§ Order of the Day for the House to be put into Committee, read.
§ Moved, "That the House do now resolve itself into Committee upon the said Bill."—(The Lord Chancellor.)
§ LORD HERSCHELL, in moving that the Bill be referred to a Select Committee, said, he believed that the Bill had been introduced with the very best intentions; but there was no measure fraught with greater danger than one which was saturated with good intentions, because those who were interested in the success of these good intentions were apt to overlook the difficulties in their way, and were so bent on doing some good, if they could, that they often ran the risk of doing a great deal of harm. The measure proposed that it should be practically impossible to register any new Company with limited liability except under a system of provisional registration, the object being to prevent those frauds which undoubtedly did take place now from time to time on the formation of new Companies for industrial purposes. But his fear was that this system of provisional registration would impose such liabilities upon those who might become Directors of Companies that men who had a stake in the country, who had anything to lose, would refuse to have anything to do with them, while those who had nothing to lose, the very class whom it was desirable to drive out from the field, would be as well able to carry on their operations as before. There were many men experienced in commercial affairs who were convinced this would be the result; and, while it would not deter sub- 1503 stantially the formation of Companies which ought not to be formed, it might prevent to a serious extent the formation of Companies which were perfectly legitimate, and the operations of which when formed would be most beneficial. He believed Limited Liability Companies with all their evils had done, on the whole, an enormous amount of good in the country. The condition of the industrial classes would have been vastly worse than it was but for their enterprizes, and, therefore, their Lordships should consider well before they imposed such restrictions and limitations. He submitted that before making so serious a change there should be a more complete investigation of the question than had as yet taken place. The very able Committee of the Incorporated Law Society had come to a conclusion unfavourable to the Bill, and in face of this and the opinion of great commercial authorities he submitted that their Lordships had not the knowledge which would justify them in assenting to this measure becoming law. The Bill provided that it was to be the duty of every person joining in the issue of a prospectus to see that such prospectus disclosed every particular within his knowledge which was material to be made known to a person invited to take shares. If he failed to do so he was liable for any damage sustained by any person who so took shares. Now, it was easy to be wise after the event, and if in the opinion of a Judge, perhaps long after, something had been omitted which would have assisted the investor, he was bound to make the Director liable for the whole loss sustained by the ill-success of the Company, although he might come to the conclusion that the Director acted with perfect honesty. All he asked was that, instead of going on with the Bill when they could not be certain in the present state of their knowledge of bringing about a result satisfactory to the public, they should defer the further consideration of it till a Select Committee had reported on the whole subject.
§ Amendment moved, to leave out all the words after ("That") and insert ("the Bill be referred to a Select Committee")—(The Lord Herschell.)
§ LORD BRAMWELLsaid, he should be glad if his noble and learned Friend 1504 on the Woolsack would consent to the Motion. He agreed in the view that it would be extremely difficult for their Lordships to do justice to this Bill unless it was first of all referred to a Select Committee. There was no provision made for Companies which made no appeal to the public for funds, or which were privately formed by a small number of persons sufficient in number to be within the Limited Liability Act. There were also frequent cases in which Companies found it to their interest to amalgamate. Two separate Companies were wound up and constituted one Company to carry on the joint business. A gentleman had told him lately that he had been a party to arranging 14 different Companies this very year which had not been advertised. In that days's papers there was an instance of two Companies proposing to amalgamate—namely, the Maxim and the Nordenfelt Gun Companies. In the Bill there was no provision for such a case; and not only that, but it would be precluded by the terms of the Bill. He hoped that the measure would be referred to a Select Committee, where these points could be thoroughly considered.
§ LORD HILLINGDONsaid, he doubted whether the measure as it stood would carry out the intentions of those who had introduced it. Some of its provisions, particularly those which prescribed the interest which Directors should have in the Companies, would deprive those Companies very often of the men of experience and ability whose services it might be of the utmost importance to secure. The Bill would not prevent the formation of fraudulent Companies, but it would seriously interfere with legitimate enterprize. If, however, it were referred to a Select Committee it might be made into a good and useful measure.
LORD THURLOWsaid, he should support the proposal to refer the Bill to a Select Committee. It was only in a Select Committee, where the evidence of experts could be taken, that a Bill of this importance and magnitude could be properly dealt with. In his opinion the system of provisional registration which it was intended to introduce by that Bill was radically bad, and would do nothing towards removing any of those grievances which all honest men deprecated. They had the evidence against the Bill 1505 of many important Bodies, including the Incorporated Law Society, while Mr. Mundella, a former President of the Board of Trade, had described it as not being worthy of the serious consideration of either House. He would add his advice to what had been already said in that House with regard to the referring of the Bill to a Select Committee. At the same time, if the noble and learned Lord on the Woolsack did not see his way to taking that course, and if they went into Committee upon the Bill, he would do all he could in assisting to make it a workable measure.
§ LORD BRABOURNEsaid, that he had met with nobody outside their Lordships' House who was in favour of the Bill; but as it was possible that it might be made into a good and useful measure he trusted that it would be refered to a Select Committee. With regard to the necessity for Directors to hold a large amount of shares, he thought that the principle was a vicious one, because while it was desirable that the large shareholders should be represented it was also desirable that the small shareholders should be protected, whose interests were not always identical with those of the large shareholders. The provision would also in many cases prevent good men of business from being Directors, although they were the class of men whom it was desirable to have. The effect of the Bill would be to restrict commercial enterprize, and that was a position which their Lordships would not like to take up. There was no doubt that the Bill would not pass this Session, and therefore he hoped their Lordships would consent to refer it to a Select Committee, so that information which they had not at present might be obtained.
LORD DENMANsaid, he having been present when the first Limited Liability Bill was before a Committee of the Whole House in 1856, he hoped that the Bill would not be referred to a Select Committee. He trusted that their Lordships would bring their knowledge of the state of the question to be exercised on this Bill, and that investors would be protected by it. It might be improved in "another place;" and, as their Lordships were not tied by a reference to the 12th of August, they would not be unable to discuss any alterations of the Bill, if necessary, in a free conference between the two 1506 Houses of Parliament. It was not a lawyers' Bill, and a decision of a Select Committee would have to be considered by the Whole House, and from the delay it would shelve the Bill till another Session. The first Bill for Limited Liability had been carefully considered by a Committee of the Whole House. He (Lord Denman) had supported that Bill, and would give his best attention to the Bill now before their Lordships' House.
§ THE LORD CHANCELLOR (Lord HALSBURY)said, that the arguments for referring the Bill to a Select Committee were only colourable arguments. This was the 17th of July, and to say that the Bill should be referred to a Select Committee with the idea of taking evidence upon it was saying that the Bill should not pass, and the more straightforward course would have been, on the second reading, to move that it be read a second time that day six months. That had not been done, and now the effect of this dilatory Motion would be to destroy the Bill. The present state of the law was most unsatisfactory. Over and over again he had received remonstrances from Lancashire and other districts to the effect that, owing to the condition of the law, an enormous amount of fraud was perpetrated, and great commercial loss was incurred every day. It appeared from what took place in the Law Courts that one of the most familiar forms of fraud was for people to get up unreal Companies, take money from innocent shareholders, and then disappear. How long was this to go on? What efforts had those who had criticized this Bill ever made to put an end to the existing evils? As many noble Lords were aware, the 38th section of the Companies Act was absolutely incapable of a correct interpretation. He believed it was no exaggeration to say that since 1862, when limited liability was introduced, millions had been wasted by means of fraudulent Companies, and the wasting of those millions had had the two-fold effect of checking legitimate commercial speculation and of ruining legitimate enterprize by the undue competition introduced by Companies which could have been brought out only to ruin the shareholders. The object of the Bill was to prevent that. He joined issue with the noble Lord who said that it was not desirable to make the Directors have a 1507 substantial interest in the concern. On the contrary, he believed that was a most legitimate object, and he believed also that that object would, in a great measure, be attained by the Bill. It was said they would not get Directors of proper commercial standing and respectability if they made them liable, as contemplated by the Bill. But if there was anything of that kind in the Bill to which objection could fairly be taken, let it, when they got into Committee, by all means be struck out. If anything was clear, it was that it was perfectly competent to amend the measure as it stood. It was said that no system of provisional registration was admissible at all, and that such a hampering of commercial enterprize condemned the Bill. He admitted at once that the Bill was founded on the basis of provisional registration, and if no system founded on such a basis was admissible, then let the Bill be got rid of. He thought it would be very desirable to take care, by means of some authority, that the new Corporations which everyone could create for himself under the Act of 1862 should not be permitted to come into existence until some examination had been made which would show that the enterprizes were not colourable frauds, but were intended as legitimate commercial undertakings. He had not heard any criticism suggesting that the machinery of the Bill, which was aimed at actual fraud, was not adapted to the purpose. He knew it might be said—"Make what provision you will; the subtlety of fraud will get round it and evade it." All they could do by means of laws was to go as far as they could to prevent fraud, and he believed the Bill would have a good effect in that way. He maintained that the real question was not that which was implied by the form of the Motion of the noble and learned Lord, but that which was implied by the commentaries of every noble Lord who had spoken against the Bill—namely, that it should be rejected. He trusted, however, that their Lordships would allow the Bill to go into Committee.
THE EARL OF KIMBERLEYsaid, the noble and learned Lord on the Woolsack was scarcely justified in representing the intention of his noble and learned Friend as an intention to destroy the Bill. Even if the Bill did pass 1508 their Lordships' House, there would not be the remotest chance of its becoming law this Session. His noble and learned Friend by no means denied that the law required amendment. All he contended for was that their Lordships should not legislate without being in possession of full information and full knowledge of the matter. He must say he was alarmed at one remark which fell from the noble and learned Lord on the Woolsack to the effect that the object of the Bill was to limit undue competition.
§ LORD HALSBURYexplained that what he said was that the effect of sham Companies was not only to lose the money of the shareholders, but also unduly to affect legitimate Companies by illegitimate competition.
THE EARL OF KIMBERLEY, continuing, said, that no one who had studied the course of legislation since 1856 could fail to recognize that the introduction of the system of limited liability had conferred enormous benefits on the trade of the country—it was one of the most valuable elements of our commercial system—and he should regret exceedingly if anything were done to diminish those benefits. The fact was that the objection to limited liability proceeded from those who feared its competition.
§ THE PRIME MINISTER AND SECRETARY of STATE FOR FOREIGN AFFAIRS (The Marquess of SALISBURY)said, that everyone agreed in the opinion the noble Earl had expressed as to the benefits of the Limited Liability Acts. No one objected to the competition which those Acts had produced. So far as it was real competition it was healthy; but what his noble and learned Friend on the Wollsack objected to was the competition of men of straw and of sham Companies, which only had the effect of enriching the promoters at the expense of the shareholders—bogus Companies, which set up businesses which were not real, and which tended to reduce the scale of wages and to throw difficulties in the way of that honesty of trade on which the great manufacturing districts of the country depended. The feeling in this matter was very strong, and he believed that it was an entire libel on the manufacturers of these districts to say that they desired to get rid of competition merely. What they de- 1509 sired to get rid of was illegitimate competition and the evils which were a fraud on honest competition. The proposal of the noble and learned Lord (Lord Herschell) looked very much like a misuse of the Forms of the House. He appeared to have made a sham Motion—a Motion as bogus as some of the sham Companies formed under the Limited Liability Clauses themselves. Instead of moving that the House should go into Committee that day three months in the ordinary way, he was proposing a Committee which could not exist, and which at this time of the year would be of no use whatever. He could well understand the Motion if the Bill had come upon him suddenly; but it was announced in the Queen's Speech, so that he had had ample time to store his mind afresh with knowledge upon the subject. It was open to the noble and learned Lord at anytime to have moved for a Committee; but he thought that such a step, if taken now, would be hardly a fitting treatment of the Forms of the House. He should vote against the Motion of the noble and learned Lord simply because he did not think it was a correct statement of the object which the noble and learned Lord had in view. He could not help thinking that if this important matter, upon which the eyes of so many were set, and which excited such great interest among the most important industries of the country, were treated in an unreal manner and referred to an inquiry which could not exist it would not tend to facilitate future legislation, but would rather give an impression that their Lordships were not sincere in desiring to amend the defects in the existing law.
§ EARL GRANVILLEsaid, he thought it was most unfair to attribute to his noble and learned Friend, notwithstanding his disclaimer, the intention of bringing forward a sham Motion as an indirect way of getting rid of the Bill. He had on a former occasion asked his noble and learned Friend what his opinion of this Bill was, and he then said that he had not thoroughly made up his mind upon it, and wished to hear the opinion of solicitors and mercantile men. That was hardly the opinion of a man who wished merely to reject the Bill. The noble Marquess had not answered the question whether the Bill could be passed this year. They all 1510 knew it could not, and, therefore, to talk of defeating the Bill by this Motion was beside the mark. Would it add to the credit of their Lordships' House to send down to the House of Commons a measure which was ill-considered, and the provisions of which were condemned by all competent to speak on the subject? He certainly hoped the noble and learned Lord on the Woolsack would not persist in his opposition to the Amendment of his noble and learned Friend. If a Division went against his noble and learned Friend a very wrong impression would go forth to the outside public.
§ On Question, Whether the words proposed to be left out shall stand part of the Motion (leave being given to The Lord Tyrone (The Marquess of Waterford) to vote in the House); Their Lordships divided:—Contents 84; Not-Contents 44: Majority 40.
1511| CONTENTS. | |
| Halsbury, L. (L. Chancellor.) | Strange, E. (D. Athole.) |
| Cranbrook, V. (L. President.) | Suffolk and Berkshire, E. |
| Cadogan, E. (L. Privy Seal.) | Vane, E. (M. Londonderry.) |
| Waldegrave, E. | |
| Norfolk, D. (E. Marshal.) | Wharncliffe, E. |
| Buckingham and Chandos, D. | Clancarty, V. (E. Clancarty.) |
| Northumberland, D. | Cross, V. |
| Portland, D. | Melville, V. |
| Exeter, M. | Ardilaun, L. |
| Salisbury, M. | Bagot, L. |
| Balfour, L. | |
| Basing, L. | |
| Mount-Edgcumbe, E. (L. Steward.) | Berwick, L. |
| Bowes, E. (E. Strathmore and Kinghorn.) | |
| Brownlow, E. | |
| Caledon, E. | Carysfort, L. (E. Carysfort.) |
| Dartmouth, E. | |
| de Montalt, E. | Churchill, L. |
| Feversham, E. | Colchester, L. |
| Fortescue, E. | Coleridge, L. |
| Haddington, E. | Crewe, L. |
| Harrowby, E. | de Ros, L. |
| Howe, E. | Denman, L. |
| Ilchester, E. | Digby, L. |
| Kingston, E. | Donington, L. |
| Lindsay, E. | Ellen borough, L. |
| Manvers, E. | Elphinstone, L. |
| Mar, E. | Esher, L. |
| Milltown, E. | FitzGerald, L. |
| Northesk, E. | Foxford, L. (E. Limerick.) [Teller.] |
| Onslow, E. | |
| Orkney, E. | Grey de Ruthyn, L. |
| Romney, E. | Harris, L. |
| Rosslyn, E. | Hartismere, L. (L. Henniker.) |
| Selborne, E. | |
| Stradbroke, E. | Hopetoun, L. (E. Hopetoun.) |
| Strafford, E. |
| Keane, L. | St. Oswald, L. |
| Kenlis, L. (M. Headfort.) | Shute, L. (V. Barrington.) |
| Kintore, L. (E. Kintore.) [Teller] | Sinclair, L. |
| Tredegar, L. | |
| Knutsford, L. | Tweeddale, L. (M. Tweeddale.) |
| Lamington, L. | |
| Langford, L. | Tyrone L. (M. Waterford.) |
| Magheramorne, L. | |
| Manners, L, | Ventry, L. |
| Montagu of Beaulieu, L. | Windsor, L. |
| Zouche of Haryngworth, L. | |
| Norton, L. |
| NOT-CONTENTS. | |
| Grafton, D. | Dormer, L. |
| Egerton, L. | |
| Bath, M. | Herschell, L. [Teller.] |
| Hillingdon, L. | |
| Derby, E. | Hobhouse, L. |
| Granville, E. | Inchiquin, L. |
| Kimberley, E. | Kensington, L. |
| Powis, E. | Lawrence, L. |
| Spencer, E. | Leigh, L. |
| Sydney, E. | Lingen, L. |
| Macnaghten, L. | |
| Gordon, V. (E. Aberdeen.) | Monck, L. (V. Monck.) |
| Monk-Bretton, L. | |
| Oxenbridge, V. [Teller.] | Monkswell, L. |
| Northington, L. (L. Henley.) | |
| Boyle, L. (E. Cork and Orrery.) | Poltimore, L. |
| Robartes, L. | |
| Brabourne, L. | Rosebery, L. (E. Rosebery.) |
| Bramwell, L. | |
| Braye, L. | St. Levan, L. |
| Calthorpe, L. | Sandhurst, L |
| Chaworth, L. (E. Meath.) | Stalbridge, L. |
| Stanley of Alderley, L. | |
| Clifford of Chudleigh, L. | Thring, L. |
| Thurlow, L. | |
| Clinton, L. | Wigan, L. (E. Crawford.) |
| de Vesci, L. (V. de Vesci.) |
§ Resolved in the affirmative.
§ LORD HERSCHELLsaid, he desired to deny that the Amendment he had moved to refer the Bill to a Select Committee was a sham Motion intended to defeat the Bill. It had never occurred to him that anyone could thus regard his action in reference to this measure. The proposition of the noble Marquess seemed to involve that when the Session had reached the present date it was impossible for the House to obtain information, however much needed, as to any Bill before the House, and that there was no alternative but to proceed with the measure without such information. The Motion he had made was perfectly straightforward.
§ THE MARQUESS OF SALISBURYsaid, he was quite ready to accept the noble and learned Lord's assurance that his action had been sincere. What he had referred to was the effect of the noble 1512 and learned Lord's action upon the Bill. His Amendment, if carried, must have defeated the Bill. The noble and learned Lord had not explained the fact that, though the Bill was mentioned in the Queen's Speech, it was only now that he was suggesting that it should be referred to a Select Committee.
§ LORD HERSCHELLsaid, that though the Bill was mentioned in the Queen's Speech, it was only in the middle of June that he learnt the contents of the Bill.
§ Motion agreed to; House in Committee accordingly.
§ Clause 1 (Provisional registration).
§ On the Motion of Lord THURLOW, Amendment made, in page 1, line 11, leave out ("three") and insert ("four")
§ Amendment moved, in page 1, line 13, after ("association") insert ("unless other directors are appointed by the articles of association")—(The Lord Thurlow.)
§ LORD THRINGsaid, he feared that the clause as it stood would prevent the creation of the best possible Companies—namely, those based upon private firms and those formed by the amalgamation of Companies.
§ THE EARL OF SELBORNEthought that the clause might not have the effect which its framers wished.
§ On Question? Their Lordships divided:—Contents 31; Not-Contents 48; Majority 17.
§ LORD HERSCHELLsaid, he did not intend to put their Lordships to the trouble of a Division on the clause; but he must enter his protest against this system of provisional registration. From no one but the noble Lord who proposed it had he heard a single word in favour of the system.
§ Clause agreed to.
§ Clause 2 (Conditions of complete registration).
§ Amendment moved, in page 2, leave out subsections (g.) and (h.).—(The Lord Thurlow.)
§ Amendment (by leave of the Committee) withdrawn.
§
LORD THURLOW moved to omit subsection 3, paragraph (c), which provided that the Company should not
1513
obtain complete registration unless it appeared—
That the total number of shares held by the directors of the company is not less than one-fifth of the total number of shares applied for.
His object was to make it more possible to select persons as Directors who had not large means, although otherwise most valuable Directors, and who, under this sub-section, would almost always be excluded from office. It was often desirable to have as Directors men who did not possess enormous shares in the Company.
§ Amendment moved, in page 2, subsection (3), leave out paragraph (c.).—(The Lord Thurlow.)
§ LORD HALSBURYsaid, he was afraid he could not accept the Amendment.
§ LORD BRABOURNEsaid, he should support the Amendment. Mere wealth, he might point out, was only one of many qualifications. Technical knowledge, for example, was quite as valuable as a large money qualification, and many a most eligible Director was not able to subscribe a large amount of capital. What was the good of this restriction? Could they not trust the shareholders to secure that they should be represented by persons of sufficient qualification to guarantee their substantiality? All these restrictions unduly embarrassed commercial enterprize without any compensation in the way of protection to shareholders or to the public. According to this subsection, in the case of a Company with £500,000 of capital, the Board of Directors, would have to hold £100,000 of the Stock, which might be very inconvenient. The sub-section practically said that only rich men ought to be Directors, against which principle he entirely protested.
§ LORD HERSCHELLsaid, he quite agreed that the subsection in question seemed to assert the principle that wealth was the only guarantee of intellectual ability in relation to commercial affairs. But, after all, the sub-section merely secured the object in view, and the Directors need not hold their interest a day longer than the time when complete registration was agreed to.
§ LORD HALSBURYobserved, that the question was not one of intellec- 1514 tuality, but of substantiality in commercial concerns, and to secure that was the real object.
§ Amendment agreed to.
§ Amendment moved, in line 37, subsection (3), to leave out the word "ten" and insert "twenty."—(The Lord Chancellor.)
§ LORD HERSCHELLsaid, he could not see what was gained by securing that a larger number of shares should be held by a Director just at the moment of registering the Company.
§ LORD HALSBURYsaid, that while he did not deny that there was a possibility of shares being held for the moment, he contended that the larger number of shares formed a guarantee to investors.
§ Amendment agreed to.
§ Clause, as amended, agreed to.
§ Clause 3 (Fees on registration).
§ On the Motion of Lord THURLOW, Amendment made, in page 3, line 4, leave out ("a fee of two pounds and the balance, if any") and insert ("one-fifth").
§ Clause, as amended, agreed to.
§ Clause 4 (Deposit of money paid in respect of shares or debentures in provisionally-registered company).
§ LORD HERSCHELLsaid, that if a Company failed to obtain complete registration within the period for which the certificate of provisional registration was in force the money must be repaid within 14 days. One of the Directors might leave the country with a perfectly innocent intention, and yet he was subjected to the payment of interest at 20 per cent per annum at the expiration of the 14 days.
§ LORD HALSBURYsaid, that all the clause did was to provide that the money of which certain persons had got the care and custody should be repaid to those to whom it belonged. Why should not a person who wished to go out of the country make proper provision beforehand that the money which did not belong to him should be repaid?
§ Clause agreed to.
§ Clause 5 (Provisional contracts) agreed to, with Amendments.
§ Clause 6 (Restrictions on increase of capital) agreed to.
1515§ Clause 7 (Particulars to be disclosed by prospectus).
§ LORD HALSBURYthought their Lordships would agree that they had made reasonable progress, and he therefore suggested that the House should resume.
§ House resumed; and to be again it Committee on Tuesday next.