SECOND READING. (Hansard, 23 May 1865)

THE EARL OF DONOUGHMORE
, in rising to move the second reading of this Bill, said, its object was to enable certain companies to issue mortgage debentures founded on securities upon or affecting law. A Bill having a similar object had been introduced into the House of Commons last Session as a Private Bill, and passed that House; but when it reached the House of Lords his noble Friend the Chairman of Committees objected to its progress on the ground that it should have been brought in as a Public instead of a Private Bill. It was decided that it should be treated as a public measure, and as such it was passed by the House of Lords, after having been carefully examined by a Select Committee, and sent down to the House of Commons, but at so late a period in the Session that it could not be dealt with, and therefore dropped. He assumed that there was no objection to the principle of the Bill. It differed only very slightly in one or two points from the Bill of last Session, and he begged to move that it be now read a second time.

§ LORD REDESDALE
said, he would not have troubled their Lordships with any observations if this Bill had been precisely the same as that of last Session. But it was, in fact, a very different Bill in several important particulars. The Bill introduced last Session contemplated the issue of debentures by companies of very substantial and solid character, with shares of not less than £50 each, and with a paid-up capital 720 of £100,000 at least, being not less than one-tenth nor more than one-half of their nominal subscribed capital. Moreover, their transactions were to be limited to dealings in such securities alone as would justify the issue of debentures thereon, whereas by this Bill the company issuing debentures might lend money on any, even on personal security only. The effect of this Bill probably would be that they would have companies created, of anything but a substantial character, lending money in all directions, and involving them selves in considerable liabilities, and these mortgage debentures once issued might continue in circulation after the company had ceased to be solvent. Unless the provisions of the Bill were materially modified he should certainly oppose it in its future stages. This was a question of much more importance than was generally considered. He did not think it had been sufficiently considered even by the Government. Great care should be taken that the companies intrusted with the powers of this Bill should be of the soundest and most undeniable character.

§ THE DUKE OF MARLBOROUGH
said, the principle of the present Bill had been very carefully considered, and assented to by their Lordships last year. The principle was admitted to be a most beneficial one, enabling landowners to obtain money for the improvement of their estates on mortgage upon easy terms, without en countering the legal and other difficulties which now encompassed every transaction of that kind. It was fully considered last year in connection with the very useful Bill of the noble and learned Lord on the Woolsack to enable landowners to charge their estates with improvements on the certificate of the Landed Estates Court. Formerly, it was necessary for a landowner to go to one of two companies, and through their agency to effect the charge which would enable him to make the desired improvement. This Bill would now enable him to effect the improvement, and on receiving the certificate of the Inclosure Commissioners to create a charge on his estate, which he would be able to take to any banking office, or company, or person having money to lend, sell the charge, and reimburse his expenditure. It was very important, he thought, that respectable companies of this kind should be established to enable landowners to take advantage of the most useful Act of last year. It was very unadvisable that landowners 721 should be confined to one or two companies in order to obtain the funds necessary for the improvement of their estates. The principle of the Bill was virtually the same as that of the Bill brought forward by his noble Friend the Chairman of Committees last year, and it gave this additional security, that, instead of the securities on which the debentures would be issued being deposited with the company, they were under this Bill to be deposited in the Land Registry Office. He thought that the objection of the noble Lord the Chairman of Committees was one which would have been better reserved for the Committee, in which he (the Duke of Marlborough) would probably give it his support.

§ LORD ST. LEONARDS
said, that if the Bill were really for the benefit of the landed proprietors it should have his warmest support; but he thought they were getting into a new mode of dealing with money and property, and with trade and commerce, which called for serious consideration. Instead of private persons engaging individually in the pursuits of trade and commerce, they were forming large companies with limited liability; and the fear was that in this way the country would lose the advantage of individual energy and enterprize, while there would be large companies continually drawing upon the community for money and capital to carry on their concerns. In fact, men were driven out of business by these great companies. All the tendency now was to have their Credits Fonciers and their Credits Mobiliers after the French pattern. They had companies with very small capital which operated on the public welfare in a very peculiar way. To enable them to judge of the probable working of that Bill, their Lordships ought to know what was the number and what the nature of the companies who were likely to avail themselves of the privileges it I conferred. Let them take the case of a company under this Bill with £100,000 of capital, of which only £10,000 was paid up. There would thus be £90,000 remaining uncalled for—and it should be remembered that sometimes when calls were made they might be made in vain. But the company might lend at interest its £10,000 of paid up capital upon security, and there would be a valuation of the property. Then it might borrow, upon what the Bill described as mortgage debentures, another £10,000, secured upon the mortgage for its first loan to the like 722 amount. And what would be the effect of these mortgage debentures upon the money market? Now, would they interfere with the floating debt of the country? The process became not a bonâ fide trade of buying and selling, but a game of lending and borrowing without any effectual check. Having obtained these securities, the company would then borrow another £10,000, and that £10,000 being money in hand, it would lend it again upon other securities. That was the second time it would have turned its capital. When they had got their new securities for the second £10,000 they would then issue further mortgage debentures to that amount. And so that company might go on borrowing and lending ad infinitum. True, it was provided by the Bill that the Company must have an equal value of securities with their mort gage bonds; but the value of a property differed at different periods, being affected by fire, tempests, and floods. The only check provided by the Bill was that there must be a corresponding value of securities and bonds; and it would practically amount to nothing. Again, as soon as money had been lent by these companies, and they had got any given number of securities for it, those securities would form one fund, which would become liable for the whole of the mortgage debentures. This requires explanation. The first mortgage bonds of the company would be issued upon the security of the first mortgage to them, but any future loans by them would be issued on the security of all the mortgages to them. Even upon the first mortgage to them it might not be agreeable to find that £50 shareholders—the tradesmen of your neighbourhood probably—had a mortgage on your property, nor where you borrowed £5,000 might you like to find that your property was thrown into a common fund of all the company's securities and charged with them to it may be £100,000. When the mortgage debentures were issued, they were intended to circulate throughout the country; and if they are not paid, the owner would be at liberty to go to the Court of Chancery, when a receiver would be appointed, and all the securities of the company were to be called in and sold. In such case he needed not to tell their Lordships how much money would remain to be divided among the mortgage debtors, and the unfortunate borrowers would with out any default of their own be plunged into prolonged litigation with numerous parties wholly unknown to them. More- 723 over, if landowners pledged their estates in this way they would sap the foundation of settlements. He believed that young men would avail themselves of the Bill for the purpose of raising money, and thus involve themselves in transactions tending to encumber their property beyond relief. There was likewise no direction in the Bill as to how any surplus was to be accounted for; but care was taken to pro vide by one of the clauses that the mort gage debentures should be no specific charge on the property or effects of the company. There were provisions in the Bill authorizing trustees to lend their trust moneys on these mortgage debentures; which Government ought not to sanction.

§ EARL GRANVILLE
said, that as the Bill had come up from the House of Commons, he thought it advisable to read it a second time, with the understanding that the various provisions would receive careful consideration in Committee.