§ Order for Second Reading read.
§ 11.15 a.m.
§ Mr. Percy Browne (Torrington)
I beg to move, That the Bill be now read a Second time.
It was with a great deal of surprise and a certain amount of trepidation that I discovered that I had drawn a privileged position in the Ballot for Private Members' Bills—particularly surprise, because it is the first time that I have ever drawn anything out of any ballot.
It is not easy for hon. Members to produce a worth-while Bill in the very short time between the declaration of the Ballot and the First Reading. One finds that so many of one's suggestions are either impracticable or unacceptable. But I think and hope that, with those hon. Members who are my sponsors in the Bill, I have produced something which is both practical and acceptable.
Having expressed to my hon. Friend the Member for Somerset, North (Mr. Leather) the loose but I hope laudable intention of introducing a Bill to protect the small investor, I was able to retire into the wings until today. I would stress that I am no financier. I do not see my hon. and gallant Friend the Member for Cheltenham (Major Hicks Beach) here. I had hoped that he would be here to listen to that remark, because I believe that he has some awkward questions to put to me later. I was inspired entirely by the fundamental principle that if we are to encourage people to invest or to lend their money, then Parliament must give them the maximum amount of protection.
For the framing of the Bill I am indebted to all my hon. Friends who sponsored it and, in particular, to my hon. Friend the Member for Somerset, North, who is to the City what my hon. Friend the Member for Kidderminster (Mr. Nabarro) is to the Minister of Power; to my hon. Friend the Member for Taunton (Mr. du Cann), who unfortunately is looking a little Chinese and is not able to be with us today; and, finally, to my hon Friend the Mem- 1632 ber for Bristol, North-East (Mr. Hopkins) who, if he is fortunate enough to catch your eye, Mr. Speaker, will make his maiden speech on the Bill today.
There are few who would dispute that the Companies Act, 1948, needs overhauling. In fact there was a promise in the Conservative Election manifesto last autumn that this would be done. Since the First Reading of the Bill a Committee has been set up under Lord Jenkins to examine the whole problem. I am certain that the timing of the setting up of this Committee was purely fortuitous, but I am sure that all hon. Members agree that the need for overhaul is urgent. I hope that right hon. and hon. Members opposite, irrespective of their views on public or private ownership, will support the Bill.
Many factors have contributed towards it. First we have had the increase and greater spread of income. Secondly, we have the awareness of the existence of stocks and shares and of the stocks and shares market by people who previously have never been interested and, vice versa, the realisation of the Stock Exchange and others—and it is some of those others that we are after today—that there is an untapped amount of money to be invested which has never been there before.
Thirdly, the growth of the unit trusts, pioneered to a large extent by my hon. Friend the Member for Taunton, to enable people to invest modest sums with a good spread, has increased public interest in investing generally. Finally, the issue of shares to employees by many big companies has done the same.
In most cases people can lend their money with perfect safety. I deliberately do not say "invest" because investing money naturally carries with it a certain amount of risk, but if one lends money one should be able to do so in safety, if one is careful. But with the great increase in the number of companies which have been registered at Bush House there have been unscrupulous people prepared to cash in on the gullibility of the public. In the courts today it appears that the most popular nomenclature is that of company director. I think that it has acquired even more far-reaching implications than the old one we always used to see, that of "model".
1633 There has been a rash of advertisements inviting deposits at tempting rates. The Mias Group is the obvious example. At one time the group was offering an interest rate of 12 per cent. Round-robins are submitted by stock and share dealers and merchant bankers with little capital, and they have no right to use the terms they do.
I have a letter here which was sent out by so-called stock and share dealers, suggesting that people should lend money to further the interests of a particular company. The dealers say that they are unable to send any details. They further disclose that, after deducting current assets, there were net current liabilities of over £100,000 in the previous year. Nevertheless, they enclose an order form at the bottom and say that it would be a very good thing to lend one's money to that company.
Not all these advertisements and round-robins are misleading. The point is that they are all perfectly legal under the present Companies Act, 1948. It is for that reason and because it is essential that, if people are to be encouraged to save and to lend or invest their money they may be certain that they have the fullest information when they do so, that the Bill is before the House.
As I say, I am no financier. I wish to give two personal examples which I know of. A retired spinster in my part of the world had saved a few hundred pounds, and she had invested them in a reputable building society. She saw an advertisement. So often these advertisements appear in the provincial newspapers to catch just this sort of person. She saw this advertisement offering a high rate of interest. So she drew out her money from the building society and invested it according to the advertisement. She lost the lot because, in the words of the company:Owing to the difficulties of the market and fierce competition from abroad with regret the company had to report that its affairs had been put into the hands of the Official Receiver.The second example is my local policeman. He thought that he would go into the investing business. Attracted, as so many people are, by the fact that he would get a lot of shares for a little money,:he put in £5 and was given 500 1634 shares. About two years later he had an allotment letter. He understood that allotment letter as little as most investors would. He took it to his bank. The so-called securities clerk looked up the quotation and said, "These shares now stand at 1s l½d."The policeman said," I have done rather well. I had better sell them, had I not?" The securities clerk said, "Yes. You bring along your certificate and I will sell the shares for you". The policeman sold 500 shares. Of course, he should have sold only 50. That was the new quotation. He has had no satisfaction from the bank. I think that he is lost once and for all to the investing public.
I appreciate that this example has nothing to do with the Bill and, further, that it is no job for Parliament to legislate to prevent people throwing their money away if they want to. All that Parliament can do, and all that it should do, is to be certain that would-be investors have the fullest information, and they can then judge for themselves. This illustrates the point that, as the law stands, it is difficult for the small investor to know who or what to believe.
I should like to quote a paragraph from the Economist of 26th September, 1959. Dealing with the Jasper affair it says:The final lesson of this imbroglio is that it is just too easy to get money from the gullible. Serious investors must look to their own interests. But they are entitled to demand that the Jasper affair must lead to tighter regulations on prospectuses and on the designations and activities of institutions that borrow from the public ".In the same article, still dealing with the Jasper affair, it says that the making of an empire of toy companies was for the sole purpose of avoiding disclosures of facts to shareholders and depositors.
I have here an interesting letter from an angry man who has lost his money. He says:… I am now informed that the Stock Exchange Committee has no jurisdiction over firms who describe themselves as ' member of the association of stock and share dealers'. Surely this description could reasonably be construed as indicating that such firms were governed by some rules enforceable for the protection of the ordinary uninitiated investor.The words "uninitiated investor" are important. That is exactly the type of person whom we are aiming to try to protect.
1635 I should have liked to have discussed other aspects of the financial world, particularly the buying of shares in the names of nominees to gain control of companies unbeknown to the directors who are, after all, but the servants of the shareholders, but I hope that some of my hon. Friends better qualified to speak on this subject will talk about that later.
Obviously, a Private Member's Bill can tackle only a small part of the problem, and will in fact be effective only if it does so. I expect that a recurrent objection to it, particularly from my hon. Friend the Parliamentary Secretary, will be that it is not a good plan to deal with the problem piecemeal and that it would be better to wait and deal with the Act as a whole after the Jenkins Committee has reported. I cannot accept this. If the Jenkins Committee is to do its job properly, it will take some time to report. Meanwhile, there is great urgency that something should be done about it. The Bill deals with only a small part of the problem, but within its orbit I believe it to be closely drawn and effective.
I wish now to quote from a leading article in the Financial Times dated 16th November, 1959, and headed:What can be done now".The article says:The aim of protecting the small investor commands a good deal of understandable sympathy among members who are anxious to encourage the spread of share ownership and who are acutely conscious of the harm which may have been caused by recent events. They claim, with some justice, that the Government has put off action for too long already….Later on the article says:Protection of the small investor is a convenient war-cry, but it is used to include a large number of different suggestions, some of which can be adopted without much difficulty or need for reflection, others of which have far reaching implications and demand long consideration".I mention that little passage just to soften the blow to my hon. Friend.
The article continues:There is one matter, however, on which there is a case for immediate action, the supervision and control of companies and persons who invite deposits from the public. The case rests on the fact that there is at present no control over many of these bodies and often no information available about their financial standing or the way in which they invest the deposits they acquire.1636 I should like now to go through the Clauses of the Bill. The Bill sets out to remedy some of the points made by the Financial Times. It seeks to afford information about the financial standing of such companies and to impose a limited form of control. In essence, it attempts to impose certain conditions on exempt private companies. The Bill's Long Title says:… to control the solicitation of money from the public; and for purposes connected therewith.Clause I requires a company which solicits money from the public to furnish the registrar with details of the affairs of the company in accordance with Part I of the Third Schedule to the Companies Act, 1948. In brief, this requires a statement to be furnished of the number and classes of shares authorised and issued, names of directors, a balance sheet and accounts where applicable, information of the company's business, and any outstanding contracts and relevant details. Failure to comply with this Clause renders the person concerned liable to a default fine of £500.
Until now, I had failed to notice a misprint in line 6. It should say "to lend or deposit" not "to lend on deposit." I hope that we can remedy that misprint in Committee.
Clause 2 provides that subsections (4) and (5) of Section 30 of the Companies Act, 1948, shall apply to the above-mentioned statement. These subsections supply certain safeguards, by providing that where the statement includes any untrue statement, any person who authorised the delivery of such statement of registration shall be liable:… on conviction or indictment, to imprisonment for a term not exceeding two years or a fine not exceeding five hundred pounds, or both; or … on summary conviction, to imprisonment for a term not exceeding three months or a fine not exceeding one hundred pounds, or both….As the law stands, private companies do not have any restrictions placed upon them as to invitations to the public for moneys to be loaned or deposited. Accordingly, Clause 3 provides that the directors of a private company must include in the certificate that they are required by Section 129 of the Act to sign annually a statement that no invitation has been issued to the public to lend or deposit money to or with the company.
1637 Clause 4 provides that a company shall not be an exempt company if it has invited the public to lend or deposit money. This is important, as it denies the privilege of exemption to a company that solicits money from the public. Clause 5 simply carries into effect the earlier provisions of Clause 3 relating to the Sixth Schedule of the Act as it is applicable. The additional certificate required to be given by the private company will state:and further that during the period to which this return relates no invitation has been issued to the public to lend or deposit money to or with the company.Clause 6 provides penalties for the wilful making of a false statement relating to the invitation to the public to lend or deposit money to or with the company.
In effect, Mr. Speaker, the Bill aims to provide a deterrent to people who try to take advantage of the gullibility of the lending public. If we can do that, it is then up to the public to invest their money wisely. The Bill ensures that full disclosure of a company's affairs must be made, and I hope that if this Bill becomes law it will stop certain unscrupulous financial manipulators from trying to get money under false pretences.
I believe that the present spurious companies, with little capital and offering no security to the lender, may be prevented from advertising for money or sending out round-robins. If it saves just a few uninitiated investors, who are naturally attracted by high rates of interest, from losing their savings, it will be worth while. It should be remembered that a lot of these lenders and investors do not have recourse to expert advice.
I have not done much lobbying for this Bill—although I must admit that I did approach that well-known organisation "The Back-benchers' Friday Club"—but I hope that this Bill straightens out part of the problem and that, because it does so, it will recommend itself to the whole House.
§ 11.34 a.m.
§ Mr. Alan Hopkins (Bristol, North-East)
This is the first time, Mr. Speaker, that I have had the privilege of addressing this House, and it is with a very real sense of awe that I ask hon. Members to 1638 extend to me the indulgence which is customarily accorded to maiden speakers.
I have the honour of representing the North-East division of Bristol. It is just under two years since I first set foot in that city and saw for the first time Down-end and the house where Dr. W. G. Grace lived and the cricket field where he played, and Eastville, the home of the leading football club in the West Country. Since that time, I have come to appreciate how much Bristol, despite the ravages of war, has, with its venturesome spirit of old, regained its rightful place among the great cities of the country. I am, indeed, very honoured to call myself an adopted citizen of Bristol.
I should like to preface my remarks by paying a tribute to that body of people who have, over a considerable period of time, come to be known as "the City." Their resourcefulness, initiative and integrity have been, and still are, the admiration of the world. I often feel that the part they have played in our country's history, and still play, is not recognised as much as it should be.
Yet, on the periphery, there are a few individuals whose actions do not conform to the very high unwritten standards that the City sets itself. I deplore the fact that these individuals exist. It is through them, and because of them, that adverse publicity has been occasioned in the Press which, unfortunately, is not limited to them alone. It is with this very small group of people that the Bill is concerned.
As the law now stands, it is perfectly possible to form a private company with a few hundred pounds of capital and, having done so, to advertise or solicit through the mails for deposits of unlimited amount from the public. Today, as my hon. Friend the Member for Torrington (Mr. P. Browne) has said, we see advertisements offering 5½ per cent., 6 per cent., or even 7 per cent. rate of interest. Indeed, over the past eighteen months, the rate of interest has been as high as 12 per cent. These inducements may well tempt an inexperienced and largely unsophisticated saver to risk his money with such companies.
Some of these companies describe themselves as merchant bankers or as industrial bankers, no doubt to lend themselves an aura of prestige. But, when the saver places his money with 1639 them, behind the facade there remains only the few hundred pounds to which he may look if, in fact, the company fails to prosper.
At the same time, the number of potential depositors has greatly increased. There has been a considerable rise in our national income over the past ten years. I have no wish to be at all controversial about this, but it is a fact that in my constituency many tens of thousands of people have a far larger disposable income than they have ever had in the past, even after my right hon. Friend the Chancellor of the Exchequer has taken his—or what one might call the lion's—share.
Some of this increase in disposable income has gone towards furnishing the necessities of life, but in recent years there has been more money left over for saving than there has ever been before, and more people are now saving than ever saved in the past. In the main, this saving has been attracted into the National Savings Movement which, as hon. Members know, offers absolute security, albeit with a small but not unreasonable rate of interest. Is it any wonder, then, that the new saver may be tempted by the inducement of a very high rate of interest to put his money in such a company? I believe it is the duty of the House to safeguard these new and inexperienced savers from the folly which they might unwittingly commit.
I should like, therefore, to welcome this Bill, and, in so doing, to congratulate my hon. Friend the Member for Torring-ton, not only on his success in the Ballot, but on his courage in bringing forward this Bill. Hon. Members will be aware of his considerable achievements over the fences at Cheltenham and Aintree, and I trust that he may also meet with success in his first hurdle of his first Parliamentary ride.
He has described the Bill in great detail, and I would not wish to go over the ground again, except to say that two points which are of some importance arise. The first one is on Clause I, which stipulates fairly exacting requirements and details that a company has to furnish to the registrar. The essential thing here, I believe, is that companies should be required to make full disclosure of all their business and contracts, and this is in fact achieved by this Clause.
1640 The second point concerns private companies and exempt private companies. Clauses 3 and 4 ensure that no private company will issue an invitation to the public unless it fulfils the requirements of Clause 1, and no private company may be exempt if it at any time issues any such invitation to the public. This I regard as being very important, and I hope it will deter this very limited group of people, to whom I referred earlier, from the actions which have been so unfortunate in the past.
I spent a considerable number of years in America and during that time, when I was working in Wall Street, I saw in operation the Securities and Exchange Acts, both of the Federal Government and of the various State Governments of America. The American law has gone a great way towards providing safeguards for the protection of small investors. Possibly, that is one of the reasons why the number of investors in America, proportionate to the population, is so much higher than it is in this country. I can assure the House that under American law, whether intra- or inter-State, none of the solicitation we have been discussing here could possibly have been allowed. I hope that we may possibly take over some of the parts of the Securities and Exchange Acts, for I believe that they have a place in the law of this country in so far as they provide safeguards for investors.
To that extent, I greatly welcome the Committee set up by my right hon. Friend the President of the Board of Trade under the chairmanship of Lord Jenkins. I earnestly hope that when that Committee—and what a very hard task it has in front of it—is looking into this matter, it may pay especial attention exactly to the problem of the protection of small investors and savers, and towards giving some encouragement to those investors who are a most important part of our capitalist system.
I know it is possible that as a result of the recommendations of this Committee the Government may bring forward some legislation to deal with the matter. To that extent, in so far as it does afford the sort of protection which my hon. Friend's Bill is seeking to do, I would urge the House that it should go forward with this present Measure, realising that it is a step in the right direction.
1641 The day after I was returned—on 9th October—I received a cable from a friend of mine in America, to whom I am greatly indebted for what little I know about security finance over there. It said: "Congratulations. Heaven help the British Empire." I hope that Heaven and this House will help the British Empire and the British people by giving this Bill a Second Reading.
§ 11.46 a.m.
§ Mr. Eric Fletcher (Islington, East)
I am very glad to have the opportunity of congratulating the hon. Member for Bristol, North-East (Mr. Hopkins) on his maiden speech, and, in saying that, with, I am sure, the general approval of the whole House, I am not paying him merely a conventional compliment. He spoke with ease, fluency and charm, on a subject about which he is obviously well-informed. He made a valuable contribution to Che debate, and I hope, as I am sure all other hon. Members do, that we shall often have the privilege and the joy of listening to future contributions to our debates from him.
I was particularly interested in what the hon. Gentleman said about his experiences in the United States of America, because I believe that those observations were very valid and useful as additional reasons why this Bill, introduced by the hon. Member for Torrington (Mr. P. Browne) and supported by the hon. Gentleman, commends itself to the whole House. I need hardly say that my right hon. and hon. Friends—[HON. MEMBERS: "Where are they?"]—are just as keen as hon. Members opposite on strengthening all the Measures designed for the protection of small investors.
As the hon. Member said, under a capitalist system—and it is quite obvious that we are to have a mixed economy in this country for some considerable time—while that lasts, it is most important that provisions designed to protect the uninitiated, and in particular the small investor, against these unscrupulous persons and organisations which seek to extract money from them should have the maximum possible effect.
It is quite clear that today, for the first time, an increasingly large number of people are taking an interest in investment of various kinds, whether in public companies, unit trusts or other 1642 organisations. Investment of savings is a highly specialised undertaking, and ought not to be undertaken without skilled advice. The newspapers, by their publication of company reports and company profits, and the rises and movements on the Stock Exchange, are always creating an added incentive to the uninitiated to invest for the first time.
It is quite true, as both hon. Gentlemen opposite have said, that a large number of circulars are sent out in a form which is totally misleading, and which enables the more gullible members of the public to fall for tempting attractions, and that is something against which the public ought to be protected. As the hon. Member said, the existing safeguards are inadequate. There are loopholes in the existing legislation, both in the Companies Act and in the Prevention of Fraud (Investment) Act, and it is highly desirable that those loopholes should be closed at the earliest possible moment. It is perfectly true that the Bill is designed to deal with only one limited aspect of the Companies Act. I think we all hope that the present companies legislation, which is being reviewed by the Committee over which Lord Jenkins presides, will be thoroughly overhauled and that that Committee will do a thorough job in bringing this legislation up to date.
However, the labours of that Committee must take a certain amount of time and I hope that we shall not find that the Bill is resisted by the President of the Board of Trade on the ground that Lord Jenkins' Committee is sitting and that this is one of the matters with which it is dealing. I hope this Bill will be passed. If, when the Jenkins' Committee reports, it has any observations to make on the Bill or on any related aspect of the Bill, those observations can be taken into account in any more general review that takes place, but it must be postponed for a year or so. In the interval, as has been pointed out, many members of the public are exposed to this risk of losing money by investing it in forms in which no prudent person would make an investment. In my view, they are entitled to the protection which this Bill will give, and although it may not go the whole length, it is at any rate some protection and, I think, a valuable protection.
1643 The hon. Member for Torrington has explained the provisions of the Bill in great detail and I will not repeat them, but I share his view that they will be valuable. They will not only act as deterrents against the unscrupulous and rapacious person about whom we are talking, but I think they may produce a healthy and salutary safeguard by the requirement of the publication of these accounts and by the provision dealing with exemption.
For these reasons, I support the Bill and I hope it will be given a Second Reading.
§ 11.54 a.m.
§ Mr. David Price (Eastleigh)
Like the hon. Member for Islington, East (Mr. Fletcher), I should like to congratulate my hon. Friend the Member for Bristol, North-East (Mr. Hopkins) on his maiden speech. It seems to me that with his experience, both in America and in this country, of finance and commerce he is in that line of merchant adventurers that has always been the pride of the City of Bristol, although I confess, if my history serves me correctly, that I associate the commerce of the great City of Bristol with wine and slaves. Whether my hon. Friend is now a slave to the City of Bristol depends upon his ability to persuade the electorate of Bristol to take the same view.
I should like, in company with my hon. Friend the Member for Bristol, North-East and the hon. Member for Islington, East, to congratulate my hon. Friend the Member for Torrington (Mr. P. Browne) first of all on having been successful in the Ballot for Private Members' Bills, because there are some hon. Members whom I see here today who have been in the House considerably longer than my hon. Friend the Member for Torrington or myself and who can never draw even third place for a Private Member's Motion on a Friday—one of the more frustrating activities of a back bencher. Doubtless, it is my hon. Friend's prowess on the racecourse which has enabled him somehow or other to draw a position near the rails on this occasion. I hope that when my hon. Friend looks down at this formidable "Becher's Brook" of the Front Bench he will realise that that fence cannot be taken with the same panache as he has taken Becher's Brook 1644 at Aintree. I must warn him that in debate he will find a loose horse in the form of the privileges of Privy Councillors.
Secondly, I congratulate my hon. Friend on the choice of subject for his Bill. There is a tendency, if one is successful in the Ballot for Private Members' Bills, to be too ambitious. There are all the things that we should like to reform. There are moments— which, I suspect, Mr. Speaker, even you share—during a Scottish day when one would like to repeal the Act of Union or rebuild Hadrian's Wall. There are those moments, too, when one has come up against some of our more pernickety social legislation, when one would like to scrap the licensing laws and repeal the Sunday Observance Act. But one cannot do that in a Private Member's Bill, and I congratulate my hon. Friend on selecting a Measure which is limited but is still worth while. I hope the House will not only give this Bill a Second Reading but will see that it gets on to the Statute Book.
In addition, I should like to congratulate my hon. Friend on the manner in which he has moved the Second Reading of the Bill. I am sure that if any of us had any doubts whether to support the Bill, he has completely persuaded us with his charm.
The aim of the Bill is to control the solicitation of money from the public. It is right that companies, societies, associations of individuals and individuals themselves should be able to raise money from the public for any legitimate purpose. We assume that all such purposes are legitimate unless Parliament specifies that they are not, and therefore are contrary to the public interest. The onus is on us in this House to say what is legitimate. However, Parliament in the past has taken the view that the public is entitled to certain minimum information when a company seeks to raise money from the public. This view has taken legislative substance in such statutes as the Companies Act, 1948, the Building Societies Acts, 1870 and 1940, and the Friendly Societies Act, 1958.
We should look at the philosophy behind this. Parliament has not felt that it should attempt to judge in any particular case whether the public would 1645 be well-advised or ill-advised, as the case may be, to put its money in a particular enterprise. Parliament is not competent to do so, nor in any society, other than a nursery governess State, would it be right for Parliament or the Executive to attempt to do so. All that Parliament can attempt is to ensure that sufficient information is given by those seeking money from the public, so that the public at large is able to form a considered view of the prospects of the offer in question. This should provide sufficient protection of the public against the fraudulent offer.
Parliament cannot ensure, nor should it, that an individual member of the public invests his money wisely. If, after a proper disclosure of information, members of the public are prepared to venture their money in an ill-conceived enterprise, that is their own responsibility. They have no grounds for complaint against Parliament if they lose their money. In a free society people have as much right to lose their money legitimately as they have to make it legitimately. Within the law and within the context of public order, people are perfectly entitled to spend their money foolishly and recklessly, imprudent and undesirable though we may think such conduct may be. We cannot legislate for people to spend their money sensibly, but we can ensure that they do not risk their money on a fraudulent or undisclosed adventure.
People may ask, what is the need for this Bill, in view of the Companies Act? Hon. Members may say that there is adequate safeguard. Unfortunately, there is a gap in the Companies Act. At present private companies are exempt from many of the provisions of the 1948 Act.
Here I remind the House of how a private company is defined in Section 28 of that Act:… 'private company' means a company which by its articles—(a) restricts the right to transfer its shares, and (b) limits the number of its members to fifty … and (c) prohibits any invitation to the public to subscribe for any shares or debentures of the company.It is the last description to which I want to draw the attention of the House. Hon. Members may ask, in view of this, why is it necessary to bring forward the Bill? The reason is that a private company or an individual can issue an invitation to the public to lend or to deposit money. That is very different from inviting the public to become members of a company 1646 through participating in an equity issue or by becoming debenture holders. There is a gap which the Bill is trying to fill.
How great is the problem? My hon. Friend the Member for Somerset, North (Mr. Leather), if he catches your eye. Mr. Speaker, will give some examples of the type of activity which the Bill seeks to prevent. At the same time let us not exaggerate. As my hon. Friend the Member for Bristol, North-East pointed out, the City has a very honourable reputation. We are dealing only with the exceptions, which in my view are few, but that is all the more reason why we should ensure that there are no gaps in our legislation, particularly in view of the growth in the habit of saving among all our people.
I want the House to bear with me while I give one set of figures. In 1951 real gross personal saving after tax amounted to £172 million measured at 1954 market prices. By 1959, that figure had risen to £1,300 million. Again, that was measured at 1954 market prices so it took account of any inflation. That increase took place in eight years. In turn, as a percentage of the individual gross personal income, savings had risen from 1½ per cent. in 1951 to over 8½ per cent. in the last two years. That is the context within which we have to consider all the efforts by private companies to raise money from the public. Mention has been made of the rapid growth in the unit investment trust movement.
As the hon. Gentleman the Member for Islington, East said, many of the respectable forms of investment, such as unit investment trusts and National Savings, do not appeal sufficiently to the potential or new savers who want to make money quickly and who think that investing is a casino. Of course, Mr. Speaker, you and I know that money cannot be made quickly without great risks of losing it, but unfortunately a lot of people think that those risks do not exist. In my view, people are entitled to take those risks with the opportunity of a great and early prize. Indeed millions of our countrymen do it every Saturday on the football pools. At the same time they must take the risk knowingly. One cannot get 50 per cent. on one's money and expect to have the same risk as on an investment at 2½ per cent.
1647 The Bill is a limited Measure dealing with a limited problem. Its purpose must appeal to all sides of the House. Doubtless the lawyers will pick holes in it; they always do, but it is their job to do so. However, imperfections in drafting can be put right during the Committee stage.
Last year my right hon. Friend the Member for Blackpool, North (Sir T. Low), assisted by a number of us from this side of the House, wrote a booklet entitled "Every Man a Capitalist," being some proposals for the small saver. It is because I wish every man to be a capitalist and not a sucker that I recommend the Bill to the House.
§ 12.5 p.m.
§ Mr. E. H. C. Leather (Somerset, North)
After the speeches we have heard, it might be argued that to go on speaking in favour of the Bill would be using a sledgehammer to crack a walnut. We have been unanimous up to now, and although my hon. Friend the Member for Exeter (Mr. Dudley Williams) has now joined us, I retain a hope that we may remain unanimous until the end of the debate. I say genuinely that we are grateful to the hon. Member for Islington, East (Mr. Fletcher) for his support. If I may say so, he speaks with authority on business and financial matters. We are particularly grateful to him for assuring us that we have the support of the whole of the party opposite. To be more accurate, perhaps I should say the party not opposite. It gives me pleasure to think that we have provided the hon. Gentleman with something on which he and his hon. and learned Friend the Member for Kettering (Mr. Mitchison) at any rate can be unanimous.
In case it should be thought that this battle was a pushover, I must say immediately that those of us who feel strongly about these matters approach them today against a background of having hammered away at the Treasury and the Board of Trade year after year after year, and until the last few months, we have received no satisfaction whatsoever. So I hope that my hon. Friend the Economic Secretary to the Treasury, who is to reply to the debate, will acquit me of using a sledgehammer to crack a walnut if occasionally I refer to the earlier stages of this battle, when we 1648 were not anything like so happy and unanimous as we are this morning.
I add my congratulations to my hon. Friend and neighbour for Bristol, North-East (Mr. Hopkins). It is always a pleasure to congratulate a maiden speaker in this House, particularly when one is in the happy position of agreeing with every word he said. That lot does not always fall to those of us who frequently follow maiden speakers. You, Mr. Speaker, will recall very well that in the long, long years since you and I entered this House there has been such a colossal turnover that there has been an appalling number of maiden speeches.
First, may I say in referring to the Bill that it can indeed be said, as my hon. Friend the Member for Eastleigh (Mr. D. Price) pointed out, that it is a very small measure dealing with a very small part of the problem. Those of us who were concerned with my hon. Friend the Member for Torrington (Mr. P. Browne) in drafting the Bill, had to make one basic decision in approaching the problem. We had to decide whether we should try to take a big bite at this immensely complex and diverse problem or to try to select one piece of it with which we could deal effectively in a Private Member's Bill. I am sure we were right in taking the latter course.
Perhaps I may quote from some remarks I made in the House last year in dealing with this problem? I said:The key to this problem is not in the Companies Act, the Building Societies Act, or in any other piece of legislation. It lies in the fact that at present anyone in the country has an absolutely unlimited right to solicit money from the public without any check or safeguard at all".—[OFFICIAL REPORT, 28th October, 1959, Vol. 612, c. 294.]We then had to decide what piece of the problem it was possible for private Members to deal with, and therefore we limited our scope deliberately to the question of exempt private companies. It gives me real pleasure to endorse the views expressed about the City by my colleagues. As far as I know, companies in the City, where I am proud to work, are almost all not affected by this Bill. To my knowledge, there is only a handful of companies in the City which would be affected. As I think my hon. Friend the Member for Torrington said, there is a number in places like Bournemouth, Eastbourne, no doubt Exeter, Blackpool and Southport, the sort of 1649 small mushroom firms which advertise and circulate locally and try to live off the backs, in particular, of elderly widows and retired people with plenty of money but no advice to guide them.
Also, there are some of the more notorious of these companies operating in the aura of pristine purity which one associates with towns like Manchester and other places in the north. There is a number in what the Press choose to call the West End. Speaking as a City man, I am sure that you, Mr. Speaker, as the Member for our great City, will endorse my belief that, to a City man, there is nothing more insulting than to be referred to in the gossip columns of the newspapers as a well-known West End financier.
I should now like to refer to the statement of my right hon. Friend the President of the Board of Trade on 26th November, 1959, which was the date of his announcement of the Jenkins Committee. He said:Some proposals affecting invitations to the public to deposit money, for example, the disclosure of balance sheets, may impinge on the Companies Act, but the problem goes a good deal wider than this and action need not await the report of the Committee of Inquiry." —[OFFICIAL REPORT, 26th November, 1959: Vol. 614, c. 570.]I hope therefore that no conscientious Government servant has placed in the hands of my hon. Friend the Economic Secretary a brief telling us why we must await the report of the Jenkins Committee. That point has already been conceded by the President of the Board of Trade, and I hope that it will not be resurrected.
There is a second category of company which is dealt with in the Bill. I have referred to the so-called banks and investment and security companies in provincial towns. There is also a number of companies which, on the surface, appear to be very large and substantial which solicit deposits in small sums on a weekly or regular basis from wage earners. The Mias case, to which we cannot refer in detail because it is before the court at this moment, is precisely such a case. It solicited its money by advertising in wage-earning districts, issuing its circulars in council estates and putting advertisements and leaflets outside factories. There are others 1650 which particularly indulge in that class of business.
Finally, there are some—I emphasise the word "some"—of the members of the Association of Stock and Share Dealers. Some members of this body are eminently reputable investment houses, but I think that it equally cannot be argued that this body has not adopted such a completely amorphous and unregulated constitution that practically anyone can belong to it without any control whatsoever. There are, I think, a number of quite notorious cases of soliciting money. My hon. Friend the Member for Torrington referred to one or two. I should like to know from my hon. Friend the Economic Secretary, either today or before the Committee stage, whether we have succeeded by the wording in the Bill in including companies of that kind.
I have talked to two or three of my legal friends on this matter, and opinions are divided as to whether the wording which we have used throughout the Bill, namely,an invitation to the public to lend or deposit money to or with a company",legally includes sending that company money for it, in turn, to invest in securities which would be held in the name of the original lender or depositor. My opinion is that they would be included in our wording, but I would be grateful if we could have an assurance on that point. Speaking for those concerned with the Bill, it certainly shows our intention that they should be included.
I must confess that, since the Bill was drafted, a new "gag" or "gimmick" has come to my attention. It concerns an exempt private company of exactly this kind, with no apparent background, which sends circulars to people, not asking for money, but seeking the rare privilege of loaning them money on what I can only describe as most exotic terms. Someone was foolish enough to send such a circular to one of my partners, and I should like at a suitable stage to pass it to my hon. Friend the Economic Secretary for him to look at. It seems to me to be a highly dubious activity.
I should now like to deal with the argument whether the powers for which we have asked to control exempt private companies are really necessary. As I 1651 argued in this House on 29th October last, I strongly believe that they are. I should like to present to the Economic Secretary bits of evidence from, I hope he will agree, authoritative sources which support that statement. My point is that, first, these powers are necessary, and, secondly, there is no need for us to spend months and indeed years getting advice on them from distinguished lawyers and chartered accountants. These are matters about which, surely, we can make up our own minds here and now, if we have not done so already.
I should like to quote a brief extract from the Financial Times, which has already been quoted. On 26th September, in its main leader on this subject, it said:It is true that a great deal is being done in this direction already, but it has not perhaps yet been fully appreciated that the small investor requires special treatment and protection. Not being experienced in financial matters, he is especially liable to be misled by easy promises—of high interest rates, for example. He may not take the trouble, or know how, to investigate the reasons why he is being offered such an apparently attractive bargain. It is true that there is a limit beyond which it is impossible to protect people from the consequences of their own gullibility"—I should like to say how much I support my hon. Friend the Member for East-leigh on that point. Again, I hope it will not be argued against us that we are trying to do that. We are certainly not. The article continues:and it is also true that investment can never be divorced from risk"—as most of us know to our cost.But, in the City's own interest, it is obviously desirable that all possible provision should be made for these special difficulties. Some reform, therefore, there must be. The Companies Act must be looked at afresh"—which is now being done.… Building societies legislation needs to be reviewed, …That has been promised in this Parliament. I hope my hon. Friend can assure us that we shall get that Bill during this Parliament and that difficulties have not been found which will put it off for another year. Finally, the Financial Times states:… in particular there must be regulations governing the right of individuals to appeal for subscriptions from the public.That is our case in a nutshell.
The City Editor of The Times used very similar words; indeed even stronger 1652 language. When The Times uses strong language in its columns, one feels that one cannot have anything more authoritative than that. The article states:One particular item that cries out for far quicker treatment is the present system whereby financial bodies of one sort or another can advertise for deposits from the general public. It would probably be truer to say that in fact no such system exists. Virtually any company, private or otherwise, can advertise for public deposits without having to supply a report, balance sheet or even a statement relating to their operations …Two days later there was an article by the distinguished City Editor of the Daily Telegraph, but I will not weary the House with a further quotation saying almost exactly the same thing.
A memorandum has recently been circulated by an authoritative body in the City, the Finance Houses Association. The Association states quite categorically that the right to solicit deposits from the public should be drastically curtailed. I hope, therefore, that no one will argue that there is any doubt in authoritative quarters on this issue, or any confusion as to precisely what it is that practically everyone concerned with protecting investors has in mind. The word could not be more clear.
Finally, I hope we may have an assurance on this point. It is no use the House of Commons passing laws if the Executive does not enforce them. That is the unhappy position we are in with the present Companies Act. I referred to this in my speech on this subject on 28th October last—if I remember rightly the hon. and learned Member for Kettering interrupted me and gave me the chance to underline it. I am making no criticism of those civil servants in the Companies Department of the Board of Trade, but the thing simply does not work. The Department is far too small and there are too few people in it—indeed, if there are any people at all in it with expert qualifications and experience and knowledge to deal with these things—and most of the powers the 1948 Act gives it are discretionary powers.
I know of at least two or three other hon. Members—and there may be more —who are hoping to speak if they catch your eye, Mr. Speaker, who have had the same experience as I in the last six months. The greatest burden of complaint in the great majority of the cases 1653 which have been brought to my attention by people all over the country is that where there is overwhelming prima facie cases of fraud, people have gone to the Board of Trade and reported the fact, but the Board of Trade has merely said, "Dear, dear! We are terribly sorry; it is dreadful, but we can do nothing about it."
In the Jasper case, which is now before the courts, I said in this House on at least two previous occasions precisely what was going on. It was not only reported to the Board of Trade and Treasury two years before the final blowup came, but the whole thing was exposed in the popular Press by reputable financial journalists who courted libel actions—
§ Mr. Speaker
We did have these matters from the hon. Member then, when the case was not sub judice. It is wiser to leave it alone now.
§ Mr. Leather
I am sorry, Mr. Speaker. I am trying to point out that I hope it will be quite clear to the Financial Secretary that the enforcement of these powers is important. I am not asking him to give us his comment on that case, and I apologise if I went too far. But I feel very strongly, in view of the immense amount of evidence which has been brought to light in the last six months, that the question of how these Acts are administered is as important as precisely what they say. If the Executive do not pursue the enforcement of the Acts when they are brought to their attention, then their effect is very largely nullified.
Finally, I refer to the theme, which my hon. Friend the Member for Torrington started—that this is the policy of the Government, so we are told. It certainly is the policy of the Tory Party, which those of us on this side of the House have urged at election after election— and in which we have not been opposed by the Labour Party—that we should do everything we possibly can to encourage small investors and to spread the prosperity of our country as widely as we possibly can.
I now want to quote a few words from another financial journalist, Mr. Harold Wincott, who speaks with great authority on these matters in the City and is read with enlightenment by millions every week. I quote them in order to support my view to the Government that it is 1654 essential for us to put teeth into the company law, and that it is essential to do it now, and also that the problem of controlling the solicitation of money is the key of the problem.
Mr. Wincott was referring, as my hon. Friend the Member for Bristol, North-East has done, to the comparison between what we have succeeded in doing here and what they have succeeded in doing in the United States. The subject was taken up again by the City Editor of The Times only last week, and he was far ruder than I have ever dared to be to the Stock Exchange Council. He said its methods were "positively primitive". In an article in the Financial Times, Mr. Wincott used these words— and I hope that my hon. Friend the Economic Secretary and his colleagues in the Government will ponder them seriously, because I believe they represent the views of many people in this party and the country outside.… If you really want to establish a property owning democracy you've got to be very militant in selling it, and very militant in defending it…. We've done neither the one, nor the other. We didn't fall between two stools. We never even got the stools ready… unless our fundamental attitude towards the protection of investors changes, we shall never equal America's achievements in the creation of a share-owning democracy.Those of us who have been concerned with devising this Bill are conscious of the fact that it is a very small brick in the wall that we have to put up. We shall be only too delighted to remove the brick altogether if the Government would produce an effective wall, but we feel that we must press on with this Bill, and I hope that my hon. Friend the Financial Secretary will be able to accept it until such time as wider measures can be taken. I hope that he will be able to give us an assurance that the measures promised by the President of the Board of Trade on 26th November are under way and will be pursued with vigour and urgency.
§ 12.28 p.m.
§ Mr. Geoffrey Stevens (Portsmouth, Langstone)
My hon. Friend the Member for Somerset, North (Mr. Leather) referred to what is undoubtedly a very considerable measure of unanimity of view which has so far been expressed on both sides of the House. I want to take it further. It is not only Members of this House who are impressed with the merits 1655 of this Bill and with the need for it, but also a very wide section of the public outside.
In common with, I imagine, every candidate at the General Election in October, at all public meetings I had a great many questions ranging over a wide variety of subjects. I detected very clearly three main groups into which the vast majority of these fell. The first group was concerned with the relatively low price of undated Government stock, in particular 3½ per cent. War Loan. I would incur your wrath, Mr. Speaker, if I developed that subject—for I do not see how in this Bill measures to deal with that problem could be permitted, even on the Committee stage. The second group of questions was concerned with the view of some people that Schedule A Income Tax is an intolerable tax and should be abolished. The third subject, on which I had many questions, was the need to afford to people who had money to lend or deposit a much wider degree of protection than was available to them.
There is not the slightest doubt but that there is much public anxiety about the problem which is covered by the Bill. It has already been said that nowadays there is a good deal more money available for investment than has ever been the case before. It is also true that a large part of that money comes from people who are quite unversed in financial matters and unskilled in the difficult art of wise investment, and when they see an attractive advertisement, they fall for it. I am not a lawyer, but I am familiar with the old doctrine, caveat emptor, and that must apply to a considerable extent. At the same time, it is clear that some greater degree of protection is called for.
In his admirable maiden speech, my hon. Friend the Member for Bristol, North-East (Mr. Hopkins) referred to the very high falutin' names used by many of these organisations. He mentioned not only building societies, but industrial bankers. Within the last fortnight, I have had a very good example of one such organisation which was advertising for deposits from the public and offering 7½ per cent. interest. It was a firm of "industrial bankers" and, let me hasten to add, the address given was not the City of London. It was in the provinces and 1656 not in the South of England. My hon. Friend concentrated on the South of England, but these companies are found in the North as well.
By methods which are not available to the ordinary member of the public, I followed up that example and found that this great company of industrial bankers had total assets of only slightly more than £2,000. Incidentally, being an exempt private company, its accounts were not available at Somerset House. This is a situation which clearly calls for alteration, and the Bill goes some way towards altering the present state of affairs, although not as far as I should like it to go.
I lend all the support at my command to those hon. Members who say that we should not wait for the report of the Jenkins Committee, which may well be far too far in the future. For reasons evident to most of us, there have been many horsy metaphors flying around. I add the only horsy metaphor I know— do not let us be guilty of closing the stable door at the behest first of all of what Lord Jenkins may think, or, secondly, after long deliberations in the House after the Government have spent six months or a year deciding which bits of the Jenkins report should be implemented. Let us close this stable door now. If we do not, in the meantime quite a lot of dangerous horses will be cantering all over the place.
I hope that my hon. Friend the Economic Secretary to the Treasury—I know that a rose by any other name smells as sweet, but this morning I have heard him called the Financial Secretary and the Parliamentary Secretary and I think that it is only reasonable that one of us should give him his correct title— will not tell us that the Government's attitude is that we must await the greater thing. Let us do the lesser thing now, if it is right and proper that it should be done.
I said that the Bill did not go quite as far as I would like. It deals only with private companies and its intention and resolve will be to take away from that type of company some of the privileges which an exempt private company now has. But is it right that private companies as such should be entitled to advertise for loans or deposits from the public? It is perfectly true that when 1657 the Bill is an Act—and I say when and not if—exempt private companies which apply to the public for loans and deposits will be required in their turn to deposit at Somerset House not money but their balance sheets and profit and loss accounts.
That will be factual evidence for those investors who can go to Somerset House and turn up these accounts, but it will not assist those investors who do not live within a reasonable radius of Somerset House and who may be investors in Somerset, Devonshire, and Sussex. They will not find it so easy to go to Somerset House and turn up these accounts, which is the only way in which one could normally study the accounts provided by the company.
It is some safeguard, but I have an idea that there is an even better safeguard, and that is an annoyed shareholder turning up at an annual meeting and examining the board of directors. That cannot happen with a private company, even if it is not an exempt private company, because, by its articles of association, a private company places in the hands of the board of directors the right to forbid a transfer of shares.
Thus, my hon. Friend the Member for Torringlon (Mr. P. Browne), having gone to Somerset House, his suspicions having been aroused by an advertisement, having turned up a set of accounts and having been puzzled by what he saw, but having seen nothing directly which seemed to him criminal or anything like that, cannot buy one single share and turn up at the next annual meeting and ask some exceedingly telling questions.
There is no action he can take. If he writes to Mr. Harold Wincott and asks him to publish the letter in the Investor's Chronicle, he will probably get a cautious reply from Mr. Wincott, who is not protected from the law of libel as we are here. But if he could buy only one share and then go to the annual general meeting, he could ask the directors some extremely pointed questions and could clear up his doubts, or find out exactly what had been going on. I wonder whether the Bill goes far enough and whether a private company as such should be entitled to appeal to the public for loan capital—for that is what it is—or deposits.
1658 However, I do not want to spoil what has so far been a very pleasant morning. I think that the consideration which I have raised is a big issue and the sort of thing which the Jenkins Committee ought to consider and about which it will need to hear a great deal of evidence, but I am convinced that the Bill requires no such lengthy consideration, for this is an obvious and sound step and I hope that the Government will accept it as such and help the Bill on its way.
§ 12.37 p.m.
§ Mr. John Wells (Maidstone)
My hon. Friend the Member for Somerset, North (Mr. Leather) has already referred to the Finance Houses Association, and I am a director of a company which belongs to that Association. Like my hon. Friend, I have worked in the City for some time.
I wholeheartedly support the Bill and the concept that the small depositor, the small investor, should be protected. In this age, when more and more people are investing small sums, it is essential that they should know their money will be safe for many years. My hon. Friend the Member for Portsmouth, Langstone (Mr. Stevens) has raised an extremely valuable point which might be inserted in the Bill in Committee. I suggest that we can save a great deal of time and simply say that no company other than a public company shall be entitled to solicit money from the public.
That would have the effect of forcing a number of companies, which at present are exempt private companies, to publish their accounts, which is what we all want. It would also have the effect of causing such companies to appoint at least two directors and seven shareholders. That might not be a bad thing, and I urge that as a possible thought for my hon. Friend the Member for Torrington (Mr. P. Browne) and also ask my hon. Friend the Economic Secretary to give it some consideration.
I have one or two small suggestions which are more suitable for Committee and with which I need not bore the House this morning. However, I must say that it is not only small investors who are gullible. By this debate, we want to give sufficient publicity to the matter to warn the man who is thinking 1659 of investing a small sum to think twice before he makes his choice. Not only is the small investor gullible, but in many cases small finance houses which, by virtue of their smallness, are not entitled to belong to the various associations, are also somewhat gullible. During the past fortnight we have read reports in the Press of what are said to be large motor car frauds perpetrated on unsuspecting finance houses. That is as it may be, and the large finance company is not affected by the Bill; but the small man whom we are anxious to protect should be protected as it were at both ends, both the small investor and the small finance company.
Clause 4 of the Bill says:… if at any time an invitation has been issued to the public to lend or deposit money …A case might arise where a finance company is formed and issues an invitation to the public to lend money to it. Its invitation is unsuccessful and it changes its mind. It has no depositors. A company like that, which is manifestly a reputable concern, should not be forced into the onerous task of producing a statement in lieu of prospectus every year.
It has been said in all parts of the House that the Bill does not affect the large public company, but Clause 1 might be interpreted to mean that if a bank clerk goes into his favourite pub after business hours and says to a friend, "I work for such and such a joint stock bank, why do you not put some money in on deposit with us? It is a very good bank", he is the person who should file a statement in lieu of prospectus for his employers. That might be worth looking at.
I make the point again that some of us consider that £500 is scarcely an adequate figure for this matter. I should like to see it increased.
Having made those few points, I urge the House to give the Bill a Second Reading. I hope that the Bill will receive great publicity. That cannot be urged too strongly, and hon. Members in all parts of the House, when speaking in their constituencies and elsewhere, should urge the new investing public to make a wise choice before putting money into a particular venture.
§ 12.43 p.m.
§ Mr. Donald Box (Cardiff, North)
Anyone who has anything to do with investment or investors will confirm that the introduction of the Bill is long overdue. Now that there is at last a real broadening of interest in investment, it is more than ever necessary to ensure that investors, and particularly small investors, are protected from parting with their hard-earned savings to some plausible gentleman who offers the highest rates of interest coupled with the lowest form of security.
It is somewhat inconsistent that when shares are offered to the public by companies of known good repute sponsored by financial institutions of the highest integrity the fullest possible information is required about the directors, the assets and the past trading record. Yet in the case of other forms of finance it is possible to form a company with the absolute minimum of issued capital, design an attractive brochure—that is essential—and start advertising right away for deposits from the public.
It is ironical that the real shot in the arm for this form of financial advertising came during the credit squeeze of 1957–58, and my right hon. Friend the Chancellor of the Exchequer's predecessor must bear his share of responsibility for that, because during a period when the banks were severely curtailed from allowing credit the hire-purchase finance companies, and so-called industrial bankers, were allowed free rein to borrow money from depositors at rates of interest varying from 7½ per cent. to 8½ per cent., and sometimes higher. The scarcity of credit facilities at that time enabled these companies to make a handsome profit, even on these very high overheads, and many companies that got off to an indifferent start have developed into quite substantial concerns. Now that conditions are becoming increasingly competitive, there is a real danger that some of the weaker companies may get into difficulties, which may result in serious financial loss to those people who have deposited money with them.
So that there shall be no doubt in the minds of hon. Members about the need for this legislation, I have brought along a typical example of what I mean. A constituent of mine recently received 1661 this carefully prepared and quite elaborate brochure through the post inviting him to become a depositor. It has, I regret to say, the semblance of a Welsh dragon on the front and offers rates of interest on deposits ranging from 6 per cent. to 7½ per cent. guaranteed. But guaranteed by what? I am having the greatest difficulty in finding out.
I read in the brochure that these deposits will be used for:A specialist business in mortgage and other indemnities, and guarantees to assist in the developing and modernising of industrial and commercial concerns, housing and agriculture, and to facilitate the initial purchase of property.The company also offers loans on hire purchase, all of which I think hon. Members will agree is a somewhat vague and ambiguous statement.
Not being entirely satisfied with this state of affairs, my constituent wrote for a balance sheet, only to receive the rather telling reply that as the company had no: yet been in business for twelve months no balance sheet was available. It may be that this is a perfectly respectable company run in an entirely correct manner. All I can tell the House is that although the registered address of the company is given, there are three directors, a secretary, two banks, a solicitor and an accountant listed in the front of the brochure without one address being given between them. One of the banks tells me that the company has no account with it, and from Bush House I have ascertained that while the company has an authorised capital of about £30,000 no return of subscribers' capital has yet been received.
As I said before, this company may be perfectly respectable or it may not, but that is not the point. The point is, should it be possible for such a company, perfectly legally, to circularise advertisements in this way? I say it should not. It mentions a guarantee which is meaningless. It gives itself the widest terms of reference, and it offers a secure investment which is in fact nothing of the sort. It is hardly the sort of investment for widows and orphans for whom, when it comes to savings, only the best is good enough. The sooner this sort of practice is curbed the better it will be for everyone.
1662 Whilst the passing of the Bill would certainly go some way towards protecting investors from the seductive blandishments of these glossy brochures, I am sorry—though I realise the limitations of a Private Member's Bill— that this Measure cannot be extended to include a dubious form of advertising used by many concerns of high repute today. If my hon. Friends who have interests in the City agree with me, they might take note of this. It is a bad habit originated by the building societies and quickly copied by the hire-purchase finance companies.
I am referring to the growing custom of including a statement of total assets in advertisements for deposits as evidence of stability. I suggest that it if, nothing of the sort and should either be excluded altogether or, if it is included, qualified by a statement of liabilities too. For rather than being a sign of strength, the rapid growth of these so-called assets is usually mere a reflection of a particular successful advertising campaign for deposits.
It may not have occurred to hon. Members that if they make a deposit this week with a well-known company their money may well appear as a company asset in an advertisement next week without any indication whatsoever that the money is repayable to them at one, three or six months' notice. It does not need a vivid imagination to visualise the reactions of a bank manager if one of his customers obtained an overdraft and then immediately started to advertise it as one of his assets without any reference to the indebtedness to the bank. Yet the principle is the same.
For the sake of the small investors, I hope the Bill will receive the approval of the House, and I hope that in summing up the debate the Economic Secretary to the Treasury will consider giving his view on this question of advertising the total assets without a mention of liability, for if he agrees with me that it is misleading I am sure that the mere expression of his opinion would be sufficient for a great many of the more reputable companies to discontinue this undesirable practice forthwith.
§ 12.53 p.m.
§ Mr. John Howard (Southampton, Test)
My hon. Friend the Member for 1663 Cardiff, North (Mr. Box) made a very valuable point indeed in referring to this question of describing a company's financial stability by an indication of its total assets. I can recall for many years now advertisements of perfectly reputable building societies which set the pattern by using such a description when seeking deposits and indeed the sale of building society shares. It is important to see that accounts are filed and that information is given not only about the total assets but also about total liabilities which might exceed any impressive total of assets. It was a graphic illustration which my hon. Friend gave of a bank overdraft which could be described when paid into a company's account as an asset and the balancing item on the liability side ignored. What we are concerned with is to see what the net assets are, not the total assets.
In common with my hon. Friend the Member for Portsmouth, Langstone (Mr. Stevens) I have spent most of my professional life being concerned about various Companies Acts. When I first took my examinations we had just had the Companies Act, 1929, placed on the Statute Book. [HON. MEMBERS: "Oh."] I trust that hon. Members will not object to this admission of age. However, after the war and after one had become accustomed to the 1929 Act I was a little disturbed to read that a new Companies Act was expected. It meant that one had to address oneself to new problems. I therefore read the Cohen Committee's Report on Company Law Amendment, and the Companies Act, 1948, which followed it, with particular interest, for one knew that one would have to apply that Act in dealing with the presentation of companies' accounts.
The 1948 Act was a great advance on the 1929 Act, in particular in relation to the information upon a company's affairs which had to be set out in the accounts. My hon. Friend the Member for Torrington (Mr. P. Browne) seeks to extend the provisions of the 1948 Act in one material particular. That particular was summarised most admirably and underlined by my hon. Friend the Member for East-leigh (Mr. D. Price). He referred to the fact that a company cannot issue an invitation to the public to subscribe for shares or debentures and retain the privi- 1664 leges of a private company but, oddly enough, it can advertise for subscriptions for unsecured loans and still retain all the privileges to which a private company is entitled. It is odd that a secured loan in the form of a debenture involves disclosure of information by the company making the offer to the public of those debentures, while the offer to receive unsecured loans, where the investor has a very doubtful hold on his money or even any entitlement to information, does not involve the company in any loss of exemption privileges.
The Bill seeks to remove the affairs of certain companies from the secrecy they now enjoy under the 1948 Act by reason of the fact that they are exempt private companies. As hon. Members will know, private companies fall under two headings. First, there are those which simply restrict the right to transfer shares where the number of members is less than fifty and do not offer any shares for subscription to the public. This group is still involved, if it does not meet the further qualifications in an obligation to file accounts.
Then there is a band of exempt private companies which differ, broadly speaking, only because none of their shareholders are public companies or non-exempt private companies. Originally this provision was intended to meet the case of a small family business, the grocer, the butcher and possibly the local garage man, who found it convenient to carry on business as a limited company. Perhaps they had only two shareholders—husband and wife—and may only issue two shares and never bother to issue any more. Clearly there is no great harm done if the affairs of these small family businesses enjoy the benefits of secrecy. There might be some embarrassment in a small town if people found it necessary to put their trading accounts on the file at Bush House each year.
We are not concerned with family companies. We are concerned with the exempt companies which accept deposits or loans from the general public and advertise by circular or perhaps in professional magazines for deposits at attractive rates of interest. There is no means at the moment of discovering anything of value about these exempt private companies. We can find out the directors 1665 and shareholders, but that is about the limit and we have been told today of a case where the accounts were not filed because the company had been in existence for only a short time.
Anyone who lends money to a company of this sort needs to have his brains tested, but that does not prevent people being attracted by the very high rates of interest. They completely overlook the risk to their capital and are influenced unduly by the enormous rates of interest. I think that 12 per cent. was mentioned today, which clearly could not be obtained from any safe deposit.
The Bill provides two sanctions against companies of this sort which, in the words of the Bill, issue… an invitation to the public to lend on deposit money …The first sanction is that these companies would have to file a statement in lieu of a prospectus, and give a good deal of background information about recent contracts, the transfer of property and so on.
The second, and in my view the more important, sanction is that these companies will need to file accounts. With those accounts they will have to file the reports of the directors and auditors. This second sanction is clearly the most important for one can judge the solvency or otherwise of a company from the information placed on the file.
Several hon. Members have referred to the fact—and I think that my hon. Friend the Member for Somerset, North (Mr. Leather) referred to it in his speech —that there is nothing to prevent companies from ignoring some of their obligations under the Companies Act. I have in my hand an issue of the Investor's Chronicle dated 2nd September, 1958, headed "Pious Mias". I do not want to go into details about the affairs of that company, because they are being examined in the courts at the moment, but the point brought out in the article—note the date, September, 1958—was that the accounts for 1956–57 had not yet been filed. The author of the article went on to refer to this matter and thus drew it to the notice of anyone who reads the Investor's Chronicle, and a good number of people who invest take note of what is said in papers enjoying the reputation of that publication.
1666 I feel, therefore, that the need to file accounts is of great importance, but, at the same time, one must be on guard against delay. In this Bill there is nothing to prevent companies leaving over their accounts for some time, thus ignoring the obligation placed upon them by the Companies Act, 1948.
There is one subsidiary sanction, which may well be important in the type of case that we are considering. That is Section 190 of the Companies Act which prohibits loans to directors unless they are directors of an exempt private company. Therefore, if we take the group of companies about which we are complaining today out of the realm of exempt private companies we at least make it illegal for them to allow any of the funds to go into the pockets of the directors.
The first sanction which I mentioned, the need to file a statement in lieu of a prospectus, brings in its train, if companies fail to carry out the obligation, a series of heavy penalties, but I do not think that this obligation is as valuable as the need to file accounts. I believe that one year has to run before a statement in lieu of a prospectus need be filed. In the words of the Bill if an invitationto the public to lend or desposit money to or with the Companywhich is a private company, has occurred within one year there therefore is a time lag before the statement is placed on the file. A company may, in fact, lose its status immediately after its annual general meeting and, therefore, a year or a little more could elapse before it becomes necessary for it to file the first statement of accounts as a non-exempt private company.
I am sure that this debate has served a very useful purpose in bringing to the notice of the general public yet again the dangers of investing in companies about which people have little or no information. However, I am quite certain that even if the Bill ultimately goes on to the Statute Book, there will still be people who fail to take advantage of the additional information available, but that does not absolve us from the obligation to see that the public enjoys the additional protection provided by the Bill.
§ 1.4 p.m.
§ Mr. Stanley McMaster (Belfast, East)
I also rise to support the Bill. I wish 1667 to join with my hon. Friends in congratulating my hon. Friend the Member for Torrington (Mr. P. Browne) on being successful in the Ballot and introducing such a Bill. The Bill is the last of a long series of companies Measures. The Companies Acts themselves have a history stretching over the last hundred years, a history which has greatly increased the ability of this country to build up the fine trading concerns which have secured its position as one of the principal manufacturing countries in the world.
Before the first Companies Clauses Act was passed in 1845, the House was greatly concerned with the formation of companies. In order to form a limited liability or a joint stock company before 1845, one had either to receive a Royal Charter or else promote a Bill in the House in order to incorporate as a company a body which enjoyed the great advantage of a separate personality and limited liability.
The promotion of such a Bill was, of course, expensive and difficult, and none but the largest companies, such as the East India Company or the Hudson Bay Trading Company, could afford such a process. Only very few corporations received a Royal Charter, though today we have such corporations as the British Broadcasting Corporation and the National Coal Board still incorporated both by Royal Charter and by separate Act of Parliament.
With the passing of the Companies Clauses Act, the first one in 1845 and a series in the course of the last century— the main ones in 1863 and 1869 and two consolidating Acts in 1888 and 1889— it became possible for men engaging in business to join together and to float a company which became a separate personality from those carrying on the business. They could put money into the business—
§ Notice taken that 40 Members were not present;
§ House counted, and, 40 Members being present—
§ Mr. McMaster
As I was saying before the Count was called, a long series of Acts has been passed during the course of the last hundred years which has enabled persons to gather together 1668 and form businesses and to protect themselves against the failure of such businesses through no fault of their own. By complying with the provisions of these Acts, such companies can simply and easily be incorporated under the Companies Act and become distinct legal persons. The people comprising such a company, the directors, secretary, managers and servants, were not in any way bound to the company. If it went out of business through no fault of its own, that did not jeopardise the fortunes of those persons who had put money into the business. The most they could lose was the actual money which they had invested, whereas private persons carrying on business in partnership could lose not only the money invested in the business but all their own private assets.
It has always been the concern of this House to protect the individual investor. For that reason, various Acts placed on the Statute Book during the last hundred years are designed to prevent fraudulent persons from easily forming companies and from persuading members of the public—who do not know much about the business—to invest money in them, so as to avoid the possibility of people investing their entire savings and losing them when, through mismanagement, the company went into liquidation.
This Bill is the latest of a series of such Measures. The reason for its presentation is a loophole in the former legislation. Persons may form small private companies, with a membership limited to 50, which are precluded from inviting the general public to subscribe for shares. The definition of a private company is set out in Section 28 of the Companies Act, 1948. Before 1948, private companies were not required to register their accounts with the Companies Registrar. This House considered, among other points and improvements in company law, whether it would be desirable that such private companies should in future register their accounts so that everyone could discover—as in the case of public companies—the exact state of the financial affairs of the company before investing any money; and so that they might follow its progress from year to year to see whether it made a profit or a loss and how much was written off against the capital value of its assets. However, it was considered by this House that it would be placing 1669 an undue burden on a small business, or a group of persons with no great financial backing, if they were expected to comply with all the provisions of the 1948 Act, designed to be complied with by large companies which could afford to employ a staff of accountants and lawyers.
It has always been the policy of the Conservative Party to encourage small private businesses to expand. In that way our country has secured the trading position which it occupies in the world today. Many persons starting a small business may wish to benefit from the Companies Act and to form a private company which may expand and prosper for the benefit of the whole community. Were these people expected to comply with all the provisions of the Companies Act, they might easily be deterred from forming themselves into a public or private company. In turn, that might result in deterring an expansion of the business. Instead of investing more money in the company, those concerned would be content to let the business plod along as a small partnership. But, if they could with ease take advantage of the Companies Act, they would do so. They could take business risks which otherwise it would not be prudent to take, because their own personal fortunes, their private assets, their house or private property, would not be hazarded in any way by the good or bad fortune which attended the affairs of such a company. They would stand to lose only the money which they invested in the business.
A new creature was created by the drafters of the 1948 Act, the exempt private company, which is referred to in this Bill. After Section 28, the 1948 Act went on to provide, in Section 127, that every company incorporated under the Act, private or public, should make an annual return and attach certain documents to it. According to Section 127 (1), these documents were:a written copy, certified both by a director and by the secretary of the company to be a true copy, of every balance sheet laid before the company in general meeting during the period to which the return relates (including every document required by law to be annexed to the balance sheet);and secondly:a copy, certified as aforesaid, of the report of the auditors on, and of the report of the directors accompanying, each such balance sheet; and where any such balance sheet or 1670 document required by law to be annexed thereto is in a foreign language, there shall be annexed to that balance sheet a translation in English of the balance sheet or document certified in the prescribed manner to be a correct translation.It is also provided in Section 127 that:If any such balance sheet as aforesaid or document required by law to be annexed thereto did not comply with the requirements of the law as in force at the date of the audit with respect to the form of balance sheets or documents aforesaid, as the case may be, there shall be made such additions to and corrections in the copy as would have been required to be made in the balance sheet or document in order to make it comply with the said requirements, and the fact that the copy has been so amended shall be stated thereon.It was provided that where there was a default in these provisions relating to the annual return of companies:the company and every officer of the company who is in default shall be liable to a default fine.An officer was defined as including:any person in accordance with whose directions or instructions the directors of the company are accustomed to act.These onerous provisions were excluded by the provisions of Section 129 in the case of certain special companies. Section 129 states:A private company shall be excepted from the requirements imposed by section one hundred and twenty-seven of this Act.The private company had been defined in Section 28 as one whichThat meant that companies could offer to their employees shares in their concerns in order to encourage them to put their fortunes into the businesses in which they were working. The mere fact that they bought shares in the companies and that therefore the number of members exceeded the statutory minimum of 50 did not mean that the companies could not still remain private companies. Section 129 went on to say that in the case of the private companies: 1671
- "(a) restricts the right to transfer its shares; and
- (b) limited the number of its members to 50, not including persons who are in the employment of the company and persons who, having been formerly in the employment of the company, were while in that employment, and having continued after the determination of that employment to be, members of the company; and
- (c) prohibits any invitation to the public to subscribe for any shares or debentures of the company."if—(a) the conditions mentioned in the next following subsection are satisfied at the date of the return …that is the annual return, reverting to Section 127—and have been satisfied at all times since the commencement of this Act; and(b) there is sent with the return a certificate, signed by the persons signing the certificates required to be so sent by the last foregoing Section, …that is, a director or an officer of the company—that to the best of their knowledge and belief the said conditions are and have been satisfied as aforesaid:Provided that if at any time it is shown that the said conditions are then satisfied in the case of a private company, the Board of Trade may on the application of the company's directors direct that, in relation to any subsequent annual returns of the company, it shall not be necessary for the said conditions to have been satisfied before that time, and the certificates sent with those returns shall in that event relate only to the period since that time.The conditions were:that the conditions contained in the Seventh Schedule to this Act are satisfied as to persons interested in the company's shares and debentures, …Those are provisions which allow public companies to have an interest in the shares of a company for a limited time. In other words, simply because an exempt private company finds itself in the position where one of its shareholders dies and his executors are a bank or some other body which is a public company while it is administering the estate, the shares are for the purpose of the administration transferred to such a bank and the exemptions set out in the Act shall still apply to such a company. Section 129 goes on to say that:in addition to the conditions set out in the Seventh Schedule the number of persons holding debentures of the company is not more than fifty …In the case of a private company, the limitation is as to 50 shareholders. A private company is still a private company, even though it has several hundred debenture shareholders, and joint holders are treated as single holders for this purpose. A third condition is:that no body corporate is a director of the company and neither the company nor any of the directors is party or privy to any arrangement whereby the policy of the company is capable of being determined by persons other 1672 than the directors, members and debenture holders or trustees for debenture holders.In that case, the private company is excepted from the requirements imposed by Section 127 of the Act. It is also provided that a prosecution shall not be instituted in England and Wales in respect of any failure of a private company to comply with Section 127 of the Act except with the consent of the Board of Trade.
§ Mr. G. R. Mitchison (Kettering)
Will the hon. Member tell us what is the position in Northern Ireland?
§ Mr. McMaster
The Companies Act, 1948, does not apply to Northern Ireland. In Northern Ireland at present there is under consideration a similar Act to the 1948 Act which I trust will contain the Amendment which is set out in the Companies Act, 1948 (Amendment) Bill which we are now considering.
§ Mr. Mitchison
I am sorry to interrupt again, but the hon. Member was reading, what I am sure he finds very relevant, subsection (3) of Section 120 of the Companies Act, 1948. As he rightly said, that subsection applies only to England. What I wanted to know, assuming as I suppose to be the case—
§ Mr. Mitchison
Section 127 or some similar provision is in force in Northern Ireland. Perhaps the hon. Member for Belfast, East (Mr. McMaster) will correct me if I am wrong. What is the position about prosecutions there? Whose lead is required, or have they no prosecutions?
§ Mr. McMaster
The position, as I understand it, in Northern Ireland is that the Companies Act, 1948, does not apply and, therefore, there is no equivalent to Section 129. It is not Section 120, to which the hon. and learned Member referred, but Section 129. The position in Northern Ireland relates to the earlier position which I was attempting to describe; that is, that all private companies are exempt from the provisions with respect to annual returns. There is no necessity to have a provision such as Section 129.
That Section was incorporated in the 1948 Act only in order that the higher 1673 onus which the 1948 Act extended to private companies should relieve certain small companies known as exempt private companies. Those exempt private companies were defined as being ordinary private companies which, in addition to limiting the number of members to 50 and in addition to precluding any offer being made to the public of subscribing to shares in the company, had no public corporation or body holding shares in any way interested in them. It is very widely defined. No other public body or public corporation or public company could act as a director or other officer of an exempt private company.
The reasoning behind that was in order to prevent large public companies forming small private companies and in that way avoiding having to publish annual balance sheets. If the public body took shares in an exempt private company and transferred its shares to that exempt private company, the mere fact of it having an interest would place the exempt private company outside the provisions of Section 129. The exempt private company would have to file an annual balance sheet, and it would be possible for members of the public to find how the money coming from the public company had been expended by the exempt private company.
It is further provided in Section 129 of the 1948 Act that references in the Act—here again we see the use of the phrase "exempted private company," which appears for the first time and is defined in the definition Section of the 1948 Act—to an exempt private company shall be construed as referring to a company with respect to which the conditions mentioned in subsection (2) of this section are satisfied and have been satisfied at all times since the commencement of this Act or since the giving by the Board of Trade of a direction under the proviso to subsection (1) of this section.A direction under the proviso was that relating to a company taking an interest in an exempt private company by reason of the fact that it was temporarily in a position of an executor or administrator. It is also stated:References in this section to the said conditions having been satisfied since the commencement of this Act shall, in relation to a company first registered after the commencement of this Act, be construed as referring to (he conditions having been satisfied since the company's registration.1674 Section 127 of the Act refers to the Seventh Schedule, which sets out a number of conditions as to the interest in shares or debentures of an exempt private company. The main provision of the Seventh Schedule which is relevant to the reforms which my hon. Friends seek by the Bill to incorporate in our law is to be found in paragraph (1), which provides:The basic conditions as to the shares or debentures of the company whose exemption is in question are—The following paragraphs go on to relate to a banking and finance company which
- (a) that no body corporate is the holder of any of the shares or debentures; and
- (b) that no person other than the holder has any interest in any of the shares or debentures;
- but these conditions are subject to the exceptions provided for by the following paragraphs of this Schedule."by way of security for the purposes of a transaction entered into in the ordinary course of its businesstakes a temporary interest in the shares of the company.
§ Mr. Mitchison
I hope the hon. Member will go on. We should like to hear him on the Sixth and Fifteenth Schedules, since it is obvious that the intention of his speech is not related to this Bill but to the purpose of delaying the next Bill.
§ Mr. McMaster
These matters are of very great concern. The provisions have been provided after a great deal of thought and they have been put into the 1948 Act in order to protect the public. In order fully to understand the provisions of the Bill, it is necessary to go at some length into the background of the provisions relating to the exempt private company.
§ Mr. McMaster
The exempt private company having been formed in accordance with the provisions of those Acts, it is to be seen that the public may not be invited to subscribe for shares in such an exempt private company, because once an invitation is made to 1675 the public to subscribe for shares, then the exempt private company finds itself, by reasons of Section 129, to be outside those provisions of the Act. Once it is outside those provisions of the Act it must comply with the requirements of the Act relating to the issue and the entire content of the prospectus. In addition, it must file the annual return setting out its accounts in the way in which hon. Members who support the Bill wish such an exempt private company to do.
Unfortunately, this exemption, which was provided to assist persons seeking to carry on business, has been exploited by some unscrupulous persons, to whom reference has been made today by my hon. Friends, particularly my hon. Friend the Member for Eastleigh (Mr. D. Price) and my hon. Friend the Member for Maidstone (Mr. J. Wells). An exempt private company is not precluded either by the provisions of Section 129 or by the Seventh Schedule from inviting the public to lend or deposit money with the exempt private company, and it can do so even though the exempt private company itself is not a subsidiary of a public company or is in no way controlled or managed by a public company.
If persons are lending money to a small company, it would be better, in their interests, to see that some public company has an interest in such a small company. However, from the very nature of the formation of an exempt private company, it must be a small company without a great deal of resources or means of its own. No public company is interested or has any shares in it. The number of its members is limited and the number of debenture holders is limited to 50.
It has therefore been necessary to amend the provisions of the 1948 Act in order to close yet another loophole in the earlier companies legislation and in order to protect persons, perhaps those who are a little careless in making investments or in lending money and those who are a little avaricious and greedy and seek a quick return or a high rate of interest, until they make proper inquiries and discover the true position of such companies.
It has been necessary to draft the Amendment to deal with an exempt 1676 private company which is not just carrying on a small business of manufacturing but has been formed with the purpose of inviting the public to lend or deposit money with it, and then to use that money in speculative transactions, to hazard it and to leave the depositors or the lenders who trust their savings to it in a very invidious position. Unless these people can establish fraud—and it is very difficult in the courts of this country to establish fraud—the only guarantee which they have is the assets of the company itself, because such an exempt private company is treated at law as being quite a separate entity from the individuals composing it, and the promoters of such company and its directors are therefore in no way liable for, nor do they in any way guarantee, these loans and deposits made with the exempt private finance company.
Therefore, it is desirable that where such a company is formed it should not be able to enjoy the advantages of the 1948 Act. It should be placed in exactly the same position as any other public or private company. It should have to make an annual return. It should be required to have that annual return properly audited, setting out its capital position and the way in which its assets are being utilised, and showing clearly to any prospective investor, or to anyone whose advice he may take, whether it is in a sound financial position.
Indeed, as some of my hon. Friends have said, many persons carrying on reputable businesses for the purpose of guaranteeing house purchase wish to form a small company to enable them to raise money and invest it by lending it to persons wishing to buy their own houses. This should not be discouraged. It should be possible for persons interested in finance to raise money, on the one hand, from those members of the public who have money to spare and are prepared to invest it, and to use it, on the other hand, to help people in the community requiring money either to purchase cars or houses or to use it in their businesses in order to expand.
However, it is not right that persons who wish to form private finance companies should be allowed the exemptions which are intended only for manufacturing businesses, only for businesses 1677 which have been floated or promoted to help persons who are carrying on business in partnership to expand. If a group of persons wants to go into the finance business and wants to form a small company, it is no hardship to them to require them to file an annual return. If such persons engaging in finance are serious and if their intentions are good, they should have accountants and solicitors at their call. Therefore, it imposes no hardship on them to require them to comply with the provisions of the 1948 Act relating to ordinary private companies.
Therefore, the Bill will catch only the fraud or the cheat. It will not interfere with a person carrying on business on his own account who turns it into an exempt private company. Such a person does not issue any invitation to the public to deposit money. Under the provisions of Section 129, he is allowed to have up to 50 members and up to 50 debenture holders. That should enable him to raise enough money, in the initial stages at any rate, to get the business going and expand it in the way intended by Parliament when it passed the 1948 Act.
I am pleased today to have caught your eye, Mr. Speaker, in order to support the Bill and to say a little about the purposes behind it and the way in which I believe it will add to all the other legislation on the Statute Book. That legislation is designed to achieve two important ends—first, to encourage the expansion of private industry and, secondly, to protect investors and depositors from unscrupulous persons who may wish to take advantage of the general provisions of those Acts of Parliament to exploit less diligent and sensible members of the public.
§ Mr. Mitchison
The hon. Gentleman is so good at explaining the English law curtly and succinctly that I wonder if before he sits down he can tell us about Northern Ireland. At the end of the Companies Act, he will find certain provisions relating to the law in Northern Ireland. Can he tell us now what the effect of the Bill, if any, will be in Northern Ireland? As the hon. Gentleman is in an impartial position in these matters and as there is no Scotsman present today, perhaps he may be able to tell us what the position will be in 1678 Scotland. He quoted a subsection in which there were provisions about prosecutions in England. What about such prosecutions in Scotland and Northern Ireland?
§ Mr. McMaster
As I have already attempted to explain to the hon. and learned Gentleman, the 1948 Act does not apply to Northern Ireland. It is expressly provided in—
§ Mr. McMaster
I am grateful to my hon. Friend. Section 461 says:(1) Nothing in this Act, except the provisions thereof which relate expressly to companies registered or incorporated in Northern Ireland or outside Great Britain, shall apply to or in relation to companies registered or incorporated in Northern Ireland.(2) Nothing in this Act, except where it is expressly provided to the contrary, shall affect the law in force in Northern Ireland at the commencement of this Act.That means that the provisions in the 1948 Act relating to companies which are incorporated abroad but have an established place of business in Great Britain require them to file with the registrar of companies certain details and accounts. The details and accounts which they are required to file are the same as if those companies had been incorporated in Great Britain. Therefore, a company which is incorporated in Northern Ireland and which establishes a place of business in Great Britain must make an annual return setting out all the matters which are required under Section 127, to which I referred earlier, and containing the annual accounts of the business.
There is no provision at the end of the Bill restricting it to Great Britain. Therefore, the Bill in its present form would apply to Northern Ireland. It may be necessary to amend the Bill in Committee so that it relates—
§ Mr. Dudley Williams
With great respect, I cannot see how the Bill can 1679 apply to Northern Ireland. For instance. Clause 2 refers to the Companies Act, 1948. As that Act does not apply to Northern Ireland, I do not see how the Bill can.
§ Mr. McMaster
This House legislates automatically for the whole of the United Kingdom. Therefore, when such a Bill as this is passed it automatically applies to the whole of the United Kingdom— that is, both Great Britain and Northern Ireland—unless Northern Ireland is expressly excluded. As my hon. Friend has just pointed out, in so far as the Bill seeks only to amend the Companies Act, 1948, that is, perhaps, irrelevant, and it might be unnecesssary to put in an exclusion Clause relating to Northern Ireland.
However, the Northern Ireland Parliament at Stormont is seeking to amend the existing law in Northern Ireland, which is, I think, based on the 1925 Act. The Northern Ireland Parliament will, of course, pay particular attention not only to the provisions relating to exempt private companies—which are a very important part of the 1948 Act—but will also consider, I have no doubt, the Amending legislation that we are now discussing so that, in its final form, the new Northern Ireland legislation will contain, not only the provisions of Section 129, but those provisions as amended by this Bill. In that way, the Northern Ireland public and the rest of the United Kingdom will be able to benefit from the experience of the Board of Trade in administering the provisions of the Companies Act, 1948.
The 1948 Act leaves mainly to the Board of Trade the supervision of companies to ensure that they comply with the provisions of that Act. The Board of Trade is specifically charged with the duty of ensuring that officers of companies comply with the Act's provisions. The Act also allows the Board of Trade to conduct inquiries into businesses that are suspected of having infringed the provisions of the Act, but these provisions for conducting inquiries are not at present sufficiently wide to allow the Board of Trade to conduct an inquiry in cases such as those mentioned by hon. Members today.
Persons who ask for deposits—and who have formed exempt private com- 1680 panies—are not in breach of the law in so doing and, unless it can be shown that they are deliberately acting fraudulently in such a way as to merit a police prosecution for fraud or false pretences, the Board of Trade has not the power to intervene on behalf of the public.
§ 1.55 p.m.
§ The Economic Secretary to the Treasury (Mr. Anthony Barber)
I hope that my intervention at this stage will not be thought inconvenient, and that it will not in any way deter hon. Members from making the many points I know still remain to be made. It is quite apparent from the remarkable analysis of the Companies Act, 1948, made by my hon. Friend the Member for Belfast, East (Mr. McMaster) that there is really a considerable amount more to be said on the question of exempt private companies.
That is borne out by the fact that, so far as I know—and I have been sitting here throughout the debate—it was only on the occasion of the speech of my hon. Friend the Member for Belfast, East that the hon. and learned Member for Kettering (Mr. Mitchison) saw fit to pose certain questions. Frankly, I do not think that they have been answered by my hon. Friend and, in fairness to the Government and to the Conservative Party—it is not for me to touch on these points—I hope that some of my hon. Friends will deal with them, because it is right that they should be answered in the course of this debate.
I should like to congratulate my hon. Friend the Member for Torrington (Mr. P. Browne) on his initiative in introducing this Bill, and I am happy to think that, despite the time that has so far been taken in discussing it, he is still with us. I think that the House will agree that this is a most important subject—
§ Mr. Mitchison
I am very sorry to interrupt, but I trust that no accident has happened to the Economic Secretary's hon. Friend. The hon. Gentleman said that his hon. Friend the Member for Torrington (Mr. P. Browne) was still with us.
§ Mr. Barber
I am sorry. I really said that in contrast to certain other obvious facts about this debate—and I 1681 only hope that the hon. and learned Gentleman's hon. Friends are also still with us.
This is a topic that is obviously of very great public interest and concern. My hon. Friend the Member for Maidstone (Mr. J. Wells) said that he hoped that this debate would put people on their guard when they were thinking of providing deposits, and I am sure that if this debate does nothing else it will certainly go some way to performing that valuable service.
As my hon. Friend the Member for Torrington knows, this is a subject to which the Government have been giving considerable attention recently. I do not think that anyone in the House will dispute the fact that all responsible bodies that take money from the public share our desire to create conditions that will enable the public to form a proper judgment of the opportunities offered to them.
The essence of the Bill is to require any company inviting deposits from the public to register with the Registrar of Companies a statement relating to the affairs of the company for the preceding twelve months. As we have heard from my hon. Friend the Member for Belfast. East, under this Bill this provision would apply even in the case of the exempt private company.
I have said that this Measure is a relatively simple one. I can tell my hon. Friends without any hesitation whatever that I agree entirely—100 per cent.—with the object they have in mind in bringing it forward. My hon. Friend the Member for Torrington said that the aim is to provide a deterrent for those who rely on the gullibility of the public. That, if I may say so, is a very laudable aim.
On the other hand, I am sure that my hon. Friends will be the first to agree that this is a most complicated subject and, obviously, the provisions of the Bill would have to be considered in much greater detail before we could be sure that it would achieve its object. I think that it was my hon. Friend the Member for Somerset, North (Mr. Leather) who said that he and his hon. Friends who support the Bill had to decide whether to take a large bite or a small bite. I appreciate that, and if I may say so with respect, I think that they made the right decision.
1682 Nevertheless, if I may be frank with the House, the real issue that we have to consider today is not whether it was right to take a large bite or a small bite, not whether the details of the Bill are perfect or whether there are imperfections; the real question is whether the Bill goes far enough. It is quite obvious to me from some of the speeches made by my hon. Friends that this is very much in their minds.
They would be the first to admit that, although they may have wished to go further, and may have thought it was not appropriate for them to do so in the form of a Private Member's Bill, this is a very complicated matter. After all, the deposit-takers in the broadest sense, range from the joint stock banks on the one hand, through the largest and smallest hire-purchase and investment and finance companies, down, at the other end, to the village shop or the publican who accepts weekly subscriptions for a Christmas club share-out, or, indeed, an annual community outing.
I think the House will agree that there are cases of that kind of deposit-taker who may need no control at all. I do not think any need for control arises in the case of deposits taken by the larger banks or a trustee savings bank. Nor do I think, even if it were practicable, there is any need for the Government to introduce complicated legislation directed at the village Christmas club.
It is obviously a very serious matter for the Government, or any Government agency, to take responsibility for control, whether partial or complete, over so diverse a field. Conditions which might reasonably be imposed on large public companies would not be adequate for the protection of deposits taken by smaller companies. What is to be done? This was also made apparent in several of the speeches made today. What is to be done is to try to find a middle way between excessive strictness on the one hand, and unreasonable laxness on the other. If it were decided that a comprehensive system of control were justified, it would be only too easy to prohibit new entrants, but that, as I think all my hon. Friends will agree, would merely be hampering growth which might well be in the interests of the economy provided that the inherent risks were fully understood.
1683 On the other hand, an inadequate form of control would do far more harm than good, and I am first to agree with my hon. Friend the Member for Somerset, North who said that it is equally important that one should have a proper execution and implementation of Acts of Parliament. That is equally as important as the terms of the provisions of the Act of Parliament itself. Therefore, in considering this matter, one has to take into account not only the provisions as they appear in outline, but how we can make them work.
There are those who consider that any Government intervention to protect depositors should be confined to ensuring that the prospective depositors can, if they take the trouble, find out what is to happen to their money. On the face of it, one way of achieving this is that proposed in the Bill—to make private companies deposit with the Registrar of Companies annual statements in the same way as public companies have to do already under the Companies Act.
My hon. Friend the Member for Torrington pointed out that many lenders have no recourse to expert advice, and I think it is at least questionable whether, without some further guidance, many people would be much wiser about the safety of their money merely from having read a document required to be deposited with the Registrar of Companies under the Companies Act; that is, assuming that they knew that it had been done.
This was a point also made by my hon. Friend the Member for Portsmouth, Langstone (Mr. Stevens). This was partially what I had in mind when I said a few moments ago that I doubt whether the Bill goes far enough. Is it, after all, sufficient that such information should be filed with the Registrar? Should it not be made available to all the persons from whom a company invites deposits? Is the form of the statement prescribed by the Companies Act—designed primarily for the generality of shareholders—adequate to protect the depositors? The Companies Act prescribes annual accounts and states that they shall be laid before the annual general meeting and deposited with the Registrar. It is a question whether or not it is frequent and quick enough in respect of companies which invite deposits from the public.
1684 These are merely some of the questions, though very important questions, which merit our serious consideration. There are, I know, some who think that a control over people who invite deposits from the public ought to be much more stringent and far-reaching, and, possibly, that different degrees of control should be exercised over different kinds of depositors, but there must always be some risk when people give their money to others without security and nothing the Government can do would eliminate that risk altogether. Indeed, I agree with the observations of some of my right hon. Friends who have said that they did not think that it was the purpose of Parliament to eliminate that risk altogether.
At any rate, I think that I have said enough to convince the House of one thing. There is certainly much more in this matter than at first sight meets the eye. Any extension of the range of protection which may or may not be desirable, beyond that covered by the scope of my hon. Friend's Bill, involves a detailed study of the kind of persons and organisations concerned, and also of the possible differing degrees of control of these diverse kinds of persons and organisations. Inevitably, I must, as I am sure my hon. Friend the Member for Torrington would expect, pose the question as to whether it is appropriate to deal with a subject of this importance and complexity in a Private Member's Bill, and I say this with all due respect to those whose names appear as supporters of the Bill.
What the House has to consider is whether a Bill of this kind should go forward without the most careful Departmental study and consultation, where necessary, with representatives of the interests concerned. All hon. Members, I think including my hon. Friend the Member for Maidstone, who threw some doubt on the details of the Bill, have welcomed the objective of the Bill, and I join whole-heartedly with them. It is not on the ground of the details, because I do not think that would fully justify us in not proceeding with the Bill, and these are matters to be dealt with in the Committee stage, but on the broader ground whether the Bill goes far enough, that we must consider our action today.
1685 The question is at once extremely complicated and very important, and on a matter of this kind, which affects hundreds of thousands of ordinary people, who may be taken in by some of the prospectuses, advertisements and so on which have been mentioned, I am a little surprised that, out of the number of hon. Members who have spoken during this very interesting debate, we have had only one speech from an hon. Member opposite. This is something which affects a great many people throughout the country.
The House has been reminded by two or three of my hon. Friends that last November my right hon. Friend the President of the Board of" Trade announced that the Chancellor of the Exchequer was studying the whole problem of the protection of depositors. Several of ray hon. Friends, the Members for Torrington, Bristol, North-East, and Somerset, North, and the hon. Member for Islington, East (Mr. Fletcher) also made the point. They all wondered if there was some possibility that action by the Government in this field which we have been discussing today might have to await the report of Lord Jenkins and his colleagues generally on company law. I would like to assure the House, without any qualification, that there is certainly no need, in respect of some of the things we have been talking about, for action to await the outcome of the Jenkins Committee's deliberations.
We had the great pleasure of listening to my hon. Friend the Member for Bristol, North-East, who made what I thought was an admirable maiden speech, and who was most suitably and, I was about to say generously, though perhaps I should say very properly, congratulated by the hon. Member for Islington, East.
My hon. Friend the Member for Bristol, North-East gave us a must lucid account of the present position. He had the added advantage of having experienced in the United States the sort of problems with which we have been dealing today and he explained how they were dealt with there. In the course of his speech he paid a tribute to the resourcefulness and integrity of those who work in the City, and I think that all those who have had anything 1686 to do with the City know perfectly well that this is true. Indeed, I believe that most of those who work in the City of London will welcome action to deal with the activities of what my hon. Friend the Member for Bristol, North-East called a small minority of people.
My hon. Friend the Member for Torrington, when he moved the Second Reading of the Bill, said that the need for overhaul is urgent, and I quite agree with him. I hope that the Government will be in a position within a very few months to announce their intentions to Parliament, and I think it is almost certain that the Government will conclude that legislation to deal with this matter should be introduced next Session.
I hope that in those circumstances, my hon. Friend the Member for Torrington will at least consider whether it would be appropriate to withdraw his Bill. There is no doubt that in promoting the Bill he has performed a most valuable service. He has, for instance, focussed attention on the surprising fact—surprising, I believe, to most people who are not themselves involved in these matters—that a company which publishes no accounts at all should none the less be free to solicit deposits from the public. I agree with my hon. Friends who have pointed out that it may be completely misleading to the public if in prospectuses, advertisements and so on there is merely given a figure of total assets without any reference to the liabilities.
I am sure that my hon. Friends and the hon. and learned Member for Kettering will sympathise with me when I say that no Treasury Minister would ever dare to admit that a debate like this could ever begin to force the hand of the Treasury. But one thing is quite certain. My right hon. Friend the Chancellor of the Exchequer and those who advise us at the Treasury will read with care what has been said today, and I can assure my hon. Friend that this debate will be of real value to us in formulating our own proposals which we hope will shortly be made to Parliament. Certainly we shall press on with all possible speed.
§ Mr. Mitchison
Before the hon. Gentleman concludes, may I ask him a question? We have listened with care and 1687 respect to his invitation to the House to talk this Bill out—for that is what the beginning of his speech amounted to, as I understood it. At the end he invited his hon. Friend to withdraw the Bill. If it is not withdrawn, is his advice to the House to vote for it or to vote against it?
§ Mr. Barber
My advice to the House is simply this. It seems to me, in all the circumstances, for the reasons which I have tried to give, that this is not a matter which could be dealt with adequately by a Private Member's Bill. I think it would be better to await the formulation of proposals by the Government. However, it is not for me to explain to my hon. Friends or to hon. Members opposite what they should do about that advice. All I ask them to do is to consider it fairly and to make up their own minds.
I might add this. There seems to me to be nothing inconsistent in encouraging some of my hon. Friends, if they so wish, to make further points, which I hope will be of equal use to those which have already been made during this debate, because I hope that that in its turn will assist hon. Members when the time comes, if there is to be a vote, to make up their minds as to which way they should vote.
§ Mr. Barber
That is another matter.
In view of what has been said, lest there should be any misunderstanding, may I be allowed to say that my hon. Friend the Joint Under-Secretary of State for the Home Department has just come into the Chamber to assist me, because I have to leave urgently now to catch a train to enable me to attend a public function this evening.
§ 2.15 p.m.
§ Mr. Marcus Lipton (Brixton)
I want to apologise to the Economic Secretary for not being able to hear the whole of his speech. However, I heard enough to convince me that he made a very reasonable case in the circumstances. If I interpreted him aright, he asked the promoters of the Bill to consider withdrawing it in view of the statements that he made. It has served its educational purpose. The Government have promised 1688 to introduce legislation not later than next Session. In those circumstances, I find it easy to support the plea of the Economic Secretary and I ask the promoters of the Bill, having served their purpose, to consider withdrawing the Bill forthwith.
§ 2.16 p.m.
§ Mr. J. Langford-Holt (Shrewsbury)
If there is one error which Parliament makes sometimes on a Friday it is that we have been known on occasion to pass legislation for which there is no need. I believe that the need for legislation is the first requirement of any Bill which is brought before this House.
What is the duty of Parliament in passing legislation? In considering this matter, and the protection which Parliament must afford, one wonders to whom that protection should be afforded. Is it our duty, for example, to protect fools from their own action? I do not think so in the least. But I think that the British public is entitled to Che protection of Parliament when people behave as normal persons, when they believe, as normal individuals are entitled to believe, statements which are made and which purport to be statements of fact. Therefore, I think the public is entitled to the protection of this House against lies, either direct or by implication or omission.
We have heard a speech from the Economic Secretary to the Treasury— and many of us will not be surprised at the line which he took—saying that, on the whole, this is a matter which is very wide in its implications and one in respect of which it is far better that the Government should produce their own legislation in due course. In fact, he went a lot further than one expects Ministers to go on these occasions when he virtually said that legislation on this matter would be brought forward in the next Session of Parliament.
I do not believe that possible action by a Government is a necessary bar against action by private Members in bringing forward legislation by way of a Private Member's Bill. Private Members can perform a very real service in keeping legislation up to date by piecemeal amendment from time to time. I think that probably Her Majesty's Government would take the view that if the betting and gaming laws had been 1689 kept slightly more up to date, their own Bill might be having a slightly less troublesome time. Therefore, private Members can, and I think do, perform a service to Parliament and even to the Government in keeping an eye on legislation and, indeed, in amending legislation at frequent intervals.
One cannot help looking at this Bill and wondering whether perhaps it is not being rather tortuous in the way in which it tries to achieve something. One cannot help wondering whether an easier way would have been to say that only public companies may issue this type of invitation. The Bill might well have been simpler, more straightforward and have provided an easier method of dealing with the problem. There are omissions.
For instance, I should like to see the question of nominee shareholding dealt with in the Bill. In itself this is not a bad thing, it is commonly done, and for commendable and logical reasons. For example, people in this country and abroad may not wish to have the day-to-day management of moneys which they have invested, and may prefer to hand this over to people whose work it is. That is logical and proper. There are some people who prefer nominee shareholding for no other reason than that of secrecy. I have no such urge, but I can well understand others feeling like that.
There is another section of the population, however, which engages in nominee shareholding for altogether different reasons. This is no new development, although it has received much publicity in the last few years through the take-over bid. People seem to think that there is something new in it but it went on both before and during the war. Nevertheless, nominee shareholding is an integral and can be a sinister part of the take-over bid process.
I should like to see something else included in the Bill. The names of owners of shares held by nominees can be known to roughly three sections of the community—the directors of the company concerned, the shareholders of the company concerned, and the public at large. No case can be made out for saying that the names of the proprietors of nominee shareholdings should be 1690 known to the public at large, because it is not the business of the public at large. In my view, there is no case for it even being made known to the shareholders, because under company law it is the duty of the directors to care for and watch over the interests of all their shareholders, not only a section of them.
This leads directly to my third point, that I think this information should be made available to the directors of the company concerned. After all, it is the shareholders who are the proprietors of the company, and how can directors discharge their duties to their shareholders if they do not know who those shareholders are? I admit that this is a limited point, but it should be included in the Bill.
A Private Member's Bill must of necessity be a small one. Perhaps private Members are too limited in their scope for promoting legislation in this House, but at least the Bill does something which is both definable and desirable. I have expressed misgivings about whether it is as simple as it might be, but that point can be considered during a further stage of the proceedings. The Bill amends the Companies Act, 1948, which was brought in during the era of hon. and right hon. Gentlemen opposite—
§ Mr. Langford-Holt
It may be that the "hear, hear" from the hon. Member for Brixton (Mr. Lipton) indicates that the Act was passed in haste and hate, vigour and venom, rather than after serious consideration. For the reasons I have given, I think that at this stage the Bill merits the support of the House.
§ 2.24 p.m.
§ Mr. Dudley Williams (Exeter)
When I listened to the speech of my hon. Friend the Member for Belfast, East (Mr. McMaster) I wondered whether it would be possible to say anything else about the Bill, but I have one or two small points to make with which I will take up the attention of hon. Members for a short time before we proceed to the next business. I am sure that every hon. Member will understand fully the reasons for the Economic Secretary having to leave the Chamber. I am certain that my hon. and learned Friend 1691 the Joint Under-Secretary of State for the Home Department will be diligent in passing on to his hon. Friends the views expressed by subsequent speakers.
My hon. Friend the Member for Somerset, North (Mr. Leather) made one remark which might unintentionally have misled the House into thinking that I and my hon. and gallant Friend the Member for Cheltenham (Major Hicks Beach) are in the habit of opposing private Members' business. Mr. Deputy-Speaker, you know full well that I approach each one of these questions from a judicial point of view. It is true that I am opposed to Parliament being turned into a sausage machine at 4 o'clock, when about ten Bills which have not been considered by the House of Commons may be passed through on the nod. That is an unsatisfactory procedure. It is our duty as Members of Parliament to express our views on the various subjects that are to be placed on the Statute Book, and it would be undesirable, if hon. Members have any doubt about the effectiveness of legislation proposed in this Chamber, to let it go through in that way.
For example, if the Racial and Religious Insults Bill comes up later today, I hope to do what I can to save the right hon. Gentleman the Leader of the Opposition from his friends, because, as I see it, if that Bill gets through the House the boycott of South African goods will have to stop—I am sorry, Sir, I know you are going to get up and say that I am not keeping to the Motion before us. In that case, you would be correct. I am sorry for my slight divergence.
I agree with the Economic Secretary to the Treasury that the Bill does not go far enough, although I do not propose to take extreme action this afternoon by opposing it or calling a Division. I do not altogether agree with the Minister that the Bill should be withdrawn. It is a good measure, subject to amendment in Committee, which could easily be done. When the suggested new Companies Bill is presented to the House of Commons, it can include a provision for the repeal of this one. In the interim period, however, this Measure would do a lot of good.
Many hon. Members have quoted instances of small investors being fleeced, which is not too extravagant a term to use. The point has not been made 1692 of the temptation which exists for people with limited capital to be attracted by prospectuses sent out by unscrupulous people who are trying to get hold of their money. I am referring to people living on small incomes with a modest capital of, say, £3,000 or £4,000, to whom an increase of 1 per cent. in the rate of interest may mean the difference between an annual holiday and staying at home. So it is a great temptation to them to fall for these sometimes dubious advertisements. All hon. Members will agree that we are dealing with only a relatively small number of unscrupulous people who put such advertisements in the Press.
The suggestion in the Bill that a statement relating to the affairs of the company must be filed with the Registrar of Companies is not sufficient to protect people on limited incomes and with limited capital. In many cases they are not familiar with balance sheets, so when they look at one it means nothing to them. Indeed, as you no doubt know, Sir, balance sheets issued by unscrupulous people can cover up a multitude of sins.
I would have thought it desirable to include in the Bill provision to give power to the Registrar of Companies, if he is satisfied on inquiry that a business is not being run satisfactorily, to stop it advertising and taking further deposits from the public. This is a matter which perhaps can be dealt with in Committee. I hope that my hon. Friend the Member for Torrington (Mr. P. Browne), to whom I think considerable thanks are due for his courage in introducing what is, after all, a complicated measure of company reform, will bear that point in mind.
I now come to Clause 2, which refers to Section 30 of the Companies Act, 1948. In this Section the penalties which can be imposed upon a person who does not deliver the statement called for in Clause 1 of the Bill are laid down. This statement concerns the ordinary public companies. The penalty for failing to file the statement is, on conviction on indictment, imprisonment not exceeding two years or a fine not exceeding £500, or both, and, on summary conviction, imprisonment for a term not exceeding three months or a fine not exceeding £100, or both. We all know that secretaries of companies 1693 may forget or be a little in arrear with the filing of the annual return of the company, and we know that the Registrar of Companies, who is a very humane man, does not take any action unless there is something wrong with the company. He merely sends a reminder that the file has not been returned. When it is returned, that is an end of the matter.
However, the courts must have power to inflict penalties on people who do this for unscrupulous reasons. The penalties for people who unscrupulously encourage people to deposit money with them with promises of high rates of interest when there are not sufficient resources in the company are not adequate. Rather than apply the provisions of Section 30 (4) of the Companies Act, 1948, I would urge my hon. Friend the Member for Torrington to consider in Committee whether it would be possible considerably to increase the penalties. For a man who unscrupulously obtains hundreds of thousands of £s, particularly from small people— we have knowledge of individuals who have been caught in this way—I do not think that a penalty of two years' imprisonment is adequate. A very considerable increase in the terms of imprisonment and fines would be appropriate. I hope my hon. Friend will bear that point in mind.
One of the two other points I want to make concerns Clause 4 of the Bill. As I understand it, if a company issues an invitation to the public to lend or deposit money, it is bound to file the statement, and it is no longer an exempt company. In order to try to get a balance between not hampering business and ensuring that it is properly run, I would have thought that there was a case for amendment of this Clause. For instance, if the Registrar of Companies were satisfied that all depositors had been repaid in full with interest and the company had decided no longer to employ that method of raising finance, I would have thought that, subject to undertakings by the directors, it would be possible for the Registrar to allow the company the full privileges of an exempt company. I hope that the Bill can be amended in Committee to cover that point.
The only other matter to which I want to draw attention is this. Reference has 1694 been made by my hon. Friend the Member for Belfast, East and the hon. and learned Member for Kettering (Mr. Mitchison) to the fact that the Companies Act, 1948, does not apply to Northern Ireland. If that is so, I should have thought that provision should be made in the Bill to ensure that it will operate in Northern Ireland.
§ Mr. P. Browne
When we took the Bill to the Table Office, it was intended that the Bill should apply only to England, Scotland and Wales. It was not considered necessary to make provision with regard to Northern Ireland because this Bill amends the Companies Act, 1948, which does not apply to Northern Ireland.
§ Mr. Dudley Williams
I am grateful to my hon. Friend for that explanation. That clears up the point that I had in mind.
I hope that hon. Members will give the Bill a Second Reading, in spite of the discouragement of the Economic Secretary. I think that it is a very good Bill and that it is greatly needed. I hope that it will not be long before we see it in Committee and back here for the Report stage and Third Reading.
§ 2.37 p.m.
§ Mr. Peter Emery (Reading)
I should like to add my congratulations to my hon. Friend the Member for Torrington (Mr. P. Browne) on his good fortune in the Ballot which has enabled him to bring forward this Bill. In principle, I believe there is no exception to what my hon. Friend the Member for Torrington wishes to do. Probably every hon. Member backs up the principle behind the Bill.
I want to mention some points which worry me in the drafting of the Bill. Before I do that, I am sure it is right and proper for me also to congratulate my hon. Friend the Member for Bristol, North-East (Mr. Hopkins), who, in his maiden speech, so admirably lent his support to the Bill and brought his experience of both the City and Wall Street to bear on this very complicated and involved problem.
I should like to pay particular tribute to the general and detailed action of the City. I believe that in the City there is the greatest financial and economic power in the world. I believe that its 1695 integrity is second to none. However, this does not mean that there is not the odd and occasional exception. It is for that type of exception that I see the principle that lies behind this Bill.
It is only right and proper that Parliament should do everything within its power to safeguard investors from being taken for a ride. That, however, in no way is meant to imply that there should not be and must not be any risk in any form of investment. It would be entirely wrong for Parliament to attempt to control investment or to control the way in which an individual can invest his money. I believe most strongly that Parliament ought to protect the investor against a company or firm which, even if it is not fraudulent, is sailing very close to the wind by not showing the proper position to persons investing in it.
Clause 1 of the Bill includes several things of great importance. The first reference is to a statement under the Third Schedule of the 1948 Act. Such a statement would be very full and thorough, but to the type of person that this Bill seeks to protect it would mean absolutely nothing, even if properly filed and lodged with the Registrar. Perhaps in Committee something can be done along the lines that were suggested by my hon. Friend the Economic Secretary in order that the ordinary investor may be able to obtain a more simple, although probably not so detailed, statement of the position of the company or the organisation in which he is investing.
This would be particularly beneficial, because the Bill does not need to protect financial geniuses and wizards and investment corporations. They know enough of what is going on not to need it. It is the small investor who needs protection—the person who is attracted by a flashy advertisement, perhaps in a bus in Reading or in the Underground in London, and who, having a little savings, puts £100 or so into an organisation. It is these people whom Parliament ought to be protecting by ensuring that they are not taken in and are in possession of all the facts.
The second matter in the Clause which I want to refer to is the penalty. Five hundred pounds is absolutely inadequate when one may be dealing with tens of thousands or hundreds of thousands of pounds. Another "0" ought to be put 1696 behind the £500. Perhaps the penalty might be scaled in proportion to the amount of investment taken in by the company concerned. I hope that in Committee this penalty will be definitely increased.
The third and last thing on Clause 1 to which I am referring is its exact wording. It saysAny person who issues or causes to be issued an invitation to the public to lend on deposit money …Suppose that when going to a party or to a restaurant, I suggest to an individual that he should invest £500 in the joint stock banks. Could I be held to be liable to have made the particular lodgement which is suggested in this Clause? If that is so, then it is fantastically silly.
§ Mr. Dudley Williams
The point has been made earlier on. I think it is met because it says in the ClauseAny person who issues or causes to be issued an invitation to the public …That could not be an individual. It has to be a public invitation.
§ Mr. Emery
I am indebted to my hon. Friend for that, but what is the interpretation? If I am at a public function and I mention it, perhaps in a loud voice for a number of people to hear, what happens then? I must be careful. This is the sort of thing which has to be strengthened in Committee and examined carefully before the Bill goes on the Statute Book.
All this in no way detracts from the principle behind the Bill and the need for some kind of action to be taken. I regret that the Bill does not include any reference to nominee shareholders. It will do great service to the City and to Parliament if certain action can be taken in order that the public in general can know exactly where the control of any company lies. This is not something which is so at the moment. It is something I would commend to the Economic Secretary and the Treasury that we should consider in whatever action is being contemplated by the Treasury.
In principle, this Bill is right and proper and should be applauded. Its actual drafting is in need of revision, and the penalty side, particularly, must be greatly strengthened; otherwise I believe it will be quite useless and we might just as well not have it. Nobody would suggest 1697 that the Bill is trying to cast aspersions on the integrity of the City, because it does not, or that it is trying to allow for Parliament to control investment, because it is not doing that either. I would, therefore, urge all Members to make certain that it obtains a Second Reading.
§ 2.48 p.m.
Major W. Hicks Beach (Cheltenham)
I apologise to the House for not having been able to be present during the whole of the debate, and in particular to my hon. Friend the Member for Torrington (Mr. P. Browne) because I was not present to hear his explanation of the Bill, which, I understand, he gave in that lucid way of his which we are beginning to know so well. I believe he was kind enough to refer to me, and to say that I had a number of legal objections to the Bill. That is correct. As I understand that another Bill is down for consideration today, I will make them as brief as possible, because I have no desire to hold up any good Measure.
My chief objection is that the Bill does not go half far enough. It does not even start to deal with the problem we have to face in company law. As regards my legal objections, I would like, in the hope that the Bill will go further, to put forward suggestions by which it could be greatly strengthened. Clause 1 deals only with the question of deposits. Deposits are a very small part of the problem we are facing. If Clause 1 is correctly drawn, it can be enforced only in respect of deposits and it should be amended to include anyone who seeks to invite people to subscribe not only money on deposit, but also money for shares.
§ Mr. P. Browne
I pointed out that, through neglect on my part, there was a misprint in Clause 1 and that the line to which my hon. and gallant Friend is referring should read "loan or deposit", which carries the scope a little wider. I hope that, if the Bill goes to Committee, we shall be able to amend it.
Major Hicks Beach
I am sorry that I was not here when my hon. Friend made that correction. The Clause should be drawn so as to cover invitations to subscribe to shares, and I cannot see why that should not be included. I make that criticism in all possible 1698 sincerity to try to help the supporters of the Bill.
The present penalties make an offender liable to a fine of £500, which is an absolutely absurd and ridiculous figure. I cannot understand how the draftsman of the Bill ever considered such a sum adequate. We are dealing with very large sums and the penalty should be much larger than is proposed, and should include imprisonment.
I have a fundamental objection to Clause 4, which I understand to be retrospective legislation.
Major Hicks Beach
I am glad that my interpretation is correct. I profoundly disagree with retrospective legislation of any sort, kind or description, and I hope that no Conservative Government will ever again be a party to introducing retrospective legislation. However, that is a matter with which we can easily deal in Committee and I am only trying to make a few points to try to get the Bill into some sort of shape.
The only other drafting point which I want to make is concerned with Clause 7. It has been said that the Bill does not apply to Northern Ireland, but I should have thought that it was not beyond the wit of a Parliamentary draftsman to amend it with that purpose in view. I am prepared to give assistance on that matter—my hon. Friend should not be entirely ruled by the Table. The Bill could easily be amended so as to apply to Northern Ireland, and there are precedents for doing that.
My hon. Friend the Member for Shrewbury (Mr. Langford-Holt) raised a very important matter when he said that the Bill did not cover shares registered in the names of bank nominees. There is a case, and sometimes it is a very strong case, for registering shares in the names of bank nominees, but there are arguments both ways. What there is no case for is Chat the directors of a company should know who their shareholders are, and I have always advocated that, while some system of nominee shareholders should be allowed, the directors should have access to the records of nominees so as to know who holds the shares.
1699 My hon. Friend was absolutely right in his comments about take-over bids. The use of bank nominees is one of the easiest ways of arranging a take-over bid. It seems to me that there is a very simple solution which could be incorporated in the Bill. It would have to be done by a new Clause and if I am lucky enough to be selected to serve on the Standing Committee which deals with the Bill, I will want to make Amendments on those lines.
I said that I would be brief and I conclude by saying that in principle the Bill is right, but in practice it will never work, because it does not go half far enough. It requires a great deal of drafting amendment, but in my view this is such an important matter that I hope that when they have received the report of the Jenkins Committee, the Government will introduce legislation, which both sides of the House desire, to overcome many of the difficulties affecting company law and the City in general at the moment.
§ 2.55 p.m.
§ Mr. G. R. Mitchison (Kettering)
I cannot resist the feeling that when some hon. Members opposite read in HANSARD the speeches which they have made today, they will feel that they must have had some motive other than criticism of the Bill for making them. It is not for me to heal the obvious splits in the Tory Party. The first split appears to be between those hon. Gentlemen who at some length have been telling us their views about a very small and very unimportant Bill, in order, I suppose, to prevent their colleagues who follow bringing forward another Bill afterwards. It is only supposition, but I find it difficult to understand what other motives there could be for some of the speeches to which we have listened. The second split, as usual, is between the Government and their supporters.
In the National Assembly at about the time of the French Revolution, the "mountain" was occupied by the Jacobins, the revolutionary party. The Government of the day, the mild ones, lived in the swamp below. We have had the mountains today, the mountains in all their grandeur and before I describe them a little more fully, I should like to make one exception. I am sure that we all heard the maiden 1700 speech of the hon. Member for Bristol, North-East (Mr. Hopkins) with interest. It was an excellent speech and we hope that we will hear more of him. I cannot say the same for the other speeches. I listened to the whole lot one after the other and, to put the matter quite frankly, I wondered how so many apparently sensible people could talk so much rubbish for so long, and I hope that they will not mind my saying so.
Of course, we have had one or two experts, our recognised regular Friday attendants, who are prepared to make the same sort of contribution to any subject, a contribution valueless in its content and valuable only for the time it occupies.
We have just had a Select Committee on the Procedure of the House. While procedure is procedure, a great deal depends on how, having got one's procedure one operates it. I should have thought that there was a certain common interest in the House, and, even though I hesitate to say it, in the Tory Party, in promoting the status of Parliament and the respect in which it is sometimes held. I wonder how many of the speeches to which I have listened today made any contribution towards promoting the status of Parliament or the respect in which it is held. I wonder whether some people, who may have been listening to them or may read them the next day, will feel that the speakers were really talking rather thin stuff for some purpose which could hardly be the benefit of the people and the country, or even of the small investors to whom from time to time, for the sake of convenience and conscience, they thought fit to refer. That kind of proceeding does not help either Parliament or democratic Government in this country.
Major Hicks Beach
I wonder whether the hon. and learned Gentleman would agree with me that if this matter, which is one of importance, is to be considered properly, it would be of assistance to have more members of the Opposition here?
§ Mr. Mitchison
My hon. Friends have come in from time to time and listened for a short while. I cannot blame them for going out again. If hon. Members opposite want to talk out their own Bill, they cannot expect the Opposition to come and listen to what they are saying. 1701 It is not worth it. I have listened to all that has been said, and that is my considered view. I am entitled to give that view to the House, and I do. I say to the Tory Party, and to those who inhabit the mountains, that I have never suspected them of too much interest in Parliamentary Government and democracy, and that they do it little service by this kind of performance.
I turn to what was said by the Economic Secretary, the one Member of the Government who appeared to speak on the Bill. He was from the Treasury, and not from the Board of Trade, which is the Department concerned with these matters. He began by lending the support of the Tory Government to what had already been, and still was when he rose, a concerted effort to go on talking about nothing in particular. He did it politely, but that is what it came to. He then said that the Bill had a good object. We all agree with that. He went on to invite the promoter of the Bill to withdraw it, but the promoter of the Bill did not pay any attention and the debate continued.
I notice that the mountain does not pay much attention to the Government in matters of this sort. When pressed about it, he went beyond that and said that if it came to a question of voting for or against the Bill, he would advise the House to vote against it, but he did not expect the House to pay much attention to his advice—at least, that is what I understood him to say.
While the hon. Gentleman was talking he reminded me a bit of the story of the man who went to church and heard a very long sermon. When he returned he was asked what the clergyman had been talking about. He said, "Sin". Someone said to him, "What did he say about it?", and he replied, "He was against it."
The hon. Gentleman who spoke from the Government Front Bench made a long speech about the Bill, but it took me a long time to discover whether at the end he was for or against it. However, he ended by saying that, although he did not expect any one to pay much attention to him, he was against it.
Let us look at what the Bill is trying to do, and the context in which it has come forward. At the moment we have sitting what is commonly called 1702 the Jenkins Committee which is to consider the whole structure of the Companies Act. It is to consider building societies and other bodies which raise money from the public. It will cover not merely the small amount of ground that is covered by the Bill, but the whole field of public investment in the largest sense of the word, and all that honesty which is surely required in those who solicit money from the public.
One of the catch-phrases we have heard time and again today is how magnificent is the City of London. I should be the last person to deny that a valuable contribution to the life of the country, and to its financial standing, is made by the City of London, but it is not without reason that the Jenkins Committee has been appointed. The reason is that there are sides to the City of London which cause nothing but suspicion in the minds of those who have to look at the way in which affairs are run there. It goes beyond suspicion. There have been some scandalous cases lately. I am not talking about the ones which are sub judice at the moment, but there have been others, and there have been occurrences which no one would find easy to defend.
In the higher financial and City circles we have had somewhat undignified scrambles of various kinds, most of them in the loose classification of takeover bids. A great deal of this stuff smells, and smells nasty, and the better element in the City has found it necessary to lay down a code of conduct in this matter which is, after all, a matter of dealing with the financial interests of the public and public money. It is because it has been found necessary to do that that the public at large is properly and rightly concerned at the sufficiency, or insufficiency, of the checks that can be put on money dealings in the City.
The hon. and gallant Member for Cheltenham (Major Hicks Beach) mentioned one or two other matters. I am taking these to show the background against which the Bill is introduced. The first thing he referred to was the question of nominee shares. I am sorry that he has left the Chamber. His remedy for it was that directors should be entitled to know the shareholders who were behind bank nominees, that is to 1703 say the people who had instructed the bank nominees to hold the shares for them.
I would point out the perfectly simple fact that that takes us only one stage back and we might have to go two, three or four or five stages back. In his criticism he did not at all cover the case of shares taken in the name of the office clerk or someone of that sort and which are just as open to objection on public grounds—
§ Mr. Mitchison
Certainly they are. I appreciate the objection to nominee shares, but he selected one particular kind of share.
§ Mr. Langford-Holt indicated dissent.
§ Mr. Langford-Holt
I did not say "bank nominees"; I said "nominee shareholders," and I pointed out that I included all nominee shares.
§ Mr. Mitchison
I was talking about the hon. and gallant Member for Cheltenham who continued after the hon. Member for Shrewsbury (Mr. Langford-Holt) had left the Chamber.
§ Mr. Mitchison
Even on a Friday the hon. Member cannot shake the head of the hon. and gallant Member for Cheltenham. He can only shake his own head and I am at the moment dealing with the hon. and gallant Member for Cheltenham. I propose to continue to do so and then I will deal with the hon. Member for Shrewsbury.
The hon. and gallant Member for Cheltenham objected to bank nominee Shares and I was saying, first of all, that if he was going to make an objection at all it ought to have been made not merely against bank nominee shares but against all classes of shares. I gather that the hon. Member for Shrewsbury has now come to agree with me on that point.
§ Mr. Mitchison
All classes of nominee shares. That is what I am talking about.
Let us go a little further, and this appears to be relevant. Let us consider nominee shares. This is not an easy or simple matter to deal with. It is not something that can be dealt with even to a slight degree by the type of suggestion made by the hon. and gallant Member for Cheltenham. It is true that he was referring only to bank nominee shares, but if the large class of other nominee shares is included one still gets only one step back to the person who has given the instructions or has mandated the actual nominee. But when we are dealing with this matter we have to go a great deal further back than that, and if we are to do anything effective at all we must see where the real interest lies.
§ Mr. Stevens
I am always much impressed by the logic and reasoning of the speeches of the hon. and learned Member for Kettering (Mr. Mitchison). He started by saying that he could not understand why we on this side of the House have made such long speeches. He went on to say that this was only a tiny little Bill. I am rather puzzled that in these circumstances he is holding forth at such length himself.
§ Mr. Mitchison
I can tell the hon. Member without any difficulty. We have had one speech from this side of the House so far.
§ Mr. Mitchison
I cannot hear the hon. Member. [Interruption.] If he wants to get up I will give way.
§ Mr. Stevens
I was saying to my hon. Friends that probably that was because during most of the debate there have been only two hon. Members on the benches opposite, except for the hon. Member who wandered in and called a Count.
§ Mr. Mitchison
I have already dealt with that side of the matter. Let me deal with the rest. The hon. Member asked why I, who have been speaking for about fifteen minutes, am speaking at such length. He is correct in assuming that I shall go on for a good deal longer, 1705 though I can hardly emulate the performance of the hon. Member for Belfast, East (Mr. McMaster) who read out a considerable portion, including some but not all of the relevant parts, of the Companies Act which, by the way. does apply to Northern Ireland.
The trouble about the English Companies Act is that there is one Clause in it which deals with matters in Northern Ireland by specific provision that the law is not going to alter in this way or that, but there is not the usual Clause in it, "That this Act shall not apply to Northern Ireland ". Later, if time permits, I am coming to the application of that matter to the Bill that we are considering today, but for the moment I am concerned to answer the hon. Member who asked me why I thought that there was so much to be said. I quite agree with the hon. Member that this is a very small Bill indeed. I hope to show that it is so small that it is yet another case of the mountain being in labour and having brought forth not merely a mouse but a rather ridiculous one on this occasion. Be that as it may, there are still things to be said about it.
§ Mr. Leather
Has the hon. and learned Gentleman forgotten, perhaps in his fund of oratory, that his hon. Friend the Member for Islington, East (Mr. Fletcher) has already committed the whole Labour Party to supporting the Bill?
§ Mr. Mitchison
I think that the hon. Member would be wise to wait till the end of my speech and then see exactly what I have to say about it. He will then find that the impression which he has formed at present is somewhat erroneous—erroneous, I agree, in detail. But, at any rate, I am more consistent with myself than are the Tory Members with one another. I have the advantage of numbers in that, but even if I were inconsistent I could not produce the mass of contradictions which has been evolved today from the benches opposite and align the major contradiction between the mountain, which I see the hon. Member has now joined, and the patient mouse from which we heard only one speech.
To return for a moment to what the hon. Member was saying, it seems to me that though the Bill is small and though the provisions in it are, as I hope to show, really quite insufficient for the 1706 purpose—a negligible contribution—and though with some of them I feel in agreement with the member of the Government who spoke, nevertheless, as one or two speakers have indicated, it raises some questions of general importance.
Why is the Bill brought in now? A little time ago I was speaking about the Jenkins Committee, a subject to which I now return. The Jenkins Committee covers a very wide field indeed, and it seems to me that those who brought in the Bill thought that some part of this field could be separated from the rest and dealt with in a separate Measure —unless, of course, they brought it in for some malign purpose, though I do not see how they could have done that, to prevent the people with the next Bill ever getting a chance. I do not think that in the way in which we work our procedure that is possible. We must attribute to them the best motives, that they did think that the matter could be separated.
There is, of course, not only the Companies Act of which we heard at some length from the hon. Member for Belfast, East. The hon. Gentleman omitted only a little of it. However, a little was omitted and perhaps I can fill up some of the gaps. But in addition to that, and I am rather surprised that no more has been said about it, there is, of course, the 1958 consolidation Act which is called the Prevention of Fraud (Investments) Act, 1958, and which contains some very stringent provisions, far more stringent than anything in this Bill. directed to fraud in the matter of investments.
All those hon. Members who today have been talking about people being induced to buy shares without sufficient information and to invest their money in that kind of way seem to me to have somewhat overlooked the provisions of the Prevention of Fraud (Investments) Act. I will refer to them in a minute because they seem to me to provide a kind of framework which might be more suitable than the actual measures, the sufficient measures I think, which appear in this Bill. Before doing so I wish to make perfectly clear that this Bill, sufficiently or insufficiently, does attempt to cover a gap. That is perfectly correct, and the major point in this 1707 matter is, I think, not money lent, but money put up for buying shares and so on. That has attracted the attention of Parliament for quite a time.
The Prevention of Fraud (Investments) Act consolidated the 1939 Act with the special provisions, and a Section of the Companies Act of 1947 and part of the Companies Act of 1948. I think it worth looking at and I propose to do so. But before coming to it let me repeat that there is a gap.
That is not the only gap in this type of case. I do not know whether hon. Members have noticed, but there is a similar gap in the Moneylenders Acts which contain provisions of a very stringent order, and there is also a gap in the hire-purchase legislation. Ingenious gentlemen have managed to wriggle between one and the other and in the same way it is possible to wriggle out of the provisions of the Prevention of Fraud (Investments) Act, and no doubt one of the instruments is the exempt private company to which this Bill is particularly related.
When we are looking at what is contemplated in this Bill I think it right that we should examine what is provided in the 1958 Act. I have a great deal to say about that. I hope I shall not take up undue time in going through the provisions of the 1958 Act—not perhaps in quite such detail as the hon. Member for Belfast, East described some of the Schedules to the Companies Act. But we shall have to look at those later, when we come to the provisions in the present Bill.
The first thing one faces in the Prevention of Fraud (Investments) Act is the licensing of dealers in securities. I should have thought that a matter which needed consideration in connection with invitations to the public to lend money to companies. Ought there not to be some control of that kind? I wish to say one thing before I come to other suggestions which I hope to make. Of course these are at the moment merely suggestions. Indeed the Bill itself is little more, because all this is within the scope of the Jenkins Committee. I think, we shall see at the end of the day that it is probably inadvisable to try to bring in a Measure which covers some small part of the field 1708 covered by the Jenkins Committee, and that it would be better to hold off for a year or two longer—unless there are too many obvious scandals in the City— to see whether we can get the thing better dealt with on a large scale. That is the first thing one faces in this matter.
Then there are very elaborate provisions for the saving for certain transactions. What was said today by the Economic Secretary was very much in point. This is a generally-drawn Bill and I think that, were it to go any further, it would be necessary to consider the actual meaning of the words used to see whether it was necessary to put a number of exceptions into the Bill. For the purpose of this Bill it might be better to consider the class of borrower rather than the particular transaction in which he engaged. I shall have a word or two to say about that later.
The next provision we come to is deposits or guarantees required in connection with applications for principals' licences. Those licences are the substantial thing in this Bill. That seems to me to be a proposal which at any rate should be considered in connection with those companies which invite deposits from the public. It is not an entirely new thing. It is not merely in connection with investment, but, to take a very well-known case, insurance companies have to make and do make substantial deposits, not only in this country but in most foreign countries. I should have thought that if they were borrowing from the public direct there was at least as much reason for some financial safeguard of this sort as in the case of insurance companies. I should not want to commit myself to particular suggestions because I have the feeling that the whole matter can be dealt with only as a whole on the recommendations of the Jenkins Committee.
Continuing about the licences, this Bill then provides an appeal—in effect, an appeal from the Board of Trade to a tribunal of inquiry. I do not think I need go into that, but it gives the Board of Trade power to make rules for regulating the conduct of these businesses which it is proposed to licence. There is a good deal to be said for that. I was very amused to hear the hon. and 1709 gallant Member for Cheltenham suddenly objecting to retrospective legislation and saying that the Conservative Party had never brought any in.
Major Hicks Beach
I never said anything of the sort. Although I know that there has been retrospective legislation under a Conservative Government on taxation matters, what I said was that I am hoping to see an end of that being introduced either by the Socialist Party or the Conservative Party and it is very much to be deprecated.
§ Mr. Mitchison
I am very glad that the hon. and gallant Member has corrected the impression I formed from his speech. I would not for a moment dispute that that was what he intended to say, whatever were the actual words he used. I agree with him thus far, that retrospective legislation needs to be looked at very carefully. I hope I shall have his support in condemning the Conservative Party for having introduced it on various occasions lately. I can go into them if he wishes.
Major Hicks Beach
The hon. and learned Member has my support in saying that retrospective legislation is wrong whether it is introduced by the Conservative Party, the Socialist Party or, in the unlikely event of its coming into power, by the Liberal Party.
§ Mr. Mitchison
It was only because the hon. and gallant Member made a somewhat dirty attack on—perhaps that word is not in order—such a slighting remark about the Labour Party, that I permitted myself to refer to yet another split in the Conservative Party.
§ Mr. Mitchison
Yes, I may come to that, but I want to deal with the principles of the Bill first. If I may turn again to the Prevention of Fraud (Investments) Act, my next point is this. We were told today that there were questions about industrial and provident societies and building societies. The origin of all building societies was more or less attributed to the hon. Member for Taunton (Mr. du Cann). That is something which I am sure he would be the first person to disclaim if he were here. No doubt they come into the picture when we are considering this type of thing. All I wish to say about the Pre- 1710 vention of Fraud (Investments) Act is that it contains separate provisions, in one place as regards industrial and provident societies, in another as regards building societies and in yet another about unit trusts. Probably so far as they come into the picture they ought to be considered and dealt with separately. For that reason, this Bill might be rather too simple.
We come, lastly, to general provisions for the prevention of fraud. This is still, of course, in relation to investment in the form of shares and so on and the people who make it their business to deal in those shares. I think it right at this point to say that we have been given various instances today of what might be prevented by the Bill. Listening to one or two of these instances, it seemed to me that there was no need to have recourse to legislation and that they were actual common law frauds. Although it is perfectly true that fraud, rightly, takes a good deal of proving and is a matter of strict proof, yet there have been cases, and I think that the instances which we heard today of quite obvious fraud are matters of the sort which have been dealt with and are being dealt with under the common law and criminal provisions. We are therefore by no means on entirely new ground. What we are trying to do is to fill the gap which we admit—I, at least, admit—exists in the middle of a very large field at the same time as that large field itself is being considered by the Jenkins Committee.
May I come to the detail of the Bill? Let us first see what its purpose is said to be by those who brought it forward and those who supported it today. They have not always agreed in their statements, but by and large what they say is that their purpose is to protect the small investor.
The small investor is one of the lay figures which the Tory Party is engaged in setting up. The former railway shareholder was invariably a widow and an orphan—or a widow or an orphan; it did not seem to matter very much which. The small man was another of these figures. He was usually the small business man, but unfortunately the Tory Party have delivered so many knocks at him that nowadays he is having a rather difficult time. One hon. Member of the 1711 Tory Party at any rate has a line dealing with—I forget the exact phrase—the small fixed-income recipients.
§ Mr. Mitchison
These all appear to be located in the north-east of England, and what they happen to be at any time always seems to me to be a matter which only the hon. Member who uses the phrase can define with any particularity.
We now have a new figure—the small investor. I would simply say that all the Bill does in substance is to extend to exempt private companies various provisions, at which I will look in a moment, which apply at present to public companies. These provisions are intended to give anyone who does one thing and has another the power to know something about the company. The one thing which the person has to do, first, is to get or look at a copy of the documents which are filed with the Registrar of Companies.
If there are in the extreme northeast of England about the same number of small investors as there are members of the small fixed-income groups—and I think that for the purposes of a discussion of this Bill on a Friday we might assume something of the sort—I wonder how many of them will come down to London to the Registrar's office when called upon to lend money to some company when it is suggested by an advertisement that they should do so. Several hon. Members opposite have taken that point. They have pointed out that it did not take matters much further. Not only does it not take matters much further but it is no use whatever for the purpose of the Bill as it has been stated. It may have other advantages, but as for the small investor, it does nothing whatever to help.
§ Mr. Dudley Williams
That is the point which I made in my short intervention, but I advocated amending the Bill to give the Registrar of Companies power, if complaint is made to him, to suspend the operation of certain firms.
§ Mr. Mitchison
Has the hon. Member considered whether such an Amendment would be within the scope of the Bill as at present drafted? We should have to consider that. I feel rather doubtful about it. Let us consider it as an argu- 1712 ment, since it is obviously useless to give the Bill a Second Reading if the support of the hon. Member for Exeter (Mr. Dudley Williams) depends on whether a certain Amendment can be made and if we have not made up our minds or tried to convince the hon. Member for Exeter whether such an Amendment can be made. It is clearly a very relevant consideration. We may have to consider giving an Instruction to a Standing Committee or something of that sort. We should at least know what we are in for. I will return to this subject in a few minutes.
I want to make another point about small investors. After all, we are concerned to protect them and, though they may be the lay figures of the Tory Party, there are people who are small investors, and the business of looking after them can be attended to by other political parties who have not the intimate and close association with all aspects of the City which the Tory Party always claims.
What is the second thing which the small investor must have? It is not merely his physical presence in London at the time, but also a certain expertness when it comes to seeing exactly what these figures mean. I will invite the attention of the House shortly to the provisions of the Companies Act. They will tell us exactly what documents must be lodged with the Registrar, and we shall be able to see how much the small investor is likely to be able to make out of those particulars, assuming that he disturbs himself to the extent of going to London and looking at the return. That is my first criticism of the Bill.
At this stage I turn to consider exactly what he will find when he gets to London. I look first at Clause 1. What the company has to lodge with the Registrar is a statement:in the form and containing the particulars set out in Part I of the Third Schedule to the Companies Act, 1948.That is one of the Parts of the Companies Act which the hon. Member for Belfast, East omitted, I think, but I missed a few minutes of his speech and he may have managed to discuss it in my absence. However, I would not like to rely too much on that.
In the light of what I have been saying, we are entitled to look at Part I of the Third Schedule and see what the 1713 small investor will find out when he gets to London. He will be able to learn the nominal share capital of the company. He will discover its distribution among various types of shares, particularly how much of it consists of redeemable preference shares and the earliest date on which they can be redeemed. He will be able to find theNames, descriptions and addresses of directors or proposed directors.So far. I do not think that he will learn any information which will be of very much use to him.
Next, he will be able to discover the amount of shares issued. If he picks that out, it will be of some use to him. Even so, I sometimes wonder whether it is quite good enough. We hear of companies nowadays with 1s. shares which are quoted at all sorts of fantastic figures—fifty times, and goodness knows how many times, their nominal value. I question the reason for that. However, I merely point out that the small investor might be misled. Though he might learn the amount of shares issued, he would not have sufficient knowledge of what actual working capital those shares represented and what their real value was.
The next items are these:Amount of commissions paid in connection therewith.Amount of discount, if any, allowed…Then some matters are set out which after a time would not be important.
Then come details which would be important if he was concerning himself with one of these mushroom inviters of capital, which would still be dealing with preliminary matters such as those set out here:
I am very sorry for the small investor. In the case we are considering, he has come down from the remote parts of the North-East Coast. He has come to a large and formidable office in London, which used to have on the entrance door an enormous poster saying, "Dead 1714 slow". Having passed the notice, he enters a place where there are quantities of such particulars flying about. The poor man has to face all this. He has to pick out from it what is really relevant.
- "Amount of preliminary expenses.
- By whom those expenses have been paid or are payable.
- Amount paid to any promoter.
- Name of promoter.
- Consideration for the payment.
- Any other benefit given to any promoter.
- Consideration for giving of benefit."
I wonder whether hon. Members have any recollection of one of John Gait's books, "The Ayrshire Legatees"—I am sorry if I slandered the hon. Member for Belfast, East—
§ Mr. McMaster
I do not agree with what the hon. and learned Gentleman has just said. The small investor, having come to London and discovered these facts—having found out precisely how much money went into the company, how much was paid on the shares issued, how much of that money was spent as capital and how much went for depreciation—is in a fairly strong position, perhaps with the help of an accountant, to know the stability and strength of the company.
§ Mr. Mitchison
I feel quite certain that if the man had the help of an accountant, or that of the hon. Member, he would be in quite a strong position, but the object of the Bill is to protect the small investor. It is difficult enough to suppose that whenever he gets an invitation to lend money he will come to London from whatever part of the country he may live in—and we are told that some parts of the country are simply crawling with small investors—but it is even harder to suppose that when he goes to the office he will take the hon. Member for Belfast, East with him, or that he will, without doing that, know what particular figures are relevant to the question that he has in mind. This is a pretty complicated return and, to put it into plain English, no ordinary person will know what to make of it, will know what matters or does not matter, and what relation it has to the question of lending money to the "rogue elephant" companies.
I need not go through the return in detail. I will only say that it is intended for a different purpose. It is not intended to communicate to small investors what the financial position of a company is. It is intended to allow the company law to be enforced and to ensure that the Registrar has the information necessary for that purpose, and to ensure that people who are skilled 1715 in and understand these matters can, if they so require, get the information from the office.
The return goes on, as some of us, no doubt, will know, to deal with issues of shares and debentures within the last two years, with options and the periods during which they are exercisable, the persons to whom they would go, the… vendors of property … purchased or acquired by the company within the two years, preceding …the amount in… cash, shares or debentures paid or payable to each separate vendor"—that, as I understand it, refers to vendors of property—
§ Sir Leslie Plummer (Deptford)
On a point of order, Mr. Deputy-Speaker. Is it not a discourtesy to the House that the presenter of the Bill should be absent while my hon. and learned Friend the Member for Kettering (Mr. Mitchison) is making a reasoned reply; and that not even one of his supporters is present in the Chamber?
§ Mr. Mitchison
Let us hope that the sponsor of the Bill, having listened to the criticism of it, thought it perhaps wiser on this occasion to take the advice given to him by the Government spokesman and that, while not actually withdrawing the Bill, he may be said, as it were, to have abandoned it.
I return to what the small investor will see. We come to "every material contract" and the time and place at which the contracts can be inspected, the memoranda of contracts that have not been reduced to writing, the translation of contracts wholly or partly in a foreign language—I quite agree that the small investor will want a translation of that sort, but I wonder, when he sees the translation, what use he will be able to make of it.
This is the Third Schedule to the Companies Act. I see that the hon. Member for Exeter has the Statutes Revised there; he will find the particulars in page 749. Unfortunately, the particulars in the Schedule are not numbered, or are numbered in a very erratic way, so that 1716 it is a little difficult to identify them. Then we come to:Names and addresses of the auditors of the company".This will not be of much use to him.
Full particulars of the nature and extent of the interest of every director in any property purchased or acquired by the company within the two years preceding the date of this statement or proposed to be purchased or acquired by the company"—It goes on and on like this, and I do not know that I need follow the example, excellent though it was, of the hon. Member for Belfast, East and read the whole paragraph. I merely say that it is rather hard meat for the small investor.
Next, we come to:Rates of dividends (if any) paid by the companyand—Particulars of cases in which no dividends have been paid in respect of any class of shares".This is Part I of the Third Schedule of the Companies Act, and that is the foundation upon which the whole of this Bill rests, but the one operative provision in it is that a statement relating to the affairs of that company, in that form and with those particulars, should be delivered to the Registrar of Companies. I can see great advantages in having that kind of thing delivered to the Registrar, but not for the purpose of protecting the small investor. We have to go further than that.
I referred just now to the purpose of the paragraph of the Prevention of Fraud (Investments) Act, 1958, was to indicate the sort of machinery that we could set up in order to act on the delivery to the Registrar. We have got to have operations, either of the Board of Trade or some other licensing authority. We may have to have inquiries made. We want quite a number of other things if we are to use these particulars as the foundation for the kind of action which is contemplated. I am glad that the hon. Member for Exeter and I find ourselves, for this once, broadly in agreement. It encourages me in the remaining remarks which I have to make today.
There it is; that is the foundation of it. When we come to look through the Bill we are considering, we find that two 1717 subsections of Section 30 of the Companies Act, 1948, are to apply to a statement delivered under this Bill, just as they would apply to a statement made in lieu of prospectus. When we look at Section 30 and these two subsections, we find a penal provision. That penal provision applies at present—in respect of any untrue statement in a statement in lieu of prospectusand the penal provision in the Companies Act is this:On conviction on indictment any person who authorised the delivery of a statement"—which contained this untrue statement in it—is liable to imprisonment for a term not exceeding two years or a fine not exceeding £500 or both.I should have thought that if we were to apply those provisions to this particular case, that is to say, the statement delivered by the exempt private company which has in other respects to be on the lines of a statement in lieu of prospectus, we ought to have the same penalty. Yet, when one looks at Clause 1 of the Bill we are considering, we find that the offender is liable to a default fine of £500. I do not quite know the difference between a default fine and any other fine, but this is a minor matter, and no doubt could be dealt with in Committee. Surely, we do not want to duplicate the trouble about penalties.
If we look at the Section of the Companies Act regarding penalties on summary conviction, we find that the penalty is imprisonment for a term not exceeding three months or a fine not exceeding £100 or both. I do not want to go into all the degrees of crime or sinfulness to be attributed to these somewhat technical offences, but it very often depends on the circumstances. The penalties are only maximum penalties. If we are to have maximum penalties at all, I do not see why, when we are actually incorporating these subsections of Section 30 of the Companies Act, 1948, which appear to contain these penalties, we should have in this Bill a different penalty provision—a penalty provision different not only because it contains nothing whatever about a person delivering a statement, but also because it makes no distinction between cases which are the subject of conviction 1718 on indictment and cases which are the subject of summary conviction.
§ Mr. McMaster
The hon. and learned Gentleman appears to be misreading the Section of the Act. Section 30 (2) and (3) of the Companies Act, 1948, relates to a default, as does Clause 1 of the Bill. That is the default to comply with the provisions of the Act or the Bill. Subsections (4) and (5) of Section 30 deal with untrue statements, and Clause 2 of the Bill adopts entirely subsections (4) and (5) of Section 30 of the Act, so that the two different penalties— penalties on indictment and on summary conviction—would both apply.
§ Mr. Mitchison
I hope the hon. Member will excuse me if I do not go into this matter at any great length, because I have a great deal more to say on the Bill. However, I cannot say that I agree with the hon. Gentleman.
§ Mr. Robert Mathew (Honiton)
The House always listens to the hon. and learned Member for Kettering (Mr. Mitchison) with the greatest respect. We have listened to him today with fascination, and some of us have been instructed by the very comprehensive way with which he has dealt with this important but small point. I hope it will not have escaped his attention, however, that the House has other business on the Order Paper and that the farming community is awaiting with interest what happens here today. If we are prevented from dealing with the next Bill, they will have no doubt about how it occurred and which side of the House caused the frustration.
§ Mr. Mitchison
Indeed, I hope they will take note of that. It is the first point that I made when I spoke today. Let us put it quite simply. I sat here hour after hour listening to hon. Members opposite making speeches which, as I saw it, were not really intended as criticisms or comments on the Bill, but were delivered solely for the purpose of delaying proceedings.
§ The Joint Under-Secretary of State for the Home Department (Mr. David Renton)
Will the hon. and learned Gentleman explain the purpose of the speech which he is making?
§ Mr. Mitchison
Certainly. The purpose of the speech which I am delivering 1719 is, first of all, to make my comments on the Bill. I would point out that when I have finished, as I shall have to at four o'clock, my hon. Friends and I between us will not have taken up nearly as much time as has been taken up by hon. Members opposite. We have been extraordinarily abstemious. Hon. Members opposite were talking to one another all the time.
§ Mr. F. V. Corfield (Gloucestershire, South)
Is that not a better Parliamentary procedure than talking to oneself?
§ Mr. Mitchison
I have a fascinated and interested audience, and the comments which I have been making have been extremely relevant and interesting.
Let me give my second reason for delivering this speech. I do not approve of this practice of going on talking like this. I am doing it now because it was done on the other side of the House, and I thought it was wrong at the time. But I can do it, too. I am not going to let hon. Members opposite get away with a second Bill to which they are not entitled if I can prevent it. They should agree amongst themselves not to filibuster, as I am now doing, on the first Bill.
§ Mr. Corfield
Perhaps the hon. and learned Gentleman would allow me to point out that the Agriculture Holdings (Disturbance Compensation) Bill, to which my hon. Friend referred, is an all-party Measure and that it has been supported by some of his hon. Friends on that side of the House. Therefore, there is a difference.
§ Mr. Mitchison
Yes, but the hon. Gentleman underestimates the preparation I have made. I have already ascertained from one of my hon. Friends whose name is on the Bill that he resented, as I did, the previous conduct of Members of the party opposite, and that he was content that the matter should be dealt with in the way in which I propose to deal with it. I will now revert to my comments on the Bill, because it seems to me that some of my observations lately may have been perilously nearly out of order, Mr. Speaker. Before returning to the Bill, I will deal for a moment with the comment made by the hon. Member for Belfast, East.
§ Mr. Leather
On a point of order, Mr. Speaker. I believe you were discussing something with someone at the time. But I think I was right in hearing the hon. and learned Gentleman say that he was filibustering. Is that in order under our rules?
§ Hon. Members: He did not say that.
§ Mr. Mitchison
Honesty compels me to admit that I did say that. May I withdraw the phrase now to put matters right? Returning to the hon. Member for Belfast, East, he said in effect that there is no conflict here between the penalty under Section 30 of the Companies Act and the penalty under Clause 1 of the Bill. Clause 1 refers to the obligation to deliver a statement relating to the affairs of the company in accordance with the Third Schedule to the Companies Act, 1948, and it puts a penalty of £500 on it.
We next come to Clause 2, which states that subsections (4) and (5) of Section 30 of the 1948 Act—… shall apply in like manner to a statement required to be delivered under this Act as to a statement in lieu of prospectus required to be delivered under that Act.When referring to a statement in lieu of prospectus required to be delivered under that Act, the penalty for untrue statements is the penalty to which I referred just now, that is, a penalty depending partly on the form of the proceedings—for if it is conviction on indictment it is higher—and partly a penalty that is not only not merely a money penalty, as it is in the case of this Bill, but also may be, or many include, imprisonment for turns varying again according to whether it is a conviction on indictment or a summary conviction.
It is not at all clear to me what is intended in the Bill. In fact, I am not certain that when we get to the Committee stage and are able to examine it in detail we may not find that it is contradictory. All I say about it is that I see no reason for having the penalty of £500 simply in that form, as appears to be intended by Clause 1 of the Bill, when the penalty under Section 30 is really a different and, I should have thought, in many ways a more suitable 1721 one. Since one assumes that those who drafted and introduced the Bill were more concerned with the penalty that they have expressly stated than with the one which they have merely incorporated by reference, it is right to make the comment, and to say that I disagree with them in the specific provision as to penalty which they have incorporated.
So much for Clause 2 of the Bill. I have very little time to deal with the one major matter, namely, the position of Northern Ireland—
§ Mr. Mitchison
One has to realise that I may not be able to say all I wish to say if hon. Gentlemen opposite persist in interrupting me by calling my attention to other Clauses. I want to dwell for a minute on the position in other countries—
§ Hon. Members: Hear, hear.
§ Mr. Mitchison
I am much obliged, Mr. Speaker. I am most grateful.
The first question that I must mention —I will come back to Clause 4 in a moment if I can—is that of the position of Nothern Ireland. The Section at the end of the Companies Act, 1948, to which the hon. Member for Belfast, East referred when I called his attention to it, simply runs:Nothing in this Act, except the provisions thereof which relate expressly to companies registered or incorporated in Northern Ireland or outside Great Britain, shall apply to or in relation to companies registered or incorporated in Northern Ireland.That is not the usual form—
§ Mr. Mitchison
Yes, in time, but I must do it in my own way. That is not the usual provision for legislation which 1722 does not include anything whatever about Northern Ireland. The usual phrase is, "This Act shall not extend to Northern Ireland", or something of that sort. I therefore find it difficult to say that, although no doubt the application of the Companies Act to Northern Ireland is limited it does not apply at all.
If I may turn for a moment to subsection (2), I agree with the hon. Member for Exeter that a rather better case can be made out here. This subsection reads:Nothing in this Act, except where it is expressly provided to the contrary, shall affect the law in force in Northern Ireland at the commencement of this Act.As the hon. Member for Exeter, with his usual astuteness, especially on Fridays, has already noticed, there is this sweeping provision.except where it is expressly provided to the contrary.That somewhat cuts down the general tenor which might otherwise be attributed to the subsection. In the circumstances, I think I am justified in saying that the Companies Act, 1948, is not an Act which entirely excludes Northern Ireland.
§ Mr. McMaster
I am afraid that I did not make myself clear. Section 406 states:The next eight following sections shall apply to all … companies incorporated outside Great Britain.It is those sections to which the Act later refers in Section 461, which accounts for the strange wording of Section 461.
§ Mr. Mitchison
I would not say anything so blasphemous as that the Companies Act, 1948, was strangely worded. I would merely say that it does not seem to me to leave Northern Ireland out entirely. That is sufficient for my present purpose.
When I turn to this Bill, it is not one which takes the form, bit by bit, of the provisions of the Companies Act. What it is doing is to extend the provisions applicable to one type of company to another type of company. Although it is true that the Long Title states that it is to amend the—
§ Mr. P. Browne rose in his place, and claimed to move, That the Question be now put.1723
§ Question put, That the Question be now put: —
§ It being after Four o'clock, the debate stood adjourned.
§ Debate to be resumed upon Friday next.