotment of stock would prejudice the success of the issue or the realisation of the best price obtainable, the Department may dispense with such limitations." —[Mr. Bridgeman.]

§ Mr. BRIDGEMAN
I beg to move in Sub-section (1) paragraph (i), to leave out the word 'or" ["or the amount authorised to be raised"] and to insert instead thereof the words, "to be issued by the Special Act or as the case may be."
This is only a drafting Amendment. It makes no difference to the sense, but I am advised that it falls into line with other Bills of this character and makes the Subsection more complete.

§ Amendment agreed to.

§ Further Amendments made: In Subsection (1), paragraph (ii), leave out the words "Board of Trade" ["no consent given by the Board of Trade"] and insert instead thereof the words, "a Department."

§ Leave out the words "Board of Trade" ["presented to Parliament by the Board 1478 of Trade"] and insert instead thereof the word "Department."

§ At the end of Sub-section (1) insert as a new Sub-section: (2) The undertakings to which this Act applies are undertakings for the supply of gas, water, hydraulic power, and electricity, and tramway undertakings, including light railways constructed wholly or mainly on public roads.

§ In Sub-section (2), at the end, add the words The expression 'appropriate Government Department' means in relation to gas, water, and hydraulic power undertkaings the Board of Trade, and in relation to electricity and tramway undertakings the Minister of Transport."—[Mr. Bridgeman.]