§ Order of the Day for the House to be put into Committee read.
§ Moved, "That the House do now resolve itself into a Committee."—(The Lord Stanley of Alderley.)
§ LORD REDESDALE
said, that that Bill had been introduced to enable companies with shares of large amount, which they had a difficulty in disposing of, to reduce their shares to a lower amount, whereby it would be more in the power of persons of small means to become possessed of them. The companies would thus get rid of a liability to which they were now subject. He did not think it would be right to give those facilities to the extent proposed by that measure; for one probable result would be to transfer the shares to a less responsible class of persons. A limit should, he thought, be imposed—as, for example, that the shares should not be reduced to more than one-half, or, at most, one-quarter of their present amount. As the Bill stood, shares of £100 might be divided into ten shares of £10 each.
§ LORD OVERSTONE
said, he thought the Chairman of Committees had rendered very good service in bringing the subject before their Lordships. These shares were little else but gambling symbols used not for the purpose of promoting industry, but to facilitate practices which had about as much relation to honest industry as the exchange of cards over a gaming table, or any other device by which property in the possession of one person was to be transferred to the pockets of another. There was no Return of the present number of 2029 these shares in joint-stock companies; but in 1864 he moved for Returns from which it appeared that in May of that year the number of shares created up to that time in companies of limited liability amounted to 42,000,000. He moved for the Return in the hope that it might tend to check such reckless proceedings; but he feared the hope had proved vain and delusive, for beyond doubt this abuse of credit and reckless gambling in these shares had been carried on with increased activity. He had another Return which showed that during the sixteen months from January, 1863, to May, 1864, no less than 13,350,000 shares were created. What was the number in existence when the panic set in he was unable to state. Was it wise, right, or justifiable to pass an Act for splitting up and thus causing an extensive multiplication of these shares? If they were to be thus multiplied, they would find their way into the possession of a more ignorant and a poorer class of investors, and great loss and distress might be thereby occasioned. When these companies under limited liability were first got up, the shares were as low as 10s. and £1, and it was only necessary to refer to the proceedings of the Bankruptcy Court to see how the humbler classes might be wronged by these companies. All the Commissioners—Fane, Holroyd, and Fonblanque—had pointed out the folly of engaging in companies of this description; and had used language of the severest censure in regard to the conduct of those who had promoted them. A leading counsel engaged in the Bankruptcy Court emphatically declared that "limited companies" were a "mockery, a delusion, and a snare." These companies were now dealing with shares of a greater number and larger amount. One illustration of the danger of investing money in companies of this description might be given. The house of Overend, Gurney, and Co., once a large and important establishment in the City, and enjoying the highest credit, was at length carried on with great indiscretion and sustained many very heavy losses. Under the weight of these transactions the firm sought to avert the impending evil by converting it into a joint-stock company, limited. The number of shares was 100,000 of £50 each, of which £15 were paid up. The sum of £500,000 was given for the goodwill of the business. What was the result? The transfer was accomplished in 2030 August, 1865, and in May of the present year the concern became insolvent. There were 2,300 shareholders thus suddenly involved in this catastrophe. The indebtedness of the company was estimated at £18,000,000, the shareholders had already lost the whole of the £15 per share they had paid up, and a further call of £20 per share would probably be required to discharge the engagements of the company. He was informed that letters were received from females in great distress, from retired officers of the army and navy, who were unable to pay heavy calls, and to avoid which exile from the country was in many cases contemplated. That being the state of the case, 2,300 shareholders in that concern alone being placed in such a situation, was it the desire of the Government that the £50 shares should be reduced to £10, and that the suffering caused by such failures should be more widely shared and extended to those who, from their position, would be less able to take care of themselves, or to bear the pressure? There were many other cases which offered but a repetition of the same consequences. There were the cases of Barned and Co., and the Consolidated Bank, and it was announced that morning that a great concern, known as the Agra and Masterman's Bank, had suspended payment, a bank having establishments at Calcutta, Bombay, Madras, Lahore, Kurrachee, Shanghai, Hong-Kong, Melbourne, and Sydney. That company was formed of two concerns, both of which as long as they remained in the hands of private individuals possessed excellent connections and high credit. The Agra Bank was created in 1833, and obtained a high reputation for the amount of its business and the prudence of its management. Masterman and Co. was also a bank of high standing in the City. But in an evil hour both these valuable houses combined together under the fatal ægis of limited liability, and the result was that two years after the combination these two concerns, previously prosperous and in high credit, had suspended payment. In that concern there were, he was informed, 60,000 shares and 900 shareholders; and was it a matter to be regretted that the shares had not been smaller in amount, and the loss, therefore, more widely diffused, and amongst classes less able to bear it? He had taken care not to be carried away in this matter by any personal crotchet, but had fortified his opi- 2031 nions by the safe and reliable judgment of those who from their experience were entitled to respect. When, after the second reading of the Bill, his attention was called to this matter, he consulted two gentlemen connected with the City of calm and unbiased judgment. Both of those gentlemen were wholly unconnected with transactions of this nature, but both held positions which required them to watch the money-market day by day, for the purpose of giving to those with whom they were connected sound, judicious, and reliable advice in matters of this nature. One of those gentlemen, speaking of the manner in which Companies were concocted, said—There is no doubt that the facility given to the formation of companies with limited liability has led to great frauds in their concoction, great frauds in the issuing of shares, and also to a system of reckless advances which has helped to bring about the present trials.The other gentleman, who had equal opportunities of constant observation, aided by a knowledge of transactions arising out of shares, wrote—Your Lordship will permit me to express an opinion that the issue of shares at a small nominal value is calculated to lure into the field of speculative enterprizes a class of investors of humbler position and more easily to be misled than even those who have of late had such sad experience of the evils attending the folly of becoming co-partners in schemes of which they could have no personal knowledge whatever.The system had undoubtedly received a severe check, and it would, at all events, be some time before they heard of the further concoction of similar concerns. For the sake, therefore, of all honest dealing and the success of legitimate commerce, he implored their Lordships neither directly nor indirectly to give additional liberty or prolonged existence to a system which had been attended by such serious failures, and which had proved, as he had predicted would be the case, the means of spreading so much ruin and misery throughout the community.
§ LORD STANLEY OF ALDERLEY
acknowledged how utterly incompetent he was to contend with the noble Lord upon a subject with which he was so familiar, and upon which his authority was so justly appealed to; but the whole tenor of the noble Lord's argument had been not so much against the Bill as a revival of his old denunciations against the system of limited liability. He doubted whether the failures instanced by the noble Lord had at all resulted from the adoption of the 2032 principle of limited liability. To show the evils of the system, the noble Lord had put prominently forward the failure of Overend and Gurney. He (Lord Stanley of Alderley) agreed that no house had stood higher in the world for experience, integrity, and good management; but the cause of the failure was losses incurred by the concern before it became a limited liability company; so that the fall of that magnificent establishment was due to the time when it was conducted on those principles which the noble Lord considered the only safe and sound principles for the conduct of commercial transactions. One of the great Banks, too, which had recently failed, and which he understood had failed more disastrously than any other Bank, was not a limited liability company. He referred to the Bank of London. With regard to that and others which had failed, there was no reason to suppose that the creditors would lose anything. In all previous commercial crises which had occurred in this country very great disasters ensued, and there had been very great losses experienced by all the creditors of the banks that failed, when those banks were in the hands of private individuals and the liability was unlimited. But he believed that as yet no bank with limited liability had failed to pay its creditors all that was due to them; and it stood to reason that when the liability was distributed over a large number of shareholders, and there was a large portion of the subscriptions to the shares unpaid, it was more likely that means would be found to provide for the liquidation of debts than under the old system. What they had to consider with regard to this Bill was whether, by allowing the partners in these companies to reduce the value of their shares, they would in any way deteriorate the security the creditors of such companies possessed under the existing law. He could not see how the public could be injured or how the security of the creditors could be diminished by permitting a man holding a share of the value of £100 to divide it into ten parts of the value of £10 each, to be held by ten different individuals. On the contrary, he thought the probability was that the man with the £100 share would be less likely to pay the amount due upon it than if the liability were distributed in smaller sums over a larger number of holders, and the holder of the small share would only be liable to pay the nominal price of his shares. It should not be overlooked 2033 that as the law now stood the amount of the shares might be whatever the company chose to fix upon—£100, £50, or £10, and, therefore, there was no absolute objection to £10 shares. He quite agreed with the noble Lord the Chairman of Committees that there should be some limit, and that it was not desirable to go below £10. He proposed to introduce provisions which, he hoped, would satisfy his noble Friend in that respect. All the arguments made use of by the noble Lord behind him (Lord Overstone) against this measure were in reality directed against the principle of limited liability. While admitting that many persons preferred the old system under which the financial affairs of the country were conducted by a few great capitalists, he could not but think that the nation had derived much advantage from the establishment of joint-stock companies based on the limited liability principle, which diminished the monopoly of joint capitalists, whereby a number of people possessed of small capital were enabled to undertake important enterprizes. He must further remind their Lordships that it was not the duty of Parliament to enforce prudence upon people as to the way in which they should invest their money, although the Legislature might take care that sufficient security was given to the creditors of the companies to which he had referred. In his opinion, such security was amply provided for by the present Bill. He trusted their Lordships would not prevent the Bill from going into Committee.
§ LORD OVERSTONE
wished to state that the noble Lord had misunderstood what he had said with regard to Overend, Gurney, and Company. What he had said was, that by recent legislation the losses of the company had been distributed among 2,300 shareholders.
said, that after the statement of the noble Lord (Lord Overstone) he had expected an explanation from the noble Lord the Postmaster General which would have shown that the Bill before the House was intended to answer some useful purpose. The noble Lord had not, however, stated any ground whatever which could induce their Lordships to pass the Bill; but, on the contrary, had furnished them with a good argument against it by stating that, under the existing law, companies were free to make their shares of whatever value they chose. They might, therefore, have done themselves what this Bill pro- 2034 posed to do for them. Why had they not done so? Was it proper for the Legislature to give facilities to those who had been guilty of great imprudence to divide their shares, and thus to enable them the more easily to transfer to other persona the consequence of their recklessness? The noble Lord said that Parliament was not bound to provide prudence for private individuals. In that proposition he entirely concurred; but, at the same time, it was the duty of the Legislature to take care so to frame the law as not to give improper encouragement to a spirit of gambling. The effect of recent legislation had been most mischievous in stimulating such a spirit already too prevalent. It was not fair to the parties who had had dealings with these companies that their constitution should be altered as this Bill proposed to allow. The companies had the power of breaking up and re-forming themselves, according to their own notions, and there was not the slightest ground for Parliament interfering to alter the arrangement which they had voluntarily entered into. Under these circumstances he begged to move that the Bill be committed that day three months.
§ An Amendment moved, to leave out ("now") and insert ("this Day Three Months.")—(Earl Grey.)
agreed with the noble Lords who had just addressed the House, that a very important principle was involved in this apparently unpretending Bill, but he could assure their Lordships that the measure, as it stood, would be received as a boon by many persons. The noble Earl who had just sat down spoke of the power the companies now possessed of dissolving and of reconstituting themselves with shares reduced in value, but that operation would entail such a loss of business, such a scattering of connection, such a loss of interest upon money, and of time, as rendered it practically very difficult to be performed. The Bill before their Lordships permitted the parties concerned to do cheaply and speedily, and without any injury to their business, that which they could now do in a roundabout and expensive way. So much was an alteration of the kind proposed in the Bill required that some companies had been debating whether it would not be prudent for them to apply for a private Act of Parliament to enable them to reduce the value of their shares. He thought it most unreasonable to prevent a company which 2035 might have been established under the belief that it could employ a large capital, from reducing the value of its shares when it was ascertained by experience that a smaller capital would be sufficient. In some cases promoters and directors might think so highly of their connection as to expect to get their capital subscribed by fixing the shares at a high price; but from disturbance in trade or other causes it might be found impossible to obtain, at the high figures, the amount of capital required. Again persons were often unable to dispose of their shares when circumstances required that they should do so, in consequence of their high amount, but were they subdivided, no such difficulty would be experienced. The passing of the Bill was awaited with some impatience by a number of the companies specially concerned; but he did not see why the Government should have limited its operation to £10, for, in his opinion, the companies formed for the purpose of supplying the necessaries of life, and the shares of which were as low as £2 or even less, would compare favourably with undertakings of a higher denomination in the excellence of their management, and in the rate of profit they yielded. Those companies, indeed, would sooner or later compete with savings banks as a mode of investment.
§ On Question, That ("now") stand Part of the Motion? their Lordships divided:—Contents 14; Not-Contents 17: Majority 3:—Resolved in the Negative, and House to be in Committee this Day Three Months.
|Cranworth, L. (L.Chancellar.)||Boyle, L. (E. Cork and Orrery.)|
|Clandeboye, L. (L. Dufferin and Claneboye.)|
|Somerset, D.||Foley, L. [Teller.]|
|Normanby, M.||Ponsonby, L. (E. Beesborough.) [Teller.]|
|Granville, E.||Saye and Sele, L.|
|Stanley of Alderley, L.|
|Sydney, V.||Teynham, L,|
|Grafton, D.||Denman, L.|
|Bath, M. [Teller.]||Overstone, L.|
|Belmore, E.||Silchester, L. (E. Longford.)|
|Grey, E. [Teller.]|
|Lucan, E.||Southampton, L.|
|Nelson, E.||Stratheden, L.|
|Powis, E.||Walsingham, L.|
|Chaworth, L. (E. Meath)|