THE EARL OF BELMORE, in rising to ask Her Majesty's Government whether it was the intention of the President of the Board of Trade to introduce during the present Session any measure to give effect to the recommendations of the Select Committee of that House (1864) on the subject of Railway Companies borrowing powers, said, the subject was one which, though not of any great popular interest, was nevertheless of considerable importance, and he desired to bring to their Lordships' recollection what had already taken place concerning this matter during the last three Sessions. In the Session of 1863, a noble Earl (the Earl of Donoughmore), who was unfortunately too unwell to be present that evening, brought to the notice of their Lordships the Special Report and Evidence on the West Hartlepool Harbour and Railway Bill, by which it appeared that the directors of that company had greatly exceeded their borrowing powers; and a Se- 336 lect Committee was appointed by their Lordships
To inquire and report as to what legislative measures are desirable for the purpose of restraining the directors of railway companies from exceeding the limits of the borrowing powers fixed by their Act of Parliament.The Committee which sat in two Sessions, made two Reports, to the effect, that it was very desirable that railway companies should be compelled to make annual returns to some public officer, and that there should be a system of compulsory registration of railway obligations. As the Government did not take up the matter, and his noble Friend was prevented from following up the subject, he (the Earl of Belmore) took the liberty last Session, at the suggestion of his noble Friend, of introducing a Bill (the Railway Debentures, &c., Registry Bill), embodying the recommendations of the Commissioners. That Bill passed their Lordships' House, but went down to the Commons late in the Session, and was withdrawn after a first reading, as it was felt, notwithstanding that it had met with the approval of the then Lord Chancellor, who had added an important Amendment obliging companies to register all their obligations, that it would receive severe opposition from the powerful railway interest in the House of Commons. The objections were very fairly stated in a newspaper which devoted itself to financial questions. They were four in number. In the first place, it was said that a system of compulsory registration would give to railway debentures and obligations an apparent validity which they did not intrinsically possess, and that the registrar whom the Bill proposed to intrust with receiving the annual returns and registering the bonds could not possibly ascertain whether any bonds submitted to him were or were not within the limits of the borrowing powers of the company presenting them. All, however, that his Bill proposed to do was exactly what had been done for the last 150 years with regard to the registration of deeds relating to land in Ireland; every deed had to be registered in the Rolls Office in Dublin, and the deed took priority according to the date of registration. That was precisely what he had proposed to do with regard to the registration of railway obligations, and registration would no more make the debenture valid than would the registration of a false deed in Ireland make it a good one. The only object of his Bill was to show the numbers and 337 amount of the securities issued by the company, so that proposing lenders might be able to ascertain what was in priority to them. The second objection was that the Bill would take from the directors of railway companies the sense of responsibility which they were now supposed to possess; but the writer himself went on to say that he knew something of the borrowing operations of railway companies, and that directors often did not know the extent of their responsibilities, and the same objection might be urged against any Bill proposing to restrict the powers of railway companies. The third point was that the Bill if carried would interfere with the proper conduct of business. He would be the last to propose anything which would interfere with the action of railway companies in conducting their business, or obstruct trade in any way; but he was of opinion that (he increased value of their securities would have gained if the proposed Bill had become law, would have more than compensated them for any minor inconvenience they would suffer. The fourth objection was that these debentures would take a priority over other debts to which they were not entitled, and which the shareholders had never supposed that they possessed. The law provided, however, that certain borrowing powers should not be exceeded, and it might fairly be presumed to have been the intention of Legislature that those who lent their money under the several Acts were entitled to priority over other obligations. He believed it had been decided that the holder of Lloyds' bonds, so long as they were bona fide, that was to say given in payment for work done, could enter an execution against all the effects of a railway company. The whole subject was a matter of great importance, so much so that he thought it should not be taken up by a private Member of their Lordships' House, and he hoped he should hear from the Government that the President of the Board of Trade intended to introduce a Bill on the subject, and the more so, because he understood that when the Registry Bill was in the House of Commons last Session, the President of the Board of Trade had (he did not say in his plan, because there was no discussion on the Bill), informed the noble Lord who had charge of it in that House that he should probably deal with the subject. He would now ask, Whether it is the Intention of the President of the Board of Trade to introduce, during the present Session, any Measure to give effect 338 to the Recommendation of the Select Committee of this House (1864) on "Railway Companies' Borrowing Powers;" and 2, Whether, if such a Measure should be introduced, it would be framed so as to meet the Case of the Obligations of Joint Stock Companies generally?
§ EARL RUSSELLwas understood to say that he had consulted his right hon. Friend the President of the Board of Trade, who had informed him that he was engaged upon the subject, but was not prepared to say that he would at present bring in any measure dealing with it this Session.
§ LORD OVERSTONEsaid, he regretted to hear the answer which had just been given by the noble Earl at the head of the Government upon that subject. By the Legislature of the country power was given to railway companies to borrow, under certain conditions, large sums of money on the security of their bonds. But the investors in the bonds had no means of verifying whether or not those conditions had been complied with, and, consequently, whether the security thus offered was not utterly worthless. That was not a mere theoretical objection. It was one which had actually been realized upon several remarkable occasions. If he was not mistaken, even since the question had last been under the consideration of their Lordships an important case had arisen, in which a great company had gone far beyond its legal power of borrowing, and the directors had defended their conduct by alleging that they were driven by pressure to adopt the course they had followed. They were under an obligation at a certain period to meet a large amount of claims on them, whatever might then be the state of the money market, and they thought it desirable to raise money beforehand in an easy state of the money market, so that they might be prepared to meet their engagements. Fresh bonds were accordingly issued beyond their legal powers; and upon that a seriou9 question might arise whether the security had not thus been invalidated. Under these circumstances, it was reasonable that the public should look to the Legislature to afford them the means of exercising that precaution with regard to the validity of those securities which the Legislature itself had made necessary. They had had a Committee of that House sitting upon the subject; that Committee had examined witnesses, who represented some of the largest railways in the kingdom, and those wit- 339 nesses made no objection to the adoption of such a measure as that suggested by the noble Earl opposite (the Earl of Belmore); but, on the contrary, they expressed themselves ready to welcome it. They had also had before them the solicitor to the Bank of England, which establishment is supposed to be a large investor in those securities, and he had expressed a similar opinion. The Committee themselves were all but unanimous in favour of the proposal, the only dissentient being the noble Earl the President of the Council. He hoped that the attention of the President of the Board of Trade would be directed in a more serious and earnest manner to the matter, and that he would be prepared to grapple with its difficulties before the conclusion of the present Session. He was certainly sorry that a more satisfactory answer had not been returned by the noble Earl.
§ THE MARQUESS OF LANSDOWNEsaid, he wished to express his belief that a measure of the kind suggested by the noble Earl (the Earl of Belmore) would not be injurious to any company that conducted its business upon legitimate principles.