HL Deb 18 April 1940 vol 116 cc159-69

Order of the Day for the Second Reading read.

4.10 p.m.

LORD TEMPLEMORE

My Lords, the position in war-time of registered friendly societies, industrial and provident societies, building societies and loan societies, and trade unions, has engaged the attention of the Government for some little while. The present Bill, which your Lordships will, I believe, find to be entirely non-controversial, contains provisions which His Majesty's Government consider necessary to enable the administration of these bodies to be more easily carried on in the changed conditions of the present emergency, together with miscellaneous matters relating to these and other bodies. The principal provisions of the Bill fall under three heads. There are firstly the emergency provisions dealing with the suspension of meetings, the appointment of officers, amendments of rules and, in the case of registered friendly societies, the suspension of valuations; secondly, there are the permanent provisions designed to facilitate amalgamations and transfers of engagements of building societies and trade unions; and thirdly, there are emergency provisions dealing with the rights of members in regard to their benefits during the period of hostilities. I propose, with your Lordships' permission, to explain briefly, one by one, the clauses in these three groups.

Clause 1 of the Bill gives power to modify certain of the rules regarding meetings, the appointment of officers, and the arrangements for amending rules. This was considered necessary by the Government owing to various causes, the principal ones being evacuation, the black-out and the undesirability and great difficulty in many cases of conveying and assembling large bodies of persons to delegate meetings and the difficulty of finding accommodation for them when they got there. These difficulties exist to a certain extent at the present time, and none of us know how the war will go or how these difficulties may be accentuated in future. In some cases it would be impossible to hold meetings at the places at which they would have to be held in the absence of statutory provisions to the contrary. Your Lordships will appreciate that, if provision is made for suspension of meetings, provision must also be made for the business normally transacted at such meetings to be carried on in a proper manner. Clause 1 of the Bill therefore provides that the committee of management of any society registered under the Friendly Societies Acts, trade union, industrial and provident society, building society or loan society certified under the Loan Societies Act, 1840, may apply to the Chief Registrar for a direction; and, if he is satisfied as to the grounds of the application, he may direct that any rule of a society or any statutory provision requiring meetings to be held may be dispensed with or varied, and he may authorise the appointment and continuance in office of trustees or officers, the making of rules passed by a resolution of the committee of management and the exercise by the committee of management or a sub-committee of other functions exercisable by a meeting of the society.

In order to meet the case when a society has, before the passing of the Act, by reason of circumstances attributable to the war, failed to comply with rules and statutory provisions in regard to these matters, provision has been made in subsection (3) whereby a committee of management can apply to the Chief Registrar to have the act of omission condoned. But it seemed to the Government that there was a chance that a case might arise in which members objected to appointments of particular officers or to amendments of rules made by a committee of management, although acting under a direction of the Chief Registrar. Safeguard has, therefore, been provided in subsection (4) of Clause 1 to the effect that at any time within a year after the appointment or amendment made in accordance with a direction of the Chief Registrar he may further direct that the appointment or amendment shall cease to have effect at a given date, unless it is confirmed in the manner in which it would have been made but for the direction which he had given under the Bill.

Clause 2, which applies to registered friendly societies only, is much the same in effect, in that it enables the central body of a society to take the place of the Chief Registrar and to give a direction so as to secure uniformity and obtain the same safeguards in respect of the rules of their branches. I understand that there are at present some eighty such societies having between them a total of about 17,000 branches, and in order to facilitate administration and control of branches by the central body during the war, those concerned have strongly urged some procedure of this kind. It is at their request that His Majesty's Government are proposing these alterations. The provision may well save many thousands of applications to the Chief Registrar for directions and applications to register amendments of rules, all of which would have to be dealt with in the head offices of the societies concerned. It is moreover, desirable that during the war the policy of a society should be consistent as a whole.

Clause 3 also affects only registered friendly societies, and has been inserted to enable the statutory quinquennial valuations to be postponed. These valuations are based upon past mortality experience, investment rates and values, which in present conditions cannot form the foundation of a reliable estimate, and they would now have little value. Provision has therefore been made whereby a friendly society or branch need not, during the war, comply with the statutory provision referred to above, unless it is required to do so by the Chief Registrar. I should inform your Lordships that these arrangements have the approval of the principal representative bodies. Clause 4 deals with a very small but rather important point which requires a little explanation. It is concerned with the position of societies which were covered by the provision in Section 10 of the Prevention of Fraud Act, 1939, whereby a society which was registered under the Industrial Provident Societies Act, 1893, before July 20, 1938, and certified by the Registrar to be a society which did not now become so registered, could either convert itself into a company registered under the Companies Act, 1909, or could amalgamate or transfer its engagements to such a company without payment of Stamp Duties, provided that it did so before April 28, 1940.

The second group of provisions to which I referred covers Clauses 5 and 6, which deal with the amalgamation and transfer of engagements of building societies and trade unions and which are the only contribution to permanent legislation envisaged in this Bill. They are drafted in a straightforward manner and are designed to simplify the existing machinery, and permanently to amend the building society and trade union law. The need for this amendment in the law is greater at the present time because there may be special reasons for amalgamations and transfers of engagements which were not so obvious before the war. The existing procedure in the case of building societies is too cumbersome and, being designed to meet the circumstances of small local societies, it is quite unsuitable for the immense corporations of the present day. There have recently been cases attracting public attention where small but wealthy building societies have, under the pretence of dissolving, effected a transfer of engagements to larger societies, and large sums out of all proportion to compensate for loss of office, offered by the larger society, have been accepted by the officials of the smaller society. Subsection (3) of Clause 5, therefore, to which I wish to direct your Lordships' particular attention, contains a provision to prevent these undesirable transactions, and it has been inserted with the approval of the Building Societies Association. Representations have also been made to His Majesty's Government that the transfers of engagements of trade unions should likewise be facilitated owing to the difficulties occasioned by war-time conditions, and Clause 6 contains provisions for the transfer of engagements of trade unions, similar to those relating to building societies which I have described, with a special provision that if general meetings of a trade union are meetings of delegates, the resolution for the transfer must be passed by not less than two-thirds of the delegates present at the meeting.

Clause 7 deals with the third group of provisions which I mentioned, dealing with the rights of members of friendly societies engaged in war service. Rules of some registered friendly societies provide that a member shall lose his membership or lose his benefit if he joins His Majesty's Forces. It has been put to the Government that no rule or amendment of rule should deprive a member serving in His Majesty's Forces of his membership, and further that such a member, even though he fails to maintain his contributions, should not cease to be a member, but his rights to any benefits provided by the society should be suspended so long as he fails to pay contributions. Clause 7 aims at giving effect to this. Further, in order to remove any possible inconsistency with the provisions of the industrial Assurance and Friendly Societies (Emergency Protection from Forfeiture) Act, 1940, dealing with the protection from forfeiture of certain life assurance policies for which there are separate premiums effected, inter alia, with registered friendly societies, it has been provided in subsection (3) that such policies are not affected by the Bill, and in subsection (4) that nothing in the provisions of the clause shall be taken to prevent a friendly society providing for the continuance of the membership of persons serving upon terms more favourable than those provided by the Bill.

Finally, there are the miscellaneous provisions of the Bill. Your Lordships will be glad to know that Clause 8 gives expression to the desire of the societies to obtain powers to establish and administer rules for the purchase of defence bonds or national savings certificates, and my right honourable friend the Chancellor of the Exchequer and the Government warmly approve their wish to participate in the financial effort which the prosecution of the war demands, and to help the Government to bear their heavy financial burden. Clause 9 I think requires no explanation. Clause 10 is the definition clause. The most important of the definitions is on page 10—the definition which defines the meaning of the word "Society." Clauses 11 and 12 require no comment.

This Bill is, I think I may say, an agreed measure to facilitate the business of a large number of societies. It is the result of consultations with a large number of interests and with the various movements concerned. It has had a great deal of consideration before it came to Parliament and during the discussions in another place. No doubt it may be said, as was in fact frequently said in another place, that the Government in this Bill are concerning themselves with details which should rightly be the province of the various societies which are dealt with in the Bill. I agree that that is so to a great extent, and I must say this Bill is one which I personally should be very reluctant to commend to your Lordships in normal times. But we know that times are not normal. We are at war, we are fighting for our lives, and we do not know when or to what extent the war may become intensified, or how nearly it may touch all of us, or how long it will take before the words of the Prime Minister are realised when he said that "this evil thing must be overcome, as it will be." In these circumstances, I have no hesitation in recommending this measure to the consideration of your Lordships. I beg to move.

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

4.24 P.M.

LORD MANCROFT

My Lords, I wish to support this Bill. I think it is a good Bill and necessary. But I want, if I may, to ask two or three questions, so that I may assure myself that the Chief Registrar of Friendly Societies has to the full all the powers which appear in the particular clause to which I shall address my remarks to your Lordships. The clause which I have in mind is Clause 5, which deals with the amalgamations of building societies, and building societies, as is well known, to-day play a very important part in our national life. They have to be regarded and administered on the most strictly honourable, upright and straightforward lines. When we discussed the Building Societies Bill at the end of July last year, I took the opportunity of pointing out that I thought that the methods of amalgamation under the Acts of 1874 and 1894 were too restricted, and that better and more easy power should be given by which amalgamations between healthy building societies could take place. I am glad to see that subsections (2) and (3) of Clause 5 are designed to make these amalgamations under the two earlier Acts more easy.

There is one little point with which it is not worth while bothering your Lordships' House, but which I will just mention to my noble friend who moved the Second Reading. I notice that in Clause 5 the word "Registrar" is used, not "Chief Registrar." It may be a printer's error or a draftsman's oversight, but in all the other clauses of this Bill the words "Chief Registrar" are used. It may be that there is some distinction which I have not grasped, but I notice on page 9 of this Bill that power is given to the "Chief Registrar" to delegate functions; it does not say the "Registrar." Who is the Registrar as differentiated from the Chief Registrar? If, however, this is a printer's error, I hope I shall have been helpful in pointing it out.

I now want to refer particularly to subsections (2) and (3) of Clause 5. Since I spoke in July last, a Report has been issued—an excellent and careful Report—by the Chief Registrar of Friendly Societies, of which I have for greater accuracy obtained a copy—the "Report of The Chief Registrar of Friendly Societies," published in 1939, "Part 5, Building Societies." I venture to quote one or two passages out of that Report, and I can scarcely read them with patience, because they disclose a condition of affairs which is not tolerable. I will read an extract from page 6 of the Report, in reference to a Welsh building society which was taken over by a Sussex building society. I will begin by quoting from this Report an extract from an advertisement which appeared in the Building Societies' Gazette, and I want to know whether the relevant subsections of Clause 5 are strong enough to prevent a thing of this kind recurring. This is the advertisement: The Directors of the Brighton and Sussex Building Society believe in strength through amalgamation.… The Secretary of any Society of which the Board would care to consider proposals on these lines whereby officials and directors are amply safeguarded should communicate in strict confidence with…Managing Director. The Report then goes on: It is to be hoped that any officials and directors who may be considering ample safeguards for themselves"— officials and directors, mark you— will be concerned to take into their confidence the members at whose expense they are to be safeguarded. The Report continues: In this case the directors received payments representing about 61 years' salary and the Secretary the equivalent of his salary in perpetuity. And it goes on to say—and these are not my words, they are the dispassionate words of the Chief Registrar: The Brighton Society, whose reserves and unappropriated profit represent less than 2 per cent. of the balance outstanding on mortgage, as compared with 11 per cent. shown by the five societies taken over, absorbed into its funds 42 per cent. of their reserves and unappropriated profit, whilst 29 per cent. went in compensation to directors and officials, and 11 per cent. was used in expenses, leaving only 18 per cent. to be distributed to shareholders. The principal items of expenses appear to have been travelling, hotel expenses, surveying, investigation and salaries. The Report also says: The proportion of the surplus distributed to members depends to a great extent upon the compensation paid to officials and the expenses involved in the transfer, but these are factors which the Registrar has no power to control. That lack of power is the point I want to get to. It goes on to say: In 17 cases which have come to notice at least £25,000 has been allocated for this purpose"— that is to say, compensation to officials and expenses involved in the transfer.

LORD STRABOLGI

Palm grease.

LORD MANCROFT

I do not like to use that phrase. I want to know whether the powers which are in the hands of the Registrar will enable him before he gives permission to compel any society that is taking part in an amalgamation to publish the facts about what benefits officials or directors are getting. At the present moment, unless the societies by their own rules impose the necessity on the directors, the Registrar has no power to get to know what the items are that make up the disclosed lump sum directors and officials receive If the Registrar were to come here and ask for general power to enable him to get that information in detail it would strengthen his power under this clause. In any case, am I to understand that the Registrar can now compel directors and officials to publish, on amalgamation, the information about these benefits to themselves so that members may object or approve in writing, as provided under subsection (1) of Clause 5 of the Bill? Apparently the directors and officials think they have a freehold. Unless compelled to disclose by their own rules, they can conceal what they get normally or are going to get on a special occasion and the Registrar has little or no power to extract the information and disclose it to the members. Perhaps my noble friend will be able to say something about that in his reply.

The other point—quite a different point—is this. In subsection (1) of Clause 5, which deals with amalgamation and transfer of engagements of building societies, there has been imposed by the Act of 1939 the necessity for the societies, under Sections 7,8, and 9 of that Act, to inform an intending borrower what the amount of the value of the property to be advanced upon is when the amount is larger than the usual two-thirds valuation and has been augmented by, let us say, some sort of collateral security put up by the vendor. This point was gone into at some length when the 1939 Act was before the other House and before this House too, and these three clauses provided safeguards for the intending purchaser and borrower. When a society takes over the engagements of another society with which it is being amalgamated, it takes over also the securities as assets of the other society. If the mortgages or engagements have not been fortified by the notice required to be given under Sections 7,8, and 9 of the Act of 1939, it is possible that these mortgages may be invalid as assets of an amalgamation unless by order of the Court they are put right. When the Registrar gives his permission for amalgamation, how does he satisfy himself that these notices have been given in conformity with Sections 7,8, and 9 of the Act of 1939? Does he receive any certification as part of the audited accounts of a society? I do not think it is the duty of the auditor of a building society, as the law now stands, to certify to the Registrar that these requirements have been complied with. Here is apparently an unbridged gap; something perhaps which has been overlooked and must now be covered. Otherwise the engagements transferred which are referred to in subsection (1) of Clause 5 may not be valid in law, owing to an undetected non-compliance with the Act of 1939; or at least absence of the notice or proof of its existence.

I do not know whether the matter can be got over by auditors when looking into the accounts of every building society certifying that these notices in writing have been given, and that the intending borrower has signed a duplicate to show he has received the notice. But apart from the case under discussion who is it that does see to it that an intending borrower gets his right of protective notice under the three sections of the 1939 Act? The Registrar should receive some assurance in cases of amalgamation that this protecting provision has been complied with. If my noble friend cannot give me an assurance that this matter has not been overlooked, I propose to put down an Amendment to the following effect: Clause 5, Page 5, line 4, after 'Registrar' to insert 'and the Chief Registrar has been satisfied that the requirements of Sections 7,8, and 9 of the Building Societies Act, 1939, have been complied with.' I am sorry to have troubled your Lordships with these technical matters; probably my noble friend may be able to give me satisfying information regarding them.

4.35 P.m.

LORD TEMPLEMORE

My Lords, in answer to my noble friend, his first question concerned the word "Registrar" being used instead of "Chief Registrar." He wanted to know if that meant one and the same person. I understand the reason the word "Registrar" is used is that in the Building Societies Act the word "Registrar" means the office of the Registrar and includes the Chief Registrar.

LORD MANCROFT

Should not that be put in the definition clause, Clause 10?

LORD TEMPLEMORE

I am quite willing to consult with my advisers and see if that is necessary. In the second place, my noble friend asked how Clause 5 will enable the Registrar to prevent directors and officials of building societies receiving excessive compensation on amalgamation or transfer of engagements. The answer to that is that if the noble Lord will look at subsection (2) of Clause 1 he will see that when the Registrar has seen the terms of the amalgamation and transfer, which must contain the details of any compensation to he paid, he may under that subsection dispense with obtaining the written consent of members, which he would do in the ordinary course; but if he found it was proposed to pay compensation which, in his opinion, was excessive, he would refuse to dispense with the consents and so ensure that the conditions of the amalgamation or transfer were brought personally to the notice of the holders of not less than two-thirds of the whole number of shares of both societies. It is, of course, a matter far the members themselves to decide what compensation they wish to pay out of their funds. Your Lordships would agree that it would not be proper to put the Registrar in the position of deciding what amount is suitable.

The third question my noble friend asked amounted to this, whether the Registrar would have power, on amalgamation or transfer taking place under Clause 5, to see that the rights of members under Sections 7,8, and 9 of the Building Societies Act of 1939 are preserved. The answer to that is that it is unnecessary to give the Registrar any such power became the rights of members pass to the amalgamated society or transferee society, as the case may be. Your Lordships will be aware that under Section 33 of the Building Societies Act, 1874, societies have always had power to amalgamate or transfer their engagements, and if it had been necessary to give the Registrar any powers where these circumstances arose, which, in fact, it is not, it would have been appropriate to do it in the Act of 1939. I hope I have answered my noble friend's questions to his satisfaction, and I trust the Bill will now be granted a Second Reading.

LORD MANCROFT

I am much obliged to my noble friend.

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