§ Order of the Day for the House to be put into Committee read.
§ Moved, "That the House do now resolve itself into a Committee on the said Bill."—(The Duke of Richmond.)
§ LORD REDESDALE
presented a Petition, signed by a large number of Members of the Stock Exchange, praying that this Bill might be so amended that the rights of the bondholders and other creditors of railway companies might be duly protected. The noble Lord proceeded to say that as he could not address their Lordships in Committee, he wished to take that opportunity of making a few observations with reference to some of the provisions of the Bill. In the Bill as originally framed were clauses providing for the sale of insolvent railways under certain circumstances; but it was found that the difficulty of effecting such sales would be so great that the Select Committee struck out all those clauses. At the present moment, therefore, the Bill retained only the arrangement clauses, which enabled the directors to submit a scheme for relieving a railway company from its difficulties. If such scheme were assented to by a certain number of the shareholders and debenture-holders, the Court of Chancery might then sanction it; but as the provision for the sale of railways if the scheme should fail, had been omitted from the Bill, it appeared to him objectionable to retain these arrangement clauses. He intended, therefore, to move that they be struck out. In regard to arrangements, the present Bill went far 157 beyond any measure which had yet received the sanction of Parliament. The importance of maintaining the credit of debentures secured on railways could hardly be over-rated. They were regarded as most valuable securities, and amounted at the present time to about £100,000,000. He believed the passing of this Bill would produce very serious consequences, because it would enable a company which fell into difficulties to obtain priority for the money they required over these securities, against the consent of the holders. In addition to his notice to omit Clauses 6 to 20, which related to arrangements, he intended to propose some minor Amendments. He thought that there ought to be a limitation as to the interest to be permanently allowed on debenture stock, and he proposed to move, as an addition to Clause 21, a proviso that whenever a company created any debenture stock bearing a higher interest than 5 per cent, it should fall to that rate at the end of seven years. He should not, as Chairman, take any part in the discussion of the Bill in Committee; but should he have occasion to make any further remarks, he would do so on the Report.
§ THE DUKE OF RICHMOND
said, it was certainly true that the Bill had come from the Select Committee in a very different form from that in which it was originally sent to it, but he thought the Committee came to a proper conclusion when they decided to strike out that part of the Bill which related to the sale of railways. They had not had sufficient evidence before them to warrant their proceeding with those clauses. He did not think, however, that the Committee by so doing had made the Bill useless. He could not concur with his noble Friend the Chairman of Committees that clauses from 6 to 20 ought to be expunged. He thought the adoption of the arrangement clauses would be very beneficial. His noble friend objected to that portion of the Bill which allowed the creation of pre-preference stock. That, however, was a matter which had been much discussed before the Committee, and the Committee having decided that the clauses bearing upon it ought to remain in the Bill, he (the Duke of Richmond) was not disposed to agree to his noble Friend's proposal to strike them out. With regard to that part of the Bill which related to loan capital and debenture stock, giving the companies unlimited power to raise money 158 at whatever percentage they might think fit, that matter was also much discussed in Committee, and the Committee felt that companies in such a position as to require those arrangements were in most cases—probably in all cases—the best judges of what they required, and that they ought to be left to borrow money in that manner which they thought best. If they could borrow money at 5 per cent they were not likely to pay 7 per cent for it. Their Lordships would not be justified in restricting them more than any other persons in such a matter. He should object, therefore, to his noble Friend's Amendment upon that point. With regard to the audit clause, he had some doubts as to how it would affect the companies, and as he had not seen the clause before, he would ask his noble Friend to withdraw it now, and to bring it up again on the Report.
§ LORD CAIRNS
said, his noble Friend the Chairman of Committees appeared to think that the Bill would have a disastrous effect on public credit in the course it proposed with regard to debentures. There could be no doubt that when the Bill came up to this House from the House of Commons, providing as it did for the sale of railways that could not meet their engagements, very considerable alarm was felt by shareholders at the prospect of what might be a sacrifice of their property. After a great deal of consideration the Committee decided that, although some provision must be made for companies unable to meet their engagements, still it was impossible to pass clauses for that purpose until considerably more consideration had been given to the subject. The noble Lord had inferred to the Petition from the Stock Exchange, and appeared to think that the members of that body were very anxious for the security of debentures; but he (Lord Cairns) thought the Stock Exchange were a body who cared very little indeed about debentures, or whether the credit of debentures was destroyed or not. The Stock Exchange simply said in their Petition that they viewed with alarm the clauses of the Bill which related to a compulsory sale of railways, as providing means for the destruction of the interests of the proprietors in railway property, and they begged to impress on their Lordships that such provisions were intended for the benefit of the debenture class of persons who had advanced the smallest portion of 159 the capital, at the expense and sacrifice of the share class, who had advanced upwards of three-fourths of the capital. He did not think that supported the view taken by the noble Lord. The Stock Exchange would be satisfied as the winding-up clauses had been struck out.
§ LORD OVERSTONE
said, he agreed to a great extent in the views of the noble Lord the Chairman of Committees. Much anxiety was felt out of doors with reference to the Bill. There was no parallel to the amount of the railway securities except the aggregate of the National Debt. The holders of the various classes of widely-differing securities with different rights attached to them were necessarily very jealous and suspicious of each other, being naturally anxious that the rights and claims of their own class should not be unjustly postponed to those of any other. Under these circumstances, it became the duty of their Lordships to look most cautiously and narrowly upon all propositions submitted for their consideration, involving the relative rights of different classes. Bondholders formed a very peculiar class, between £100,000,000 and £150,000,000 being invested in this form of security, and the arrangement clauses of the Bill may interfere very seriously with their rights. The proposition was that when a railway company was unable to satisfy the demands of its creditors a scheme should be submitted to the Court of Chancery, not for the purpose of winding-up the concern, or, as in the case of ordinary insolvency, of handing over the management to the creditors, but for the purpose of raising further capital to enable the company to extricate itself from its embarrassments and to continue its operations easily and prosperously. The money so to be raised was not for the advantage of the debenture-holders, but clearly for that of the original shareholders, who would reap all the benefits of the re-establishment of the company on a solvent basis, and ought, therefore, to raise the necessary funds from their own resources. There was nothing to justify their Lordships in subjecting the bondholder to any obligation whatever, without his direct personal consent. It might be said that the bondholder would be benefited to some extent by the arrangement, inasmuch as he would otherwise fail to receive his interest regularly. But, on the other hand, if the company could not pay its way the railway might be handed over, as in the 160 case of ordinary property, to the creditors, allowing the debenture-holders and preference shareholders to make what they could of it. In such a case there might be some ground for saying that the minority of debenture-holders should be bound by the majority in deciding as to the working or ultimate disposal of the line, but not for urging that debenture-holders should be bound against their will to assent to any scheme for the benefit of ordinary shareholders. The position of the bondholder, and his right of priority over all other claimants is simple and distinct; at the same time, the question is one of momentous importance, and in legislating upon it care must be taken not to violate those primary principles of justice and right upon which all property in this country is founded. As long as confidence was unshaken, there was little difficulty in dealing with the debentures. The companies relied upon their being either renewed by the holders when the first period expired, or else upon finding other capitalists disposed to accept them. Under ordinary circumstances there were always persons willing to lend money, upon undoubted security, for short periods, at fixed rates of interest, without participating either in profits or losses. But the classes to whom he referred will read with close attention the debates upon this Bill, and if they find that the security upon which they have hitherto relied so confidently became the subject of doubt and discussion, distrust amounting to something like a panic will be created; the debentures as they fall due will not be renewed or taken up by other investors, and the consequence will be that companies, otherwise in easy circumstances, will be crippled. Therefore, whether their Lordships looked to the justice or the policy of the case, the right course was to bear in mind the true nature of the railway bond, and to take no stop which would weaken the credit of it in public estimation.
§ THE DUKE OF CLEVELAND
admitted the great difficulties with which this question was surrounded, but maintained that it was absolutely necessary for the sake of the railway companies themselves, and of the holders of their securities, as well as of the public at large, that it should be dealt with by Parliament. He quite agreed that there ought to be some power which would prevent abuses, and give greater security to the shareholders. It 161 appeared to him that the only security which they could have was that they should possess a proper knowledge of what was proposed to be done by the directors. No doubt the shareholders were primarily liable, and therefore it was but right that they should have accurate information of what was proposed to be done. With respect to the preference shareholders, generally speaking, they knew very little indeed of what was going on, and therefore it was nothing but right that no scheme should be adopted unless it had the assent of three-fourths of them. At the same time it was quite obvious that the effect might be that the holders of a few shares might possibly step in and prevent any arrangement from being carried out which was concurred in by the general body of shareholders. Nothing but the extreme difficulty of the case and the involved condition of several railways had induced him to accede to the pressure which had been put upon him and consent to the alteration in the Bill. The general credit of the country was very much shaken by the events which took place last year, and he would be the last man in the House to press forward a Bill which might affect credit still more; but the difficulties had reached such a height that it was absolutely impossible for the railways to go on without some general measure being passed for their guidance.
THE DUKE OF MONTROSE
said, that the Select Committee to which this measure had been referred, having discussed every clause in the Bill and had a division upon almost every one, it was a little hard to find that every clause was now attacked by some one who had been defeated in the Committee. The noble Lord the Chairman of Committees objected to one clause, the noble Lord opposite to another, and other noble Peers to other clauses. In point of fact, if all their objections prevailed, there would not be a single clause left in the Bill. With respect to the preference shareholders, he thought the Bill would be for their benefit, because three-fourths of them would never assent to any proposition putting a preference over them unless they found that, if they did not, there was very little chance of their getting a dividend at all. It might be therefore taken that the preference shareholders would only assent to that which was for their own benefit. This Bill was one to enable a railway in difficulties to go to the Court of Chancery, and, if possible, make 162 same arrangement to enable it to go on. The noble Lord opposite was anxious that the power of sale over the rolling stock should remain in the hands of the creditors; but the effect of that would be that such a power might be pressed at aninconvenient time with the intention of bringing down the shares to a point far below their value, and then the very men who had assisted to bring about that state of affairs might step in, and out of the misfortunes of others make a very handsome fortune. At present the power of sale was not to lie for twelve months, which would carry them over the nest Session, and then if it were found absolutely necessary that there should be a sale it ought to be arranged by an Act of Parliament. This matter had assumed greater importance since the decision of his noble and learned Friend (Lord Cairns), because it would never be worth the while of large debenture-holders to seize the rolling stock; it was only small holders that would be tempted to do so, and no railway which had the slightest regard for its own reputation would permit its rolling stock to be seized for the purpose of securing a small debt. As the Bill left the House of Commons all the property of the Company, real and personal, could be seized; but that clause had been altered, on the ground that to permit the rolling stock to be seized might greatly inconvenience the public. He did not think it a proper way of treating the Bill that all those who were in a minority in the Committee should now get up in this House and attack the clauses seriatim.
§ LORD REDESDALE
said, that he did not refer to the question of the sale, because that power had been taken out of the Bill, but to the Petition, which stated that great alarm was felt in monetary circles with respect to the proposed interference with the rights of parties. The proposal to give power to sell the railway in no degree interfered with those rights.
§ Motion agreed to; House in Committee accordingly.
§ Clauses 1, 2, and 3 agreed to.
§ Clause 4 (Restriction on Execution, against Personal Property of Company).
§ LORD CAIRNS
moved, after page 14, line 1, to insert ("the term judgment includes decree, order, or rule"). As the Bill came up from the House of Commons it affected the rolling stock of the companies, but it was only protected against 163 the execution of creditors who became such after the Act passed. He felt sure that no clause would be agreed to which interfered with the existing rights of creditors. If they agreed to the clause as it stood, they would take away for a year from creditors who had advanced goods to a railway upon the faith of having the ordinary remedy by judgment and execution, and would allow the railway company to sell the rolling stock. At the end of the year, therefore, the creditor might find the rolling stock in the hands of other parties without having any remedy whatever.
§ LORD STANLEY OF ALDERLEY
opposed the Amendment. In the opinion of the Select Committee, if the Amendment of the noble and learned Lord was passed, the whole benefit, which it was expected would be derived from the clause by exempting the rolling stock, would be destroyed.
§ THE DUKE OF RICHMOND
said, he could not agree with the noble Lord as to the opinion of the Select Committee. The feeling of the Committee at first was that the words proposed or words to the same effect should be in the clause, but by some means or other the words were struck out, and when the mistake was discovered there was an indisposition to re-open the question. He thought it, however, a very strong measure that the rights, which persons who had sold goods to a company at present possessed, should be taken away.
§ Amendment agreed to.
§ Clause, as amended, agreed to.
§ Clause 6 (Preparation and filing of Scheme Arrangement).
§ LORD OVERSTONE
objected to the clause, and moved its omission. In his opinion it was most unjust that when railway companies were unable to cope with their difficulties they should have power to go to the Court of Chancery, and with its sanction create pre-preference securities.
§ On Question that the said clause stand part of the Bill? their Lordships divided:—Contents 35; Not-Contents 14: Majority 21.164
|Chelmsford, L. (L. Chancellor.)||Richmond, D.|
|Buckingham and Chandos, D.||Winchester, M.|
|Devonshire, D.||Airlie, E.|
|Marlborough, D.||De Grey, E.|
|Doncaster, E. (D. Buccleuch and Queensberry.)||Cairns, L.|
|Clements, L. (E. Leitrim.)|
|Graham, E. (D. Montrose.) [Teller.]|
|Home, E.||Denman, L.|
|Lucan, E.||Feversham, L.|
|Malmesbury, E.||Raglan, L.|
|Manvers, E.||Ravensworth, L.|
|Powis, E.||Seaton, L.|
|Romney, E.||Silchester, L. (E. Longford.)|
|Somerhill, L. (M. Clanricarde.)|
|De Vesci, V.|
|Hardinge, V.||Stanley of Alderley, L.|
|Hawarden, V. [Teller.]||Templemore, L.|
|Granville, E.||Overstone, L. [Teller.]|
|Lichfield, E.||Penrhyn, L.|
|Cloncurry, L.||Saye and Sele, L.|
|Colville of Culross, L.||Southampton, L.|
|Foley, L. [Teller.]||Wenlock, L.|
|Hatherton, L.||Wentworth, L.|
§ Amendment made: The Report thereof to be received on Tuesday next; and Bill to be printed as amended (No. 262).