Lords Sitting of 3 March 1947

Preamble
The House met at four of the clock, The LORD CHANCELLOR on the Woolsack.
Prayers.

  PALESTINE.
  VISCOUNT CRANBORNE: My Lords, I should like to ask the Government a question of which I have given them private notice—namely, whether they have any statement to make about the recent outrages in Palestine.
  LORD AMMON: My Lords, I have been asked to reply for my noble friend Viscount Hall, who is slightly indisposed and unable to be in his place this afternoon. A statement has just been made by me Secretary of State for the Colonies in another place, and I do not think I can do better than repeat it in my right honourable friend's own words. It runs as follows:
  "At half-past three on the afternoon of March I a vehicle drove into the wire defences of the Goldsmith Officers' Club in Jerusalem, while the guards were engaged by machine-gunfire from terrorists who had taken up position outside the wire defences. A heavy explosion followed which destroyed a considerable part of the building. A few hours later an attack was carried out on a car park at Haifa and a number
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  of vehicles wrecked. Other less serious outrages, of which full reports are not yet available, occurred in other parts of the country. Total casualties so far reported in this day of violence amount to eighteen killed and twenty-five injured, of whom a number are civilians. In the last month forty-eight outrages hive occurred in which twenty people hive lost their lives and thirty-one have been injured.
  Following on the events of March I, the High Commissioner decided to place certain Jewish areas, from which it is well known most operations of the extreme terrorist groups are conducted, under statutory martial law. The effect of this decision is to withdraw normal facilities for civil government, including civil courts of law, from the areas concerned, and involves the closing of banks, control of entry into and departure from specified areas of persons and vehicles by order of a Military Commander, and the trial of all criminal offenders in specified areas by Military courts. Localities so far affected are a restricted Jewish area of Jerusalem and an area including Tel Aviv, Ramat Can, Benei Beraq and Petsh Tikvah. His Majesty's Government have approved this action and the authorities in Palestine will receive the full support of the Government in any further action which may prove necessary. I am sure that they will also have the support of this House.
  I must again condemn these murderous outrages in Palestine. I need only acid that they can in no way help towards a solution of the problems in that country, especially at a time when His Majesty's

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  Government have announced their intention to refer the whole question to the United Nations. The House will deplore the decision of the Jewish community not to respond more wholeheartedly to the recent invitation of the High Commissioner to co-operate against the terrorists. I desire also to express the profound sympathy of His Majesty's Government and that of the House with those who have been bereaved in these recent tragic incidents. All possible steps are being taken to bring the criminals to justice."
  VISCOUNT CRANBORNE: My Lords, on behalf of those who sit on these Benches I should like to express our deep indignation at these latest intolerable outrages and our most sincere sympathy with the relatives of those who have lost their lives. I would also like to ask the Government, although no doubt they will not be able to give an answer this afternoon, whether there are any further steps in contemplation beyond the imposition of martial law in certain strictly limited areas. Would it not be wiser to put the whole country under martial law instead of confining it in this way and allowing criminals to escape into areas which are not under military jurisdiction? Surely that would be more effective and would lead to more rapid results. I feel that no stone should now be left unturned, not only to bring these criminals to justice but also to prevent a recurrence of these wicked events. The present situation cannot be allowed to go on, and I can assure the Government that they will have, I am quite certain, the support of the whole House in any measures, however drastic, they find it necessary to take.
  LORD AMMON: My Lords, I thank the noble Viscount for his expression of sympathy. Unfortunately I am not in a position to tell him what further steps have been or are likely to be taken, but I will certainly convey to my right honourable friend the feeling of this House, which is strongly condemnatory of this terrorist action, and the suggestion that the whole country should be placed under martial law.

AGRICULTURAL WAGES (REGULATION) BILL.
Amendment reported (according to Order).

COMPANIES BILL, [H.L.]
4.9 p.m.
House again in Committee (according to Order):
[VISCOUNT MERSEY in the Chair.]
Clause 56:
Interpretation of provisions relating to prospectuses, etc.
56.—(I) In the principal Act and this Act, any reference to offering shares or debentures to the public shall, subject to any provision to the contrary contained therein, be construed as including a reference to offering them to any section of the public, whether selected as members or debenture holders of the company concerned or as clients of the person issuing the prospectus or in any other manner, and references in the principal Act or this Act, or in a company's articles, to invitations to the public to subscribe for shares or debentures shall, subject as aforesaid, be similarly construed.
LORD RENNELL LORD RENNELL moved, at the end of subsection (I), to insert:
"Provided that nothing in this or the principal Act shall be deemed to prevent a company doing the following, that is to say:—
(a) making an offer of shares which is an offer only to its existing members and is not in any way an offer to the public; and
(b) effecting a sale of its shares to any person or body corporate for retention by that person or body corporate and not involving a sale or issue to the public."
The noble Lord said: I apologize to your Lordships for not having been here at the end of last week and I thank the noble Marquess, Lord Reading, for moving Amendments in my name. My absence was due to circumstances over which I had no control. The Amendment to Clause 56 which stands in my name represents an endeavour to clarify a part of the clause which is, frankly, not very clear. The object of my Amendment is perhaps contained in the text of subsection (I) of the clause, but I think—and I am sure my noble friend Viscount Swinton shares this view—that nothing should be contained in that subsection to restrict the right of the company to offer additional capital of one form or another in the first place to its own members. It is common practice—a growing and a commendable one—that new share capital issued should in the first place be issued to members. It would be a waste of time and a considerable expense if on each occasion on which such an offer were made to members the company should have to go through the form of

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issuing a prospectus or an equivalent offer for sale as it is laid down shall foe done in the case of issues of capital to the public generally. That is the abject of the first part of my Amendment.
The second part of my Amendment provides for the issue of capital by a company where one taker other than a member may be taking a substantial block, or indeed all of such issue, not with a view to re-sale. That also, it would appear, should not be subject to the ordinary provisions relating to a prospectus or offer for sale. I am quite aware that the precise terms of my Amendment or my addition to the clause are perhaps in themselves insufficient. It may well be that when the noble and learned Viscount comes to reply he will find it necessary to say that a further addition to that which I have suggested is necessary. In that case I would anticipate him by saying that I entirely agree that such an addition is necessary. I beg to move.
Amendment moved—
Page 56, line 28, at end insert the said proviso.—(Lord Rennell.)
LORD CHORLEY: I cannot accept the Amendment exactly in the form in which it is moved, but if the noble Lord will withdraw it I can assure him that provision will be made which will meet both the points which he desires to safeguard. Section 35 (5) of the Companies Act already exempts the issue to existing members or debenture holders, and there is no intention of departing from that Nor do we wish to prevent the sale of shares to a person or body corporate as in the second case with which he deals. To get the exact form of words which will secure this, and at the same time carry out the very strong recommendation of the Cohen Committee, where they say that placings which are to all intents and purposes offers to the public should be brought indisputably within the provisions of the Act, has been the object of the draftsmen in drafting the clause which is at present in the Bill. To reconcile these two matters is a somewhat difficult problem which is engaging our attention at the present time. I do not think there is any need at this stage to go into the difficulties and discuss the methods by which we hope they may be overcome, but I can assure the noble Lord that if he will withdraw his Amendment we will see to it that this matter is,
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as I hope, satisfactorily dealt with on the Report stage.
VISCOUNT SWINTON: My name is associated with this Amendment, and I would like to express my gratitude for the way in which it has been met. I do not think there is any difference of opinion between us, nor is there any difference from what, I gather, was in fact the recommendation of the Cohen Committer I fully agree that real placings ought, beyond a shadow of doubt to be brought on to the same footing as an issue accompanied by a prospectus, and whenever there is a real new offer to the public that should be so. These two particular cases which are covered by the old Act (and I am sure, as the noble Lord has said, that the Cohen Committee equally intend them to remain covered) are, in effect, what the clause describes in rather interesting language as "matters of domestic concern." I know what domestic concern is in my own family—at least I think I do—but I am less certain when one gets into the corporate family of a company. For my own part, 1 think we are entirely at one as to what is the object we seek to attain, and I would be perfectly content to leave it in the able hands of the draftsman to give effect to our common purpose.
LORD RENNELL: I am obliged to the noble Lord, Lord Chorley. I am, of course, acutely aware of the difficulties arising out of the: wording in connexion with what is known as "placings." I would only say that if the two points which are made in my Amendment are in fact covered—as the noble Lord has said they will be—I am entirely satisfied and will withdraw the Amendment. I am, of course, fully aware that 'the alternative (b) is in fact a form of placing, and that in itself engenders some difficulty in the wording of the latter part of the clause. In all the circumstances, I beg leave to withdraw my Amendment.
Amendment, by leave, withdrawn.
Clause 56 agreed to.
Clause 57:
Register of share ownership.
57.—(I) Every company limited by shares shall keep a register (hereafter in this Act referred to as "the register of share ownership") in which shall be shown, as respects the issued share capital of the company, the name and address of any person who is an owner but not a registered holder

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of any part thereof, and who notifies the company of that fact as required by the following provisions of this Act:
LORD RENNELLmoved to leave out Clause 57. The noble Lord said: Having regard to what the noble and learned Viscount, the Lord Chancellor, has said on two occasions on which your Lordships have been in Committee on this Bill, I do not know whether it would be convenient for me, in moving that Clause 57 be omitted, to speak at the same time on the Amendments which stand in my name that the subsequent clauses be omitted—namely Clauses 57 to 62. At any rate, what I have to say refers to all those clauses.
THE LORD CHANCELLOR (VISCOUNT JOWITT): If I may say so, I think that would be the convenient course. The noble Lord knows in advance that I am going to accept the Amendments, but none the less we should like to hear the reasons actuating him.
LORD RENNELL: I thank the noble and learned Viscount for what he has said, and I shall therefore move to leave out Clauses 57 to 62 inclusive. What I have to say refers to all of them, but if it is necessary to move them separately I will do so in due course. In addition to what I said to your Lordships on the occasion ot the Seconding Reading, and the arguments advanced by the noble and learned Viscount, I have one or two other reasons I would like to adduce. I had, in fact, another barrel which was a choke barrel in this particular case, but the noble and learned Viscount has anticipated it by forecasting his answer. Therefore I would only say that, for my part, I appreciate and agree with the motive which lay behind the drafting of these clauses. It is in many respects desirable, and in certain respects essential, to know both the control and the ownership of companies. At the present time it is very difficult to ascertain that information by reason of the practice of using nominees. My sole reason—and I believe that of the noble Lords who supported my argument—in resisting these clauses is that they are, in fact, unworkable. A comparatively cursory study of them shows a number of ways in which the provisions could be avoided, and therefore render unobtainable the information which is sought. Secondly, the clauses put a burden not only on nominee companies
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but on the registrars of companies which is practically insupportable. The burden of non-productive work done by the registration of companies is, at the present moment, already enough, and to have to create a second register for the purposes described in this clause would not only add to the unproductive work already done, and waste manpower in doing so, but in fact lead to so many difficulties of interpretation as to put an entirely unworkable burden of responsibility on the registrars and, therefore, the directors of companies.
I think in all sincerity—though I may have overstated the things I spoke of on the Second Reading—that it does also strike very deeply at the root of our trustee system in requiring trustees to assume responsibilities under pain of a fine or imprisonment for not disclosing shares which stand in their name under clauses which describe them as beneficial owners, whereas they are, in fact, neither real owners nor do they derive any benefit from their work as trustees. They are therefore put in a category which, in English, if the words "beneficial" and "owner" mean anything, is complete nonsense.
Finally, it creates a difficulty for nominees of short-term existence who have not hitherto been referred to. Here again, I think these clauses are unworkable. I believe the work involved in recording transitional ownership under these nominee clauses where holding companies are used for the purpose of buying shares in order to pass them on to investment trusts, would involve them in work which would considerably delay the functioning of markets, without any useful purpose being served. It would indeed create a misleading situation, because as at a certain date a certain concern would be held to be the owners of x or y proportion of the capital of the company which a fortnight later might have ceased to be the case.
For all these reasons, I have been opposed from the beginning not only to the clauses but to the Amendments, because I have not seen any Amendment which would make them more workable. That is why I have tabled the Amendments to leave out the clauses, and in anticipation of what I expect to hear from the noble and learned Viscount I beg to move, in the first place, that Clause 57 be left out of the Bill.
VISCOUNT MAUGHAM: I promised not to say anything on these clauses after what I said on the last occasion, and I am going to keep that promise, but the noble Lord, Lord Rennell, will not feel annoyed if I say that the term "beneficial owner" is well known and in constant use in the Chancery Division, and I can only congratulate him on never having heard it.
THE LORD CHANCELLOR: I was going to say the same thing. It is, of course, a term widely used.
LORD RENNELL: In this context?
THE LORD CHANCELLOR: Yes; in this context. I am going to accept these Amendments, as I indicated before, and I am going to tell you why. The first reason is that I was convinced and converted by the speech of the noble Lord, Lord Simonds, on Second Reading. It is no good having a debating assembly if you have not an open mind and are not prepared to listen to what other people say and, if they strike home, to admit it; and, frankly, I do. If we do include the clause—and I think the Cohen Committee say that an honest law-abiding citizen would comply with the clause—he would comply with it at a considerable degree of trouble to himself and to the Registrar of Companies.
But, after all, the law-abiding citizen is not the man you want to reach. The man you want to get at is the fellow who is not a perfectly honest and law-abiding citizen, and you may predicate about him that if it suits his convenience he will not comply with this or any other law. Therefore, you have to see whether it would or would not be easy for him to find ways and means of evading this clause. I am not going to take up your Lordships' time by indicating what those ways and means may be, but I will take one simple illustration. You have to disclose your shares if they aggregate more than one-hundredth—I think that is the figure—of the company's issued share capital, but you could get out of that quite easily, because you need not aggregate the shares which you hold in different capacities as a trustee. You could arrange for your shares to be held under numerous different trusts, for each trust to amount to less than one per cent, of the share capital, and in each case for some person other than yourself to have a remote interest in the shares—.for example, an interest which would operate only in the year 2020, if the person was still alive,
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which would probably not be the case. You would then in practice control the shares but you would have been able to avoid the necessity of aggregating and consequently would have evaded your obligations.
So, also, a beneficial owner could put himself in the position of a mortgagee, holding what were in fact his own shares as collateral against a fictitious debt from the mortgagor who would not have effective control. It is as if we were to pass a law saying that every murderer had to register with the police and that for every day he did not register he would be subject to a default fine. It is all very well passing such a law, but no murderer would register; and it is the same sort of thing here. These people would not register.
That being so, I have told your Lordships what I propose to do. I propose to retain the very considerable powers given to me in the earlier clauses of investigation by the Board of Trade. These powers your Lordships have given me, and we have to some extent transformed them and made them very drastic indeed. I believe that this is the right line on which to go at the present time. I state frankly that I should like to see the day when the company's register realty did reveal who were the collaborators and with whom it was dealing. I believe that would be a good thing. I hope I may be alive to see the day when it comes. I am not sure that the present moment is a convenient one to pass that legislation. We have stopped short of that, and I think we would have got ourselves into considerable difficulty if we had gone on with these clauses. Therefore, in view of the fact that your Lordships have been good enough to give me really drastic powers with regard to inspection, I am prepared to waive this and the succeeding clauses.
LORD RENNELL: I am very much obliged and I am sure other noble Lords will be grateful to the noble and learned Viscount for the cate and thought he has given to this matter.
On Question, Amendment agreed to.
Clause 58 [Definition of "owner" of share]:
LORD RENNELL: This Amendment, and those following, have already been referred to.
Amendment moved—
Leave out Clause 58.—(Lord Rennell.)
On Question, Amendment agreed to.
Clause 59 [Persons bound to notify ownership of shares]:
Amendment moved—
Leave out Clause 59.—(Lord Rennell.)
On Question, Amendment agreed to.
Clause 60 [Inclusion of unissued share capital]:
Amendment moved—
Leave out Clause 60.—(Lord Rennell.)
On Question, Amendment agreed to.
Clause 61 [Power to prescribe supplementary matters]:
Amendment moved—
Leave out Clause 61.—(Lord Rennell.)
On Question, Amendment agreed to.
Clause 62 [Penalties in relation to register of share ownership]:
Amendment moved—
Leave out Clause 62.—(Lord Rennell.)
On Question, Amendment agreed to.
4.33 pm.
Clause 63:
Redeemable preference shares. Other provisions as to shares.
(2) The redemption of any redeemable preference shares shall not be taken as reducing the amount of a company's share capital.
LORD CHORLEY: The object of this Amendment is to deal with the position when preference shares are redeemed, and to make it quite clear that by the redemption the share capital will not be reduced. Under Section 46 (4) of the Companies Act difficulty has arisen because it has been held that in cases where shares are redeemed, the shares redeemed cease to toe part of the authorized capital of the company although there is power to issue shares in their place. As a consequence of that the balance sheet and the annual returns may not disclose a strictly accurate position in regard to the share capital of the company. Therefore, we have taken this opportunity to make it quite clear that when there is a redemption of preference shares in this way it will not, in fact, amount to a reduction of the authorized share capital. I beg to move.
Amendment moved—
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Page 62, line 26, at end insert ("authorized").—(Lard Chorley.)
On Question, Amendment agreed to.
LORD RENNELL: May I take this opportunity, in connexion with what Lord Chorley has said, to draw attention to two matters that arise out of Clause 63? No Amendment stands in my name, but I have given the noble and learned Viscount, the Lord Chancellor, notice of my intention to raise these matters in the hope that he may give some attention to them between now and the Report stage. In the 1929 Act, provision was made for the first time for the issue of redeemable preference shares and in that Act certain provisions were made about how redeemable preference shares were to be redeemed. Roughly speaking, they have to be redeemed either by setting aside out of profits into a fund a sufficient sum to redeem such shares by a certain date, or as the profits are sufficient when the redeemable preference shares are not redeemable by a fixed date; or alternatively by the issue of similar amounts of capital in lieu.
But no provision was made in the 1929 Act about what was to happen in the event of a company, having issued redeemable preference shares which have to be redeemed by a certain date, being unable to do so in either of the two manners prescribed. It may well arise that a company will not, in the period during which redeemable preference shares have to be redeemed, have made sufficient profits to redeem them, and it might equally happen that a company would find itself in such a position as not to be able to issue new capital in lieu of the redeemable preference shares required to be redeemed. As I say, no provision is made in the 1929 Act for such events. No case has yet arisen, so far as I am aware, of redeemable preference shares having reached their final date, because the provisions of the 1929 Act are as yet young, and in all cases where redeemable preference shares have been issued with a final date the periods chosen have naturally been of some considerable number of years.
But a time may come, and it seemed to me that it would have been appropriate to have inserted in this Bill some clause, or subsection in Clause 63, to provide against the eventualities I have mentioned. I have put down no Amendment because it seemed to me to be appropriate that if an Amendment were to be put down it should be done from the Government's

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side and after very careful consideration of the different methods which might be open. Various suggestions have been made to me about what could be done, but the position is a little obscure. There is, I think, a sort of contract between a company and its members, if that is possible, to give them back their capital by a certain date. But it is not a liability on the company like the redemption of debentures. Presumably if the company could not redeem redeemable preference shares by the final date a shareholder would not have a claim against a company, as would a debenture shareholder. Therefore it would seem that redeemable preference shares might have to remain as capital of the company but not redeemed—in other words, become irredeemable preference shares.
That would create a good deal of hardship to a number of people. It would create hardship to those investors who have bought an investment in the faith that they would get their money back by a certain date, and have calculated their return up to that date. I am thinking, notably, of insurance companies which require to make an actuarial calculation of their returns over a period of years. There is also the difficulty that since redeemable preference shares can probably be sold at higher prices or lower returns than irredeemable preference shares, if at the end of the period for which those shares are outstanding they become (if not redeemed) irredeemable preference shares, the share has been sold at too high a price. Therefore, damage might fall on the holder of those shares. To correct this, it might toe possible to envisage a scheme by which a company would be precluded from paying a dividend on any stocks junior to the preference shares till the preference shares had been redeemed. There is a certain attraction that in the case of ill-conditioned boards who have issued redeemable preference shares for the purpose of creating a large prior capital and have kept the equity small, they should not toe allowed to enjoy the benefits of such manœuvres.
I have desired to point out that I think that is a gap in the Bill. I have been rather surprised that the matter was not raised before the Cohen Committee when evidence was given on the subject of redeemable preference shares. There is another point, which is I believe of interest to noble Lords, besides myself, and that
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is the absence of any provision whereby irredeemable preference shares might be converted into redeemable shares especially in cases—or only in cases—where 100 per cent, of the holders of the irredeemable preference shares are in agreement about such a conversion, and where such a conversion would not be damaging to the holders of stocks junior to them. I would like to draw the noble and learned Viscount's attention to those two gaps and to ask that they may be taken into consideration with a view to the insertion of the appropriate clause or subsections between now and the Report stage.
LORD SIMONDS: May I say just a word or two upon the second of the two matters to which the noble Lord, Lord Rennell, has referred? With regard to the power of converting shares which are not expressed to be redeemable and are, therefore, irredeemable into redeemable shares, that seems to me to be simply a gap in the present Act. Certainly, as I understand the law, that is now the position, and though a company may, subject to certain safeguards, issue redeemable shares, it cannot, even with the consent of all the preference shareholders, convert their shares which are at the present time irredeemable into redeemable shares. I can at present see no reason why, with the same safeguards that attach to the issue of redeemable shares, there should not be a power to convert shares at present irredeemable into redeemable shares, with the consent of all the holders of such shares.
VISCOUNT ELIBANK: Of the ordinary shareholders as well?
LORD SIMONDS: I heard the noble Viscount say "the ordinary shareholders as well." Of course it would be in the power of the company, and therefore of the ordinary shareholders, to determine whether that power should be exercised or not. I said "all the preference shareholders," but I think it might foe a matter for consideration whether it should not be 90 per cent. of the preference shareholders, because there is always apt to be one crank in ten. It might be that ten men might hold out quite unreasonably against a proper and fair conversion. I should be happy to leave it to the Government to say whether it should be 100 per cent. or 90 per cent. There may be some reason why that power should

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not be there at all, but I cannot see what that reason can be, and I understand the issuing houses are in favour of it.
VISCOUNT MAUGHAM: I rise only to say that I associate myself with what my noble and learned friend has just said.
LORD LATHAM: I think the noble Lord, Lord Rennell, has raised two matters of considerable importance in connexion with these redeemable preference shares. In certain circumstances, redeemable preference shares become irredeemable preference shares. It is provided in the principal Act that redeemable preference shares can be redeemed only out of accumulated profits or out of the proceeds of a fresh issue. Where, as is sometimes the case—I have a case in mind—redeemable preference shares were created in order to acquire an asset, and then that asset has been disposed of, the money is available but it cannot be utilized, as I submit it ought to be capable of being utilized, to pay off the redeemable shares which were created in order that the asset which has now been disposed of might be acquired by the company. The result is that a company might have large funds for which it had no possible use in the course of its business, and has to pay a dividend on the redeemable preference shares larger than the interest which it can earn upon the disposable funds.
In these circumstances the Government might wish to consider, when the two points raised by the noble Lord, Lord Rennell, are under consideration, whether, subject to agreement by 90 or 95 per cent, of the holders of the redeemable preference shares, the proceeds of the sale of an asset could be applied to the payment-off of the redeemable preference shares. So far as I know, and I speak in the presence of very experienced and learned Chancery lawyers, at the present time, the redeemable preference shareholders can consent to their capital being converted into ordinary stock, and then the company can proceed by reduction of capital to return money by way of the reduction of the ordinary stock. I believe that to be within the range of the present law, but a company ought not to be driven to a subterfuge of that kind. I am sorry I did not give prior notice of this point but I hope, when the two points raised by the noble Lord, Lord Rennell, are being considered, that point might also receive attention.
LORD CHORLEY: I am very much obliged to the noble Lord for raising these two interesting points. They are obviously of some practical importance. It may well be that the first of them is a real difficulty in the way of having this type of redeemable preference share, which, after all, was introduced comparatively recently. The matter is obviously well worth further consideration, and 1 can assure your Lordships that we will look into it very carefully. The noble Lord, Lord Latham, has made an interesting suggestion in the same connexion which is also worthy of consideration. I can assure your Lordships that if we find it seems to be necessary and useful to introduce some further clause on the Report stage we will certainly do so. The second point Lord Rennell raised, and on which he has had the very powerful support of two of the most eminent company lawyers of recent years, is obviously also well worth looking into. I can assure your Lordships we shall look into it, and if we find it seems desirable to introduce a further provision we shall do so on the Report stage.
Clause 63, as amended, agreed to.
Clause 64:
Application of premiums received on issue of shares.
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(4) Where a company has before the coming into force of this section issued any shares at a premium, this section shall apply as if the shares had been issued after the coming into force thereof:
Provided that the sums to be included in the share premium account shall not include any part of the sums received by way of premium on the shares which before the coming into force of this section has been applied in such a way that it ought not to be treated as retained by the company or, if it can properly be treated as retained, cannot be identified.
LORD CHORLEY: This is really just a drafting Amendment in order to make it clear that the share premium may be received either in cash or in some other way. This is not at all clear as the clause now stands. I beg to move.
Amendment moved—
Page 63, line 5, leave out ("all sums received by the company by way of premium ") and insert (", whether for cash or otherwise, a sum equal to the aggregate amount or value of the premiums ").—(Lord Chorley.)
On Question, Amendment agreed to.
LORD CHORLEY LORD CHORLEY moved, in subsection (4) to leave out the proviso and insert

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"Provided that any part of the premiums which has been so applied that it does not at the coining into force of this section form an identifiable part of the company's reserves within the meaning of the First Schedule to this Act shall be disregarded in determining the sum to be included in the share premium account."
The noble Lord said: There has been a good deal of doubt about the exact meaning of the proviso as it at present appears in the clause. The Amendment has been framed in order to make it clear that in the case of a company which has issued shares at a premium before the coming into force of the clause, the premium may be disregarded, if it no longer forms an identifiable part of the company's reserves. If it still is identifiable it can be dealt with in the way suggested in the clause. It may very well be that it is not, and in those circumstances it should be dealt with as suggested in the Amendment. I beg to move.
Amendment moved—
Page 63, line 22, leave out from the proviso and insert the said new words.—(Lord Chorley.)
LORD LATHAM: I heard the noble Lord, Lord Chorley, say that this Amendment has been moved in order to clarify the situation and to remove doubts. I confess that I am still pursued by a number of doubts in connexion with it. I am not quite sure what exact meaning is to be attached to the word "identifiable" in this connexion. However, I would like to put this concrete case to the noble Lord. Suppose there were an issue of shares at a premium for the purposes of redeeming debentures at a premium. Would the company be entitled to set off part of the premium, or indeed, all the premium, receivable on the issue of the shares against the premium that had to be paid on the redemption of the debentures? That is a process, of course, that has been going on frequently during the past two or three years. It reflects inescapably the fall in the rate of interest. Companies are seeking to get rid of their high interest bearing prior charges created under different conditions between the wars. I would like to know how the company is to deal with the premium on the shares, or that part of it, which is applied in payment-off of premium on debentures.
I would like some further explanation and clarification of what exactly is meant by the words "an identifiable part of the company's reserves within the meaning of the First Schedule to this Act." The
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First Schedule to this Bill is a most formidable Schedule. It deals with almost every aspect of company finance, and other things as well. I would like to know whether this reference to the First Schedule is a reference to the interpretation section of the First Schedule, which I think is Part IV of the First Schedule, or whether it is intended to relate to, and therefore be governed by, all the relevant provisions of the whole of the First Schedule which, as I have said, is a most formidable one. I hope that the Government will be able, either now or at a later stage, to give some clarification on this point. I notice that the noble Viscount, Lord Elibank, has an Amendment which I think quite properly deals with the expenses of an issue, but the question that I put is not included, nor is it inteded to be included, in that Amendment.
LORD SALTOUN: I am very glad to find myself in complete agreement with the noble Lord, Lord Latham, on this point. I think auditors would have great difficulty in the interpretation of the word "identifiable."
LORD CHORLEY: The noble Lord, Lord Latham, has raised two points. He has asked me in the first place to answer a hypothetical question, which is a very dangerous thing to do. I should say it was a question of fact as to whether certain monies were identifiable or not, and it would be quite impossible to decide. that without looking into the particular matter in connexion with the position of a certain company and its reserves. With regard to the second point as to how the Schedule is brought into this matter, I quite agree it does appear at first sight to be left in a somewhat vague state, and I am glad to assure the noble Lord that I will certainly look into it between now and the Report stage and sec whether something can be done to clarify the situation.
On Question, Amendment agreed to.
VISCOUNT ELIBANK VISCOUNT ELIBANK moved, after subsection (4), to insert:
"Provided further that nothing in this section will prevent the writing off, against premiums received on the issue of shares, the preliminary and other expenses incidents to such issue."
The noble Viscount said: I do not propose to discuss the points which have been brought up by the noble Lord, Lord

19
Latham, but under this clause all the sums received from shares issued at a premium have to be placed to a share premium account. That share premium account as I understand it, then has to be treated as if it were paid-up share capital of the company. Presumably that capital is to remain in the company subject to one exception. It says it may "be applied by the company in paying up unissued shares of the company to be issued to members of the company as fully paid bonus shares."
That is not the point with which I wish to deal. All I wish to point out is that there is no other exception, and, in my view, one other exception at least ought to be that set out in my Amendment. In making a fresh issue—a premium issue—there are certain expenses—preliminary expenses and others—incidental to that issue, and it has always been the common practice to pay those expenses out of the premium account. I cannot see why that practice should not continue; otherwise these preliminary expenses have to be placed on the balance sheet and paid off by degrees from revenue—revenue which would otherwise come to the shareholders through distribution. That does not seem a reasonable suggestion at all, and I venture to suggest that the present practice of paying off these preliminary expenses, which, after all, whatever the amount is, are always disclosed in the offer for shares, should be permitted, and that that permission should be made part of this particular clause which deals with these sums. I beg to move.
Amendment moved—
Page 63, line 28, at end insert the said proviso.—(Viscount Elibank.)
LORD RENNELL: I rather strongly support the Amendment by the noble Viscount, Lord Elibank, and I venture to think, from what he said, that the noble Lord, Lord Latham, probably does, too. The real point is that preliminary expenses in any company are not a tangible asset; in fact they are not an asset at all. They are things that ought to be written off at the earliest possible moment. It might even be argued that a premium derived from the sale of shares might be used for writing off other intangibles such as goodwill. Without going so far as that, I think at the very least premiums and preliminary expenses ought to be written off as being definitely a blot in
20
the company's balance-sheet to be removed as quickly as possible. They are inevitable, I know, but they ought to be removed, and this would provide a very ready and easy method of removing them. I would like to support this Amendment.
LORD CHORLEY: I am quite prepared to accept this Amendment, and I am much obliged to the noble Viscount for proposing it. It is quite true that the clause as it stands would prevent this very common and really quite sensible practice in the City from being followed. It is, of course, theoretically, from the legal point of view, wrong to write off these expenses out of capital, but it has for a long time been a common practice to do so in the City, and I think it is obviously one of these cases where theory should give way to practice. In the circumstances I am glad to accept the Amendment. I should say that it may possibly be that some slight adjustment in the wording will be necessary. I think the noble Lord will understand that.
LORD SALTOUN: Will the noble Lord, before he leaves the point, consider whether he will extend it in the direction suggested by my noble friend Lord Rennell, with all of whose remarks I cordially agreed?
THE LORD CHANCELLOR: We will consider that. I think the best course, in view of what the noble Lord, Lord Rennell, has said, would be for the noble Viscount, if he would not mind, to withdraw his Amendment now, in order that we may put it into appropriate words and see whether we can achieve the end desired.
VISCOUNT ELIBANK: I wish to thank the noble Lord for his consideration of this matter, and the noble Lords who have supported me. I am quite agreeable, in the circumstances which have arisen out of this Amendment, to withdraw it, and I look forward to a further Amendment being submitted.
Amendment, by leave, withdrawn.
Clause 64, as amended, agreed to.
Clause 65 agreed to.
Clause 66 [Register of debenture holders]:
LORD CHORLEY: The Amendment which I now propose is a drafting Amendment. It just transfers the words in order to make the position clearer. It deals

21
with the penalties under Section 73 of the Act; and I do not really think it requires any further explanation. I beg to move.
Amendment moved—
Page 64, line I, after ("right ") insert ("under section seventy-three of the principal Act ").—(Lord Chorley.)
On Question, Amendment agreed to.
LORD CHORLEY: The next Amendment is also a drafting Amendment.
Amendment moved—
Line 5, leave out ("under section seventy-three of the principal Act").—(Lord Charley.)
On Question, Amendment agreed to.
Clause 66, as amended, agreed to.
Clause 67:
Liability of trustees for debenture holders.
67.—(1) Subject to the following provisions of this section, any provision contained in a trust deed for securing an issue of debentures, or in any contract with the holders of debentures secured by a trust deed, shall be void in so far as it would have the effect—

(a) of exempting a trustee thereof from or indemnifying him against liability for breach of trust where he fails to show the degree of care and diligence required of him as trustee, having regard to the provisions of the trust deed; or

(b) of absolving him, otherwise than by entitling him to rely on opinions formed or information supplied by others, from showing the degree of care and diligence ordinarily required of a trustee in discharging his functions according to the terms of his trust.

(2) The foregoing subsection shall not invalidate—

(a) any release otherwise validly given in respect of anything done or omitted to be done by a trustee before the giving of the release; or

(b) any provision enabling such a release to be given—

(i) on the agreement thereto of a majority of not less than three-fourths in value of the debenture holders present at a meeting summoned for the purpose; and

(ii) either with respect to specific acts or omissions or on the trustee dying or ceasing to act.

(3) Subsection (I) of this section shall not operate—

(a) to invalidate any provision in force at the coming into force of this section so long as any person then entitled to the benefit of that provision remains a trustee of the deed in question; or

(b) to deprive any person of any exemption or right to be indemnified in respect of anything done or omitted to be done by him while any such provision was in force.

5.0 p.m.
VISCOUNT SWINTON VISCOUNT SWINTON moved, in subsection (I) (b), leave out from "him," where that word first occurs, to "from." The noble Viscount said: On behalf of my noble friend, Lord de L'Isle and Dudley, I move the first of these Amendments to this clause. I must admit it is a good deal more than a drafting Amendment. It would be for the convenience of the House if, on the first Amendment, I were allowed to deal with the other Amendments, and, indeed, with the scope of the clause. I put down with my noble friend a number of Amendments to this clause, and practically all of them follow almost exactly the wording of the Cohen Committee Report, except perhaps the last Amendment on the Paper, which gives the right to a new trustee to carry on what has been the indemnity of an old trustee, ii the debenture holders so desire.
I wonder whether, even if we follow all the protections which the Cohen Committee recommended, it really is worth while to alter the present practice with regard to indemnities to trustees for debenture holders. Hitherto it has been a matter between the debenture holders, the company and, indeed, the trustee who has to assume responsibilities, whether there should be an indemnity, and what "hat indemnity should be. This new provision, of course, makes no change in the rights of any existing trustees; they retain whatever rights of indemnity they at present enjoy. What I wonder is whether it is really worth while putting these legislative enactments in the Bill in order to fetter the discretion which has hitherto existed with the parties who settle the terms. I have nothing to say for a guinea pig trustee who draws a fee without doing anything for it. I should think those animals are extremely rare, if, in fact, any of them exist.
The ordinary practice, and the obviously convenient practice, where you appoint a trustee for debenture holders, is to get some reputable corporation—I think it is called in Scotland "a body sole," or something like that. I see the noble Viscount, Lord Maugham, looking very shocked: I have perhaps got the wrong expression; it is probably "a corporation sole." In any event, it is obviously desirable to get someone who does not die. You do not want to have trustees constantly dying, and to have to appoint new trustees and transfer to them all the

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securities. The duty of a trustee for a debenture issue is really much more than the protection of the debenture holders and their security if difficulties arise. Difficulties may arise at home, and they may arise overseas. That is where the major duty of the trustee comes in. For that purpose you certainly cannot do better than have a strong, reputable, experienced corporation which makes a custom of doing this kind of business.
But if you insist by Statute on such a corporation accepting all the obligations of a trustee in matters of title, and things of that kind—and the corporation has quite a modest fee for its work—I think you may easily find that the trustee will not take on the job. I was given the example by a very eminent firm of solicitors of an issue of debentures by a great steel company. The common form of debenture issue, of course, is that there is a floating charge upon the business. But there is also a specific charge upon all the assets of the company. I was shown the schedule of the assets which were specifically charged in this issue. The mere list of these things went into a schedule of 220 pages, and those assets, of course, are going to be dealt with. The title must be investigated by the trustee. If the trustee is going to have that obligation placed upon him by Statute, without any chance of indemnity and without being able to rely in these matters of title and so on, upon others—duties which it is quite right to impose upon an ordinary trustee for marriage settlements—I think it may well be that a great company will say that it is so onerous a business that they will not undertake it.
When a company comes to make an issue of debentures, it may well be found that you have to choose between having a good trustee and a good trust deed. When I say "a good trust deed," I mean it in the sense of one of these strictly legal documents enforcing every obligation. If I were a debenture holder I know which I would rather have—I would have a good trustee much rather than a good trust deed. Therefore, quite frankly, I doubt whether the refinements of this clause are worth while. We have considered all these matters so fairly on their merit that I should greatly value the view of the noble and learned Viscount, the Lord Chancellor, upon this. If it is
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thought that this new obligation should be imposed upon future trustees, then it should certainly be qualified in all the ways in which the Cohen Committee suggest that it should be qualified, and which I think the Bill as drawn (I speak with diffidence on this) does not wholly give. I therefore venture to put forward—I will not go into them in detail—these Amendments dealing with the exact provisions and safeguards for trustees which I think the Cohen Committee recommended. I am obliged to your Lordships for having allowed me to take the whole clause, so to speak, in my stride, and I beg formally to move the first Amendment.
Amendment moved—
Page 64, line 21, leave out from ("him") to ("from") in line 23.—(Viscount Swinton.)
LORD SALTOUN: I would like to support in a very few words the Amendment moved by the noble Viscount, Lord Swinton. My only experience of trustees for debenture holders was not very happy. I would like to suggest to His Majesty's Government that if things are made too difficult for the trustees the result will be either that you get no trustees or that you get bad trustees. For that reason I support the noble Viscount's Amendment.
VISCOUNT MAUGHAM: I also support the Amendment. I am afraid I have had a very large experience of debenture trustees and the obligations which they used to incur. It is in my time that an alteration has been made by which they have been given indemnity in respect of inadvertent breaches of a number of the obligations to which they are subject. So welcome was this in the City of London that it came to be the usual practice for every single debenture trust deed to have clauses which, I entirely agree, went a great deal too far and which almost made it possible for a debenture trustee to do nothing more than sign cheques for his salary. That is to be altered, and I think rightly altered, but I venture to suggest that the new clause, as presented in this Bill, goes rather far and that it would be a good thing if the Amendment which is now under consideration were accepted. I do not think it is going to make any very great difference to the ordinary trustee, but I venture to suggest that unless something of the sort is done, although trustees in small cases may not be deterred, it will be difficult to get trustees

25
where enormous sums and great quantities of assets are involved, and those are the cases which my noble friend Viscount Swinton has in mind.
5.13 p.m.
LORD LATHAM: There is another point of view in connexion with the provisions of this clause, and that is the position of the trustee himself vis-á-vis the company. As one who has acted as a trustee—I hope without advertent negligence—I ean say that, in many cases, if a trustee sought to carry out all the obligations cast upon him by a normal trust deed he could not avoid interfering in the conduct of the company's business. That would be wrong, and I think it would quite properly be resented. It is difficult to say, except in given circumstances, what a good trustee would do and when a trustee, even inadvertently, has been negligent. For instance, a trust deed may cast the obligation upon a company to maintain its insurance. Clearly, the trustee ought to see that that is done, and he ought to have the receipts produced to him. Frequently a trust deed requires a company to maintain stock not below a certain figure by reference to market or replacement costs, and not to suffer unsatisfied judgments for longer than a specified time. Those are relatively simple matters with which a trustee can deal, but there are all sorts of other obligations imposed by a normal trust deed and—I repeat it—if a trustee sought to carry them out he would find himself involved, as he ought not to be, in participating in the carrying on of the business, which might lead to the very circumstances which the debenture holders would wish to avoid.
I agree that, say, some twenty years ago there might have been a good deal of negligence on the part of trustees of the rather small concerns. No doubt the noble and learned Viscount, Lord Maugham, has had cases before him in the Courts, and I myself have been concerned with them. I do not think, however—the debenture trust deed and the debenture trustee having become so much a part of our industrial, commercial and financial structure—that at the present time there is any grave possibility that more than a very small number of trustees, whether they be persons or corporations, will not, as regards their trusts, act reasonably and properly. I hope the noble and learned Viscount, the Lord Chancellor, may feel
26
himself able at least to look at the matter again, and perhaps the slant I have put upon it may be of some use.
THE LORD CHANCELLOR: I will gladly look at this matter again. I will tell your Lordships frankly how I feel about it. If it were a choice between having a good trust deed and a good trustee, if I were a debenture holder I should choose the good trustee every time. But I do not believe that a clause preventing a trust deed from exempting all responsibility for negligence necessarily means that you are not going to get a good trustee. Let us remember that under Section 152 of the principal Act it is already provided that directors, managers, officers, or auditors may not be exempted from the responsibility which would normally attach to them for negligence or breach of duty. In their Report the Cohen Committee say they see no reason why the same sort of principle as that which applies to directors, managers, officers and auditors should not also apply to trustees for debenture holders.] do not think it right that a man should be allowed to draw what is sometimes a substantial sum of money and that at the same time it should be made quite plain that he is not to be liable, however grossly careless he may be in attending to the affairs for which he is paid to attend.
I have before me the recommendation of the Cohen Committee, upon which I rely, and which seems to me to accord with common sense. It is that a man who is going to make money out of being a trustee for debenture holders should be responsible for something. For what? I confess I do not want him interfering unduly in the business of the company, because he would probably make himself a nuisance; but, after all, his important function is to consider, if trouble arises, at what stage he ought to enter and enforce his security. Suppose he is negligent and careless about that. Why should he not then be liable? The Cohen Committee thought he should be, and I see no reason why he should not be. Therefore I think we ought to adhere to a clause which says, if I understand it correctly, that in the future no trust deed may entirely exempt a man from responsibility for negligence. When we come to the actual wording of the clause, there certainly I am quite willing to consider whether we have used appropriate words. Our intention is to use words to produce the effect intended

27
by the Cohen Committee, but when you analyze what is suggested by that Com-mitee it is not very easy to translate.
VISCOUNT MAUGHAM: Will you refer me to the page of the Cohen Report?
THE LORD CHANCELLOR: Pages 32 and 33. We will take this actual Amendment we are discussing now. It is proposed to leave out these words:
"otherwise than by entitling him to rely on opinions formed or information supplied by others "—
and to substitute words which I suggest have exactly the same effect:
"Any provision in any trust instrument authorizing a trustee to rely upon opinions or information or to act upon advice upon which the trustee might not otherwise be entitled to rely or act."
The draftsman has been rather shorter than the Cohen Committee, but he has tried to reproduce the words, and I think he has done it. We have tried throughout to reproduce the effect of the Cohen Report, and what we are doing in Clause 67 is this. In the beginning of Clause 67 we are saying:
'… any provision contained in a trust deed for securing an issue of debentures … shall be void in so far as it would have the effect "—
and then (b)
"of absolving him"—
that is the trustee—
"otherwise than by entitling him to rely on opinions formed or information supplied by others, …"
That means to say, you can rely on opinions formed and information supplied by others. Of course, you really do not need those words in this Bill, and without this Act of Parliament you would still have had this defence. The noble and learned Viscount, Lord Maugham, will be much better able than I to express an opinion on this, because it was one of the particular topics of which he was a master. But I am very surprised to hear it suggested, or even implied, that a trustee cannot rely on opinions formed or information supplied by others. Of course he can, and of course he must.
Consider how a man is conducting his business. He goes to the experts to find out what the position is. But very often when a trustee for debenture "holders comes to the critical question of whether
28
he is to enforce his security, he has to ask the managing director of the company. That is his dilemma, and I have no doubt the effect of this is to make it plain that he may go and take that advice and rely on the opinion formed, or information supplied by others, including, of course, the officials of the company whose watchdog in some sense he is. I think the draftsman has tried to put in the appropriate form the various recommendations of the Cohen Committee.
On the broad question as to whether we ought to have some such provision, I am inclined to think we ought, and I am quite willing to look at the actual wording again. I do not want our wording in this clause to be any tighter than the Cohen Committee wording—that is not my intention at all—but I think it right that we should make it plain that if a man is guilty of gross negligence or of gross carelessness, or if he falls far below the standard which he would adopt in regard to his own business, no trust deed shall exempt such a man from the consequences of his action. That is the general attitude I take up with regard to these matters, but I will look at them again. I do not want to make the Bill any stiffer than the Cohen Report, but I think the Cohen Committee were right in saying that you ought to extend to the trustee of debenture holders the same sort of responsibility that you now extend to directors and officers of companies.
VISCOUNT SWINTON: I am much obliged to the noble and learned Viscount, the Lord Chancellor. I think it will be convenient if I do not press these Amendments now, and I am certainly quite content to put myself in the hands of the noble and learned Viscount and his expert advisers in deciding whether—I was going to say "my words" but they are Lord Justice Cohen's words—or his make better provision for that. When he is doing that—because I am not certain that this was dealt with in the Cohen Report—I am sure that he will bear in mind the very important points the noble Lord, Lord Latham, raised. I also ask the noble and learned Viscount to look into its wording again. I hesitate to express an opinion, because it is so long since I ceased to be a lawyer, but the point raised by lawyers to me is that a trustee for debenture holders would have to go into the investigation of title.

29
I should have thought he could rely upon the opinion of others, for instance upon that of the solicitors. But whether that is so or not, the great corporations are the people who ought to be acting as trustees for debenture holders and they are generally nervous about this—the Lord Chancellor knows there is a conflict upon this point—and some are considering whether it is worth accepting trusteeships in the future. It may be that they are under a misapprehension as to what these provisions impose upon them. I should be grateful if he would look into this question of how far they have to concern themselves with a title in a vast schedule of properties made subject to mortgage. I think what has been said to-day covers all Amendments of the noble Lord, Lord De L'Isle and Dudley, down to the one which stands in my own name on the paper.
THE LORD CHANCELLOR: I am going to accept that.
VISCOUNT SWINTON: I am much obliged. Then, if I may, I will formally withdraw the first Amendment I have moved, and I will not move any of the others until I come to the one in my own name.
VISCOUNT MAUGHAM: I am rather chary about doing it, but may I add a wore! on this matter? To a great extent, I am at one with what the noble and learned Viscount, the Lord Chancellor, has said about the desirability of diminishing the ordinary clauses which absolve the trustees from liability for anything which they have done unless it be by their own wilful neglect or default. I daresay that goes too far but, having seen a great deal of this sort of thing, I must say that there is an enormous difference between the ordinary trustee of a marriage settlement or a Will, or anything of that kind, and a trustee for debenture holders. Of course, if it were commonly found that there were trust deeds of the ordinary domestic variety which involved two or three million pounds invested in all parts of the world, and all sorts of accounts coming in from abroad, and things of that sort, I apprehend that the duties of such a trustee would be absolutely impossible to perform unless he regarded trusteeship in the strict equity sense applicable to a domestic matter as an all-time job.
30
Of course, he is a trustee all the time; and it is his duty to see that the assets are properly placed in the proper places, that the deeds are in safe custody, that the receipts of sums from trust property are examined on his behalf and that they have been correctly entered into books. In fact he has to exercise a sort of supervising duty over the whole of the capital and income of the trust, in order that the people who have the first handling of moneys or properly do not commit frauds or depreciate it. Nothing can be more certain regarding the duties of trustees of domestic affairs, Wills or settlements. Whether in fact there are some who leave the whole matter to a co-trustee does not really affect what I am saying. Their duty is to be strict and to do the work for themselves.
We now come to the parting of the ways, if we are to consider the question of trustees for debenture holders because, in the case of a really big investment trust by a huge concern, like some of the investment concerns we see advertised in the newspapers—all of them have got debentures, with debenture trustees. I do not believe it is possible to get a trustee to act in such a case, except he be appointed as an all-time trustee. The truth is that when the affair is small our equity rules act, and have always acted, with reasonable fairness and justice. But if you are going to apply them to the sort of cases I am thinking of, my belief is that you will either get trustees who are very much afraid of incurring liability or you will have to pay them a great deal more than they are now being paid to look after the affairs of the company—the receipts and the applications of capital, and other things which they otherwise would not be liable to do.
Therefore, I respectfully invite the noble and learned Viscount, the Lord Chancellor, to see if he can find words which, while making trustees liable to do everything which is reasonably necessary in the cases I have mentioned, will not impose on them duties and obligations which they are not performing now in the biggest cases, which they have not performed for years—for five-and-twenty years at any rate—and which I believe they cannot perform unless you entirely alter the aspect in which you are going to regard trustees for debenture holders. One difficulty I see is that there are a great many small cases in which they could act as ordinary

31
domestic trustees. If there is only one property, and sums of money are coming in only once a year, the trustee can well see that the ordinary duties of a trustee are performed. But as soon as you have, say, 100, or perhaps 1,000, different properties, and—an aspect with which I am particularly concerned—many properties are abroad, very often in our Dominions, sometimes in South America, it is impossible for a trustee to perform them as he should if his position were that of an ordinary trustee of ordinary property. It is in that spirit that I invite the noble and learned Viscount, the Lord Chancellor, to try and help a worthy body of people in this country who are engaged as trustees for debenture holders.
Amendment, by leave, withdrawn.
THE LORD CHANCELLOR: This Amendment is to correct an obvious omission; it is merely a drafting Amendment.
Amendment moved:
Page 64, line 34, after ("proxy") insert ("in person or, where proxies are permitted, by proxy ").—(The Lord Chancellor.)
On Question, Amendment agreed to.
VISCOUNT SWINTON VISCOUNT SWINTON moved to insert the following subsection:
"(4) In the case of any trust deed in operation at the date of the coming into force of the provisions of this section it shall be lawful for the debenture holders by extraordinary resolution to extend to a new trustee in whole or in part the benefit of the indemnity provisions contained in such trust deed."
The noble Viscount said: This is to give debenture holders by extraordinary resolution the power to extend to a new trustee in whole or in part the benefit of indemnity provisions already applied to existing trustees. I gather the noble and learned Viscount, the Lord Chancellor, is favourable to this Amendment and I therefore beg to move.
THE LORD CHANCELLOR: Yes, I am going to accept this Amendment in principle. I will look at it to see whether I can find appropriate words to include on the Report stage. Having said that, I do not think I need say more. Your Lordships might like to know the points involved but the noble Viscount moved his Amendment with admirable brevity, and I wish to use equal brevity. I therefore ask him to withdraw it.
Amendment, by leave, withdrawn.
Clause 67, as amended, agreed to.
THE LORD CHANCELLOR THE LORD CHANCELLOR moved, after Clause 67, to insert the following new clause:
Alteration of company's objects.
".—(I) A resolution passed after the coming into force of this section for altering the provisions of a company's memorandum with respect to the objects of the company shall not require confirmation by the court, unless an application is made to the court in accordance with this section for the alteration to be cancelled.
(2) If an application is so made, the alteration shall not have effect except in so far as it is confirmed by the court.
(3) An application under this section may be made—
(a) by the holders of not less in the aggregate than fifteen per cent, in nominal value of the company's issued share capital or, if the company has no share capital, not less than fifteen percent, of the company's members; or
(b) by the holders of not less than fifteen per cent, of the company's debentures entitling the holders to object to alterations of its objects:
Provided that an application shall not be made by any person who has consented to or voted in favour of the alteration.
(4) An application under this section must be made within twenty-one days after the date on which the resolution altering the company's objects was passed, and may be made on behalf of the persons entitled to make the application by such one or more of their number as they may appoint in writing for the purpose.
(5) On an application under this section the court may make an order confirming the alteration either wholly or in part and on such terms and conditions as it thinks fit, and may, if it thinks fit, adjourn the proceedings in order that an arrangement may be made to the satisfaction of the court for the purchase of the interests of dissentient members, and may give such directions and make such orders as it may think expedient for facilitating or carrying into effect any such arrangement:
Provided that no part of the capital of the company shall be expended in any such purchase.
(6) The decision of the court on any application under this section shall be final.
(7) The debentures entitling the holders to object to alterations of a company's objects shall be any debentures secured by a floating charge which were issued or first issued before the coming into force of this section or form part of the same series as any debentures so issued, and a special resolution altering a company's objects shall require the same notice to the holders of any such debentures as to members of the company.
In default of any provisions regulating the giving of notice to any such debenture holders, the provisions of the company's articles regulating the giving of notice to members shall apply.

33
(8) In the case of a company which is, by virtue of a licence from the Board of Trade, exempt from the obligation to use the word "Limited" as part of its name, a resolution altering the company's objects shall also require the same notice to the Board of Trade as to members of the company, and where such a company alters its objects the Board may (unless they see fit to revoke the licence) vary the licence by making it subject to such conditions and regulations as the Board think fit, in lieu of or in addition to the conditions and regulations (if any) to which the licence was formerly subject.
(9) Where a company passes a resolution altering its objects—
(a) if no application is made with respect thereto under this section, it shall within fifteen days from the end of the period for making such an application deliver to the registrar of companies a printed copy of its memorandum as altered; and
(b) if such an application is made it shall—
(i) forthwith give notice of that fact to the registrar; and
(ii) within fifteen days from the date of any order cancelling or confirming the alteration, deliver to the registrar an office copy of the order and, in the case of an order confirming the alteration, a printed copy of the memorandum as altered.
The court may by order at any time extend the time for the delivery of documents to the registrar under paragraph (b) of this subsection for such period as the court may think proper.
(10) If a company makes default in giving notice or delivering any document to the registrar of companies as required by the last foregoing subsection, the company and every officer of the company who is in default shall be liable to a default fine of ten pounds."
The noble and learned Viscount said: This is a new clause about which we had some discussion on Second Reading, and several of your Lordships pressed me to see whether I could not do something in connexion with the alteration of a company's objects. The question is this: Ought we, or ought we not, to insert a clause to enable a company without going to Court to amend its own Memorandum? The Memorandum, of course, contains an Objects clause, and sometimes some other clauses which are not Objects clauses, 'but I understand that the other clauses which are not Objects clauses cannot 'be amended, even now, by going to Court.
My Amendment does not deal with that, though it may be that it ought to; if your Lordships take that view we could consider it. If T am to allow a company to amend its Memorandum without going to Court, I must obviously have a safeguard for minorities. Consequently I had drafted in this clause a provision that if
34
holders of 15 per cent, of the company's issued capital desire to protest about it they may, by making application within twenty-one days, bring the matter before the Court, in order that the Court can deal with the matter as is right. I hope that in this way I have dealt fairly with the dangers that may arise to a minority. The problems which we have here are these. Nowadays the Memorandum of a company is never drawn in the simple form as scheduled in the 1929 Act; it is drawn on such a wide scale that it is almost possible for anybody who starts a fish-frying shop in Soho to start a gold mine in the Sahara—which is rather unfortunate, both for the fish fryer and the law. Thus the protection given 'by the Memorandum is, I think, largely illusory. But I hope that if we allow an amendment to the Memorandum without the necessity of going to Court, we may find in the future that Memoranda will not be drawn in the very wide terms in which they are drawn to-day. Therefore I suggest to your Lordships that it is worth while having this clause so long as we have safeguards for the minority such as I have proposed. Accordingly, I beg to move.
LORD RENNELL: I am much obliged to the Lord Chancellor for moving the clause which takes the place of an Amendment standing in my name. I think all who are concerned with the work of companies should be very grateful for this modification in the present system. It is in accordance with the Cohen Committee's recommendation, though it does not go quite so far as the Cohen Committee's Report. Frankly, I would not urge that it should go so far as the Cohen Committee's recommendation goes. The really important thing, from the point of view of those for whom I speak, is this. The recommendations of the Cohen Committee, as a whole, tend to make company management more burdensome and, in some respects, more difficult—rightly so, perhaps, but they do. They are largely recommendations which may be termed restrictive and, perhaps, onerous—with one exception. That exception is the recommendation made on page 10 in relation to Memoranda of Association. That is the one recommendation of the Committee that tends to make life easier for those concerned with companies, and so far as I know it is the only recommendation

35
in the Report that was omitted from the present Bill.
It is, therefore, particularly gratifying that the noble and learned Viscount, the Lord Chancellor, and his advisers should have thought fit now to move an Amendment based on that recommendation. I, and those for whom I speak, are extremely grateful to him, and for my own part I should like to say that I think the form in which this is drafted does, in fact, go far enough. It is to the provisions in relation to the Objects clauses that a modification should be made, and not to the other clauses to which the new clause now proposed does not refer. It is necessary and proper that minorities should be protected. I therefore accept, readily and gratefully, the clause in the form in which it stands. I have one small point to put forward—I do not know whether it is right or not. The new clause starts with the words: "A resolution passed". Ought it not to be "A special resolution" or "An extraordinary resolution "? It may be that it should not—I do not know—but I think that is a point which is worth looking at. What is intended, I believe, is that if a resolution is passed to alter Memoranda of Association it should be a resolution passed at an extraordinary and not an ordinary meeting, or that it should be a special resolution. Apart from that, I have nothing to add, except once more to express my gratitude.
VISCOUNT BRIDGEMAN: I think that some of the noble Lords on these Benches will share the noble Lord's gratitude for this Amendment. My only regret—and it is not a very important one, perhaps—is that this Amendment could not have been as concise and clear as the original Amendment of the noble Lord, Lord Rennell, to Clause 72. But, perhaps, that cannot be. As to the substance of the Amendment, we have here a proper half-way house between the present position and the rather greater freedom which the Cohen Committee, apparently, recommended. I feel in agreement with what the noble Lord, Lord Rennell, has said to the effect that the alteration of Memoranda ought to be the subject of a special resolution and not an ordinary resolution. If it turns out that this clause is not so drafted as to require a special resolution, I suggest that the necessary alteration should be made.
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As to the effect of this Amendment, my own feeling is that it will be wholly good, because it will remove the need to produce all-embracing Memoranda of Association such as is now the common practice. You very often get a situation in which you are legally entitled to do this or that, according to your Memoranda, and yet you know, if you are on the board of the company, that you are morally bound to take a special resolution on the subject. I had personal experience of that only a few days ago. Therefore I agree with the noble and learned Viscount that this clause, if passed, should produce more realistic Memoranda of Association and should prove very objective generally. I have much pleasure in welcoming the Amendment.
VISCOUNT MAUGHAM: For my part, if I were concerned in dictating, or helping to dictate, how the new clause should be worded, I should be strongly in favour of requiring an extraordinary resolution. That means that notice must be given, and it means that the resolution should be passed, under Section 117 of the principal Act, by a majority of three-quarters of the members present and entitled to vote at the meeting. I doubt whether just a bare majority ought to be regarded as sufficient for carrying out so important an alteration as some of the alterations which might be suggested in connexion with a company.
THE LORD CHANCELLOR: Would the noble and learned Viscount forgive my interrupting him? Our intention is that this should be a special resolution under Section 5 (1) of the Companies Act, with which it is going to be incorporated. That section makes it plain that it must be a special resolution. The only thing we are doing is to remove the necessity of the Order of the Court in all cases.
VISCOUNT MAUGHAM: I am very much obliged to the noble and learned Viscount. I suppose that Section 5 (1) will apply. I rather thought, on the form of the Amendment as it is set out, that there would not foe a reference back to Section 5 (1) of the principal Act.
THE LORD CHANCELLOR: That is our intention.
VISCOUNT MAUGHAM: Then what I have been saying does not matter very

37
much, because when the Consolidation Act is passed there will foe no question but that this requires a special resolution. There is no very great advantage in a special resolution over an extraordinary resolution; they are much the same under Section 117 of the principal Act, which, as noble Lords have already heard, made a radical change in the nature of a special resolution. However, I do not see any objection to a special resolution at this stage. I am very sorry if I have taken up your Lordships' time unnecessarily.
On Question, Amendment agreed to.
Clause 68 agreed to.
Clause 69 agreed to.
Clause 70:
Membership of holding company.
70.—(1) Except in the cases hereafter in this section mentioned, a company cannot be a member of its holding company, and any allotment or transfer of shares in a company to its subsidiary or a nominee for its subsidiary shall be void.
(2) Nothing in this section shall apply where the subsidiary is concerned as personal representative, or where it is concerned as trustee, unless the holding company or a subsidiary thereof is beneficially interested under the trust; and—
(a) where at the time when it becomes a subsidiary of the holding company, the subsidiary is already a member of the holding company or has any interest in shares of the holding company by virtue of which it subsequently becomes a member thereof, it may continue to be a member thereof and to exercise any rights as such, other than—
(i) any right to vote at meetings of the holding company or any class of members thereof; or
(ii) any right which is renunciable to acquire further shares by subscription or otherwise; and
(b) where at the time aforesaid, the subsidiary holds or has an interest in any debentures of the holding company, it may acquire shares in the holding company in pursuance of any right then attaching to those debentures or any offer made to the holder thereof in common with and on the same terms as other holders of like debentures, and in relation to shares so acquired the foregoing paragraph shall apply as if the subsidiary had held the shares at the time aforesaid.
(3) In relation to any two companies which are holding company and subsidiary at the coming into force of this section, the last foregoing subsection shall apply with the substitution for references to the time at which the subsidiary becomes a subsidiary of the holding company of references to the coming into force of this section.
LORD CHORLEY: Clause 70 provides that a subsidiary company cannot be a
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member of its holding company. The object of the proposed Amendment is simply to ensure that this will apply whether or not the subsidiary company is a company registered under the Companies Acts. This obviously, I think, will commend itself to your Lordships, and I beg to move.
Amendment moved—
Page 66, line 2, leave out ("a company cannot be a member of") and insert ("a body corporate cannot be a member of a company which is ").—(Lord Chorley.)
On Question, Amendment agreed to.
LORD CHORLEY LORD CHORLEY moved to leave out from "trust," in subsection (2), to the end of subsection (3) and to insert:
"(3) This section shall not prevent a subsidiary which is, at the coming into force thereof, a member of its holding company, from continuing to be a member but, subject to the last foregoing subsection, the subsidiary shall have no right to vote at meetings of the holding company or any class of members thereof."
The noble Lord said: The object of this Amendment is to take away from a subsidiary company the right to acquire any further shares in its holding company. The clause as drafted would permit a subsidiary company to acquire further shares in that way. In future, no subsidiary company may acquire a shareholding in a parent company, though it may retain any shares which it already has, though without any further voting rights and rights of that kind. The object of the Amendment is rather to tighten up the clause as originally drafted. I hope your Lordships will agree with it. I beg to move.
Amendment moved—
Page 66, line 8, leave out from ("trust") to the end of line 35 and insert the said new subsection.—(Lord Chorley.)
VISCOUNT ELIBANK: I would just like to have an explanation of this. As it is proposed, a subsidiary company cannot purchase any more shares in the holding company, but it may retain the shares it possesses in the holding company. How does that affect transactions with regard to the shares in the holding company? Will the company be permitted to deal in these shares, or must it retain them as a firm holding? That is rather an important point.
LORD CHORLEY: As I understand it, it is permitted to retain them as a privilege, and if it wishes to dispose of them,

39
and does dispose of them, I imagine that that would be an end of it. If the noble Viscount's question is whether it can then go into the market and purchase them again, I should answer that with diffidence, but my impression is that it cannot.
VISCOUNT ELIIBANK: That is really my point—whether it might keep them up to the number at which they stand at the moment.
LORD CHORLEY: I think not.
On Question, Amendment agreed to.
Clause 70, as amended, agreed to.
Clause 71:
Fees on registration.
71.—(1) The fees (if any) payable under section three hundred and thirteen of and the Tenth Schedule to the principal Act for registration of a company limited by guarantee and having a share capital, or of an unlimited company having a share capital, shall be those based on the number of its members as laid down in the second part of the said Tenth Schedule for companies not having a share capital, if higher than those based on the amount of its share capital as laid down by the first part thereof.
(2) A company limited by guarantee and having a share capital, and an unlimited company having a share capital, shall on an increase of membership as well as on an increase of share capital pay the appropriate fee (if any) under the said Tenth Schedule:
Provided that where an increase of share capital is made at the same time as an increase of membership the company shall pay whichever fee is the higher, but not both.
(3) Accordingly any such company registered after the coming into force of this section must in its articles state both the amount of the share capital and the number of members with which it proposes to be registered, and sub section (3) of section seven of the principal Act (which requires notification of an increase of membership) shall apply to any such company, whenever registered, as it applies to a company not having a share capital.
LORD CHORLEY LORD CHORLEY moved, at the end of subsection (1), to insert:
"and accordingly the articles of an unlimited company or a company limited by guarantee shall, notwithstanding that it has a share capital, state the number of members with which it proposes to be registered, as required in the case of such a company not having a share capital by subsection (2) of section seven of the principal Act"
The noble Lord said: There are a number of drafting Amendments here, and I do not know whether your Lordships would like me to explain them in
40
detail or whether we could just take them formally.
LORD BALFOUR OF INCHRYE: Could the noble Lord give us just about two sentences on each?
LORD CHORLEY: The clause is intended to prevent companies limited by guarantee and also unlimited companies from avoiding the fees which are payable on the number of members by having a very small nominal share capital and thereby bringing themselves into the category of companies which pay fees according to the amount of the share capital instead of on the number of members. The first Amendment requires the Articles of the said companies to state the number of members with which the company is proposed to be registered, so as to make it possible for fees to be charged thereon. The second Amendment requires the companies in question to register any increase above the registered numbers in their membership in order that the companies may be charged on the increase. That is just carrying out the policy of the first Amendment. The two requirements are really already contained in subsection (3). These are drafting Amendments because they are now to be placed on their own, and subsection (3) is deleted. It also has a provision in it which has been found to be superfluous because it is already covered by Section 2 (4) (a) of the Companies Act. I beg to move.
Amendment moved—
Page 66, line 49, at end insert the said new words.—(Lord Chorley.)
On Question, Amendment agreed to.
LORD CHORLEY: This Amendment is consequential. I beg to move.
Amendment moved—
Page 67, line 1, at beginning insert: ("In the case of companies registered after the coming into force of this section subsection (3) of the said section seven (which requires registration of any increase above the registered number in the membership of a company not having a share capital) shall apply also to").—(Lord Chorley.)
On Question, Amendment agreed to.
LORD CHORLEY: The next Amendments are really drafting Amendments. I beg to move.
Amendment moved—
Page 67, line 3, leave out ("shall on') and insert ("and the company shall for registration of ").—(Lord Chorley.)
On Question, Amendment agreed to.
Amendment moved—
Page 67, line 3, leave out second ("on") and insert ("for registration of").—(Lord Chorley.)
On Question, Amendment agreed to.
Amendment moved—
Page 67, line 9, leave out subsection (3).—(Lord Chorley.)
On Question, Amendment agreed to.
LORD SALTOUN: Before this clause is passed, I would like to say that at a later stage of the Bill I am going to move that unlimited companies be exempted from this Bill. This is purely a taxing question, and I have not the smallest objection to that part of it, but I think on general grounds that could be covered by another measure later on.
Clause 71, as amended, agreed to.
Clauses 72 and 73 agreed to.
Clause 74:
Provisions as to information where receiver or manager appointed.
74.—(1) Where, in the case of a company registered in England, a receiver or manager of the whole or substantially the whole of the property oif the company (hereafter in this section and in the next following section referred to as "the receiver") is appointed on behalf of the holders of any debentures of the company secured (by a floating charge, then subject to the provisions of this and the next following section—
(b) there shall, within fourteen days after receipt of the notice, or such longer period as may be allowed by the court or by the receiver, be made out and submitted to the receiver in accordance with the next following section a statement in the prescribed form as to the affairs of the company; and
(c) the receiver shall within one month after receipt of the said statement send—
(i) to the registrar of companies and to the court, a copy of the statement and of any comments he sees fit to make thereon and in the case of the registrar of companies also a summary of the statement and of his comments (if any) thereon; and
(ii) to the company, a copy of any such comments as aforesaid or, if he does not see fit to make any comments, a notice to that effect; and
(iii) to any trustees for the debenture holders on whose behalf he was appointed and, so far as he is aware of their addresses, to all such debenture holders, a copy of the said summary.
LORD BALFOUR OF INCHRYE LORD BALFOUR OF INCHRYE moved, in subsection (1) (b), to leave out "fourteen" and insert "twenty-eight". The noble Lord said: The first Amendment
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and the other subsequent Amendments, are for one purpose only—to increase the time limit in which the statement must be received, which we consider too short. It is true that in respect of the first Amendment the Bill reads
"…shall, within fourteen days after receipt of the notice, or such longer period as may be allowed by the Court or by the receiver, …"—
but if we wish to rely upon the discretion of the Court in respect of having a longer time than that stipulated in the Bill, one wonders why that time should be stipulated in the Bill at all. Therefore I am moving that the fourteen days should be increased to twenty-eight days. I beg to move.
Amendment moved—
Page 68, line 29, leave out ("fourteen") and insert ("twenty-eight").—(Lord Balfour of Inchrye.)
LORD CHORLEY: I appreciate the noble Lord's object in moving this Amendment, but I am afraid that we cannot accept it. It is really very important indeed that the receiver should have the statement as soon as possible. His job is to check the assets and it is very important that the period should be kept as short as possible. A safeguard is provided, because the receiver in a proper case, or, if necessary, the Court, may extend the period. I should perhaps point out that a provision of the same kind, and providing similarly for the extension of the time, already exists in Section 181 (3) of the Companies Act, which deals with the submission of a statement of affairs by a company in liquidation. That pro vision has been operating now for some fifteen or sixteen years, and has worked with complete success. In the circumstances, I hope the noble Lord will withdraw his Amendment.
LORD BALFOUR OF INCHRYE: In view of the explanation I do not press it.
Amendment, by leave, withdrawn.
LORD BALFOUR OF INCHRYE LORD BALFOUR OF INCHRYE moved, in subsection (1) (c), to leave out "one month" and insert "two months". The noble Lord said: This is a slightly different Amendment because in this subsection no discretion is given to the Courts, and a 'burden is laid upon the receiver to do a great many necessary things within a period of one month. It does seem that that is rather a short time

43
for the receiver to do all these things, particularly having regard to the difficulties under which people work today. I beg to move.>
Amendment moved—
Page 68, line 35, leave out ("one month") and insert ("two months").—(Lord Balfour of Inchrye.)
LORD CHORLEY: I entirely agree with the noble Lord that this Amendment is on a different footing from the one which he previously moved, and the arguments against that which I endeavoured to put before your Lordships do not apply. I accept the Amendment.
On Question, Amendment agreed to.
6.2 p.m.
LORD BALFOUR OF INCHRYE: I beg to move the next Amendment. We have dealt with one Amendment providing that something had to be done within twenty-eight days by the receiver, with the discretion of the Court; the second Amendment dealt with another matter where he had to do something without getting the Court's discretion; here is a third, where the subsection provides that the receiver shall, within one month, with the discretion of the Court, adopt certain later processes in the winding-up of companies. Again, I would repeat that it does not seem necessary that there should be such a tight time limit. Surely the primary urgency, which was certainly germane as regards the argument which the noble Lord put forward with regard to the first Amendment, does not really operate in the later stages. I beg to move.
Amendment moved—
Page 69, line 5, leave out ("one month") and insert ("two months").—(Lord Balfour of Inchrye.)
LORD CHORLEY: I appreciate the argument which the noble Lord has just addressed on this particular Amendment. The matter does not require the same tightness as in the earlier case, and I am glad to say we are prepared to accept it.
On Question, Amendment agreed to.
LORD BALFOUR OF INCHRYE: The next Amendment is consequential, and I beg to move.
Amendment moved—
Page 69, line 8, leave out ("one month") and insert ("two months").—(Lord Balfour of Inchrye.)
On Question, Amendment agreed to.
LORD CHORLEY: This Amendment, in effect, is consequential on the new clause which is proposed after Clause 75. I beg to move.
Amendment moved—
Page 70, line 13, leave out subsection (8).—(Lord Chorley.)
On Question, Amendment agreed to.
Clause 74, as amended, agreed to.
Clause 75 agreed to.
LORD CHORLEY LORD CHORLEY moved, after Clause 75, to insert the following new clause:
Enforcement of duty of receiver to make returns, etc.
".—(1) Section three hundred and eleven of the principal Act (which provides for the making of orders by the court to enforce the duty of a receiver or manager to render accounts to a liquidator) shall be amended as follows:—
(a) the powers conferred by paragraph (a)of subsection (1) in relation to receivers shall be exercisable also in relation to managers of the property of a company;
(b)the power conferred by subsection (2) for an order under the said paragraph (a)against a receiver to provide for costs to be borne by him shall extend also to orders against managers and to. orders under paragraph (b)of subsection (1);
(c)subsection (3) (which provides that the section shall not prejudice enactments imposing penalties) shall apply in relation to such default as is mentioned in the said paragraph (b)as well as in relation to such default as is mentioned in the said paragraph (a).
(2) In paragraph (b)-of subsection (1) of the said section three hundred and eleven after the words 'proper accounts of his receipts and payments' there shall be inserted the words 'and to vouch the same'."
The noble Lord said: There are three small Amendments provided in this proposed new clause, amending Section 311 of the principal Act. That section enables the Court to make an order to compel compliance with certain duties of receivers and managers in making returns and rendering accounts to the liquidators. The section derives from two different provisions which were brought together from the earlier Act in the consolidation of 1929. The result has been to show that there is a certain discrepancy in bringing those two sections together, and the object of the present clause is to remove that discrepancy. There are really three points to be dealt with. There is power to compel a receiver or manager to render I accounts to a liquidator, but the power to

45
enforce the making of returns is exercisable only against the receiver; there is no express power to order the costs of an application to enforce the rendering of accounts to a liquidator to be borne by the receiver or manager, and, thirdly, there is no express saving, in the case of the obligation to render accounts to a liquidator, for any penal enactments. Subsection (2) of the new clause provides that a receiver or manager may be compelled, besides rendering accounts to a liquidator, to vouch them. This is already provided in the Bill by Clause 76 (4) but it is convenient that all Amendments to this section—Section 311—should appear together. I beg to move.
Amendment moved—
After Clause 75, insert the said new clause.—(Lord Chorley.)
VISCOUNT MAUGHAM: I have looked into this clause and it seems to me perfectly right. I support the Amendment.
On Question, Amendment agreed to.
Clause 76:
Receivers appointed out of court.
(2) A receiver or manager of the property of a company appointed as aforesaid shall, to the same extent as if he had been appointed by order of a court, be personally liable on any contract entered into by him in the performance of his functions' and entitled in. respect of that liability to indemnity out of the assets; but nothing in this subsection shall bo taken as limiting any right to indemnity which lie would have apart from this subsection, or as limiting his liability on contracts entered into without authority or as conferring any right to indemnity in respect of that liability.
(4) In paragraph (b)of subsection (1) of section three hundred and eleven of the principal Act (which provides for the making of an order by the court to compel compliance by a receiver or manager appointed as aforesaid with his duty to render proper accounts of his receipts and payments to a company's liquidator) after the words "proper accounts of his receipts and payments" there shall be inserted the words "and to vouch the same".
VISCOUNT MAUGHAM VISCOUNT MAUGHAM moved, in subsection (2), after "court" to insert: "except where the contract otherwise provides." The noble and learned Viscount said: This raises a curious point. I venture to think that my Amendment here is only to rectify what I believe to be a slip on the part of the draftsman. Clause 76 (2) relates only to receivers and managers, appointed out of Court. Such
46
a receiver is agent for the company, which in all probability is at that date insolvent, so that a contract entered into by that receiver on behalf of the company is one which is not much use to the creditor or future creditor under the contract. But, in fact, the property charged by the debentures very often, if not always, includes a business, and the business must be carried on, or generally must be carried on, with a view to a sale as a going concern. Even if it is a business which the company' have not been able to carry on at a profit, a purchaser who is cleverer may be able to do it. In. such cases debts and liabilities of course have to be incurred by the receiver who is carrying on the business. He must purchase things and must pay rent, or ought to pay rent, rates and all the other charges which are involved in carrying on a business
The proposed Amendment will make him liable in respect of the contracts which he enters into. He, of course, is entitled to an indemnity out of the assets, and if the assets are substantial and the debts he incurs are less than the assets, he will not undergo any ultimate liability. I do not object to what the Cohen Committee have proposed in reference to this clause, but the Cohen Committee, in the two places where they are dealing with the matter, have quoted the words "except where a contract otherwise provides", and by a slip, as I think, the draftsman has omitted to put them in. I only wait to restore in this particular case the provisions that the Cohen Committee have suggested. They are necessary, and for this reason. There are cases in which the assets of the company involve very large commitments—I am now dealing with the question of both receivers appointed by the Court and receivers appointed out of Courts, which are, of course, two very different positions. The assets possessed by the company with which the receiver or manager has to deal may include such things as, for instance, the construction of a bridge, a dock or a tunnel involving, it may be, hundreds of thousands of pounds. As counsel, I have had to deal with such cases. Repeatedly, the value of the thing which is being built depends almost entirely on its completion, and the receiver or manager has very often, as his first duty, to enter into a contract with some contractor other than the one who has probably gone bankrupt—a contract providing for the completion of the bridge,

47
the tunnel, or whatever it may be. The sum involved may be far greater than any sum which the receiver—who, after all, is generally a professional man himself—possesses.
Neither the man who is to undertake to complete the venture, nor the receiver himself, could possibly enter into a contract unless the receiver were in a position to make a bargain with the contractor giving him security on some of the assets of the company for the payment of his expenditure, or the sums which he has to have under the contract so that he is reasonably safe in completing the undertaking. On the other hand, the receiver does not run the risk of bankruptcy himself. For these reasons, it is absolutely necessary to insert the words which the Cohen Committee have mentioned in their Report. The words to which I have referred will be found on page 34, paragraph 68, of the Report. I think they should be inserted, and I beg to move.
Amendment moved—
Page 71, line 45, after ("court") insert ("except where the contract otherwise provides.")—(Viscount Maugham.)
THE LORD CHANCELLOR: I desire to have these words in, but not twice. We think we have them already. We provide that the receiver or manager of the property of a company appointed as aforesaid shall be liable to the same extent as if he had been appointed by order of the Court. What is his position if he is appointed by order of the Court? As I understand it, it is this: if he is appointed by order of the Court he is personally liable in respect of orders given by him unless the contract otherwise provides. Therefore, we say that we already have the words there. The noble Viscount has the Cohen Report before him, and perhaps he would look at the first four lines of paragraph 68. He will there see what is the liability of the receiver appointed by the Court. I will read the words down to the first full stop.
"A receiver appointed by the Court to manage a business has a right to indemnity out of the assets of the business in respect of contracts he makes as receiver, but is personally responsible in respect of orders given by him unless the contract otherwise provides."
Therefore, as I understand it, if we say he is to be liable to the same extent as if he had been appointed under the order of the Court we bring in those
48
words. However, if the noble Viscount doubts whether we do bring in those words, I will look at the matter between now and the Report stage. It is our intention to bring in those words, but, as I have said before, we do not want to bring them in twice. In view of what the noble Viscount has said I will look at them again with the draftsman, who thinks he is right, and I will cross-examine him to see that he is right.
VISCOUNT MAUGHAM: I am obliged to the noble and learned Viscount. I am quite confident that the words should be in if clearness is to be obtained in this matter. Perhaps the noble and learned Viscount will consider my very strong opinion to that effect. I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
LORD CHORLEY: The next Amendment is a consequential Amendment. When I was putting before your Lordships the new clause, after Clause 75, I pointed out that already, in a later clause, we had a provision which dealt with one of those matters, but that for the sake of collecting all the Amendments to Section 311 of the Companies Act we were taking it out from the later stage and putting it into the new clause. I beg to move.
Amendment moved—
Page 72, line 31, leave out subsection (4).—(Lord Chorley.)
On Question, Amendment agreed to.
Clause 76, as amended agreed to.
LORD HAWKE LORD HAWKE moved, after Clause 76, to insert the following new clause:
Liability of receiver for rates.
A receiver or manager of the property of a company appointed under the powers contained in any instrument or by order of a court shall be liable for the payment of rates in respect of any of the rateable property of the company of which he is the receiver or manager as aforesaid to the extent to which the company is liable and shall be entitled in respect of that liability to indemnity out of the assets.
The noble Lord said: The noble Lord, Lord Kennet, is unfortunately ill, and I beg leave to move the Amendment which stands in his name. Section 78 of the principal Act provides that, where a receiver has been appointed on behalf of the holder of any debentures, or possession taken on behalf of debenture holders, then certain debts of the company can be

49
discharged as a priority. The priorities are set out in Section 264 of the principal Act, and amongst the priorities is one for local rates. Apparently, however, by certain decisions of the Court, it has been held that a receiver is not in beneficial occupation of the premises, and, therefore, is not the right person to have his name put in the rate book. Therefore, the priority for rates which appears to be given by Section 78 and Section 264 of the principal Act, in the case of receivership on behalf of debentures, apparently falls to the ground. It is to redress this anomaly that the noble Lord, Lord Kennet, was asked to move this particular Amendment. I beg leave to move.
Amendment moved—
After Clause 76, insert the said new clause.—(Lord Hawke.)
THE LORD CHANCELLOR: I am afraid I cannot accept this Amendment. I do not think it is at all fit for a Companies Bill.
VISCOUNT MAUGHAM: No.
THE LORD CHANCELLOR: It is a mere accident that you are dealing with a company here. Exactly the same position applies to an individual. If, for instance, the receiver is appointed on behalf of mortgagees, exactly the same position arises. While I have every sympathy with local authorities, I also have some sympathy for the Income Tax authorities; so why should it not apply to Income Tax as well? The long and short of the matter is that wherever this Amendment must come in—and I do not know where—I am sure the right place for it is not in the Companies Bill, and consequently I cannot accept it.
LORD HAWKE: The noble and learned Viscount has given me the answer which I was led to anticipate, and therefore I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
Clause 77 agreed to.
Clause 78 [Registration of Charges]:
LORD CHORLEY: The next Amendment is a drafting Amendment to bring in the Act of 1907, which was in existence for a short time and which might still be applicable to certain transactions. I beg to move.
Amendment moved—
Page 73, line 22, leave out ("provision") and insert ("provisions of the Companits Act, 1907, and ").—(Lord Chorley.)
On Question, Amendment agreed to.
Clause 78, as amended, agreed to.
Clause 79 agreed to.
Clause 80 [Amendments as to preferential payments']:
THE LORD CHANCELLOR: The next two Amendments are drafting Amendments. I beg to move.
Amendment moved—
Page 74, line 25, leave out ("of") and insert ("in").—(The Lord Chancellor.)
On Question, Amendment agreed to.
Amendment moved—
Page 74, line 32. leave out ("during") and insert ("within").—(The Lord Chancellor.)
On Question, Amendment agreed to.
Clause 80, as amended, agreed to.
Clauses 81 to 84 agreed to.
LORD CHORLEY LORD CHORLEY moved, after Clause 84, to insert the following new clause:
Miscellaneous amendments as to proceedings in or in connexion with winding-up.
".—(1) Section one hundred and sixty-four of the principal Act (which makes provision as to the judge or judges by whom the winding-up jurisdiction of the High Court is to be exercised) shall cease to have effect, and the provisions of Part III of the Supreme Court of Judicature (Consolidation) Act, 1925 (which relates among other things to the distribution of business in the High Court) shall apply accordingly in, relation to the jurisdiction to wind up companies in England under the principal Act.
(2) Where, in the case of a private company, default is made in complying with the provisions required to be included in its articles in order to constitute it a private company, the provisions of the principal Act which by virtue of subsection (3) of section twenty-seven thereof are to apply to the company as if it were a private company shall include paragraph (i) of proviso (a) to subsection (1) of section one (hundred and seventy thereof (which enables a contributory to present a winding-up petition where the number of 'members is reduced, in the case of a private company, below two or, in the case of any other company, below seven).
(3) In subsection (1) of section two hundred and twenty-one of the principal Act (which provides that where the affairs of a company have been completely wound up the court shall make an order for its dissolution) after the words 'the court' there shall be

51
inserted the words 'if the liquidator makes an application in that behalf'.
(4) The rights conferred by sections two hundred and sixty-eight and two hundred and sixty-nine of the principal Act on the liquidator of a company being wound-up in England in relation to executions against the goods or other property of the company and attachments of debts due to the company may be set aside by the court in favour of the creditor to such extent and subject to such terms as the court may think fit."
The noble Lord said: There are a number of small Amendments taken up in this proposed new clause relating to matters of procedure which it is thought convenient to put in at this 9tage. The first subsection repeals Section 164 of the principal Act. That section is really quite unnecessary because, by Section 55 of the Supreme Court of Judicature (Consolidation) Act, 1925, the powers to deal with this matter are conferred upon the High Court and it is much more convenient that the distribution of the work should be dealt with there than here. Subsection (2) enables a member of a private company to bring a winding-up petition if the company ignores the restrictions imposed upon it as a private company, and the number of its members falls below seven. The present position, where a private company ignores those restrictions, is that although under subsection (3) of Section 27 of the principal Act, the company can be wound up, just like a public company if it has less than seven members, a member is still prevented from bringing a winding-up petition (as in the case of a true private company), until he becomes the sole member. That is obviously an absurd position.
Subsection (3) makes an amendment suggested by Mr. Justice Vaisey. Section 221 of the principal Act provides that on completion of a winding-up by the Court, the Court shall make an order dissolving the company. In point of fact, however, in spite of the imperative nature of the subsection, the Court practically never makes such an order because the matter is not brought to its attention by the liquidator, who by that time has no funds left to enable him to pay the expenses of the necessary application Therefore, it seems sensible to bring the matter more into relation with
52
the actual state of affairs and to put it right by means of this proposed subsection.
Subsection (4) gives the Court a discretion to override, in favour of an execution creditor of a company in liquidation, the provisions of Sections 268 and 269 of the principal Act. Those sections provide in effect that certain executions against a company's property, though begun before a liquidation, shall not be good against the liquidator. They were imported into Company Law from the Bankruptcy Law in 1928. Section 174 of the principal Act provides that executions put into force against the company's property after the commencement of the winding-up shall become void, but this provision has for very many years been construed as allowing the Court to give the execution creditor leave to proceed. The effect of the Amendment is to bring Sections 268 and 269 of the principal Act into line with Section 174. At a later stage we propose to move an Amendment bringing the Bankruptcy Law into relation with this proposed Amendment. I beg to move.
Amendment moved—
After Clause 84, insert the said clause.—(Lord Chorley.)
On Question, Amendment agreed to.
Clause 85 [Miscellaneous amendments as to information]:
LORD CHORLEY LORD CHORLEY moved, after subsection (1), to insert the following new subsection:
"(2) In subsection (2) of section two hundred and twenty-one of the principal Act (which requires an order dissolving a company on completion of a compulsory winding-up to be reported by the liquidator to the registrar of companies) for the words 'The order shall within fourteen days from the date thereof be reported' there shall be substituted the words 'A copy of the order shall within fourteen days from the date thereof be forwarded '."
The noble Lord said: This is an Amendment to Section 221 of the principal Act and it provides that the liquidator, instead of reporting the order for the company's dissolution to the Registrar, shall send a copy for registration. I think that is an Amendment which is common sense, and I hope your Lordships will accept it. I beg to move.
Amendment moved—
Page 79, line 2, at end, insert the proposed new subsection.—(Lord Chorley.)
On Question, Amendment agreed to.
Clause 85, as amended, agreed to.
Clause 86 agreed to.
Clause 87 [Unclaimed assets on dissolution]:
LORD SALTOUN LORD SALTOUN moved, after subsection (9), to insert the following subsection:
"(10) Nothing in this section shall entitle the Treasury Solicitor or the Solicitor to the Duchy of Lancaster or to the Duke of. Cornwall or the King's and Lord Treasurer's Remembrancer to disclaim any property if, in the aggregate, the assets exceed or are likely' to exceed the liabilities."
The noble Lord said: On behalf of my noble friend Lord Mancroft, I beg to move the Amendment which stands in his name. Subsection (2) of this clause gives the Crown the right to disclaim any onerous property notwithstanding that there was other property of value in the possession of the company. This might cause severe hardship on a third party—lor instance, on a mortgagee. This Amendment is designed to prevent the Crown disclaiming any property if, in the aggregate, the assets exceed or are likely to exceed the liabilities. In my country we have the very good principle that you cannot approbate or reprobate the same document. I do not know if that prevails south of the Border, but it does seem to be a case in point. I beg to move.
Amendment moved—
Page 81, line 25, at end, insert the said subsection.—(Lord Saltoun.)
THE LORD CHANCELLOR: We also have the wholesome doctrine that you cannot approbate and at the same time reprobate; but what is the approbation here? The position is that if a company is wound up, and it is thereafter discovered—it is not very likely to be discovered—that it has some property, the property automatically vests in the Crown. It is not that the Crown have done anything; by the law the property automatically vests in the Crown. What happens is this. There is some property which is what the Romans would have called a damnosa hœreditas, that is to say, a tumble-down cottage or something of that sort. It belongs to a company and the company is wound up. The first the Treasury Solicitor knows about it is that somebody passing along the road nearby
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is injured by a slate falling off the roof of the tumble-down cottage, cutting his head open, and he brings his claim against the Crown. The Crown say they have heard nothing about it at all, but it is said, "It is your property, because it belonged to some company which has been dissolved." We cannot stand for that. We do not want to be landed with all sorts of properties which are no good to anybody.
Therefore, we say we must no longer be bound to take over everybody's leavings. Because, mark you, the creditors can have first pick if they want it. A liquidator can within two years apply to have any company restored to the register if anything turns up, and a creditor can do it after twenty years. In cases like this, where there is no liquidator or no creditor, it is landed upon the Crown; we are responsible for anything that happens. All that we are saying is that we want to be allowed to reprobate; that is, to say we are not going to have anything to do with it. We cannot contemplate, as this Amendment contemplates, that we are going to have an inquiry to find out about the assets. All we want to say is that we will not have anything to do with it. Therefore we cannot accept this Amendment, although it was most persuasively moved by the noble Lord.
VISCOUNT SWINTON: I entirely accept the argument of the noble and learned Viscount, the Lord Chancellor. In fairness to the noble Lord, Lord Mancroft, I think I really ought to say that this Amendment was put down under a misapprehension. We thought, quite wrongly, that this in some way affected the right of the liquidator and that the liquidator could disclaim a property subject to a covenant, although the company was solvent. In those circumstances, the argument about approbate and reprobate would have been perfectly relevant. I can only say that we have entirely misconceived the situation, and I certainly do not think that any of us want to land the Crown with a damnosa hœreditas.
LORD SALTOUN: I am obliged to the noble and learned Viscount for his very complete explanation, and with your Lordships' permission I will withdraw the Amendment.
Amendment, by leave, withdrawn
Clause 87 agreed to.
Clauses 88 and 89 agreed to.
Clause 90 [Proceedings on indictment in Scotland against bodies corporate]:
LORD CHORLEY: The next is a mere drafting Amendment. I beg to move.
Amendment moved—
Page 84, line 40, leave out ("subsection") and insert ("section").—(Lord Charley.)
On Question, Amendment agreed to.
Clause 90, as amended, agreed to.
Clause 91 agreed to.
Clause 92 [Amendment as to persons liable for certain offences']:
LORD CHORLEY LORD CHORLEY moved, after subsection (1), to insert the following subsections:
(2) In subsection (9) of section one hundred and thirteen of the principal Act (which penalizes directors for defaults in relation to the statutory meeting or the statutory report) for the words 'every director of the company who is guilty of or who knowingly and wilfully authorizes or permits the default' there shall be substituted the words' every director of the company who is guilty of the default or, in the case of default by the company, every officer of the company who is in default '.
(3) In subsection (3) of section one hundred and forty-five of the principal Act (which, for default in giving the required particulars as to directors in trade catalogues, etc., penalizes every director of the company and, in the case of a director being a corporation, also any officer of the corporation knowingly a party to the default)—
(a) for the words 'every director of the company' there shall be substituted the words 'every officer of the company who is in default'; and
(b) for the words from and in the case of a director 'to' liable to a like penalty 'there shall be substituted the words' and for the purposes of this subsection, where a corporation is an officer of the company, any officer of the corporation shall be deemed to be an officer of the company';
and at the end of paragraph (a) subsection (4) of that section (which defines the expression 'director' to include persons in accordance with whose directions or instructions the directors are accustomed to act) there shall be added the words 'and the expression "officer" shall be construed accordingly'.
(4) The following provisions of the principal Act, that is to say—
(a) subsection (3) of section forty (which penalizes allotments of shares or debentures
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without registration of a statement in lieu of prospectus);
(b)subsection (2) of section two hundred and eighty (which penalizes default in stating, in invoices, etc., that the company is being wound up);
(c) subsection (2) of section three hundred and eight (which penalizes default in stating, in invoices, etc., that a receiver or manager has been appointed);
(d)section three hundred and fifty-one (which penalizes default in complying with the provisions of the principal Act regulating foreign companies carrying on business in Great Britain);
shall not penalize an officer, liquidator, receiver, manager or agent except for a contravention or default which he knowingly and wilfully authorized or permitted.")
The noble Lord said: There are some alterations made here by the proposed Amendment in regard to persons who are liable to penalties. The clause takes a new expression, "every officer of the company who is in default," which it uses instead of a variety of expressions which are used in the principal Act. The object is to make this expression uniform, and in that way tidy up the descriptions of the persons who are liable to penalties. It is for that reason that the proposed new subsections are being moved. Sub section (2) amends—
VISCOUNT MAUGHAM: Would it be convenient if we took these various subsections separately, because they deal with quite different things? I want to protest very strongly against subsection (2), but I am very much in favour of the others.
LORD CHORLEY: The different Amendments will come in separately. I thought it desirable to explain the whole of the points made. Perhaps it would be convenient for the noble and learned Viscount to point out those to which he objects before we actually move them.
VISCOUNT MAUGHAM: It is only subsection (2) to which I have any objection.
LORD CHORLEY: Subsection (2) amends Section 113 (9) of the Act by making every officer of the company who is in default liable to penalty in the case of default by the company in relation to the statutory meeting or to the statutory report. The other subsections propose Amendments of the same nature. I think it is perhaps unnecessary for me to

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describe them in detail at this late hour, unless some noble Lord would like me to go through them all.
VISCOUNT SWINTON: I think there are some large questions of principle which arise about the liability of directors and other officers, and upon which the House will probably want to have a rather full discussion. I do not know whether it would be convenient if we could break off now and enter upon that at the beginning of a sitting. I think it does merit some consideration.
THE LORD CHANCELLOR: I think that would be quite convenient.

SUNDAY ENTERTAINMENTS ACT, 1932.
Orders made by the Secretary of State for the Home Department extending Section i of the Act to the

County Borough of Barrow-in-Furness;

Borough of Chingford;

Urban District of Bolsover;

Rural District of Dorking and Horley:

Laid before the House (pursuant to Act) for affirmative Resolution, and ordered to lie on the Table.
House adjourned at twenty minutes before seven o'clock.