§ Order for Second Reading read.
§ Motion made, and Question proposed, That the Bill be now read a Second Time.
§ Mr. Speaker
I am not proposing to call the Amendment in the name of the hon. Member for Hove (Mr. Maddan):That this House declines to give a Second Reading to a Bill which does not maintain the principle established by Parliament in the case of the Mersey Docks and Harbour Act 1971, in regard to the directors of a company seeking parliamentary power to write down debt, or vary the terms on which money was borrowed, continuing to serve on the Board of that company.I am, however, prepared to allow the Instruction in the hon. Gentleman's name,That it be an Instruction to the Committee on the Bill that they so amend the Bill that directors of the Company shall resign by a date or dates to be specified in the Bill and shall not be eligible for re-election to the Board except as to be further specified.to be discussed at the same time as the Motion for the Second Reading.
§ 9.58 p.m.
§ Mr. Nicholas Edwards (Pembroke)
I am sorry that it will be necessary for me to detain the House for rather longer than I should have wished. In view of the issues raised in the Instruction which has been tabled, it is necessary both to describe the background and past history of the company and to deal with the objections.
The Milford Docks Company was incorporated in 1874 by a Private Act of Parliament. For many years the main trade of the docks was the fishing industry, but there has been a steady decline in fishing from Milford and today the company's principal earnings arise from ship repairing. In spite of the development of Milford Haven as an oil port and the arrival of a number of industrial enterprises to the town, the company is still of key importance to the economic life and job prospects of the area. Together with its subsidiary it employs more than 200 people, but firms for which the facilities of the docks are essential probably provide jobs for at least a 166 further 500 people, in an area of high unemployment—
§ It being Ten o'clock, the debate stood adjourned.
That the proceedings on the Milford Docks Bill, and on the Motion for an Instruction relating to the Bill, set down for consideration at Seven o'clock this evening by direction of the Chairman of Ways and Means and the Consideration of Lords Amendments to the Superannuation Bill may be proceeded with at this day's Sitting, though opposed, until any hour.—[Mr Clegg.]
§ Question again proposed, That the Bill be now read a Second time.
I hope that as the House considers the interests of share and debenture holders or discusses general principles it will not forget that what could be at stake are the jobs of my constituents, the survival of the fishing industry which operates from the docks and the future prosperity of the region.
While the docks themselves are small in relation to the Haven as a whole and the great oil port of Milford, they are the only enclosed docks between Swansea and Merseyside and are frequented by a wide range of craft. The ship repairing business is operating successfully, is providing essential services for local trawler owners and is attracting new custom from further afield. In recent years a good deal has been done to improve the facilities. The main gates have been overhauled at a cost of £34,000 and are now to be mechanised at a cost of a further £30,000—an operation which will produce large revenue savings. Tarmac roads have replaced rail tracks and new plant have been installed. Over £30,000 is being spent on the essential work of bringing the fire-fighting arrangements at the tank farm up to date. Ahead lies the real prospect that oil-drilling operations in the Irish Sea will bring fresh health and activity to the docks.
It is againt this encouraging background, based on undramatic but sensible improvement, that I must take the House back to the events which have led to the promotion of this Bill. In the years up to 1953 the company was reasonably successful and paid regular ordinary dividends. From 1954 to 1965 the company came under the control of directors whose apparent main interest was speculative. 167 Dividends ceased after 1954 and trading losses were made. A number of ambitious schemes were promoted which did not come to fruition, and several ventures started which ended in disaster.
In 1961 the company obtained a loan of £128,000 from the Board of Trade, with interest at 5 per cent. Bank overdrafts and loans were also obtained to finance the losses and pay interest on the debenture stock which had not been earned. Moreover, the interest on the bank loans was added to the overdraft and produced a snowball effect of debt. It was a sorry story, and it culminated in 1965 when the chairman asked the bank and the Board of Trade to appoint a receiver, which they declined to do for a variety of legal reasons and because there seemed little prospect that anything could be recovered.
Various parties interested in the fate of Milford then took action to prevent the closure which seemed imminent and the disastrous consequences which would have followed from that for the town of Milford. They included my predecessor as Member of Parliament, the borough council and the larger debenture and ordinary stockholders. As a result—and in view of the Instruction we are considering I hope that the House will take due note of what I am about to say—a new board was recruited in 1966 to see whether salvage could be effected. The present chairman undertook the work only if he had the support of all parties, and this was given. He was "approved" by the Board of Trade as required in the loan agreement. The old board resigned in March, 1966, with one exception—a director who was a ship-repairing expert and who was asked to continue because of his technical knowledge and to provide a link with the past. An entirely proper sacrifice had been made. Those responsible for past events have resigned and the new board began the task of recovery. Losses were stopped in the second half of 1966 and profits were made in 1967.
The operation took a little time. Indeed, nobody had expected anything else. The new board, fighting for the existence of the company, was forced to continue the default of the old company for about 18 months, but in 1967 debenture interest payments were resumed and they have 168 been maintained ever since. In the same year an agreement was made with the bank for the orderly reduction of the overdraft on favourable terms. As a result it has declined from a peak of £460,000 to £120,000 at present. This has been achieved in spite of the expenditure during the same five years of £100,000 on the repairs and improvements to which I have referred.
In 1971 the Department of Trade and Industry, which had taken over the activities of the old Board of Trade, agreed to reduce the interest on its loan which, like the debenture interest, had been fully paid by the summer of 1967. It agreed to reduce this interest from 5 to 3½ per cent., to waive interest on arrears and to postpone redemption until such time as the bank loan was paid off, or by 1975 at the latest. This agreement did not prevent the payment of arrears but it provided that if those arrears were paid the Department should be paid as well.
That brings me to the reasons for the promotion of the Bill. I have explained to the House how the debenture stock interest got into arrear between 1965 and 1967. The arrears amount to about £38,000. Any payment of them with the consent of the Department of Trade and Industry would involve a proportionate payment of the Department's arrears as well. I quote from the circular to debenture holders dated 11th November, 1971:Technically it would be possible at any time for legal action to be taken to recover the arrears since, though debenture stockholders have shown voluntary co-operation there is no agreement binding them. Such action would effectively nullify the benefit of the concessions which the company and stockholders now have and inhibit further progress towards financial and commercial rehabilitation. The directors are advised that no machinery is at present available by which debenture stockholders as a body could assent to a scheme for dealing with the arrears on a defined basis.They consider therefore that it would be in the best interests of all stockholders to promote a Bill in the forthcoming Session of Parliament with the following objects. First, to impose a moratorium prohibiting any proceedings for recovery of the outstanding arrears until 30th June, 1975. Secondly, to give the company the option as an alternative to paying off the arrears of raising the rate of interest on debenture stock from 3½ to 4½ per cent. per annum and cancelling the arrears.169 At present the whole future of the company and the interests of all—the D.T.I., bankers, shareholders, debenture holders, employees, not to speak of the economic life of the neighbourhood—could be put at peril by the action of one debenture holder, even if he had acquired his stock after the original default. Such a situation would be intolerable, and the prime object of this Bill is to remove this possibility.
There is no other machinery by which debenture holders can bind themselves to show forbearance, though they have done so to date. As the stock is a quoted security, ownership keeps changing. Anyone could buy stock and sue for arrears of interest accrued years before. I am sure the House will agree that the right time to deal with arrears is not a matter that can or should be left to the whim of an individual speculator.
The main objects of the Bill are twofold: first, to stay any legal proceedings for recovery until 30th June, 1975, the date when the arrangements with the bank and the D.T.I. come to an end; and, secondly, to give the company the option, instead of paying off the arrears in cash before that date, to raise the rate of interest.
The advantage of this second proposal is that it does not add to the total indebtedness of the company, but causes the market value of the stock to rise—indeed, I understand that it has already done so in anticipation—thus affording a way in which holders can get their money back in advance.
I now turn to the Clauses of the Bill. Clauses 1 and 2 are formal.
Clause 3 imposes a moratorium only on the arrears of interest on the debenture stock, but not, I emphasise, on the current interest, from the time that stockholders were notified of the intended Bill until 30th June, 1975, when the arrangements with the bank and the D.T.I. finally expire. I emphasise that this arrangement does not subordinate the debenture holders' interests or those of the D.T.I. The debenture shares and the D.T.I. loan rank pari passu.
Clause 4 provides that at any time before that the company may either pay up the arrears in full, or alternatively, increase the contractual rate on the debenture stock from 3½ to 4½ per cent. and cancel the outstanding arrears. This is 170 equivalent to giving holders by way of compensation interest in perpetuity of 13.2 per cent. on the amount of the arrears outstanding. The intention is to define in advance the compensation which may be expected so that holders know where they stand.
Clause 5 prevents the payment of ordinary dividends while arrears are outstanding and formalises the situation which has existed in practice since 1954.
The remaining Clauses are not directly concerned with arrears. Clause 6 provides for class meetings to be held in future if any question should arise requiring the assent of debenture holders. Machinery for this is now lacking. A 75 per cent. majority stipulation is that recognised by the Companies Acts for such situations in limited companies.
Clause 7 allows the company to purchase and cancel debenture stock if it has surplus funds and any holder is willing to sell. This power is not to be exercised until arrears are dealt with. It is intended that the stock be bought in the market or by tender open to all holders.
Clause 8 allows the company to borrow on the security of some specific asset which may be acquired in future. It does not, I emphasise, allow the company to pledge anything now available to debenture stockholders. Having regard to the record, it clearly might be difficult to raise money for some project except on the security of the asset to be acquired. This power is possessed by other authorities.
Clause 9 reduces the new capital which the company can raise from £13 million to £1 million. The higher figure related to projects for which powers were taken in earlier Acts which have now lapsed. In the end it makes a virtue out of a necessity.
Clause 10 is unrelated to financial matters. It deals with the problem of parking vehicles within the docks, which vexes all dock authorities. Roadways in the docks are not public, but are much used. Experience elsewhere shows that it is impossible to enforce parking regulations effectively without the ultimate sanction of removal. Other authorities have been given this power.
Clause 11 is formal. Clause 12 repeals a large number of obsolete provisions, 171 mainly relating to the abortive scheme sanctioned in 1957, but never carried out, and to charging powers which are now the subject of general legislation in the Harbours Acts.
I must now say something about the Instruction in the names of some hon. Members. The Instruction refers to the principles established in the Mersey Docks and Harbour Act of 1971. My hon. Friend the Member for Holland with Boston (Mr. Body), who was Chairman of the Select Committee, described that principle very succinctly at the consideration stage, when he said:our desire to amend the Bill to prevent persons coming on to the Board in future who have in the past failed in their financial obligations.My hon. Friend the Member for Hove (Mr. Maddan), speaking on the same topic, said:When a Bill is brought before Parliament to write down debts, or to relieve a corporation of debts which it owes, then Parliament has to consider whether this is something which it can swallow easily, whether it is something which it can allow to be made an easy precedent, or whether it must make that road difficult to travel."—[OFFICIAL REPORT, 21st June, 1971; Vol. 819, cc. 1095–1118.]There, from the horse's mouth so to speak or, if my hon. Friends will forgive me for saying so, from the mouths of two of the horses, is the principle which is the subject of this Amendment—personswho have in the past failed in their financial obligationsor, again,When a Bill is brought before Parliament to write down debts, or to relieve a corporation of debts which it owes …One thing is clear about this case, or so it seems to me, and that is that those who have in the past failed in their financial obligations "—that is to say the old board—did resign and were replaced as long ago as 1966, when the new board began its thankless task of rescue and recovery. Thankless the members of the board no doubt expected it to be, but can they ever have imagined that after seven years of hard work and steady progress they would be cast by Parliament in the rôle of sacrificial victims in the name of "principle"? I cannot believe that this House could be so unjust, or could approve a principle so unreasonable. But the principle was very specific. It involved the writing down of debt and the relief of debts owed by a corporation.
172 The definition of ineligible persons in the Mersey Act is even narrower—a director of any body corporate in respect of whose income or assets a receiver was appointed or which was wound up.The provision refers specifically to those in office when the receiver is appointed or the winding up commenced, and not to those who accepted office later.
No receiver was appointed to the Milford Docks Company, nor was it wound up. There has been no writing down of debt. As to the relief of debts, I am advised that in the legal sense there is no relief of debts unless the option is exercised, and in that case the relief is given in return for consideration. No doubt the Committee can examine the adequacy of that consideration.
It is true that the new board in the first desperate 18 months when it was fighting for the company's very existence, was forced to continue to default and had to postpone the repayment of the obligations incurred by the actions of its predecessors. In the Instruction the movers have had to come some way from the Mersey definitions, and now, apparently, directors are to be sacked if they vary the terms, even if the variation is fair and generally accepted.
I ask the House to accept this, if it accepts no more, that it would be unreasonable to refuse a Second Reading to a Bill in circumstances where there is some reason at least to doubt that any principle as it was then defined by Parliament has been breached. If breach there has been, it is of a kind quite impossible to examine adequately in a Second Reading debate. It is a matter much better left to the Select Committee.
For the same reasons, it seems wrong that the House should approve an Instruction that the Bill be amended to obtain the resignation of the directors of the new board in circumstances which might be widely misunderstood, particularly when their eligibility for re-election is left totally unspecified and undetermined.
To insist on the resignation of these men in that way while they are still engaged in their work of salvage would be a grave injustice, and in my view would be gravely detrimental to the company, to its ordinary shareholders, to the stockholders and to my constituents who rely on it for employment. Hon. 173 Members may rightly see this as the vindication of a principle. Others will undoubtedly see it as a condemnation by Parliament of the actions of the present board, a condemnation which would shake confidence in the company and seriously threaten its progress to recovery.
But, having said that, the company and the promoters entirely recognise and acknowledge the importance of the principle and are anxious to meet the objections in a reasonable way. They feel —I am sure that the House would agree —that the manner in which the principle should be met is much better worked out in detail by the Committee.
I have had the opportunity to discuss the matter with a number of movers of the Instruction and I hope that what I am now going to say will not only enable them not to press the Instruction, but may satisfy the House.
The company undertakes to bring to the attention of the Select Committee considering the Bill the principle established by the Mersey Docks Act, 1971, so that the Committee can give special consideration to the appointment or reappointment of the directors of the company who held office on or before 28th February, 1966, with a view, if the Committee think fit, to imposing such conditions as are appropriate in the circumstances. It also undertakes to submit proposals to the Select Committee to ensure that directors appointed after 28th February, 1966, shall not continue in office unless approved by a meeting of debenture holders.
I hope that the House will agree that, in this way, the matter is adequately drawn to the attention of the Select Committee and that it is the proper body to work out a solution which will in any case be subject to the approval of the House at Report stage and on Third Reading.
I will not pretend that it has been easy for the company or the promoters to provide an undertaking that seems just and fair to them and acceptable to the future working of the company and yet satisfies the objections of those concerned with this principle. I hope that they have been successful in this. In these circumstances, I believe that the Bill deserves the support of the House without further Instruction.
§ 10.23 p.m.
§ Mr. Martin Maddan (Hove)
I congratulate my hon. Friend the Member for Pembroke (Mr. Nicholas Edwards) on having so succinctly outlined the circumstances which have led to the Bill being brought forward and also what the Bill proposes to do. I should also congratulate the promoters of the Bill who authorised him to make that statement. That undertaking fully satisfies me and, I think, my hon. Friends. In the circumstances, for my part, I do not intend to press the Instruction.
All four of us who signed the Instruction were members of the Select Committee which considered the Mersey Docks and Harbour Bill in the last Session. Mr. Speaker has said that he does not intend to call the Motion in my name, which I put on the Order Paper by way of explaining what was in our mind in putting down the Instruction. I draw the attention of the House to its terms:That this House declines to give a Second Reading to a Bill which does not maintain the principle established by Parliament in the case of the Mersey Docks and Harbour Act 1971 in regard to the directors of a company seeking parliamentary power to write down debt, or vary the terms on which money was borrowed, continuing to serve on the Board of that company.That was the origin of our interest. But I emphasise that the case of Milford is in no way comparable in magnitude to the case of Mersey; it is certainly not a disaster story now, in 1972. But there is one similarity and one danger in the Milford Bill which Parliament was anxious, when it accepted the Select Committee's special report on Mersey, should never be repeated. The similarity is that the Milford Bill is concerned with writing down debt or varying terms on which money was borrowed. I must concede to my hon. Friend the Member for Pembroke that I used the words "varying terms" and not "varying terms adversely", following the wording of Standing Orders governing what has to be done by companies when promoting Private Bills, because it would be a lawyer's bean feast to describe what was adverse and what was not adverse. That was the only reason why I have omitted the word at various times. That is the similarity: writing down debt or varying its terms.
The danger is that a stream of statutory companies, not just harbour companies, 175 may come to Parliament to do exactly that.
The special report of the Select Committee on the Mersey Docks and Harbour Bill contained the paragraph:Your Committee are concerned that a private Bill should raise such a matter as the remission of debt by Act of Parliament. Having listened with great care to the detailed evidence they have found, on a division, that the Preamble is proved, having regard to the circumstances, which they do not believe could ever be repeated in exactly the same way. In view of this, this Bill should not be regarded as a precedent.The Committee also said:Your Committee have radically amended the Bill. Their main amendments have the following effect.The report lists six effects, and then the seventh:exclusion from the Board of persons who have been directors of bodies who have failed to fulfil their financial obligations, unless the Secretary of State so consents.My hon. Friend the Member for Pembroke was kind enough to refer to what I said on consideration of the Mersey Docks and Harbour Bill on 21st June last year. He correctly quoted me as saying that Parliament must make the road of promoting such Bills difficult to travel. In the next sentence, I added:One of the strong reasons for the Amendment about directors was to make clear the distaste felt by the Committee, because there was no alternative owing to the situation which had arisen, in having to deal with the Bill."—[OFFICIAL REPORT, 21st June, 1971; Vol. 819, c. 1096.]It was made very clear by Parliament what was in its mind. I have looked at precedents and, as far as I can find in living memory of those in the House today, there is only one precedent for the Bill, and that is the Mersey Docks and Harbour Bill of the last Session. In 1937 a Bill was brought forward by the Whitehaven Harbour Authority, but that was only to give statutory effect to arrangements that had been made and agreed by all concerned, and it is in no way a precedent.
We feared that what we did in 1971 with Mersey would create a precedent, and we now see that our fears were well grounded.
§ Mr. Nicholas Edwards
The record should be set straight. The preparation of the Bill and the plan which has led to it was under consideration by the 176 company and the proceedings were being prepared before the Mersey Bill came before Parliament.
§ Mr. Maddan
I accept that at once, but Parliament having had a clear run on this sort of thing, then had to deal with such a matter in 1971, and is dealing with it again in 1972. I and my hon. Friends, who have put their names to this Instruction, have been what may be considered obstinate because we think that unless Parliament digs in its heels and requires actions of the sort that my hon. Friend the Member for Pembroke handsomely undertook would be done, there will be a succession of such Bills from all sorts of statutory companies.
I turn briefly to the Bill. The Milford company is not faced with the disastrous situation that faced the Mersey company. Because of that it may be that the Bill is seeking a parliamentary sledgehammer to crack a little nut of £38,000 or 26 months of arrears of interest which were incurred in 1965–66–67. That is all the more reason why Parliament must insist on pause for thought before such Bills are promoted. Would not Clause 6, setting up means by which debenture holders could reach decisions, be enough and let the scheme in the Bill be put to them? If they had assented, might not that have been adequate? There might have been objections from the up to 25 per cent. minority, but from Parliament's point of view the situation might have been much more acceptable.
As it is, the Milford Bill takes away the rights of 10 per cent. of the debenture holders or those having together £10,000 of stock, to appoint a receiver and proceed in law to claim the debt due to them; it is clear that no debenture holders have exercised this right since 1965 when the arrears arose, nor are any of them exercising it now which they would be perfectly entitled to do were they so minded. The Bill gives the company the option to increase the debenture interest rate in compensation for the moratorium and the arrears but it gives no guarantee that it will exercise its option, and so debenture holders are asked to accept the moratorium with no guarantee that anything will be done to better their position. The Bill gives the company the right to purchase back debenture stock selectively from those it chooses; I should have thought it would 177 have been the practice more in keeping with the City code that they should have purchased in the market or by tender. So there are some things in the Bill which in my opinion adversely affect the debenture holders.
There is a further matter which Parliament must consider which is a matter of general policy with regard to the ports, and that is that a spate of such Bills as this will adversely affect City confidence in harbour companies and perhaps statutory companies in general. People will be unwilling to put up money to companies if they think at any moment the company can go to Parliament and, at the drop of a hat, Parliament will change the terms on which money was lent.
In the Mersey Bill the old directors were disqualified unless the Secretary of State approved of them. I want to say why it was not possible and apposite to have such a formula in this case. The Secretary of State was intimately involved by negotiations in the affairs of the Mersey Docks and Harbour Board. A new company was being formed, and he was in a position to know about the personalities involved. But that cannot be the case, and it would perhaps be undesirable if it were to be the case, in every statutory company. That is why that formula could not be used exactly on this occasion. But the undertaking my hon. Friend the Member for Pembroke has given fully satisfies the principle we had in mind in the last Session.
I understand that all except one of the present directors of the Milford Docks Company were not concerned with the period when the company went downhill. My hon. Friend gave the reason for that director's remaining. But the Bill may remove a spur to the Board to do everything possible as soon as possible to honour the debenture debt, and may disadvantage debenture holders. If directors of a company find themselves forced to go to Parliament to get it to alter the rules under which the company has contracted debt, directors who have been chosen by people other than those who lent the money to the company, then propriety demands that those directors should offer their resignation to a suitably constituted group or groups at a convenient time after the Bill becomes an Act. The principle I have outlined 178 has been fully acknowledged in what my hon. Friend said.
It is significant that the Government, who have a position to protect, like the debenture holders, have control over who shall be chairman. It is not at all wrong that the debenture holders should also have a say now in who continues on the board.
Perhaps this debate and the decision we are taking will be a warning to directors of statutory companies, and to Government Departments, that Parliament will not readily rubber-stamp private Bills to write down debt or vary the terms on which a company has borrowed money. So tonight is an important occasion, and that is why other hon. Members and I put down the Instruction on the Order Paper.
§ 10.38 p.m.
§ Mr. Michael English (Nottingham, West)
The hon. Member for Pembroke (Mr. Nicholas Edwards) is doing his job as a constituency Member, and has done it very ably. I agree with the hon. Member for Hove (Mr. Maddan) that the assurances the hon. Gentleman has given will enable us not to press the Instruction to a Division.
But I cannot refrain from pointing out that the third paragraph on page 2 of the Bill says:… in the period between 1965 and 1967 the interest on the debenture stock could not be paid in full…".Those dates are significant. I find it just a little more than a coincidence that after a Labour Government was elected in 1964, and obtained an increased majority in 1966, and was proposing to nationalise the docks, so many docks and harbour boards seem to have got themselves into a reduced position, and in particular that two of them, the Mersey Docks to a far greater extent than the Milford Docks, were making a loss at just about that significant period.
§ Mr. Nicholas Edwards
If the hon. Gentleman had looked at the history of the company, he would have seen that the loss had been continuing for a long time, that a number of wildly unlikely projects had been put forward by the then board, which culminated in 1965 in a proposal to develop an iron ore terminal at Milford. It was the collapse of that project that brought matters to a head. Although I 179 should not have been surprised if it had been the arrival of a Labour Government that brought the company to its knees, I do not think that was so on this occasion.
§ Mr. English
The hon. Gentleman should look at the history of the Mersey docks, which also started making reduced profits, or losses, and only made a really vast loss after the company thought it was going to be nationalised. I notice that the Milford Docks company managed to pay interest on its debenture stock until after a Government came into power with a proposal to nationalise the docks as part of their policy. It may be pure coincidence. I sincerely hope it is. But one thing the hon. Gentleman cannot say is that it is not a coincidence that this Bill is before us, since the Mersey Docks and Harbour Act came before us because of two things: first, the election of 1970, after which it was unlikely that any docks would be nationalised, and, secondly, the then policy of the new Government, which was, as the Secretary of State for Trade and Industry put it, not to rescue "lame ducks".
This Bill, strangely enough, has not come before us until now. The two Conservative members of the Mersey Docks and Harbours Bill Private Bill Committee are here with us. I think that if the Mersey Docks and Harbour Act had come before Parliament after the collapse of Rolls-Royce, it is possible that a totally different attitude would have been taken towards it. If this Bill had come first, with only £38,000 involved, I think a different attitude might have been taken. The promoters followed the precedent of the Mersey Docks and Harbour Act, not exactly but in so far as it was convenient. I accept that they have realised their error, and I will not comment further about that.
But I must refer to the strange way in which the Department of Trade and Industry creeps into the Bill. There is not the slightest doubt that the Department is thoroughly protected under the agreement and the Bill. Incidentally, I do not know quite why it should be the Department of Trade and Industry rather than the Department of the Environment, which was concerned with the Mersey docks legislation.
The Department of Trade and Industry is, of course, headed by the very man 180 who made the famous remark about lame ducks. One may or may not have a policy of protecting lame ducks—after Rolls-Royce that policy looks a bit thin —but a policy which says, "We are not protecting lame ducks such as debenture holders or shareholders"—and in the Mersey case some were literally widows and orphans and many were retired people—"but we are protecting ourselves" is, I cannot refrain from pointing out, not merely illogical but immoral.
I hope the Under-Secretary of State will attempt to defend the position that appears to exist. It would appear that his Department is supporting the Bill. It is certainly clear that the Department's money is well protected. I do not object to that. I do not object to the taxpayers' money being protected in this way. But I rather feel that the Department or even the taxpayers as a whole are more able to bear a loss than are some of the individuals who must be shareholders or debenture holders in this case. Although I hope that the hon. Gentleman will try to defend that position, I think he will find it a little difficult.
§ 10.44 p.m.
§ The Under-Secretary of State for Trade and Industry (Mr. Anthony Grant)
I am certainly not going to follow the hon. Member for Nottingham, West (Mr. English) and reincarnate all the debates about the Mersey docks or any other of the major issues which have come before the Government in this last year. But I should explain to him and the House clearly the interest of the Department of Trade and Industry in this matter. The reason is simple, as my hon. hon. Friend the Member for Pembroke (Mr. Nicholas Edwards) has made clear —we are creditors of this company. Whether or not the hon. Member for Nottingham, West likes it, I would have regarded it as a moral duty of the Government and my Department in particular to take care of the taxpayers' money. I do not appear before the hon. Gentleman in a white sheet on that score.
The background is that in 1960 this company finding itself in some financial difficulties secured a loan of £128,000 to be repayable over 10 years. Subsequently because of difficulties it experienced no capital was repaid and very little interest. At the same time the bank and other debenture holders became involved in 181 supporting the company. In 1968 the bank agreed to write off half its debt subject to other considerations and in 1970, to help the company, the then Board of Trade entered into a five year moratorium, providing that the arrangement with the bank continued until 1975, on condition that the interest arrears were not paid to debenture holders without Government consent. That was the agreement entered into and finalised last year by my Department. I should stress in view of what were rather unfair strictures by the hon. Gentleman that the Government did not by that agreement require any statutory changes in the right of the debenture holders.
The Government could not make an agreement with the debenture holders; that was a matter for the company itself to make. It should be emphasised that the Government's purpose was not and could not be to alter the rights of the debenture holders. Their object was merely to help the company in servicing the loans with which it found itself burdened.
§ Mr. English
Could the hon. Gentleman give us the date in 1970 when the original agreement was entered into? He said it was by the Board of Trade so one presumes that it was before the middle of 1970. If so, would his Department have entered into that agreement under the policy it adopted in the latter half of 1970? Further, does he not agree that the Mersey Bill was also submitted by the company and there were many arguments saying that it was a public Bill disguised as a private Bill? It was said that it was promoted as a result of the actions of the Department of the Environment.
§ Mr. Grant
I cannot find the exact date but the arrangement was made entirely on merits of the case. It is wrong to draw analogies with the Mersey Bill. I can now advise the lion. Gentleman of the date when the agreement was finalised—May, 1971. I can also tell him that the decision was made on the merits of the arrangement, with the Government safeguarding the taxpayer in an ordinary commercial way and it was the concern of my Department.
It is not right to say that the Government are supporting the Bill but we are not actively opposing it. There are certain features which appear to be question- 182 able. For example Clause 3 prevents holders of the debenture stock from recovering their arrears of interest during the moratorium period.
Clause 4 provides for the cancellation of arrears of interest if the company increases the rate of interest on existing debenture stock. Clause 6 provides that the rights attaching to any issue of debenture stock may be varied with the consent of three-quarters of the holders of such stock. Although there may be circumstances in which the extinction of the right of debenture holders is warranted, the objections of the petitioners show that there is substantial opposition to such a step in this case. Therefore, I hope that, during the Committee stage, the objections of the petitioners will be examined carefully and sympathetically.
There is one other point to which I should refer as it has been the nub of discussion between my hon. Friend the Member for Hove (Mr. Maddan), the hon. Member for Nottingham, West, and my hon. Friend the Member for Pembroke. It concerns the Instruction. I am very pleased that a sensible compromise seems to have been reached between hon. Members, and obviously what has been said tonight in this light will be considered carefully by the Committee. I make only one broad observation which I hope will be considered by the Committee.
In considering what should be done in accordance with the Instruction, the Committee should consider first the danger of individuals being penalised without the opportunity of being heard. It should consider carefully whether provisions are likely to operate unfairly; for example, a director who is brought in to help in a crisis and who is still serving at the time specified might be caught by the Instruction, whereas one who happens to have resigned before that time would not be. The first may well have no responsibility for the failure, whereas the second may have a great deal. Any too stringent a provision in this respect does not ensure that the culpable persons are excluded from office.
§ Mr. Maddan
Will my hon. Friend acknowledge that the undertaking given by my hon. Friend the Member for Pembroke (Mr. Nicholas Edwards) itself eliminates the danger that he feared would come from our Instruction?
§ Mr. Grant
Yes, I think that that is right. I am glad that that accommodation was reached. I was making a broad observation on the matter.
There was one other point which concerned the Government. My hon. Friend the Member for Hove has made this clear in not drawing too many analogies with the Mersey Docks and Harbour Board case. It is the Government's view that any requirement that the Secretary of State should rule on an individual being accepted as a director is invidious, since it involves the Secretary of State giving judgment on matters outside his knowledge. I was glad to hear what my hon. Friend had to say about that.
Having explained the Government's position in not opposing the Second Reading, I think that we may now leave the matter to be considered by the Committee, and I have no doubt that it will do so extremely carefully.
§ 10.54 p.m.
§ Mr. Richard Body (Holland with Boston)
I wish to add my congratulations to my hon. Friend the Member for Pembroke (Mr. Nicholas Edwards) and to thank him for sparing me the task of having to make a speech in support of this Instruction. I am glad that my hon. Friend recognises the existence of this principle and, like all of us who served on the Select Committee, I regard my hon. Friend's undertaking as completely satisfactory.
§ Question put and agreed to.
§ Bill accordingly read a Second time and referred to the Examiners.
§ Mr. Maddan
In view of the undertaking given by my hon. Friend the Member for Pembroke in the debate, I do not propose to move the Instruction.