§ THE LORD CHANCELLOR (Lord HALSBURY)
, in rising to call attention to the Companies Acts, and to present a Bill to the House, said: Your Lordships may remember that in the Gracious Speech from the Throne at the opening of the Session, it was intimated that a measure would be introduced dealing with the question of Limited Liability Companies. I am afraid, however, that the prospects of Business in "another place" render it impossible for us to deal with the whole 83 subject in the way which would be most satisfactory. By the most satisfactory way, I mean by introducing something in the nature of a Consolidation and Amendment Bill at the same time. At the same time, it is a subject which would be properly dealt with in that manner; but, as I have said, it is impossible from the state of Business in "another place" to assume that any Bill of that character would have any chance of passing in the present Session. The Government have, therefore, been compelled to take what they believe to be the most prominent points which require immediate amendment, and to place them in a comparatively short and small measure, and to invite your Lordships to agree to it. Of course no one would suggest that there should be anything in the nature of restriction on the various industrial associations, called by whatever name they may be, upon which so much of the commerce and industry of this country is dependent. Your Lordships will probably remember that in 1856, Mr. Lowe, then a Member of the other House and now a distinguished Member of this House, introduced a Joint Stock Companies Bill; and one particular branch of it he treated in a somewhat light-hearted way. I think the then existing law was passed in pursuance of the recommendations of a Select Committee; and Mr. Lowe—I will not say as his manner was, but as certainly sometimes occurred in his speeches—indulged in a certain amount of sarcasm on those who had previously dealt with the subject, suggesting that the Select Committee, which had set for a very long time, seemed to be rather composing a sensational novel than legislating; because in their Reports they referred to the systematic plunder which had been carried on and the fate of the unhappy victims, and he asked what became of the knaves. No doubt a great many of the subjects which the Committee dealt with pointed very much to the existence of that class of persons. I am afraid it is not possible now to deal with the existence of the class of persons who get up Companies to defraud numbers of unwary people; and, undoubtedly the existence of such a class and their success operate injuriously in more ways than one. A great amount of capital has undoubtedly been employed since the passing of the 84 Limited Liability Act with advantage to the State; but it is also true that to the State a great amount of capital has been lost and has passed into the pockets of fraudulent persons; and it has sometimes been the experience of those who sit in the Courts of Law that the fraudulent promoter of one period of the year is the wrecker of the next period of the year; and that he may turn up in a third character as the promoter of a company which is to rise, Phœnix-like, from the ashes of the Company which he first founded and then destroyed and took from its assets all that it possessed of any value. Under these circumstances, it has been strongly urged from various parts of the country that some measures should be taken, if possible, to prevent the fraudulent initiation of Companies—not, indeed, to protect people from rash adventure. I entirely agree with the argument of Mr. Lowe on the occasion to which I have referred, that you cannot protect people from the consequences of rash speculation. They must look out for themselves. But you can try to prevent the machinery which the State has invented from being made use of for improper and fraudulent purposes; and it is in that direction that the legislation to which I invite your Lordships' attention is intended to operate. The principal machinery which is intended to work in that direction is by introducing a system of provisional registration, which will impose on those who initiate Companies the necessity of taking on themselves the responsibility which they now too often thrust on other persons, and will secure that there shall be some kind of guarantee that the Companies themselves have some kind of foundation—solid foundation—as evidenced by the best test that can be applied—namely, that there shall be a certain amount of capital actually in hand, and that those persons shall be made responsible who are putting forward the Company—who are the promoters, in fact—a word which is very easy to use and understand, but not always so easy to define when you come to a Court of Law for the purpose of attaching responsibility. The provisional registration having been obtained, it will be an essential condition of the Company's obtaining incorporation that certain conditions shall be complied with; one of them being, as I have said, the necessity 85 of proving that they have that proportion of their capital paid up, that there are such and such a number of bonâ fide shareholders, and that the persons who are taking upon themselves the creation of this new legal venture under the Joint Stock Acts shall themselves be persons who have a substantial interest in the concern. In 1867 the defective state of the law, with reference to the class of persons to whom I have referred and the familiar machinery of fraud which was being constantly employed, induced the Legislature to pass an Act amending the former Acts and to pass what we know as the 38th section of that Act. It is as well that I should call your Lordships' attention to the provisions of that section. It provides:—Every prospectus of a Company, and every notice inviting persons to subscribe for shares in any Joint Stock Company, shall specify the dates and the names of the parties to any contract entered into by the Company, or the promoters, directors, or trustees thereof, before the issue of such prospectus or notice, whether subject to adoption by the directors, or the Company, or otherwise; and any prospectus or notice not specifying the same shall be deemed fraudulent on the part of the promoters, directors, and officers of the Company knowingly issuing the same as regards any person taking shares in the Company on the faith of such prospectus, unless he shall have had notice of such contract.Now, I cannot congratulate the draftsman on the mere language of the section; but, apart from the drafting, the difficulties that exist under that section are such that it is impossible not to know that almost every Court has expressed a different opinion on the effect of the section. First, as respects contracts entered into by the Company itself, every contract for everything, for a sheet of paper, a pen, or a bottle of ink, of course, is included in those general words; and when you come beyond that to the portion of the section which follows, and which requires the disclosure of the particulars of any contract entered into by the promoters or trustees before the issue of the prospectus or notice, the words are so general as to comprehend every contract entered into by them. I have no doubt that the draftsman had in his mind that some limitation ought to be placed on them, as, for instance, that the contracts were to have relation to the business of the Company. 86 There was the absolute difficulty of putting any such limitation upon it, and finding, I suppose, that difficulty, he got rid of it by omitting any limitation at all, and has left it to the Courts of Law to find out what limitation they could impose. The Courts of Law vainly endeavoured to do so. I only point to this as establishing this proposition that some provision of this kind, some check of this sort upon what the promoters do, is necessary. This, of course, raises the difficulty as to what a promoter is. The difficulties of the Courts in their construction of the term have been such that I think it is very obvious that some alteration of the law is required. It is, of course, easy to criticize and to point out that there is a defect; it is not always so easy to supply a remedy. I do not mean to say that the provisions, to which I shall invite your Lordships assent, will conclusively get rid of the difficulty, because it is inherent in the nature of the thing. The iron framework of a definition is not capable of the elasticity of the Common Law, and the moment you have caught the promoter by some kind of language, the moment you have something like a definition of a specific description of the persons of the class referred to, they immediately set themselves to get outside the exact wording of the clause and perform the same operation which has been prohibited in a different way. There is one other class of provisions to which I invite your Lordships' attention. One of the great complaints made has been the mode in which the assets of the Company are represented in its accounts. Your Lordships know that Banking Companies, under a specific provision, are compelled to submit the accounts to an auditor and to publish them. That provision does not apply to joint stock banks generally, and it has been brought to my attention that in a great many instances, particularly in the North of England, companies have been started with alleged capital in which worn-out machinery is represented as being of prime value and at cost price. That was said to be one of the great sources of the frauds committed by persons who get up companies, buying old worn-out machinery, suggesting that it is new and valuable, capable of turning out a large amount of produce. When, however, the con- 87 cern comes to be worked by a great number of poor and ignorant persons, who place their savings in undertakings of this kind, it is found out in a very short time that the whole affair is insolvent, and has been founded on the wreck and ruin of what was a former company. One expedient to check such proceedings which was suggested was this. It is that it should be compulsory on the companies to furnish something like a balance-sheet and account of their assets, and from time to time a revaluation of their assets, so as to give information to those who are anxiously inquiring into the concern. A great difficulty, of course, exists in providing a balance-sheet which shall be applicable to every form of industry. Some balance-sheets would exhibit the particulars required in a form which would be perfectly intelligible if applied to one particular business, but if made compulsory upon all companies would be obviously unsatisfactory. We have thought it right, therefore, that provision should be made for making a balance-sheet compulsory and satisfactory to some Government Department—the Board of Trade, most naturally. Those were the general lines of the Bill, and I invite your Lordships to read it a first time.
§ LORD HERSCHELL
I am satisfied that an endeavour is about to be made to meet the evils to which the noble and learned Lord has referred. At the same time I think experience shows that it is easier to see what the disease is than to find out a remedy for it. However elaborate your amending provisions may be, it is possible that they may form an obstacle and an impediment to those whose enterprize we do not wish to hinder, while at the same time they will be walked round or walked through by the very persons whom it is our interest to shut out. A measure of this description depends entirely on the details. Whether the scheme is one which will meet with the approval of your Lordships I cannot of course say, but I do not feel that it is possible, after the statement just made, to go further now than to express my wish to give all the 88 assistance I can in meeting the evils brought before the notice of your Lordships.
§ Bill read 1a. (No. 153.)
§ House adjourned at a quarter before Six o'clock, till To-morrow a quarter past Ten o'clock.