§ Moved, That the House do now resolve itself into a Committee.
§
LORD ST. LEONARDS rose to express a hope that when he showed how the law at present stood, and the nature of the Bill, the Government would see the necessity of making the concession to arguments and facts which they were not disposed to yield to the small number of Peers in attendance to oppose the measure. Amongst other matters, it was desirable to consider what would be the operation of the Bill on bubble Companies.
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The repeal of the enactment preventing shareholders in Joint-stock Companies from transferring their shares without the consent of the other partners enabled bubble Companies, which were not actually fraudulent, to establish themselves without any check but this—that each shareholder was liable for the debts of the concern to the whole extent of his means. They were now about to get rid of that check, and to leave any bubble Company to establish itself without the slightest reason to prevent its members from endeavouring to provide for themselves at the cost of the public. Some philosophical writers thought that Joint-stock Companies were desirable to enable undertakings to be carried out for which a large capital was required, of which the profits were to be postponed, and which would be attended with great risk; but it would be most unwise to allow such Companies to be established without any limit as to capital, or the slightest provision to prevent an abuse of the power which a measure like that on their Lordships' table would confer. The law of France on this subject was said to be desirable, and that it should be adopted; and though he did not recommend the adoption of that law in this country, he begged to remark that it possessed this advantage, and afforded this check, that whoever actually carried on the business was liable to the whole extent of his means. It might be said that a man of straw could stand at the head of a considerable establishment, and that, therefore, there was no safety in the French law which the Bill before the House did not afford; but there was this further security in the French law, that if the partner en commamdite at all interfered in the business he became liable; he therefore must be strictly a sleeping partner, taking no part in the business, but merely advancing capital to carry on the business. There was, therefore, this check—that the man who carried on the business was responsible for the whole obligations of the Company; and a man placed in that situation was more likely to carry on the business with advantage to the public and to the Company when he knew that the sole responsibility rested upon him. The Bill as it stood proposed to enable any number of persons to enter into a partnership on any capital they pleased with 10 l. shares. But what had happened before? In 1824 or 1825 there had been a deluge of Joint-stock Companies, without any of the immunities
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proposed to be conferred by this Bill; and when the bubbles burst the bankruptcies were awful, and only very few of those who intrusted their money to these Companies had succeeded in saving it. Again, at a later period, there was another rush of Joint-stock Companies—some bubbles—and associations devoted to every conceivable description, and they knew the result. That experience should not be thrown away. There was no reason why the small capitalist should not be encouraged; but it was clear that Joint-stock Companies should not be created with special immunities, unless it was for the carrying out of large undertakings; and his own opinion was, that, generally speaking, commercial business of an ordinary character could not be advantageously conducted by such bodies. At the period to which he referred, however, these Companies went on trading recklessly upon the money of other people to the extreme injury of the regular trader who had only his own private means to rely on; but, after a time, they all failed, and the only one which, to his knowledge, had since been revived, was that really useful enterprise, the Parcels Delivery Company. What was the present state of the law on this subject? The Legislature had already put some check upon Joint-stock Companies, and had subjected them to some regulations. An Act, passed in the 7th and 8th of Victoria, enabled every Joint-stock Company, complying with its regulations, without applying to the Board of Trade, to become a corporation. Contemporaneously another Act was passed which allowed these Companies to be dissolved when they had become bankrupt; reserving, however, to every creditor, notwithstanding the bankruptcy, the right of maintaining his claim upon the concern against every individual member of the partnership. Powers were also ultimately given for the winding up of Companies or Associations consisting, of a very small number, of partners. These different Acts contained a most important series of provisions, constituting, in fact, a code of commercial legislation; and this code they were now called upon entirely to abrogate, in order to put in its place the principle of limited liability, unaccompanied by those restrictions which were indispensable to prevent it from operating serious mischief. The practice of our law had heretofore been to limit liability, subject to certain conditions; and there could be no reasonable objection, at a fitting time, to consider
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whether that practice could not be extended in a more effectual manner, provided due precaution were at the same time taken against the evil consequences that night otherwise flow from its adoption. In fact, the opposition offered to the present Bill originated not so much from an objection to the principle of the measure, is to the ill-considered mode in which it was sought to hurry it through Parliament at the end of the Session. They did not accuse the noble Earl (Earl Granville) of a general want of courtesy to the House, but certainly it was very much like an act of tyranny to insist on forcing this crude and ill-digested Bill upon their Lordships under present circumstances. If the measure passed in its present shape its promoters would incur a heavy responsibility; and, no doubt, many eminent Members of the other House who were friendly to its principle now coincided with those of their Lordships who desired to see it postponed until it could be properly considered. In the Bill originally introduce into the House of Commons it was proposed that there should be a limited liability in the case of Companies which had a capital of 20,000 l., with shares of 25 l. each, on which 20 per cent was to be paid up. In the course of discussion this amount was considered to be too large, and the Government acceded to a proposition that the capital should be fixed at 10,000 l., in shares of 10 l. each, on which 20 per cent was to be paid up; but, ultimately, all stipulations as to the amount of capital were struck out. He was not by any means inclined to put restrictions on the small capitalists; on the contrary, he was desirous, as far as possible, to advance their interests, but he certainly was not prepared to give the immunity of limited liability to Companies with no capital, or with what amounted to no capital. If the Bill, therefore, went into Committee, or if it were referred to a Select Committee, he should propose to restore to it that provision which required that all Companies trading under limited liability should have a capital of at least 10,000 l. He was not opposed to limited liability—on the contrary, he was for it with proper checks and restrictions; and he was convinced that, if some restriction, such as that which he had just mentioned, were not introduced all sorts of small Companies would be formed, which every man who could command 2 l. would be running to join, and the result would be that the general trade of the country would be completely deranged. He felt that he was defending
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the interests of the poorer classes in asking their Lordships not to agree to a Bill which, as it at present stood, would throw temptation in the way of the working man to draw his earnings from the savings-banks in order to invest them in unprofitable undertakings. Had their Lordships considered what would be the effect of the Bill on the small traders? What a great injustice it would inflict on the baker or butcher who, trading with a limited capital and unlimited liability, saw established next door to him a butcher's or baker's shop, supported by the subscribed capital of all his neighbours, and underselling him by the sacrifices which a limited liability would enable the association to make. What individual trader could bear up against such a competition? Suppose, for instance, all the domestic servants in some wealthy neighbourhood should combine to set up a baker's shop; of course they would be able to support it by giving their masters' custom to it, and every baker in the neighbourhood would very soon be ruined. In this way an entire set of tradesmen might be driven out of a neighbourhood. A real bonâ fide capital was the best security for the public when limited liability was sought to be established, and that security he desired to see established by this Bill. In the law, as it now stood, great care was taken to wind up Joint-Stock Companies when they had expended a reasonable amount of their capital, and in this Bill, as it was originally introduced in the other House, there was a provision of this sort, though a very imperfect one. In the Bill now before the House there was no provision for winding up any of the Companies formed under it. The first Report of the Mercantile Law Commissioners, who considered this subject, expressed an opinion against the very measure which the Government had brought forward. The Commissioners, after stating that the subject was one of paramount importance, arrived at the conclusion that the proposed alteration would not operate beneficially on the general trading interests of the country, and they added that they had not been able to discover any evidence of the want of a sufficient capital for carrying on legitimate enterprise and for all the requirements of commerce. The Commissioners also stated that they had considered the subject with respect to the benefit which it might be calculated to confer on individuals, by enabling them to obtain capital and establish themselves in business by the
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aid of partners, incurring a limited liability only; and they went on to say that it could not be doubted that instances occurred where men of probity would derive benefit from such a system; but they expressed an opinion that such benefit bad been greatly overstated. The Commissioners ended their observations on this subject in these words—
With regard to those undertakings the execution of which involves an interference with the rights of property, the sanction of Parliament always has been, and still ought to be, required. With regard to others, the privilege of having a limited liability may be granted by charter, and, for the purpose of regulating the granting of charters, your Majesty's Commissioners recommend that a Board be established to decide upon all applications for them; and this Board should require in all cases compliance with certain fixed regulations.
The introduction of the present Bill by the Government interfered, therefore, with the recommendations of their own Commissioners. When persons spoke about the necessity of the freedom of capital, he would ask, what country was there in the world where capital was more free than in this? It was an abuse of terms to say that there was a want of freedom of capital; but there was a want which he should be willing to supply, to a certain extent, of a limitation of liability, upon the reasonable condition that there should be capital in a concern; yet he was not willing that a measure like the present should pass, establishing limited liability for a concern where there was no capital. Since he had had the honour of sitting in their Lordships' House, he had never shown any disposition to obstruct any really useful measure; but he felt such strong objection to the Bill in its present shape that he should oppose its passing, unless some concession were made by the Government enabling the measure to be put in a more satisfactory state. He had no desire to throw the Bill over for the Session, and he would undertake that if it were referred to a Select Committee the whole subject would be considered in three or four hours. He would for himself undertake to give no factious opposition to the consideration of the measure.
§ EARL GRANVILLEadmitted that some arguments might be adduced in favour of referring the Bill to a Select Committee, but at the same time he thought that there were very serious objections to that course. If, as the noble and learned Lord said, the Bill could be considered in three or four 2031 hours in a Select Committee, it might also be considered in an equally short time in a Committee of the Whole House; with this Advantage, that any amendments which it might he thought desirable to propose upon a subject in respect to which, as a noble and learned Lord had said, there was a strong popular feeling, would be discussed in public. He would not pledge himself to adopt all the Amendments which might be proposed, but whatever arguments might be put forth in favour of any changes in the Bill would certainly receive his most anxious consideration, if their Lordships would allow the Bill to be considered in Committee.
§ LORD ST. LEONARDSconsidered that a Committee of the Whole House was a most incompetent tribunal to consider a question of this kind. It would be a mockery to attempt it. If the Bill was to be calmly and properly discussed it could only be done in a Select Committee.
LORD CAMPBELLsaid, he would most earnestly advise his noble Friend (Earl Granville) to assent to the Select Committee proposed by his noble and learned Friend in the spirit which he had exhibited. In two hours the Bill could be considered, and he had not the smallest doubt but in a very short time it would be rendered innocuous. One of the reasons why he (Lord Campbell) asked their Lordships to proceed with the Bill was that the public might be cured as soon as possible on this subject. He thought there would be great dissatisfaction should their Lordships stop the Bill in its present stage, but he was satisfied that in a Select Committee clauses might be introduced which would prevent the measure from producing mischief. It was calculated, in its present shape, to promote fraud, and he believed that it could be so altered as to make it incapable of producing mischief to the public. As a general principle, all who engaged in trade ought to be liable as contractors for the full amount of the pecuniary demands against them; but there were certain exceptional cases, such as railway and dock Companies and the like, whose undertakings could not be carried out expect with limited liability. But to say that two or three persons might engage keeping a chandler's shop on the principle of limited liability, was absurd. He had only a slight opportunity since his return from circuit to glance over the Bill, but it seemed to him to be one that would enable two or three, or half a dozen, 2032 to engage in a chandler's shop with 20 l. capital. [Lord GREY: A capital of 10s.] He had been a long time a Member of their Lordships' House, and he could say that no good was done in general to a Bill in a Committee of the Whole House; but in a Select Committee the service that a Bill received could not be exaggerated. To refer a Bill to a Select Committee of their Lordships' House was the way to pass a measure, whereas to refer a Bill to a Select Committee of the other House was the way to destroy it. His noble and learned Friend recommended that they should consider this Bill in a Select Committee, and if that were acceded to, the Committee could meet to-morrow, and he hoped that in the course of four hours they would be able to come to an understanding, and make it conform to the principles on which they were agreed and which had been recommended by the Commissioners.
§ EARL GREYsaid, he was extremely glad to hear what had fallen from his noble and learned Friend, because it gave him high authority for moving an Amendment to the Motion that the Bill be committed, that the Bill be referred to a Select Committee. He could assure their Lordships that if they assented to that proposition and should do him the honour to place him on the Committee, he would do everything to promote the Bill's passing in the present Session; but he could not be so sanguine as to think that it could be brought into the shape in which it could pass with safety to the public in the course of a few hours. He had been so taken by surprise by the intention of the Government to proceed with the Bill at so late a period of the Session, that when he addressed their Lordships on Tuesday evening, he had not been able to make himself acquainted with the details of the measure. He had now to some extent supplied the deficiency, and must profess his astonishment that such a Bill should have passed through the other House, and could now be recommended to their Lordships. It was a remarkable circumstance that the House was called upon to adopt a Bill which would establish the principle of limited responsibility, against the opinions of every person, so far as he knew, who had paid attention to the subject. He found from the Report of the Commission that a learned Scotch Judge, Lord Curriehill, had remarked that limited liability appeared to have some peculiar tendency to the encouragement of fraud, because in 2033 every State in which that principle prevailed it was only permitted, subject to the severest checks that could be imposed. He (Earl Grey) had referred to the evidence taken by the Commission, and he found that every witness, even those most in favour of the principle of limited liability, agreed as to the necessity of introducing the most stringent precautions to guard against fraud. This Bill contained no provisions whatever to guard against fraud, which experience and authority proved partnerships of this kind were calculated to produce. It was absolutely necessary some restrictions should be introduced. As the Bill now stood three persons might form a Company. The number was governed by a clause taken from the Joint-stock Companies Act. That Act required that a Joint-stock Company should have not less than three directors, who must be shareholders, and, therefore, under this Bill a Company could not consist of less than three shareholders; but there was nothing in the Bill that he could discover which required a greater number of partners than three. Thus, three persons, upon going to the registrar and declaring they had subscribed a certain amount of capital, of which a certain portion was paid up, would be at liberty to establish a Company. They might be convicts, only discharged the preceding day, after having undergone punishment. They might be persons who had failed and paid 6d. in the pound upon large liabilities, and who had been refused any certificate by the Court of Bankruptcy. He knew a Joint-stock Company which had been applying to the Board of Trade for a charter, one of the promoters of which was a person in that precise situation. There were no means whatever of ascertaining the accuracy of the statements made by persons going to the registrar and setting up a Joint-stock Company under this Bill. Was it fit or decent that with so little authority any Company should be allowed to be established? A Company might be established by men having a large amount of capital, but who wished to employ their capital for dishonest purposes. In the metropolis a very large amount of capital was invested in the extremely dishonest trade of receiving stolen goods. The possession of wealth so little implied the possession of honesty that very possibly Companies would be formed the object of which would be to defraud and plunder the public. He wished to point out the facilities for their operations 2034 which this Bill afforded. They might embark in a very large business, either manufacturing or mercantile, carry it on with all the outward appearances of wealth and stability, pay all demands for a considerable time, divide large nominal profits, and yet the whole concern, from first to last, might be a gigantic swindle. They might be carrying on business wholly at a loss, and obtaining, by dividends out of capital, far larger sums than they originally invested.
They might put in their pockets a large amount of money they had received from other parties, and, retiring from the Company when concealment was no longer possible, be perfectly free from any pecuniary responsibility. That was perfectly easy, because the only check whatever provided by this Bill was the necessity of presenting a balance sheet and report from auditors. But the auditors were appointed by the Company themselves, and persons establishing a Company for fraudulent purposes would take care to appoint auditors who were in the plot, and the auditors would take care not to let that appear which was wrong. It was often matter of doubt what charges should be carried to revenue and what to capital account, and many men had been brought to ruin by using that which seemed to be profits, but was really capital. With perfect good faith it might easily happen; but when there was bad faith—when it was the object of those who presented the accounts to conceal the truth—when those accounts were not submitted to independent auditors, but to auditors in collusion with fraudulent directors—what security was there in a balance sheet being required by this Bill? Then, again, let their Lordships look at the injustice in the operation of this act towards the honest trader. A fraudulent Company, meaning to absorb its capital in ten or fifteen years, and carrying on business upon that principle, could afford to undersell the honest trader and drive him out of the field. Any branch of trade taken up by such a Company would be engrossd. The public for the moment would be gainers by having cheap goods provided for them; but in the end they would severely suffer. When the Company was broken up, the honest producers would not be able to take the place of the bankrupt concern, the whole trade would be disturbed and the public would be deprived of the proper supply which it required. It needed very little ingenuity to point 2035 out many different modes in which fraud might be committed, but if he were to do so he should be trespassing most unwarrantably upon their Lordships' time, and he would therefore content himself with having shown that there was one plain and obvious mode by which fraud could be committed. He, therefore, asked their Lordships to introduce such Amendments as would deprive the Bill of those mischievous tendencies which were inherent in the principle of limited liability unless sufficient checks were provided; and this could only be done by a Select Committee. The Amendments which he was anxious to introduce into the Bill would be included under six different heads. Under the first, he proposed that some provision should be made in the Bill for providing an independent audit in the case of all Joint-stock Companies formed under this Act. There could be no objection to the principle of that provision, for the noble Lord the President of the Council had himself, on more than one occasion, endeavoured unsuccessfully to introduce a like provision in the cese of Railway Companies. Under the second head he proposed to re-introduce into the Bill the provisions which the Bill contained when it was first introduced by Her Majesty's Government, to the effect that when 75 per cent. of the original capital had been lost, the Company should be dissolved, and in the event of the directors continuing to carry on business after that proportion of capital had been so lost that they should be liable to severe penalties. Government could of course offer no objection to that provision, seeing that it was one which they had originally inserted in the Bill, in which he now proposed to re-insert it. The provisions under the third head would be to the effect that directors who declared a dividend in any Company which was insolvent, or should make a Company insolvent, by declaring and paying a dividend, should be liable in their whole property for the debts of the Company. Provisions similar to these existed in the law of Massachusetts with respect to all Companies formed with these privileges, and he did not see how any one could object to such a provision. The fourth head would include provisions to the effect that notes or obligations of shareholders should not be considered part payment of any subscribed capital of a Joint-stock Company. This also, was part of the law which existed in Massachusetts. The clauses under the fifth head would provide that the debts 2036 of the Company should not at any time exceed the capital stock of the Company Under the sixth head, it was provided that the directors should become personally responsible for the debts of the Company, if they were guilty of making any false statements or false representations of the state of their affairs to the public. He would ask their Lordships if it were possible in a Committee of the Whole House to discuss with advantage or effect provisions for the accomplishment of these important objects? It was the duty of the Government, if they were determined to recommend this great change in the commercial law of the country, to have submitted the proposal in the form of a complete digest of all the laws on the subject of Joint-stock Companies and not to have left the matter in the vague and uncertain state in which it would be if this Bill were allowed to pass in its present state. Looking at the extent of the changes which he considered necessary, and the extreme difficulty in providing for and giving effect to these provisions, he certainly was not so sanguine as the noble and learned Lord behind him (Lord Campbell) had been, that it would be possible in a select Committee, in the course of four or five hours, to deal with the subject, and to make all necessary Amendments; he would, however, if the Committee were appointed, do the best he could to facilitate the carrying out those provisions which he considered absolutely necessary, and to improve the Bill as much as possible—though he confessed he thought it quite unimprovable. One reason which had been given by the noble Earl for pressing the Bill was, that the public were impatient for legislation on this subject, and he supposed it was, therefore, intended that a practical proof should be given them of the delusion under which they were labouring. But he had always supposed one of the main functions of that House was to check hasty legislation, and to take care that inconsiderate clamour for a particular measure was not mistaken for that well considered public opinion to which both Houses of Parliament ought to give way. If Amendments were introduced in the Select Committee, they would have to be reprinted, and two or three days ought then to be given for their consideration by the House and the country. Could that be done when the Appropriation Bill had been read a second time? It was almost impossible; but, if their Lordships were determined to pass the Bill, let them at any rate endeavour to 2037 render it innocuous by referring it to a Select Committee.
§ Amendment moved, to leave out from the word "That" to the end of the Motion and insert "be referred to a Select Committee."
§ LORD STANLEY OF ALDERLEYsaid, that although he had been somewhat influenced by the speeches of the two noble and learned Lords (Lord St. Leonards and Lord Campbell) yet the speech of the noble Earl (Earl Grey) had convinced him that it would be utterly useless to refer the Bill to a Select Committee. His noble Friend had hardly given a fair statement of the opinions of the Commissioners, only five of whom had signed the Report, which was certainly one of the most contradictory and unsatisfactory Reports he had ever read, being a mere balance of opinion throughout. He would however read a few passages from the Report of one of them, Mr. Bramwell, whose opinion on this subject was entitled to great weight. Mr. Bramwell said:—
If ever there was a rule established by reason, authority, and experience, it is that the interest of a community is best consulted by leaving to its members, as far as possible, the unrestrained and unfettered exercise of their own talents and industry. Our modern legislation has been founded on this principle, with the sanction of the immense majority of those whose opinions are of any value.
§ EARL GREYsaid, that Mr. Bramwell also stated his entire concurrence with another of the Commissioners, Mr. Kirkman Hodgson, who condemned the principle of a société anonyme without certain restrictions.
§ LORD STANLEY OF ALDERLEYsaid, he would also read a passage from the opinion given by the gentleman to whom his noble Friend had referred. Mr. Kirkman Hodgson said:—
This country is now, I believe, almost the only one in which this law of limited liability does not exist. It prevails in all those with which we have the most extended and important intercourse, and this isolation acts very injuriously in many cases to the English merchant. I could mention whole trades which, thirty years ago, were entirely carried on by English houses, in which at the present moment scarcely one is to be found; their places have been entirely supplied by foreigners, who establish branches of their houses here and in the manufacturing districts, while the main establishments (almost all under the commandite principle) are abroad.He admitted that there were many passages in these Reports which were not favourable to the Bill; but since 1853, when they were drawn up, public opinion 2038 had much advanced with regard to this question. He had not heard any of their lordships, with the exception of the noble Earl (Earl Grey) adduce any arguments in opposition to the principle of Limited Liability, and many of the objections which the noble Earl had brought forward in opposition to the details of the Bill were perfectly unfounded. Among other things, the noble Earl said that there was no limit to the number of partners in a Joint-stock Company—but it was a mistake to suppose that any two or three people might form a partnership under the Bill, for the minimum number of persons who could do so was twenty-five. The noble Earl seemed to think, because the conditions of the Joint-stock Companies Act were not recited in this Bill, that there would be no conditions imposed by this measure on the establishment of Companies based on limited liability. That was entirely a mistake. The first clause of the Bill declared that any Joint-stock Company formed under its provisions would be entitled to the privileges of limited liability only under certain conditions, and all the restrictions of the Joint-stock Companies Act against fraudulent associations and bubble schemes would apply to the partnerships created under this Bill. The Joint-stock Companies Act, no doubt, might be capable of improvement; and, if he continued to hold his present office, it was his intention next year to introduce a Bill to amend that measure in points that past experience of its working had suggested, to simplify the proceedings under it. The noble Earl said that gigantic frauds might be committed by bodies of directors under this Bill, but similar frauds were equally possible under the existing state of the law; and, so far from this change having a tendency to encourage bubble Companies and fraudulent enterprises, it was likely to check them; because at present, the public were induced blindly to trust to the appearance of a few wealthy names, placed as decoy ducks at the head of unsound undertakings, believing that, however badly the business might be conducted, they could always, in case of default, come upon the richer partners who were unlimitedly liable; whereas, if it were understood that the liability was limited, men would feel that it was only by prudence in the management of their business that they could keep themselves safe. With regard to the noble Earl's six or seven different propositions, if they 2039 were to be all fully discussed, as he suggested the Bill could not emerge from Committee for weeks. If, however, any additional securities could be introduced into the measure, the Government would be happy to consider them in that House. Bills involving a vast variety of details and much machinery were, no doubt, advantageously referred to select Committees; but this measure was almost entirely composed of the principle, and the question whether the parts of it which were omitted in the other House should now be restored might be as well discussed in that House as upstairs in a Select Committee. The adoption of the course recommended by the noble Earl would also be most unwise, and would create much misapprehension in the country, by whom it would be considered that the object of sending it to a Select Committee was to destroy the Bill, and not to improve it.
§ LORD MONTEAGLEcomplained of the disingenuous manner in which the arguments for referring the Bill to a Select Committee had been met. The noble Earl (Lord Grey) who suggested that proceeding had not condemned the principle of limited liability, under all circumstances; but he wished to examine carefully whether it was proposed in this Bill to apply it in a form that would be safe to the commercial community; and he argued, most justly, that it was necessary for the purpose he had in view to subject the Bill to the calm discussion and examination of a Select Committee. The noble Lord the President of the Board of Trade had quoted the opinions of one of the Commissioners in defence of the Bill; but the Bill recommended differed evidently from that before the House. Mr. Bramwell considered that limited liability ought to be accompanied with efficient safeguards and restrictions; no such safeguards were here provided. The Government themselves had recognised the same necessity, for in their Bill, as originally introduced, they had inserted checks and safeguards, which most unfortunately had been expunged from the Bill now recommended their Lordships. With respect to the alleged advantages to be derived from the operation of this Bill, in its effect and ordinary commercial undertakings, he thought such favourable anticipations altogether unfounded, for there was not an instance on record of the successful application of a chartered joint-stock principle to ordinary commercial objects which could be carried on by private enterprise; 2040 it is only when the nature and magnitude of an enterprise is beyond the reach of an ordinary partnership. The most striking illustration of such failure of the joint-stock principle applied to commercial pursuits was that of the East India Company, which had notoriously failed as a commercial undertaking. He felt great alarm at the principle on which this Bill was defended in another place. A most unfortunate delusion had, for the first time, been held out to the community of England as a truth. It was suggested that there was an opposition of interest between the capitalist and the industrious classes, thus representing the capitalists as the enemies of productive labour. The arguments professing to be drawn from experience are equally fallacious. If foreign authority was appealed to in favour of the principle of limited liability it ought not to have been relied upon apart from the precaution with which that principle was guarded in foreign countries; for instance, it behoves Parliament to consider and to adopt the precautions with which it was wisely associated by law in America. He doubted, even with these precautions, whether the principle was so successful in the United States as was pretended; compare the commercial character, the state of credit, and the transactions on the Broadway at New York and in England, and he would ask which of the two countries stood the highest in respect to all that characterised its commercial men? It was said that the state of things in France was a recommendation in favour of the proposed change. It was asserted that there was a great deal of capital uninvested in this country Which this Bill, and the Companies formed under it, was expected to bring into action. But was there not also much unemployed capital in France, where the principle of limited liability existed? But had the limited liability principle called into action all, or any great part, of the unemployed capital of the latter country? What had recently occurred there? Why, that there was such a mass of unemployed capital lying in the hands of small proprietors in France, that 176,000,000 l. had been tendered as a subscription by them towards the last open loan. French capital had thus been previously lying dormant, at a time when the principle of limited liability was in full operation, and had long been sanctioned by law. The events, therefore, that had recently taken place in Franco went to disprove the 2041 supposition that the adoption of the principle of the société anonyme, or société en commandite, would necessarily call out and keep in activity the unemployed capital of this country, if such unemployed capital were proved to exist. He believed the effect of the Bill would be, that a certain amount of capital, not now in a latent or dormant state, would be diverted by gambling speculations from the better purposes in which it was now employed. It was said that people should be allowed to take care of themselves, and that their own interests would lead them to decide on the course they thought best. If this were universally true, what right, then, had the Legislature to interfere with lotteries? But it had so interfered, and enacted that no lottery should exist in this country, even for the bonâ fide purposes of disposing of property, or for the profit of the State. Since the time of the South Sea Bubble the commercial legislation of Parliament had been directed to curb the spirit of gambling, little goes, bubble Companies, and fraudulent auctions; and he hoped Parliament would not now for the first time take a step in the contrary direction. He also contended that this Bill, instead of benefiting the poorer classes, as had been urged in its favour, would do them harm. They would possibly see Companies created under this Bill; but what description of Companies? The payment of a few shillings on shares would be sufficient to bring a Company into activity. Did their Lordships believe that these bubble Companies would be got together for the purpose of carrying on a trade? No; one object would be to organise a paid staff of officials who would make a profit on the mere salaries they would receive. Again, another class of men would engage in these Companies, not for the legitimate purposes of trade, but for the purpose of making a traffic in their shares. These and other abuses were proposed to be guarded against by the Government Bill, as introduced into Parliament. But in an evil hour they had been induced to abandon their deliberate intentions, and to adopt the present Bill. Yet, even under these circumstances, the proposal is not to reject the Bill, but to examine its provisions carefully. He thought so reasonable a proposition as that of his noble Friend (Earl Grey) for referring this Bill to a Select Committee could hardly be resisted with common decency. There would be a greater loss of time in 2042 discussing the measure in a Committee of the whole House than there would be in discussing it in a Committee up stairs. But the Bill is said to be recommended by its popularity. If this argument were sound, on what evidence does it rest as a fact? What petitions had been presented to their Lordships' House in favour of this Bill? He knew of none; nor did he know of any great commercial authority which had recommended the measure now under consideration for their Lordships' adoption, creating, as it did, a limited liability without the addition of any sufficient safeguard or protection. On those grounds he should support the Motion of his noble Friend (Earl Grey), and should he be placed on the Committee, which it was proposed to appoint, he should endeavour to render the Bill, if not useful, yet, at least, as innocuous as might be.
§ LORD REDESDALEsaid, he should support the motion that the Bill be referred to a Select Committee, because he was most anxious that if the Bill was to be proceeded with at all in that Session, all necessary amendments should be introduced into it in order to make it a safe measure; and he thought that some provision should be inserted, as a protection to poor persons, preventing very small Companies being set up under the Bill, for, otherwise petty Companies of all kinds would be set afloat by lawyers for the purpose of getting long bills paid to them for their services in promoting the schemes. The more he examined the Bill the more he was convinced that it was inconsiderately prepared, and that it required the greatest possible Amendment. Existing Companies would be permitted to come within the operation of the Bill, but no provision was made to ascertain their solvency. Many of the registered Companies now existing consisted of 5l. shares, but under the proposed law those shares must be doubled in amount. He conceived it would be a great hardship to compel the shareholders in those Companies to double the amount of their shares and thus double their liability, and some provision should be made to meet that case. He then came to the third clause, which permitted existing Companies to adopt the principle of limited liability, and he found that no provision was made as to the amount of their shares nor for any inquiry as to their solvency. He thought it highly necessary that there should be a strict independent audit of the 2043 affairs of existing Companies. He would propose, if the House went into Committee, to add a clause to the effect that some reserve should be formed to meet the liabilities of Companies in the event of insolvency. He thought that 20 per cent. upon the amount of the shares should remain uncalled up until the Company should be wound up or found to be insolvent. That was the least protection that could be afforded to the creditors of those Companies. He considered, also, that a public audit was necessary to prevent the payment of large dividends out of capital with a view to raise the value of shares in the market, although the Company might be practically insolvent at the time. It was impossible at the present moment to give notice of all the Amendments which the Bill required, but he should propose to add at the end of the Bill a clause, that nothing contained in the Act should exempt any Company from any provisions in any future Act of Parliament which might be passed for the better regulation of such Companies. He then came to Clause 8, which related to the mode of proceeding to execution against Companies, and he found that it differed from the provisions in the Joint-stock Companies Act, inasmuch as in the latter execution was to issue upon the order of the Court, or of a Judge of the Court in which proceedings were taken, while the present Bill only permitted execution to issue upon the order of the Court. The consequence of the variation would be that, as no order could be made by a Judge at chambers, no proceeding for execution could be taken during the long vacation. The alteration would also increase the expense to creditors. The Bill did not prescribe any qualification for directors, who might be persons holding only single shares, and whose liability would consequently be of the most trivial description. He was satisfied that whatever pains they might take in a Committee of the whole House, it would be impossible to bring the Bill into a satisfactory shape. It would be impossible to discuss Amendments or new clauses, for noble Lords had net had time to prepare them. He thought the least the Government could do was to adjourn the consideration of the Bill to another day, by which time Amendments might be prepared. He hoped the speech he had made in asking a question upon this subject would be answered, and some explanation given why the Government treated that House differently from the other House of Parliament, where measures, sent 2044 down by their Lordships at an early period of the Session, were now withdrawn, upon the ground that there was not time fairly to consider them. The true principle of all legislation was to legislate carefully, and not send forth crude and improper measures upon important subjects. No one could doubt this was an important subject, and he entreated the Government either not to press the Bill at present, or to accede to the proposition of the noble Earl and grant a Select Committee.
§ EARL GRANVILLEsaid, he had a public duty to perform, and it appeared to him, after what had taken place, it was impossible to agree to the proposition of his noble Friend; for nothing could stultify the House of Lords more than to ask it one day to pass a Resolution that this was a measure of urgency, and the next day to say, it was no question of urgency whatever, and the Government were quite prepared to withdraw the Bill. The question of referring it to a Select Committee had been put very fairly by the noble Lord (Lord St. Leonard's) who was in favour of limited liability and wished to bring the subject to a satisfactory settlement. That course was also supported by his noble and learned Friend (Lord Campbell), who, however, let fall the rather ominous expression, that the object was to make the measure perfectly innocuous, or, he feared, in other words, entirely to destroy its efficiency. With regard to his noble Friend (Earl Grey), there was hardly a person in that House whom he was more sorry to see against, or glad to see with him. His noble Friend, however, like most men of active minds, was apt to raise objections and when he did object to a measure nothing escaped his clear and comprehensive mind, which, like the trunk of the elephant, was capable of taking up the largest or the smallest things at pleasure. It was only two days ago that his noble Friend said he absolutely knew nothing of the Bill. He had his misgivings at the time that his noble Friend would in twenty-four hours find some objections, but he was hardly prepared for the utter denunciations of limited liability and of the Bill with which the noble Earl had favoured them, that the Bill was utterly unimprovable, and, although he would do his best to improve it in a Select Committee, it was almost hopeless. He asked their Lordships whether that speech was very encouraging to one who felt it his public duty to insist upon passing this Bill? He was aware of 2045 the value of a Select Committee, but he was not sure that this Bill was very well suited for it. The Bill adopted the principle of limited liability. The chief safeguard was publicity, and that was insisted upon in the Bill. Every suggestion of further safeguard would, he believed, be entirely illusory, giving great impediments to shareholders, while it encouraged creditors to think there were safeguards to which they might look, instead of regarding all these Companies with suspicion, and only trusting them when they saw their business conducted in such a manner as it would be by honourable men. The description given by his noble Friend of a Company formed for the mere purpose of defrauding the public, going on, not for six or twelve months, but for ten or fifteen years, all the original proprietors making immense fortunes, and the Company then voluntarily becoming bankrupt, was the greatest stretch of imagination he had ever heard. He believed this House was fit to deal with matters in Committee of the Whole House. He could not see in what single respect it was inferior therein to the House of Commons. Their Lordships were certainly calm and patient, and among them were some men well conversant with the business and forms of legislation. If it were to be settled that all important Bills were to be discussed in secret in that House, why should not the same principle be adopted in the House of Commons. The public would then only hear the great principles on which a measure was founded, and would know nothing of the arguments which produced certain decisions on particular clauses. Everybody who had recommended the Bill being referred to a Select Committee had done so with the view to introduce restrictions, and, if restrictions were to be introduced, he was quite sure the large mass of the middle classes ought to be well informed of the arguments upon which they were adopted. For these reasons, and not from any want of respect to their Lordships, he must oppose the going to a Select Committee.
LORD CAMPBELLsaid, the problem was to find a legislative measure which would allow of the formation of an association on the principle of limited liability without application to the Board of Trade, to Parliament, or to the Government for the time being. He (Lord Campbell) was under the impression that the measure would lead to infinite litigation, and if his 2046 noble Friend had made up his mind that there should be no Select Committee, he (Lord Campbell), if there was a division, would certainly divide with the noble Earl.
§ LORD ST. LEONARDSbelieved that if the Bill were referred to a Select Committee for two or three hours the Bill might be made satisfactory to the country.
§ On Question, Whether to agree to the said Amendment? Their Lordships divided:—Content 11; Not Content 28: Majority 17.
| List of the CONTENT. | |
| EARL. | Redesdale |
| Grey | Dynevor |
| VISCOUNT. | Hawarden |
| St.Vincent | Harrington |
| BARONS. | St. Leonards |
| Campbell | Wynford |
| Monteagle | Waldegrave |
§ Resolved in the Negative: The original Motion agreed to, and House in Committee accordingly: Then it was moved, That the House be now resumed, objected to; and after Debate, the said Motion was (by leave of the Committee) withdrawn.
§ Clause 1.
§ LORD MONTEAGLE moved an Amendment to the effect that the capital of a Company established under the Act should not be less than 10,000l., divided into shares of not less than 25l. each.
THE LORD CHANCELLORopposed the Amendment on the ground that it could do no good, but would tend to prevent people who had dealings with these Companies from looking after their own interests, by giving them a false impression as to the capital of such Companies. He considered all these proposed safeguards to be mere illusions, and that if the Bill ought not to pass without them it ought not to pass at all.
LORD CAMPBELLsupported the Amendment as affording a protection to the small trader against petty rivalry. The proposal had actually been in the original Bill, but the House of Commons had struck it out;—that, however, was no reason why their Lordships should not reinsert it.
§ EARL GREYthought no good argument could be urged against this Amendment, and that the objection which the noble and learned Lord (the Lord Chancellor) had stated to it, if sound, Would equally apply to the entire Bill.
THE DUKE OF ARGYLLthought there was no good argument in favour of the 2047 Amendment. He denied that it was a function of Government to say that there were certain trades which it was better to carry on by Joint-stock Companies, and others which it was not. How was it possible to draw the distinction? They ought not to dictate either to Companies or to individuals what trades they were or were not competent to carry on. He was astonished at the arguments brought forward by the noble Earl against what he considered to be the principle of the Bill.
§ LORD ST. LEONARDSsaid, he was astonished that the noble Duke should say there was no good argument for the Amendment, seeing that the Government had themselves proposed 20,000l., which they afterwards reduced to 10,000l. Now, however, the Government disclaimed their own performance. The measure must surely have been a Cabinet one, yet the noble Duke appeared not to have been cognisant of its provisions. As to Parliament having no right to interfere in such matters, the noble Duke forgot that the very object of this measure was an interference with property, seeing that it took away a part of the security which creditors now enjoyed.
LORD CAMPBELLsaid, that in trading transactions unlimited liability was the rule, and limited liability the exception, and every person should be bound to fulfil his contracts to the utmost extent, unless he could show good reason why he should be indulged with limited liability. He was of opinion that under the circumstances the Amendment to fix the minimum capital of these undertakings at 10,000l. ought to be adopted.
THE LORD CHANCELLORsaid, that if a number of persons joined together and made a certain stock liable for their engagements they fulfilled their contract; and the object of the Bill was to enable them to enter into a limited instead of an unlimited engagement.
§ On Question, their Lordships divided; Content 9; Not Content 18; Majority 9.
§ EARL GREYthen proposed an Amendment, to the effect that Companies should consist of not less than twenty-five shareholders.
§ LORD STANLEY OF ALDERLEYagreed.
§ Clause, as amended, was agreed to.
§ Clause 2.
§ EARL GREYproposed to add in line thirty-five, after the word "liability," the words "after the affairs of the Company 2048 shall have been audited by some person appointed by the Board of Trade, and a certificate from the said Board that the complete solvency of such Company has been established to the said auditor's satisfaction."
§ Amendment agreed to; clause as amended, agreed to.
§ Clause 3, with a similar Amendment, agreed to.
§ Clause 4.
LORD CAMPBELLproposed an Amendment to the effect that all negotiable securities issued by Companies with limited liability should have that fact mentioned on them.
§ Amendment agreed to; clause as amended, agreed to.
§ Clause 5.
§ EARL GREYobjected that the clause did not, in its construction, provide that a surplus should be in the hands of Companies beyond their liabilities. He held it as a principle that all Joint-stock Companies should have a fixed property beyond their fixed capital, upon which their creditors could come. He should, therefore, move as an Amendment, "That there be 20 per cent of the capital retained as a reserve fund, to meet any liabilities of the companies."
§ EARL GRANVILLEobjected to the clause, because its only effect would be to make the shares 20 per cent more than was required. It was much better that the creditors should not look at all to these safeguards.
§ LORD MONTEAGLEsubmitted, that every well-conducted Company should make a reserve.
THE DUKE OF ARGYLLsaid, they might make a reserve for trading purposes, but this clause would keep 20 per cent from the operations of the Company for the sake of the creditors.
§ Amendment negatived; clause agreed to.
§ Clause 6.
§ EARL GREYsaid, there had been a practice on the part of some Joint-stock Companies to make delusive and fraudulent dividends, and the only check would be to institute an independent audit. He should propose to adopt as his model the Bill introduced by the noble Earl (Earl Granville) on the subject of railways, and to move the insertion of a clause providing that the Commissioners for Auditing the 2049 Public Accounts should appoint competent persons from time to time to audit the accounts of Joint-stock Companies entitled to limited liability. If this clause were adopted, he purposed to follow it up by another, giving the necessary powers to the officers so appointed.
§ EARL GRANVILLEdoubted, whether the two cases of railways and the Companies to be formed under this Bill were analogous. It would be impracticable to have a system of audit for these associations of the kind he had once proposed for railway Companies.
§ LORD MONTEAGLEbelieved, there would be some difficulty in instituting an independent audit of these Companies, but the experiment was worth trying.
LORD CAMPBELLthought, there would be greater difficulty in carrying out a system of audit with these Companies than with railways.
§ LORD STANLEY OF ALDERLEYthought increased expense would be entailed on the Companies by the adoption of the noble Earl's proposition.
§ EARL GREYcould not understand how his Amendment could involve any additional expense. Its object was to correct an abuse which was known to exist, and no valid objection to it had been stated.
§ In reply to LORD CAMPBELL,
§ EARL GREYstated that, if his Amendment should be adopted, he proposed to follow it up with a clause conferring upon the auditors the same powers which were possessed by the auditors appointed under the Joint-stock Companies Act.
LORD CAMPBELLthought that if there was to be an audit, it was imperative that it should be of an independent character, and the appointment of auditors by a public department would not involve any greater difficulty or expense than would be incurred by the appointment of auditors by the Companies themselves.
§ On Question, their Lordships divided; Contents 10; Not Contents 18; Majority 8.
§ EARL GREY,adverting to the diminished 2050 number of Peers in attendance, moved that the House do now resume.
§ After a short discussion on Question, resolved in the negative.
§ Clause agreed to.
§ Clause 8 agreed to.
§ EARL GREYthen moved to insert a clause providing that if the directors of any Company formed under the Bill declared and paid a dividend when the undertaking was insolvent, they should be jointly and severally liable for the whole of the debts of the Company; exemption, however, to be allowed to any director who was proved to have resisted the declaration of such dividend. A provision of this kind had been found necessary in America and in other countries where limited liability prevailed.
§ LORD STANLEY OF ALDERLEYopposed the clause on the ground that it created a difference in the liability of shareholders and directors, and said that if it were inserted there would be great difficulty in getting respectable persons to become directors.
§ EARL GREYsaid, that a similar provision was in force in all other countries in which the principle of limited liability was in force.
LORD DENMANobserved, that no respectable directors would ever be guilty of such conduct, but it was exceedingly desirable to introduce such safeguards into this Bill, notwithstanding its coming on so late, as would render limited liability as safe in England as it is in France and America, where the law of bankruptcy is exceedingly severe, and fraudulent bankrupts are returned by extradition from this country to France, while no law renders our bankrupts liable to the same consequences. No doubt "silent leges inter arma," but it is not too late to make this a most beneficial measure, and both safety and honesty will be forwarded by this Amendment, which, proceeding from whichever side of the House it might, he (Lord Denman) would have felt it his bounden duty to support. The great principle is that of the motto inscribed on the Town Hall of Verviers, in Belgium, "Publicitas salus populi," and directors will, like the commandites in France, and the heads of firms having special partners, in America, each of whom is constantly so liable, become liable to the full amount of their fortunes, if they unfairly and secretly risk the property entrusted to them, on limited liability; while the creditors will 2051 be more ready to trust those who have a paid-up capital and a considerable share of responsibility for its management.
§ Clause agreed to.
§ EARL GREYthen proposed the addition of a clause, declaring that no note of hand given by a shareholder should be considered as payment of capital stock—that no loan should be made to a shareholder—and that any officer of a Company making one should be liable to the full extent of the sum so lent.
§ Clause agreed to.
§ EARL GREYthen moved a clause, enacting that no Company should be allowed at any one time to contract liabilities to a greater amount than their capital.
§ After a short conversation,
§ Clause withdrawn.
§ EARL GREYthen moved a clause, adopted, like the former ones, from the laws of the State of Massachusetts, subjecting the directors or officers of any Company to unlimited liability in case they were guilty of wilful false representation in any notice or account given or rendered by them in pursuance of the provisions of this or any other act.
THE LORD CHANCELLORsaid, he did not object to the principle of the clause, but he thought that the wording would require alteration.
§ EARL GREYsaid, under those circumstances he would withdraw the clause, and propose it in an amended form on the bringing up of the Report.
§ Clause withdrawn.
§ Clauses 9 and 10 agreed to.
§ LORD MONTEAGLE moved a clause directing the winding up of the affairs of any Company which had lost three-fourths of its subscribed capital.
§ Clause agreed to; as were also clauses 11 and 12.
§ Clause 13 and 14 struck out.
§ Preamble agreed to.
§ House resumed.
§ LORD REDESDALEhoped that sufficient time would be given for the consideration of the Report, and with that view he proposed that the Bill should be reported on Monday.
§ After a few words from Lord CAMPBELL,
§ EARL GRANVILLEsuggested that the third reading of the Bill should be fixed for Monday, and they would then have ample time to consider the Amendments.
§ EARL GREYprotested against an important commercial measure of this kind being forced through the House without time for consideration.
§ EARL GRANVILLEconsidered that no Bill had received more consideration during the Session. No Bill had been more fully discussed in detail, or with more ability.
§ The Report of the Amendments to be received To-morrow.
§ House adjourned till To-morrow.