HL Deb 30 July 1928 vol 71 cc1457-70

Order of the Day for the Second Reading read.

THE LORD CHANCELLOR (LORD HAILSHAM)

My Lords, I rise to move that this Bill be now read a second time, and in doing so I desire to make an explanation of the circumstances in which this Bill comes before your Lordships' House at this stage of the Session. If this were the first appearance of this Bill in any shape it would be impossible, I think, to ask your Lordships reasonably to apply any intelligent consideration to a Bill of this length. But in fact this is not the first appearance of the Bill. The Bill has a history of which I should like to remind your Lordships in a very few words. It was at the beginning of 1925 that the President of the Board of Trade appointed a Departmental Committee to consider and report what amendments were desirable in the Companies Acts, 1908 to 1917. The Committee which the President of the Board of Trade selected for that duty was one of exceptional strength and of an exceptionally representative character. The Chairman was Mr. Wilfrid Greene, most of whom your Lordships know by name, a very prominent authority at the Chancery Bar, and the Committee embraced representatives, and leading representatives, of the solicitors practising in the City, of chartered accountants and incorporated accountants, of chambers of commerce, of the Federation of British Industries and of the Committee of the Stock Exchange, and indeed of all those persons who are more or less constantly brought into contact with company legislation and company law in the ordinary course of their duties. The Committee consisted of some fourteen members in all, every one of whom would be unhesitatingly selected as a leading expert in his particular branch of company law.

That Committee held, I think, some 38 or 39 sittings, and examined about the same number of witnesses. In May, 1926, some sixteen months after their appointment, they presented a Report in which they suggested a number of alterations in the law. I do not desire to read to your Lordships the whole of their Report, but I would remind your Lordships that the Committee reported that the system of company law and practice in force in this country has stood the test of years, and in our opinion should not be altered in any matter of principle except where alteration is imperatively demanded. After going on to review the very satisfactory general position as regards company law, they went on to say:— There are a number of matters of principle as to which we are unanimous in recommending an alteration of the law. These recommendations are set forth in the First Part of this Report which also contains our general observations on the principal matters brought to our attention. In addition, there are numerous alterations of a minor character which we recommend and these are set out in the Second Part of the Report. On the basis of that Report a Bill was drafted and was introduced into your Lordships' House at the beginning of last year.

That Bill was very carefully examined and considered by your Lordships. We had the advantage of a number of suggestions and criticisms, not so much on matters of principle, as to which I think there was on the whole general agreement, but as to various technical and drafting matters which various societies such as the Law Society and the chartered accountants and others were able to suggest. As a result the Bill was amended in a number of respects and duly passed your Lordships' House in the Session of 1927. Most unfortunately the pressure of business was such at that time that it was impossible to pass the Bill through the other House before the Session ended, and the result, to the great disadvantage, as I think, of the business community at large, was that the Bill was dropped for that Session. The Government had to consider what steps to take in regard to the present Session. It would have been possible, of course, to reintroduce the Bill into your Lordships' House at the beginning of this Session. The Bill which we determined to introduce was almost verbatim, with one or two slight drafting alterations, in exactly the form in which it had ultimately passed your Lordships' House in 1927, and it seemed to us therefore that it would be rather a waste of your Lordships' time to ask this House again to consider a Bill which they had exhaustively considered and passed in the previous Session. We thought the better plan was that it should be introduced at once into the House of Commons, to enable the Bill to be considered there at an earlier date and give it a better opportunity therefore of passing through another place. That was the course adopted.

The Bill was introduced in another place in substantially the exact form in which it had passed this House in 1927. The Bill so introduced was, in effect, a Bill sent down from this House to the other House. It was exhaustively considered there in the Standing Committee, a number of Amendments were suggested and discussed and some Amendments were made. Most of them, I think, were comparatively small and I need not occupy your Lordships' time with them. Five or six of them, however, were more important, and to those I propose to draw attention in a moment. Ultimately the Bill, after this exhaustive consideration in Committee, passed through another place last week and so comes before your Lordships to-day. In those circumstances I do not think that I should be profitably occupying the time of the House if I were to go through it again as if your Lordships had not already considered it, but I think that I might usefully call attention to the five or six more important alterations—I think there are no more than that—which have been made in the Bill as it passed this House last year.

The first point to which I wish to call attention arises on Clause 3, which is the clause prohibiting alterations in the memorandum or articles of a company which would increase the liability of existing members to contribute to share capital. That clause has been introduced as the result of a decision of your Lordships' House sitting judicially, which held that an alteration could be made which bound existing members to take up further shares and increase their liability in respect of share capital. This has been put right by Clause 3. Then I come to Clause 37, which is the clause which deals with the issue of shares at a discount. That is a matter which has provoked acute controversy. It was discussed, I think, at some length last year and it has been discussed at great length in the Standing Committee in another place. There was one section of opinion which desired to prohibit altogether the issue of shares at a discount, and there were others who desired practically to give companies a free hand. As the result of long discussion a compromise was reached which satisfied both sections. It was that companies should be allowed to issue shares at a discount, but that, before they were able to do so, there should be in the first place a resolution of the company desiring to make such an issue, and in the second place the sanction of the Court should be obtained just in the same way as it is obtained now if a company desires to reduce its capital. That compromise satisfies both points of view and now appears as Clause 37.

The next alteration to which I should call attention is found in Clause 40, which contains provisions as to the form of balance sheet that is required. An Amendment has been made in this clause as it left your Lordships' House which renders it necessary to insert in the balance sheet such particulars as are required in order to distinguish between the fixed and the floating assets, and I am able to tell your Lordships that this alteration has been approved by those members of Mr. Wilfred Greene's Committee who represent the two societies of accountants, the Chartered Accountants and the Incorporated Accountants.

I can now pass, I think, to the clause dealing with the remuneration and fees of directors. Clauses 79 and 80 deal with the question of how far the remuneration of directors is to be disclosed. This is a matter which is obviously difficult, because on the one hand it is desirable that shareholders should know what fees and emoluments directors are receiving, and on the other hand there are cases in which it is undesirable in the company's interest that its rivals should be in a position to know just how much managing directors and the responsible officials of that character are being paid, because it offers to them at any rate an opportunity of outbidding the present employer. As the result of those conflicting views, Clause 79 provides that the ordinary remuneration of directors shall appear in the balance sheets, and Clause 80 provides that the remuneration of managing directors shall be disclosed if, and only if, one-quarter of the voting share capital requires such disclosure and the company does not by resolution in general meeting determine that such disclosure shall not be made. That, I think, meets the two points of view, and those provisions are to be found in Clauses 79 and 80. In Clause 82 there is a new provision compelling the disclosure of payments received by directors for loss of office or on retirement, a matter which has sometimes in the past led to abuse when there have been amalgamations and sales of the assets of one company to another.

I think that the only other clauses to which I need call attention are Clauses 92 and 93, which deal with what is sometimes described as share-pushing—that is to say, the sale of shares to unwary persons by more or less irresponsible hawkers—and with the prospectuses of foreign companies whose shares are being sold in this country. Some Amendments have been introduced into that clause in order to safeguard the position of those large houses that are carrying on a very important business in this country with great advantage to the country in the sale of shares to their own clients and customers and to such establishments as banks, trust companies and the like. The object, of course, in all these cases is on the one hand to protect the small and unwary investor from being exploited, and on the other hand to avoid the imposition of such restrictions as would hamper ordinary and legitimate business. I think that these two clauses, as they have been amended, meet the criticisms that have been directed against them, and your Lordships will find the Amendments set out in them.

Those, I think, are the principal alterations in the Bill. There are minor matters with which I do not think I need trouble your Lordships at this stage. I have tried to call attention to the salient points. In effect your Lordships' House is being asked to deal with a Bill which has once been through this House, which has been amended in another place, and with regard to the amendment of which, in the ordinary course, there would be only the one discussion as to agreement or disagreement with the Commons. Owing to the fact that we passed the Bill in one Session and the House of Commons in another it has to go through the longer and more dignified form of passing all its stages afresh in this House, but it is not a Bill that calls for a Second Reading in the ordinary sense as embodying a new principle. It is a Bill that is designed to meet certain defects in company law which experience has shown to exist and which have been detected by most careful and experienced men of business and lawyers. I hope that your Lordships will give it a Second Reading and that, after the explanations that I have ventured to submit to your Lordships, there can be no difficulty in the way of its reaching the Statute Book and so, as I believe, conferring benefits upon the community at large. I beg to move.

Moved, That the Bill be now read 2a.—(The Lord Chancellor.)

LORD PARMOOR

My Lords, I am entirely in accord with the noble and learned Lord on the Woolsack that this is in itself an admirable Bill. It is a Bill which has been very largely discussed in this House and which, I hope, will find its place upon the Statute Book this Session. It appears to me that there is no reason why it should not do so. I thank the noble and learned Lord for having directed attention to the points of major alteration that have been made in the Bill since it was passed in this House last year. That is what I understand him to have done, and I have made a note of those points. I think that in the other place this Bill in its present form was discussed a long time in Standing Committee, and no doubt, regarding our position as that of a revising chamber, it would have been a great advantage if we had been able to consider this measure at an earlier date; but I assume that has not been possible, and I do not propose to make any further comment on the Bill at the present time. If any question arises on the particular points to which the Lord Chancellor has called attention they can be more conveniently dealt with on the Committee stage. I see the Leader of the House in his place, and I was going to make a suggestion to him about public business.

THE MARQUESS OF SALISBURY

Let us confine ourselves for the present to the Companies Bill.

LORD PARMOOR

I have said that we do not oppose the Second Reading. I think it is an admirable Bill which ought to find a place on the Statute Book, but there are points of some difficulty that we want to look into. It is not a question of stopping the Bill in any way, but having regard to the way in which the matter has been put forward I would suggest that it might be better that we should take the next stage on Thursday morning, which would lighten the business for Wednesday afternoon, and I think give far more time for us to consider a Bill of this kind.

THE MARQUESS OF SALISBURY

I can merely tell the noble and learned Lord that I shall have to confer with the noble and learned Lord on the Woolsack before making any statement as to business with regard to this Bill.

LORD PARMOOR

I thank the noble Marquess.

LORD HUNSDON OF HUNSDON

My Lords, the noble and learned Lord on the Woolsack told us that we are practically now considering the Commons Amendments, and he therefore suggests that it is a small matter. After the extraordinarily lucid way in which he put forward the five or six important alterations, no doubt your Lordships are inclined to believe that it is a small matter. I am not so disposed. Moreover, there are a very large number of other alterations which may not be so important, and practically we are not considering the Bill which we passed last year, but considering alterations which amount in themselves to an enormous Bill of very great importance. I have followed this Bill closely from the Report of the Greene Committee to the present time. I quite agree that it has been very much improved since it first came into this House, and that an immense amount of work has been done upon it in Parliament and outside. I think we ought to be very grateful to the Law Society, to the Chartered Accountants, and to others, who have given Parliament such valuable assistance.

For all that, in my opinion this is not a Bill which ought to be passed into law without further consideration. This Bill is a sort of Fools' Charter, and its object is to protect the fool and punish the rogue, and this no doubt would be, if successful, for the greatest happiness of the greatest number, but the danger of this Bill is similar to that of firing into a crowd of rioters, in which you generally find that you kill a few women, who are going about their ordinary business, while the rioters escape. At risk of appearing egotistical, up to the issue of the Report of the Standing Committee of the House of Commons I felt on comparing this Bill clause by clause, that I had a fair grip of the situation, although I estimate there are nine new clauses and twenty-six alterations of substance in the subsections—I do not say as important as those to which the noble and learned Lord referred—not counting verbal and drafting Amendments. Moreover, on Wednesday and Thursday last three new clauses were added, and I think twenty Amendments made to subsections. These may have been Amendments to Amendments—I am not sure. It appears to me that some of these alterations have been made in a hurry. The House of Commons never had an opportunity of considering this Bill as a whole. Therefore one cannot say that the Bill has been properly revised in that House, and there is no time to revise it here. Anyhow, with these alterations I am now in a state of complete bewilderment, and I do not believe that there is a single company lawyer who has followed the discussions who is not in the same condition. I venture to say that this Bill must be studied as a whole before anyone can express a trustworthy opinion about it. Of course I ought to except from that the noble and learned Lord on the Woolsack, but I will say anyone else. For my part, although I have endeavoured to get a copy of the Bill at the earliest possible moment I did not receive it until this morning. Your Lordships passed the First Reading of the Bill before it was printed.

THE MARQUESS OF SALISBURY

We always do.

LORD HUNSDON OF HUNSDON

It seems strange to me. Even if we are to be regarded as contemptibles I suggest that to pass the Second Reading before any of us have had time properly to read the Bill is a little too much. Those who live in London may have got their copy of the Bill on Saturday and therefore spent the day of rest in reading its 118 clauses, but I have not had time to read it at all, and I wish to say, by way of protest, that I have devoted an immense amount of time to this Bill and yet am now quite incapable of forming a considered opinion upon it in anything like the time at our disposal. This, of course, is no concern of anyone else, but I would ask how noble Lords can be expected to take an interest in the affairs of this House when circumstances such as I have described occur regularly at the end of the Session. I believe I am expressing the opinion of the Leader of the House when I say that there is no reason, apart from constitutional usage, why we should not take this Bill at the beginning of next Session, when we should have time to revise it.

I had it in mind to move the rejection of the Bill or to move that it should be referred to a Select Committee, which I think would be the obviously proper course, but I felt that neither of those courses would be acceptable to your Lordships, because I suppose that we have now become resigned to being treated, at the end of the Session, as a registry office and not as a revising chamber. Some of us tried to refer the Landlord and Tenant Bill to a Select Committee and your Lordships may remember the result in the Lobby. It was not very encouraging. I understand that the Landlord and Tenant Bill is an impossible Bill to work, but that some ingenious person has found a way of driving a coach and four through it, and that therefore it cannot do the harm anticipated of it. If any one can drive a coach and four through this Bill it will be the rogue and not the honest man. Although we are no longer, at this end of the Session, a revising chamber, we still have power to ensure that Bills, before they become law, shall have a chance of revision, if not by us at least by someone, and I shall venture to propose an Amendment of this Bill which, if accepted, will ensure delay. I am afraid I have made something of a Committee speech, but I have done so because I hope that the noble and learned Lord on the Woolsack, if he does not agree with my Amendment, of which I have given him private notice, may at least find some better way of ensuring that this Bill is revised before it becomes operative and that your Lordships will be able to insist that it is so revised.

EARL RUSSELL

My Lords, if the noble Lord, with his large practical acquaintance with these matters and with the study which, as he has told us, he has devoted to this Bill and the reports upon the subject, finds himself at this stage unable thoroughly to grasp the Bill itself and the alterations in it, your Lordships will not be surprised if other people have failed even more signally. This Bill was considered—I think I am right in saying—for weeks in Standing Committee in another place and there was every sort of discussion of all the points and every sort of Amendment. Most of your Lordships received this Bill this morning, we are taking the Second Reading to-day and we are to have the Committee stage on Wednesday. I make no complaint of that because what is the use? We cannot help it and it certainly is not the fault of the noble Marquess the Leader of the House; I realise that to the full. If he could have given us more time or got the Bill earlier I am perfectly certain that he would have done so, but it is really reducing your Lordships' House to a farce in a matter of this sort. The noble and learned Lord on the Woolsack spoke very lightly of the changes, or rather minimised them, but still there are changes, and very considerable changes, which have been the subject of much discussion. As far as I am concerned I see no possible hope of taking any part in the Committee stage—I do not say for a moment that it is any loss to the Bill—and I am sure that other noble Lords find themselves in the same position. It is really rather regrettable from the point of view of the use this House could be to the country.

THE MARQUESS OF WINCHESTER

My Lords, I should like to associate myself with what fell from the noble Lord, Lord Hunsdon. I have been asked to present the views of the Debenture Corporation, who are distinctly anxious about certain clauses in the Bill. The principle throughout the Bill is to consider that people are guilty until they can prove their innocence. I think that, to begin with, is a transformation in the view that we generally hold about British justice. But there are also some very doubtful clauses in the Bill, especially Clause 73, dealing with companies in liquidation, which raises questions as to the position of a director of a company in liquidation being an officer of the company, and liable for actions taken after liquidation. I had always thought that when a company went into liquidation the director had no further power. But as that clause stands at the present time, we may find that we are subject to very heavy penalties and even to imprisonment. I know that it is not the fault of the noble Marquess that this Bill comes into one's hands only this morning and the Committee stage is to be on Wednesday, but I think the time is too short. I personally have been unable to consult the Trustees Corporation, nor have I been able to put the Bill before the solicitor of the Trustees Corporation.

LORD JESSEL

My Lords, I have listened to this debate with great interest and I hope that in view of the very large commercial interest involved in the Bill the Government may take some heed of the remarks of the noble Lord, Lord Hunsdon, and of the noble Marquess who has just spoken. After all, if there is one thing that we are proud of in this country it is our industrial corporations. If they are going to be hit in any way I think it would be a great pity. Is there such great necessity for this Bill? We heard from the speech of the Lord Chancellor that when that powerful Committee was set up to consider whether any amendments would be necessary it was found that on the whole the Companies Act was working rather well. The noble Marquess the Leader of the House said the other day that the new proposals were not trivial. If they are not trivial we ought really to consider them. In spite of the support given by the Leader of the Labour Party, who has been subsequently disavowed by the noble Earl, Lord Russell—

EARL RUSSELL

Not in the least.

LORD JESSEL

Well, the noble Earl did not agree with his Leader, at any rate—I do think that in spite of that the Government might allow this Bill to have a little more time. If that is not possible, can they let it go over to next Session? There is no urgency. I think that after the speech of Lord Hunsdon, who is so intimately acquainted with the City and holds such great position there, some respect should be paid to what he has said. I do appeal to the Government. After all, this is not a political Bill; it affects the business of the City of London and of the country as a whole. Therefore, I hope that the Government will not regard it as an act of hostility on the part of their followers if we ask them to let this Bill stand over till next year.

THE LORD CHANCELLOR

My Lords, I recognise—and I tried to make it clear when I was moving the Second Reading—that the time is regrettably very short, and I should very much have liked to have a longer time in order to enable your Lordships fully to consider all the provisions of the Bill. But when the noble Lord, Lord Hunsdon, says that this is the regular practice I should like to point out two things. The first is that we are doing our best to try to get things better by the experiment we are introducing of ending the Session at the end of this week and commencing a new Session in the autumn, instead of letting the Session run on to Christmas and beginning the new Session in February. We hope that the effect of that will be that we shall get Bills started at an earlier stage in another place, get them into Committee earlier, and so get them earlier to this House. Secondly, I should like to point out that this Bill is a Bill in regard to which the abuse of which the noble Lord speaks is less flagrant than in an ordinary case, because it is a Bill which was introduced into the House of Commons in exactly the form in which it left this House, and if the present Session were not a new Session what we should have been doing to-day would have been merely considering the Amendments made in another place. No doubt they are important. But still, it is not the same as if we were asked to discuss a new Bill altogether.

As an illustration, a criticism has been directed at Clause 73, which the noble Marquess said he had had no opportunity to consider and discuss with the trustees of the great Corporation which he represents. Clause 73, which he criticised in that way, was passed through this House in identically the same form only it was Clause 67 a year ago, and there was abundance of time to consider it; there has been more than a year since it was first printed and appeared before your Lordships. Therefore really I think there is no legitimate complaint because we still have in this Bill a clause which was approved by your Lordships more than a year ago in exactly the same form. It only shows that the criticisms are not all quite reasonable.

Then Lord Jessel said there was no great urgency, and could we throw over the Bill till next Session? Having regard to the state of public business likely to ensue next Session, that almost certainly means that the Bill would never become law in this Parliament at all. And respectfully I do not altogether agree with the noble Lord when he says there is no great urgency. It is true that our joint stock company law has worked fairly satisfactorily but there has been no extensive revision of it for some twenty years. The Committee which was appointed did regard these matters which are embodied in this Bill as matters of importance, and, as Lord Hunsdon quite truly remarked, this is really what he called a Fools' Charter, though I should prefer to describe it as a measure to prevent rogues from swindling the unwary public. I think it would be a grave damage to the business of the City of London if no steps were taken to stop these holes, which have been discovered and pointed out by this Committee, and if we were to leave to some unspecified date in the future the opportunity of preventing this swindling and depriving of their means and driving to ruin many people who cannot afford to have their savings thrown away.

I think it would be a very great public misfortune if this Bill did not reach the Statute Book. Although I quite understand and realise that it is a great task to impose upon your Lordships to ask your Lordships to consider Amendments at this late date of the Session, still I hope that your Lordships from a sense of the public mischief which would otherwise ensue, will put aside that difficulty, will face the task and will enable the Government to place this most beneficent measure upon the Statute Book during the present Session. I hope, therefore, that your Lordships will see your way to give this Bill a Second Reading.

On Question, Bill read 2a, and committed to a Committee of the Whole House.