SECOND READING. (Hansard, 19 May 1892)

§ LORD HERSCHELL
My Lords, your Lordships are no doubt aware that under the Companies Act, in order to the constitution of a Company, it is necessary that there should be a Memorandum of Association signed by seven persons, and that certain other requisites of the Act should be complied with. When once a Company has been registered, and so formed, it becomes a corporation, and the rights and liabilities of the members of that corporation are determined by Act of Parliament; and, in case the Company is unable to pay its debts, there are provisions for the winding up of the Company, and of the settlement of the rights of creditors and the members of the Company. In two cases which have occurred in your Lordships' House, learned Lords have pointed out the serious consequences which would follow if a Company, which appeared to have been regularly formed, and in respect of which a certificate of registration had been given by the Registrar of Joint Stock Companies, should afterwards be held not to have been validly formed: so that those who supposed that they were members of the Company were not really members of a Company, and those who believed that their rights would be regulated under the Companies Act found that this was not the case. My Lords there is a general provision in the Companies Act that the certificate of registration shall be conclusive evidence that the requisites of registration have been complied with. But it has been recently held that that does not cover the determination of the question whether, for example, the seven persons have in fact signed a memorandum; and, if seven persons have not signed the Memorandum, even although the Registrar should have given his certificate that the Company has been duly regis- 1249 tered, no Company would exist, the provision of the Companies Act would not apply, and it would scarcely be possible to determine, at all events without much litigation, what would be the rights either of creditors or of members of the Company. That is a very serious matter, which has been called to the attention of the Incorporated Law Society, and also of several Chambers of Commerce; and it is at the instance of the Incorporated Law Society, supported by those Chambers of Commerce, that I bring this Bill to your Lordships' attention, the effect of which is to make the certificate of the Registrar of Joint Stock Companies conclusive, when the certificate is given, that a Company has been formed. But, in order that there may be security that the requisites of the Act have been complied with, power is given to the Lord Chancellor, with the concurrence of the Board of Trade, to make rules as to what the Registrar is to be entitled to request in the way of information and otherwise, in order to satisfy him, before he gives his certificate, that these requisites have been complied with. When once he is satisfied, in accordance with those rules and gives the certificate, I think your Lordships will feel that the certificate ought to be conclusive, and if it is not made so, great inconveniences and a good deal of injustice are likely to result. That is the object of the Bill, and I hope your Lordships will see no difficulty in reading it a second time.

§ *THE LORD CHANCELLOR
My Lords, I do not rise for the purpose of opposing this Bill; but I am bound to say that I think my noble and learned Friend has hardly exhibited to your Lordships the whole importance of the Bill that he proposes. The Bill certainly does not appear to me sufficiently to fortify the provisions which he invites your Lordships to adopt. The hypothesis is (I take one by way of illustration, out of several) that there must be seven persons signing the Memorandum of Association in order to form a company. It has been held in the Courts lately that where there 1250 are only six persons, we will say, really signing the Memorandum of Association, no company has ever existed at all. Those six persons may or may not be liable in some form, but there was no company, and some of the evils that my noble and learned Friend alleges might arise. But in the Bill I only find power to make Rules to give security that sufficient evidence should be placed before the Registrar before he gives his certificate. I confess I think that is a very inadequate provision. It seems to me that there ought to be some provision, fortified by the Penal Law, for dealing with the fraud which, by that hypothesis, has been practised upon a public officer. I should make it a felony for persons to pretend to have associated in a body of seven, which the Act of Parliament requires at present, and to induce the public officer to give a certificate which was founded on that mis-statement. It is not a very unusual or extraordinary thing to fortify the provisions of an Act of Parliament by such a penal clause. As your Lordships are aware, certificates of births, marriages, and deaths are given by a person whose duty it is to register them, and, if any individual makes a false statement to induce such a certificate to be given, that person is guilty of felony; and in that way I suppose people have been deterred from making such false statements, except under such temptations as induce persons to run the risk of incurring the penalties of felony. Here there is no such provision. And I regard with some apprehension the fact that for all purposes a certificate given by this public officer should for all time make a company. There is no analogy between this case and the case of a Charter obtained from the Crown by false representation. In that case there is a familiar mode of cancelling the Charter by Scire Facias. I do not find in my noble and learned Friend's Bill any power to put an end to a company, when once created, even if created by fraud. And it seems to me that there are many provisions that ought to be inserted in this Bill, if we are to pass such a provision as the noble and learned Lord suggests, which is of a very drastic character—namely, that a certificate however 1251 obtained, on whatever false and fraudulent representations, should for all purposes and all time make a company. I do not say that such difficulties may not be met. I do not propose to move your Lordships not to read the Bill a second time; but there are a great many contingencies which it seems to me it is necessary to provide for before I shall be content with this Bill. I only say that with regard to what may hereafter be said and done in the Standing Committee. At the present time I only intimate that, in my view, there is nothing like sufficient provision against the evils by introducing this mere provision that the Registrar shall be fortified by such evidence as the Lord Chancellor and the Board of Trade may think it right to provide. Having so far delivered my soul, I will only say further that I will in the Standing Committee, if the Bill gets there, and if the noble and learned Lord does not himself propose to do so, propose such Amendments as will, in my view, carry out the objects which I put before your Lordships.

§ LORD HERSCHELL
My Lords, I shall have no objection to any provisions which will prevent the dangers that my noble and learned Friend points to. I would only say that I do not myself think those dangers are very serious. The Companies Act has been in existence a long time now, and I do not think that there is any evidence of a tendency on the part of people to deceive the Registrar of Joint Stock Companies into registering a company when no company has really been formed. That could have been done at any time almost during the period since the Companies Act was passed. I would also point out that certainly, to judge from the language used by a noble and learned Lord in delivering judgment in this House in a company case, he apparently was under the impression that the effect of the Companies Act was to do that which I propose to do now; because, after pointing out the effect that would follow if it were held that there were no company, dealing with this very point of the number of signatories to the Memorandum of Association, he called attention to the provision in the Act to which I have 1252 referred, that the registration should be conclusive. It was not necessary in that case to determine the point, and it has been determined the other way in the Court of Appeal. But for a considerable time it has been thought to be the law on account of the dictum by a learned Judge in this House upon the subject. Therefore I do not myself think that the dangers are so great; but I see no sort of objection to making it a penal act—I should approve of it—punishable by law, if any person in these proceedings did anything by way of misstatement to mislead the Registrar.