SECOND READING. (Hansard, 17 July 1890)

THE SECRETARY TO THE BOARD OF TRADE (Lord BALFOUR of BURLEIGH)
My Lords, the Bill to which I ask your Lordships now to give a Second Reading, is one of very considerable importance, and, at the same time, of considerable complexity, and abounding in details of a highly technical and legal nature. As I do not anticipate that there will be any objection to giving the Bill a Second Reading in this House, I shall only detain your Lordships for a few moments in explaining in general terms what are the objects for which it is brought forward. The leading Act which settled the law and practice as regards Limited Liability Companies was, as your Lordships know, passed in the year 1862. It has been amended upon several subsequent occasions, notably in the years 1867, 1879, and 1880. But nearly all those amendments had much more relation to that part of the original Act which deals with the creation of companies and their formation than to the other parts, which are scarcely less 22 important, dealing with the method by which those companies which have been formed are wound up and cease to exist. The object of this Bill is to amend the provisions of the Act of 1862, mainly as regards those parts which have to deal with the winding up of Limited Liability Companies. At the outset, I should like to mention one ground of objection which has been brought to this Bill as it at present stands. Objections have been taken to it that it does not attempt to codify and consolidate the existing law. I believe that the existing law as regards companies stands in considerable need of consolidation and codification; bat I think it would be unwise to attempt at the same time so large a measure as codification and consolidation and this necessary amendment of the law. What is intended by this Bill is to amend the law as regards those parts of the Act which are thought to require amendment, leaving to be dealt with hereafter the question of consolidation and codification of the law as it will then stand. I wish simply to say that, because this is only an amended Bill, and it must not be thought there is any attempt at consolidation of the law as regards Limited Liability Companies. As regards these companies, I think it may be safely said that on all hands it is considered the existing law is inefficient, unsatisfactory, and requires amendment. At any rate, I am able to say that the commercial community have been loud in their demands for some amendment of the law. But I find that the complaints are rather as regards the delay which accompanies the present practice than as regards any inefficiency in the law in the proper and stricter sense of the term. The present method of winding up companies is exclusively under the control of the Court of Chancery. The Judges in the Court of Chancery are all hard-worked men. They all have full engagements, and whenever any matter regarding the winding up of companies has to be brought before them, they have to make an appointment in regard to it very often a fortnight or three weeks ahead. If for any reason that appointment is not sufficient, if everything is not done that may have been expected or required at that time, owing to some unforseen difficulty, no other appointment can be got sometimes 23 for another fortnight or three weeks, thus occasioning great delay. These constant delays, while irksome in themselves, lead to other difficulties, because they lead to a great increase of expense; and it is in the hope of avoiding not only the unnecessary delay, but the unnecessary expense, that this Bill for the amendment of the law is brought forward. I also venture to say that public opinion and public interest are alike in favour of as large publicity as possible being given to all proceedings as regards the winding up of companies, and there are in this Bill provisions for securing further publicity and advertisement in regard to certain matters which it is desirable should be more widely known than are known at the present time. I claim for the Bill that it carries out more effectually than the existing provisions of the law what was the real intention of the Legislature when they passed that Act. I believe this Bill will deal more effectually with the winding up of companies, and that the conditions which will be imposed upon those who are perhaps responsible for the solvency of some of these companies will have a deterrent effect upon the management of concerns which are not yet insolvent, but which may hereafter come under the provisions of Bankruptcy Law. I venture to say, and I have no doubt I shall carry the House with me when I say it, that there are two main objections to be kept in view in these matters. You have first to keep in view the necessity for a fair and proper administration of the bankrupt estate, so that you may effect a speedy and expeditious distribution of the assets, and at the same time the public interest demands in any case in which there is any suspicion of unfair dealing there shall be an independent investigation into the conduct of those concerned. The main objects of this Bill are, in the first place, to effect a certain transference of jurisdiction, so as to cheapen the proceedings in the winding up of the smaller companies, and to bring them more nearly into harmony with the practice of winding up individual bankrupt estates. There will, therefore, be a more efficient and thorough supervision of the judicial and administrative duties which have to be discharged in the winding up of these companies. Mainly, this Bill assimilates the practice in the case of winding up insolvent companies 24 to that which now obtains under the Act of 1883 in the case of estates of individual bankrupts. The Official Receiver under this Bill will be to some extent the officer of the Court, but he will be also in other capacities an officer of the Board of Trade in his administrative functions. Dealing with the assets of the company, he will be the officer of the Court, and he will still continue to act by and under the authority of the Court. But if questions arise as to the conduct of those who have had the management of the company he may make a report to the Court, and the Court will have power to act or not to act upon that report as far as regards a judicial investigation into the conduct of the persons concerned. I do not think I need say anything more as regards the general principles contained in this Bill, and I will mention very shortly one or two of the provisions in some of the most important clauses. The first three clauses deal entirely with measures of jurisdiction. The 4th clause contains, certain provisions as to the liquidation. The 5th clause contains a power which is new in the administration of affairs of companies. That provision is that power is given to the Court upon the application of the Official Receiver to appoint a special manager to manage the estate or business of the company. The 6th clause is also new as regards the administration of insolvent companies. It makes provision that compulsory separate meetings of creditors and contributories shall be held to determine the appointment of an Official Liquidator in place of the Receiver, and the appointment and constitution of a Committee of Inspectors. If those two meetings, of classes whose interests are not, of course, identical, should happen to disagree, the Court will decide between them. The 7th clause is also important. It requires that a statement of the company's affairs shall be made out and submitted to the Official Referee. The statement is to be made by and in the name of one or more of the Directors, and by the Secretary, or such other persons as, being Directors, officers, and promoters, have acted within one year from the time when the winding up order has been made. Then there is also the 8th clause, which requires that certain reports shall be made from 25 time to time by the Official Referee to the Court. He can, if he is dissatisfied with the first inquiry that is made, or if he thinks that there is a primâ facie reason for taking proceedings in the case of any individual concerned, make a report to the Court asking for a further inquiry to be made. If, as the result of that inquiry, he comes to the conclusion that there is a ground for proceeding, he makes a report again to the Court to that effect, and the Court may thereupon take action upon that report. There are other provisions in the Bill for carrying out and applying more thoroughly the principles of the Act of 1883 to the winding up of companies. I think those are almost entirely matters of detail, and that they will be better considered by one of the Committees of your Lordship's House than on Second Reading. I will, therefore, say nothing more at this stage, but merely ask your Lordships now to read the Bill a second time.

§ LORD HERSCHELL
My Lords, I think the Bill which the noble Lord has introduced is likely to work well, and to he a great improvement in relation to the winding up of companies; the general scheme of it being to assimilate the provisions relating to the winding up of companies and to bring them into conformity with those which now exist in relation to bankruptcies. That scheme is, I think, a sound one. The only matter to which I would call the noble Lord's attention on that point is the danger of leaving measures of this description to officials, which always results in creating a tendency after a time to too rigid and cast iron a system. There comes to be a tendency to run in a groove and to assume, when the working of an Act is once started in a particular direction, that all is well, and to continue the same system without perhaps sufficiently considering whether it is not capable of improvement. What I was going to submit to the noble Lord was this, whether there would not be some advantage, having regard to the complaints which have been made of the working of the official part of the bankruptcy system in the Board of Trade, 26 in appointing a small Departmental Committee to inquire into the administration of the Bankruptcy Act under the Board of Trade, with the view to ascertain whether improvements might not be brought about in the mode in which its details are carried out. It strikes me that the present time, when you are about already to enlarge this system by extending it to the winding up of companies, which obviously will entail a large addition to the work of the Department, and is a new departure, would be a good time to take advantage of the working of the Bankruptcy Act, of which there has been now seven years' experience. We are now going to apply it to another subject matter, and I think we should take advantage of this experience which has been gained by the seven years' working of that Act. I think a Departmental Inquiry of that sort would be likely to result in suggestions for improved working of the law in regard to winding up, and that if that is to be done it would be advisable to do so simultaneously with the proposal to extend the provisions of the Bankruptcy Act to these matters. That is with regard to the principle of the Bill. There are several matters of detail to which I will call the attention of the House at a later stage. There is, however, one which I would point out now. I cannot overlook the fact that the present Bill extends only to England and Wales, and does not extend to Scotch and Irish companies. Certain of the provisions of the Act of 1862 are repealed by this Bill, and repealed because others have been substituted for them which will, it is considered, be of a satisfactory character, but, as far as I have seen, the circumstance appears to have been overlooked that these intended provisions only apply to England and Wales. Obviously, for instance, you ought not to repeal altogether those provisions which exist with regard to malfeasances of Directors when the substituted provisions apply only to England and Wales, and not to Scotland and Ireland. I think the section also which contains the interpretations of the word "Court," and defines the Court for Scotland and Ireland as well as for England and Wales, ought not to have been repealed for a substituted definition applying only to England and Wales. I only desire to make these 27 remarks at present, and I will not now trouble the House with further matters of detail.

§ * THE EARL OF SELBORNE
My Lords, I wish also to say that the principle of this Bill appears to me to be very sound as far as its object is to assimilate as much as possible the winding up jurisdiction to that in bankruptcy. The two subjects are obviously so nearly related to each other that they may almost be called identical, and the separation of the jurisdictions is purely arbitrary. I see that the Bill is a cautious Bill, because it enables the jurisdiction to be exercised either by Chancery Division Judges or by the special Judge in Bankruptcy. That, perhaps, is quite right. We know that the Judges of the Chancery Division have acquired great knowledge on the subject; and to withdraw all these cases from them at once may be unnecessary, and perhaps inexpedient. But the general principle appears to me to be entirely right. I must say at the time when I had personal experience of the administration in winding up in the Court of Chancery I did not think it satisfactory. It was a very long operation, the administration being left very much of necessity to Official Liquidators, whose expenses were extremely large. Without being able to anticipate how this Bill may work I think there was very considerable room for improvement in the administration of winding up matters, and I hope that improvement will take place under this Bill as it is framed. With regard to the suggestion of my noble and learned Friend, that there should be a departmental Commission appointed to inquire into the working of the latest Bankruptcy Act, certainly I see no objection whatever to the suggestion; but I am bound to say that, as far as I can judge, the present Bankruptcy Act has succeeded very much better than any of its predecessors. No Bankruptcy Act, and no winding up Act, ever will give satisfaction to creditors who are not paid, or to shareholders who are ruined, and such people there will always be to the end of the world. The most you can do is to aim at the least expensive mode of proceeding, and the one which shall, 28 as far as possible, exclude the abuses which have been almost always incident to the unhappy state of things which leads to those proceedings: and if this measure of the Government should produce that effect in reference to winding up proceedings, I think they will be entitled to the public thanks.

LORD BALFOUR OF BURLEIGH
My Lords, I should like to say at once that as regards the important point which has been brought before the House, as to repealing certain sections-altogether of which the substitution is only as regards England and Wales, that matter, of course, must be looked into. The noble and learned Lord is perhaps aware that there is a Bankruptcy Bill for Scotland this year, but I see it has been withdrawn. However, the Secretary of State for Scotland has told me that if we will communicate with him, he will take care to get advice upon the Bill as it stands, so far as it has reference to Scotch Law. I can only say that I shall take care that objection does not arise. With regard to the departmental Committee to inquire into the operation of the Act of 1883, I will, of course, consider that point, and if the noble and learned Lord will allow me, we will communicate with him before the Bill leaves the House. With regard to the other remark, that perhaps officials, when discharging duties of this kind, have a tendency to run too much in the same groove, that may be an accusation which is not altogether without ground as regards officers of some of the public Departments, and if it is to be brought against officers of the Board of Trade, I think it must also be with regard to officers who have to perform public functions under the existing law.