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Companies Bill Lords

Volume 181: debated on Wednesday 21 August 1907

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As amended, considered.

said the object of the clause he wished to move was to make it a statutory offence for persons to hold themselves out as trading with limited liability unless duly incorporated. This clause had been settled in conference with the President of the Board of Trade who admitted its desirability. It would be accepted and there was no need for him to detain the House discussing it.

seconded. New clause—

"If any person or persons trade or carry on business under any name or title of which 'Limited' is the last word, such person or persons shall, unless duly incorporated with limited liability, be liable to a penalty not exceeding five pounds for every (lay upon which such name or title has been used."—(Mr. Bottomley.)
Brought up and read a first time. Motion made, and Question proposed, "That the clause be read a second time."

said the clause was a very desirable one. It seemed to cover a real necessity and was of considerable importance.

said he welcomed the clause. The point arose when the Limited Partnerships Bill was under discussion. They were very sensible to strike out the word "limited" on that occasion, because had they not done so it would have been in direct contradiction to what they were doing at the present time. Proposed clause read a second time and added to the Bill.

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in moving a new clause (Issue of new capital at a discount), said the clause was not a new one. It was settled in the other House and then came down to the Commons and was read a second time. There were only three words altered, but substantially it was the same clause that had passed the Second Reading. It would be necessary for him to take the House back to the origin of the clause. The Departmental Committee appointed in 1905 was a particularly strong one. There were commercial men of high standing among its members and it was presided over by the Lord Chancellor during its preliminary stages and later by Mr. Warmington, one of the highest authorities upon this subject. The Committee reported and it was upon that report that the Bill was founded. This measure was introduced in the House of Lords and discussed there at considerable length. Members of highest eminence and authority took part in the discussion and approved of the clause. It came down to the Lower House and was also approved of there. The clause came before them as a new clause but it was really a re-insertion of the old clause which allowed shares to be issued at discount. It was a fact that up to the present time there had been no actual provision in any Act of Parliament prohibiting shares of this kind. But when, under the Act of 1862, the matter was considered by the Law Courts, it was decided finally that shares should not be issued at discount. Occasions arose in which it was proved in the history of companies it would be beneficial for shareholders that they should have this power for finding further money for the objects of the company, and if they could not issue in the form of debenture they should contribute by taking shares at a much lower price than that at which they were originally issued. Many cases of reconstruction had come before the Court, and in a perfectly legitimate way they had been authorised to issue new shares to their shareholders at a discount. The practice had prevailed for some ten or fifteen years and it had proved beneficial alike to the shareholders and the companies. It was, however, a cumbrous and expensive method. The Departmental Committee considered that the method could be wisely done away with, and that instead of this cumbrous machinery of a reconstruction the company should be allowed to go straight to the shareholders and issue further shares to them at a discount. There was a provision that before this could be done the company must have carried on business for upwards of two years. That would ensure that it had about it the elements of stability, and the issue of more shares would simply mean that after two years work it had not sufficient funds to carry on its operations. The issue could only be made with the sanction of an extraordinary resolution of the shareholders and the amount of the rate of discount must be disclosed in the prospectus. Then a statement must be filed with the Registrar. With all of this he entirely agreed. The shareholders would have the matter entirely in their own hands. The clause had been struck out by the Standing Committee, but he felt very strongly that it should be reinserted by the House. It would save in the future a great deal of the money and the time of the share holders, and on the whole anything more desirable it was difficult to imagine. On these grounds he moved that the clause be reinserted.

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seconded the Motion in the interests of shareholders. It was impossible to prevent the issue of shares at a discount. It was done now by means of underwriters who took a commission of 10, 20, or even 50 per cent. on the understanding that if the public did not come forward and take up the shares they would take them up themselves. The effect of this was that the company only got a fraction of the nominal amount—10s. or 15s. in the £. The cumbersome method of reconstruction which was another way whereby a company could issue shares at a discount was another very strong argument in favour of this new clause. A company was formed, and after working a short time it was reconstructed and sold to a new company. If the old shareholders did not come in and take up the shares the directors had the right to sell them in the open market, and very often £1 shares could be bought at 5s., 4s. or even less. This cumbersome and expensive machinery would not be necessary if the principle embodied in the new clause were accepted. New clause:—

"In page 5, after Clause 6, to insert the following clause: 'Issue of Shares at a discount. Where a company, which has continuously carried on business for more than two years after the company became entitled to commence business, offers shares for subscription, the shares may, with the sanction of an extraordinary resolution of the company, be offered and issued at a discount if the amount or rate of the discount is disclosed in the prospectus, or, where no prospectus offering the shares for subscription is issued, in a statement in the prescribed form verified in like manner as a statement in lieu of prospectus and filed with the registrar, and where a circular or notice, not being a prospectus, inviting subscriptions for the shares is issued, also disclosed in that circular or notice.'"—(Mr. Fell.)
Brought up and read a first time. Motion made, and Question proposed, "That the clause be read a second time."

said that this was not quite a case of the reinsertion of a clause struck out by the Committee upstairs, and he was afraid he could not see his way to make the concession now asked for. There was very considerable opposition to this proposal in the community. The reasons given were—he did not propose to adopt those reasons himself—that it would serve to encourage gambling. A company would cease to be a mere speculative venture and would become a pure gamble. He was not sure that they ought to encourage transactions of this kind in regard to companies which had got beyond a speculative stage. If they wanted to raise money it could be done under the Act of 1900, and he thought that was as far as Parliament was justified in going at the present moment. It was true there might be certain cases where it was desirable, but it was probably one case in a thousand. There was a feeling amongst good sound authorities that it would be dangerous to encourage gambling of this kind in the City, and at the present moment he thought it would be unwise to go beyond the Act of 1900. There was an apprehension that the clause would lead to the watering of capital. That was what it would come to. An issue of £400,000 would only produce £100,000. He did not think they ought to go out of their way to assist operations of that kind. This Amendment was proposed and discussed and withdrawn in the Committee upstairs, and he did not think those who were in favour of the clause as it then stood would succeed in carrying it through the House.

said the reason the proposal was not challenged was that the Members who would have challenged it were not put on the Committee.

There were only two or three at the outside, and I do not think that the hon. Gentleman has any right to assume that they were in favour of the clause. The rest of the Committee were pretty solid against it.

said the President of the Board of Trade had informed the House that he was not in favour of this clause because it would promote gambling on line, which merited the condemnation of the House.

I did not say that would be the effect. I said there was a strong feeling in the City that that would be the effect.

said he accepted the right hon. Gentleman's correction if he did not intend to convey the meaning attached to his words. At any rate, he opposed the clause because it might lead to the use of improper methods of raising money. In his judgment it would do exactly the reverse. What was the position? A perfectly well-managed and honourable concern might get into difficulties which the best of management could not have prevented. It might have practically used up the whole of its working capital. What did the present law say the company must do if it was not to be wound up and those interested in it lose all their money? There must be a reconstruction, which would mean that wealthy persons would be able to take the shares in the reconstructed company while the poor shareholders in the old company would be shut out and would lose their money. Under this clause the directors would call the shareholders together instead of having to go round the City to raise money on which they would pay a commission of 25 per cent. Therefore, from the point of view of having the whole business above-board he thought the clause was essential, and he hoped the President of the Board of Trade would reconsider his decision.

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said the right hon. Gentleman had expressly repudiated the interpretation which had been placed upon his words by the hon. Member for Hoxton. While there was, no doubt, something in the argument of the hon. Member, he desired to point out that companies with security could always raise fresh capital by means of debentures or prior lien debentures, so long as they had anything left to pledge. He could not see that the rejection of this clause would have the effect of placing a company in the position that had been suggested, and such inquiries as he had been able to make led him to doubt whether there was any strong feeling in the City in favour of this clause. This power did exist with regard to debentures, and he did not think it was necessary to extend it to shares.

hoped the President of the Board of Trade would adhere to the attitude he had taken up in this matter. The hon. Member opposite had totally misconceived the altered circumstances in which shares were offered to the public on the reconstruction of a company. When a company was in difficulties and it reconstructed and its new shares were offered at less than par, a certain proportion of the price being fully paid, the fully paid portion of those shares was the purchase price of the old company, and the whole of those shares came into the market as vendors' shares. There were so many different features in connection with this matter that he would not weary the House by mentioning them all. But he would point out that when a company was reconstructed and the shares were issuable at less than par value, certain rights accrued at law which entitled the shareholders of the old company who disapproved of the reconstruction to be paid out. There was such a thing as Section 161 of the Companies Act, which provided that dissenting shareholders should be bought out. When the old shareholders who approved of the reconstruction had decided as to what extent they would take up shares in the reconstructed company, then the company could issue shares, but those who bought them would have to pay something more for them than was paid by the old shareholders. The main object of that was to prevent the old shareholders being swamped by a purely fictitious capitalisation. He attached no importance to the suggested safeguard given in the articles of association. His experience had taught him that nothing in the articles of association affected the minds of the shareholders. They did not read them, neither did the intending investor. Therefore, he did not think the protection in the articles of association would have any affect. Neither did he think a companyin extremiswould do any good by issuing further debentures. On all these grounds, and he had some experience in company matters, he strongly supported the Government in this matter.

said he supported the clause of his hon. friend. He pointed out that this clause did not refer to companies at the commencement of their business, and that it was not possible for shares to be issued at a discount unless the company had been in existence for two years. The only question that arose to his mind was whether a company taking up new business should raise the capital for the new business by debentures or by an issue of new shares. Under this clause the shares could be issued at a small discount. For his part he could not see why there should be any objection to the clause. The conduct of a business ought to be left to the people concerned in it, and surely this was a question that should be left to the discretion of those who conducted the business. He hoped that the right hon. Gentleman would accept the Amendment.

said he would like to enforce what the hon. Member had said, namely, that in the opinion of the commercial world this clause was very valuable. If they issued shares at a premium they surely should have the right, if it was necessary, to issue them at a discount. Perhaps a company might wish to economise, having spent a great deal of money and requiring further money to come in. They certainly ought to have the right to ask the new shareholders to come in at a reduced price, because they had a reduced prospect to offer them. That was a very strong point indeed. It was certainly a much better process than to say to a man, "Let me issue the debentures at a higher charge of 20 or 30 per cent., and penalise you in that way." He appreciated the way in which the Bill had been treated by the President of the Board of Trade, and whilst he would like to see this clause put in he was quite content to sink his feelings. He hoped that it would not be pressed now, though at some future time it might with advantage be adopted. He protested, however, on behalf of the commercial world generally, and he thought in the general interest of those who were concerned in the honesty and propriety of company working, against the issue of shares at a discount being treated, as so many had treated it, as if it were a gambling transaction and a fraud on the public. It was a perfectly honest transaction, and in the same way as they asked shareholders to come in at a profit, they should be permitted, if there was a loss, to ask them to come in at a discount. Question put, and negatived.

moved on Clause 1 to insert the words, "Signed by every person named therein as a director or proposed director of the company, or by his agent authorised in writing." The object of the Amendment was that where a company had not issued a prospectus, each director or proposed director should sign a declaration to be lodged with the Registrar. Amendment proposed—

"In page 1, line 10, after the word 'prospectus,' to insert the words 'signed by every person named therein who is a director, or proposed director of the company, or by his agent authorised in writing.'"—(Mr. Markham.)
Question proposed, "That those words be there inserted."

I think I can accept that Amendment. It is reasonable that a declaration should be signed.

It will be signed in the same way by the directors. Question put, and agreed to.

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moved an Amendment to the effect that not less than one quarter of the amount offered for subscription should be subscribed before going to allotment. He thought that such an Amendment would be of material assistance, because it was desirable that there should be as full information as possible, so that the subscribers might form a true and just opinion of the merits of the concern before they subscribed. The clause as drawn at present, he thought, would have entirely the contrary effect, because it appeared to him that instead of the real minimum subscription with which the company intended to go to allotment, there would be just a purely nominal amount in the statement, the articles, and the memorandum of association. That was done at the present time to a considerable extent. They very often saw that the amount on which they went to allotment was the minimum amount of £100. That showed it was purely a nominal sum; there was nothing substantial in it at all; they put in a nominal figure while they were making up their mind what amount of capital they were going to issue. So that the statement, the articles, and the memorandum would all contain the nominal amount of £100 or even £10; it was not limited. If the Amendment were adopted and they put in one-fourth of the amount offered for subscription, that would in any case be a substantial amount. There was all the difference in the world between showing a substantial figure and merely putting in a nominal sum—say £100, whether the amount to be subscribed was £10,000, £50,000, or £1,000,000. The nominal figure would not convey the slightest information to the shareholders as to the amount to be subscribed.

Can the hon. Gentleman give an instance where a large company has given £100?

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said he would not mention any names there, but he could name to the hon. Member several. It might be remembered that in the early days of the Companies Act it used to be common for ten, fifteen, or twenty persons, to sign the memorandum, each with a large amount to his name, but afterwards the number became seven persons, each for a nominal amount, generally £1. It would be of immense assistance to the public if, when there were £100,000 shares to be issued, they knew that at least 25 per cent. were going to be subscribed. There was no cause which contributed so much to the failure of companies as allowing directors to go to allotment with very small subscriptions. If they required that one-fourth, or one-third, or some substantial figure should be subscribed, it would be a great protection to the original subscribers, for it was they who lost their money, and it was they who required some such protection as that which he proposed.

seconded the Amendment. Amendment proposed—

"In page 1, line 26, after the word 'subscription,' to insert the words 'being not less than one-quarter of the amount offered for subscription.'"
Question proposed, "That those words be there inserted."

said he did not think that the Amendment would afford any real security. Let them take the case put by the hon. Gentleman of a company with £100,000 capital. It would want to pay so much to the vendor, and would want, say, £30,000 in cash. What protection would the Amendment give? If they had one-fourth the company would not have their working capital. If the. whole amount subscribed was devoted to working capital they had not the amount which they thought necessary to carry on the company. Then, again, the whole of the one-fourth might go into the pocket of the vendor and not a penny be devoted to working capital. Merely to say it should be a minimum of one-fourth was purely illusory. It was deluding the public into the idea that they had got the sum, which was a great mistake, and that they had statutory security. He agreed with the hon. Baronet the Member for the City of London that the less they interfered the better, that they ought not to interfere unless there was a real demand from the people concerned in the working of these companies, and that they should do so only for the protection of the public. Fools could not be protected, but investors were innocent very often, and especially the small investor was taken in. This. was no protection to him; it was really taking him in. The best thing to do was what the Act of 1900 did. It must be stated in the prospectus what the minimum was upon which they would proceed to allotment, and that was all they could do. If, after reading the prospectus, and seeing that the directors had taken power to go to allotment with £100, while asking for £100,000, the investor still went on paying his money, he was such a fool that he deserved to lose it. Question put, and negatived.

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I accept that. Amendment proposed—

"In page 5, line 34, to leave out the words 'for any special reason.'"—(Mr. Berridge.)
Question, "That the words proposed to be left out stand part of the Bill," put, and negatived.

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on Clause 9, which deals with the payment of interest out of capital, proposed that this should only be done to defray the expenses of permanent works, and should not apply to buildings or the provision of plant, which could not be made profitable for a lengthened period. The object of the Amendment, he said, was to make these companies act more in accord with the Acts which Parliament had passed, dealing with the construction of permanent works, such as railways or canals. As the clause stood at present, it would apply to every company that he could possibly imagine, and to every conceivable object. Whatever the company might be, it would certainly have some works or buildings, or plant, or something or other of that nature, and might pay interest out of capital during its construction, and perhaps continue this until six months after it was completed. In the very nature of things this could not be the intention of the clause. It must be intended that the work was to be of a permanent nature. That it should apply to all companies and all works wherever in the world they might be, that they should pay interest during the construction, seemed to him to be going far beyond anything that had ever been entertained by Parliament, or any other body, and he would oppose it, and most certainly go to a division if he received support, because if the work was not to be permanent they ought not to encourage it and help people to get money to carry this work out. It had been suggested that a coal mine shaft and works were permanent, and that such a company should therefore be allowed to pay interest during construction. But how could they possibly draw the line at a colliery company? If it was a lead or a tin mine the shaft was equally permanent, and so was a gold mine, and really every other enterprise had some work under construction. It might be of the most transient nature, but under this clause, as it stood, a company paid interest on the capital employed exactly as if it were a permanent thing like a railroad or a canal. It was very easy to understand how it arose in regard to great permanent works like railways and canals. A railway was a definite thing to go from one place to another. It paid practically nothing during the whole time of its construction, but when it united the two places it had almost at once a large revenue, and was able to pay interest. Parliament had seen from the first that it would be impossible to raise money for works of that kind, which gave no return for some years, unless they gave this power, but he had heard no arguments which in any way led him to believe that such a provision as this was essential, or even desirable in the case of ordinary companies. He had, therefore, great pleasure in moving that the word "permanent" should be inserted before the word "works."

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in seconding, said he thought this was a sound Amendment. The President of the Board of Trade would be aware that the Departmental Report on which the Bill was founded said "a company expending capital in the construction of buildings or works of magnitude which cannot be placed in a profit-earning position for a lengthy period." It was evidently the intention of the gentlemen who made the Report that the works should be works of magnitude and permanence. They did not use the word "permanent," but it was evidently their intention that they should be of a permanent nature. No doubt the principle of allowing a company to pay interest on capital during construction was a perfectly sound one, for this reason, that the interest during construction was really part of the capital, because people had to wait until the works were completed before they could get any interest on their money.

I use the very words quoted from the Report of the Commissioners. They seem to imagine that they are better, and therefore I have inserted them.

said the words were "in the construction of buildings or works of magnitude." Those words were not used, but evidently it was the intention of the Report that the undertaking should be an important one, and that it should not apply to small capital outlays and undertakings of a trivial nature. The principle was a sound one and had been established by the Chancery Division of the High Court in various cases. Parliament had also laid down the same principle in the case of railway companies, canal companies, and other large companies applying for powers. The Bill extended the principle to industrial companies, but he held that it was the intention of the Report that that extension should be confined to works of magnitude and permanence, and it would be establishing a very dangerous precedent if the House were to lay down the principle that interest should be paid on capital expenditure which was merely of a revenue character. The President of the Board of Trade would quite appreciate his point. He wanted to confine this principle to capital of a permanent nature. No doubt capital was spent on various things. It was capital expenditure in the case of a large colliery putting in the machinery and providing winding ropes, cords, and other things of that character, but would it be right to pay interest on them during construction? The sinking of the shaft would be of a permanent character, and if this Amendment were passed it would confine the payment of interest on capital to works of that sort. He hoped the right hon. Gentleman would see his way to accept this Amendment. Amendment proposed—

"In page 6, line 26, after the word 'any,' to insert the word 'permanent.'"—(Mr. Fell.)
Question proposed, "That the word 'permanent' be there inserted."

did not think there was very much in the Amendment, although, on the whole, he was inclined to think it would be better if the right hon. Gentleman accepted it. He was opposed to the clause altogether, and would be glad to see it omitted. The Board of Trade had to give their sanction and recognise that the works must be of a permanent character.

said that after the hon. Baronet's remarks it was hardly necessary for him to say anything further. He had been told that the word "permanent" was a very risky word to use. No reasonable interpretation could be given of it, and they could not say whether it should apply for thirty or forty years. The Commissioners advised him that the words he had adopted were the safest to use. As the hon. Baronet had already pointed out, there was a safeguard of a very adequate kind in the fact that they had to get the sanction of the Board of Trade, and there would be an inquiry by that Department.

said his point was that there was no principle laid down to guide the Board of Trade in their decision.

thought the matter might be safely trusted to the Board of Trade. Everything was very carefully safeguarded, and this was done by statutory enactment in regard to railway companies. It was very difficult to interpret what the meaning of the word "permanent" was, and he thought it would be better to stand by the words recommended by the Committee than use words of the kind suggested, which were capable of many different interpretations.

was understood to say that it was an unwise and worthless clause, which could be evaded by anybody who wanted to evade it. Amendment negatived. Amendments proposed—

"In page 6, line 32, after the word 'work' to insert the words 'building or plant.'"
"In page 7, line 11, after the word 'works,' to insert the words 'or buildings.'"
"In page 7, line 11, after the word 'completed,' to insert the words 'or the plant provided.'"
"In page 8, line 6, to leave out lines 6 and 7, and line 8 to the word 'are.'"
"In page 8, line 18, to leave out from the word 'Kingdom,' to the word 'and,' in line 20, and to insert the words 'the delivery to and the receipt by the registrar of a copy of the instrument by which the mortgage or charge is created or evidenced, verified in the prescribed manner, shall have the same effect for the purposes of this section as the delivery and receipt of the instrument itself, and twenty-one days after the date on which the instrument or copy could, in due course of post, and if despatched with due diligence, have been received in the United Kingdom, shall be substituted for twenty-one days after the date of the creation of the mortgage or charge, as the time within which the particulars and instrument or copy are to be delivered to the registrar.'"—(Mr. Lloyd-George.)
"In page 8, line 23, to leave out the words 'deed purporting to charge specifically such property,' and to insert the words 'instrument creating or purporting to create such mortgage or charge.'"
"In page 9, line 31, after the word 'indirectly,' to insert the words 'by the company.'"
"In page 9, line 33, to leave out the word 'a,' and to insert the word 'the.'"—(Mr. Cave.)
Amendments agreed to.

moved to add words to Clause 10 providing that Section 15 of the Companies Act, 1900, should apply in respect of the registration of a mortgage or charge under this section. He said that this was to meet a case where by inadvertence a mortgage or charge had not been registered. In a case where there had been an omission by mistake the Court ought to have power to give relief. Amendment proposed—

"In page 11, line 2, at the end, to add the words '(10) Section fifteen of The Companies Act, 1900, shall apply in respect of the registration of a mortgage or charge under this section.'"—(Mr. Cave.)
Question proposed, "That those words be there added."

said the Amendment was unnecessary. The Act of 1900 would cover the case to which the hon. Member referred.

If the right hon. Gentleman takes the responsibility of saying, that, I do not press the Amendment. Amendment, by leave, withdrawn. Amendments proposed.

"In page 12, line 6, after the word 'at,' to insert the words 'the time of.'"
"In page 12, line 6, after the second word 'to,' to insert the words 'the creation of.'"—(Mr. Lloyd-George.)
Amendments agreed to.

moved a new subsection in order to meet a point which was raised by the hon. Member for Durham when the Bill was before the Committee upstairs. He thought on the whole the hon. Member was right, and the clause had been redrafted in the present form. Amendment proposed—

"In page 13, line 9, to leave out from the word 'issued,' to end of sub-section, and to insert the words, 'Provided that any person lending money on the security of a debenture re-issued under this section which appears to be duly stamped may give the debenture in evidence in any proceedings for enforcing his security without payment of the stamp duty or any penalty in respect thereof, unless he had notice or, but for his negligence, might have discovered that the debenture was not duly stamped, but in any such case the company shall be liable to pay the proper stamp duty and penalty.'"—(Mr. Lloyd-George.)
Amendment agreed to.

moved to insert words in Clause 18 to provide that the register of debenture holders should be open to inspection free of charge to the shareholders and debenture holders of a company and to any other person on payment of a sum not exceeding 5s. He said that the reason he desired that persons other than debenture or shareholders should have this right of inspection was not far to seek. He knew personally that many a man who desired to raise money by a bill of sale had found that it would be too serious an injury to his credit, and he had, therefore, turned himself into a small limited liability company and had raised money by the issue of debentures. In the case of a bill of sale, an extract of it was sent to the county court or district in which the guarantor resided, and any person could inspect either the original document or the extract and take copies thereof on the payment of the sum of 1s.; and he thought they should also in this case make the right of inspection and the register of debenture holders as broad as possible. He could see nothing in his proposal which was likely to cause mischief, whilst on the other hand much good might come from it. He trusted the Government would see their way to accept what he claimed was a reasonable Amendment.

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in seconding, urged that a man in business relations with a company should be permitted the opportunity, on payment of a reasonable fee, of seeing what mortgagees there were with claims prior to his own. He was curious to see what argument could be adduced against the Amendment. Amendment proposed—

"In page 13, line 41, after the word 'company,' to insert the words 'free of charge, and to any other person on payment of a sum not exceeding five shillings.'"—(Mr. Dunn.)
Question proposed, "That those words be there inserted."

urged that it was unnecessary to give right of inspection of the names and addresses of the debenture holders. It was, he said, quite sufficient if there was power given to ascertain the amount of the debentures.

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thought this Amendment should be accepted. There had been frauds in connection with the issue of debentures, and publicity was the best available guarantee they could have against these. He, therefore, could not see why there should be any objection to publicity in this case. There should be means of knowing the names of the debenture holders. There were cases where creditors or prospective creditors had reason to believe that a company was not managed properly. It was quite easy to ascertain at Somerset House all the names of the shareholders, but if they also knew the names of the debenture holders real light might be thrown as to whether the debentures had been issued legitimately or for a fraudulent purpose.

hoped that the Amendment would not be accepted. The object of any person wanting to know the names of debenture holders could only be to carry on an agitation, or to call meetings for the purpose of initiating an agitation against the company. He could not understand those Paul Prys of commerce, who wished to look into names and not the facts and incidents which concerned the legal position of the company.

said that it was rather a late stage at which to introduce this Amendment. If it had been introduced earlier in the session it might have been translated into the Bill, but it was hardly fair to those with whom an agreement had been arrived at in order to get the Bill through, now to introduce an Amendment which was obnoxious to them. He thought that every man who had a realbona-fide interest in debentures must sympathise with the object which the hon. Gentleman had in view, but they were protected by this Bill. What was wanted was that those who traded with a company should have a knowledge of its financial position. Some information ought to be given as in the case of a bill of sale, but debentures were in a somewhat different category from bills of sale. They were issued to the public at large, it was true, with the view of raising money. It was provided by the Act of 1900 that full information should be given to the public as to the financial position of the company, and that was quite as much as the public were entitled to. He did not think that on the whole, from the company's point of view, which was the only point he was considering now, that a case had been made out for introducing this very severe, drastic, and far-reaching provision at this period of the session.

said that the object of the mover of the Amendment was evidently that the creditors of the company should be able to find out what the debenture charges against a company were and who held them.

said that, even if the Amendment were accepted, it would be open to a company to issue loans amounting to many times the value of the debentures in place of them; and he reminded the House that the object of the Amendment was to give the creditors an opportunity of judging of the stability of the company.

said that frauds were frequently committed by companies where the debenture holders and the shareholders were practically the same persons. It was necessary to know not only the names of the debenture holders, but something about them, and the interest which they were charging for the money lent. He was sorry that the Government could not accept the Amendment. Amendment negatived. Amendments proposed—

"In page 15, line 1, after the first word 'the,' to insert the word 'auditors.'"
"In page 15, line 2, to leave out the word 'auditors.'"—(Mr. Lloyd-George.)
"In page 15, line 7, at the end, to insert the words Provided that this section shall not apply to any private company.'"—(Mr. Markham.)
"In page 15, line 11, to leave out the words 'the nominator,' and to insert the words 'a shareholder.'"—(Mr. Berridge.)
"In page 15, line 13, after the word 'send,' to insert the words 'a copy of any.'"
"In page 15, line 14, after the word 'notice,' to insert the word 'thereof.'"—(Mr. Cave.)
"In page 15, line 16, at end, to insert the words 'Provided that if, after a notice of the intention to nominate an auditor has been so given, an annual general meeting is called for a date fourteen days or less after that notice has been given, the notice, though not given within the time required by this provision, shall be deemed to have been properly given for the purposes thereof, and the notice to be sent or given by the company may, instead of being sent or given within the time required by this provision be sent or given at the same time as the notice of the general annual meeting.'"(Mr. Lloyd-George.)
"In page 15, line 41, after the word 'the,' to insert the word 'general.'"—(Mr. Robert Balfour.)
"In page 16, line 10, to leave out the word 'seven,' and to insert the words 'one month.'"—(Mr. Markham.)
"In page 16, line 15, at end, to insert the words '(2) A private company shall not be required to forward or to file the report required under Section 12 of the Companies Act, 1900.'"—(Mr. Lloyd-George.)
"In page 16, line 36, at the end, to insert the words '(3) Any company which is a member of another company may, by minute of the directors, authorise any of its officials or any other person to act as its representative at any meeting of the latter company, and such representative shall be entitled to exercise the same functions on behalf of the company which he represents as if he had been an individual shareholder.'"—(Mr. Robert Balfour.)
"In page 17, line 12, after the word 'liquidator,' to insert the words 'appointed by a company.'"—(Mr. Lloyd-George.)
"In page 17, line 16, to leave out the word 'later,' and to insert the word less.'"
"In page 17, line 16, after the word 'fourteen,' to insert the words 'not more than twenty-one."
"In page 17, line 34, after the word 'act,' to insert the words 'as liquidator.'"
"In page 17, line 36, after the word 'inspection,' to insert the words 'either together with or without any such appointment of a liquidator.'"—(Mr. Berridge.)
Amendments agreed to.

moved to add the following new subsection—"(6) The provisions of this section shall not apply in the case of a winding-up for the purpose of reconstruction or sale to or amalgamation with another company where provision is made for payment of creditors in full within two months from the commencement of the winding-up. Provided that if the creditors are not so paid then the provisions of this section shall apply and the times mentioned in Subsection 1 hereof shall be reckoned as from the expiration of the said period of two months." He said that in Committee it was promised to consider this Amendment, and he was sorry to hear that the Government could not accept it. He, however, wished formally to move it in order that an explanation might be given why it could not be accepted. There were many cases where a company went into liquidation for the purpose of reconstruction or the sale of its assets with the main object of providing money for the benefit of the creditors and further capital for carrying on the business of the company, and it seemed to him and to people of good practical experience that that very object might be defeated if all the publicity which this section entailed applied. He thought it was necessary to add the proviso that if within two months the creditors were not paid the provisions of the section should apply. He begged to move.

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although he thought the Amendment did not go far enough, seconded it. The clause, he said, was decidedly hostile to proposals which would secure a sale, an amalgamation, or the liquidation of a company. He really did not see that the Amendment would do any harm, and it would be particularly beneficial in facilitating the raising of mom and dealing with property in the best interests of the shareholders. Amendment proposed—

"In page 18, line 11, at the end, to insert the words '(6) The provisions of this section shall not apply in the case of a winding-up for the purpose of reconstruction or sale to or amalgamation with another company where provision is made for payment of creditors in full within two months from the commencement of the winding-up. Provided that if the creditors are not so paid then the provisions of this section shall apply and the times mentioned in Sub-section I hereof shall be reckoned as from the expiration of the said period of two months.'"(Mr. Berridge.)
Question put, "That those words be there inserted."

said that all the arguments put forward by the mover and seconder of this Amendment had been considered, and it was found impossible to give effect to them as suggested. Where there was provision for debts and no real risk to the creditors the clause would in a sense be ineffective, for there would be no appli- cation by the creditors for another liquidator so long as they knew their debts were going to be paid. All that the section was intended to do was to give protection—it was not a great one—in the interests of the creditors by giving them an opportunity of going to the Court at their own risk and applying for the appointment of another liquidator. If the Amendment were inserted it would get rid of some of the main provisions inserted for the protection of the creditors. He therefore suggested that the Amendment should be rejected. Amendment negatived.

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moved to leave out Clause 32, which gives the Court power to grant relief to directors in certain cases. The Amendment, he said, raised an important point. The clause itself was in two distinct parts. Subsection 1 said that where a director was personally liable for breach of any duty imposed upon him by the Companies Acts and where that breach was caused by honest oversight, inadvertence, or error of judgment on his part, the Court might relieve him of responsibility. He did not object to that principle. He thought they must all admit that the duties of a director were complicated and that the present Act extended and still further complicated them. They could not expect a man leading a very busy life to make no mistakes, and it would be hard if in certain cases where a perfectly innocent mistake was made he should be held responsible in his own pocket. Still it was going a long way to say they must whitewash a man for an offence before he had committed it. They were. passing an Act which protected the public and the shareholders and which for their protection imposed certain responsibilities on directors, and in the same Act they said that any breach of duty, even though a loss was occasioned thereby, was not to make a director liable personally. He asked how far this was an extension of the present law and how far it was a statement of that law. It was well known that the Court could give relief in a case of honest negligence, and he did not quite follow how far this was to be an extension or only a statement of that law. The second part of the clause was much more important than the first. The first part related only to breaches of duty which were more or less formal acts, but the second subsection said that if a director was guilty of negligence or breach of trust the Court might relieve him if he could prove he had acted honestly and reasonably. He thought there ought to be a power of this sort in the Court. Where a man acted reasonably and fairly he ought to be relieved. But the present law in respect to the liability of directors for negligence was perfectly clear. It was not Statute law. It was case law, but it was perfectly clear. In order to prove that a director was responsible for negligence some moral obliquity had to be proved; negligence alone was not sufficient, fraud must be proved besides. Was this clause a statement of the law as it stood to-day or was it an extension of immunity to directors? If it was a statement of the law, its form was very objectionable, because the law was perfectly clear. As Lord Justice Buckley said in his book on Company Law, there had been no case in which a director had been held answerable for loss in respect of an innocent mistake. His objection to this clause was that, if it was a statement of the law it would introduce confusion into a law that was perfectly clear. On the other hand, if it was intended by the subsection to extend the immunities of directors, then it was a matter for the House carefully to consider how the law stood before making any such extension. In one very well-known case of a bank, in which the law was laid down by the House of Lords, Lord Macnaughten said as soon as the charge of moral obliquity was withdrawn the case was at an end. The question was whether this clause extended that immunity or not. His own opinion was that in that regard the law had gone quite far enough and rather too far in the way of protecting directors. They had to look not only at the honesty of the director but also to his competence, and in extending this immunity they should carefully consider how far it would take them. At present no director was responsible for his incompetence, a man might become a director of a company of a highly technical kind, and receive high fees and by his incom- petence cause the shareholders a considerable loss, and therefore, before any extension of immunity was allowed the matter ought to be very carefully scrutinised. Under these circumstances he hoped the Government would either explain the clause in a way satisfactory to him or else omit it. He begged to move.

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seconded the Amendment. Apart from the question of the form of the clause, he desired to protest against the method in which it was proposed to deal with this subject. They were told in the clause that under certain conditions the Court might come to the conclusion that a director ought fairly to be excused. If a man had broken the law by an act either of omission or of commission he should be tried by the law, but the House was being asked to say that although a director had broken the law yet he ought to be excused. On what ground ought he to be excused, and what was the tribunal that was to decide the matter? If Judges were to have the duty of deciding not on grounds of law but on moral grounds, a large number of conflicting decisions would be set up as to what a man ought to do and why he ought to be excused. The right to be excused would be as uncertain as the equity of the sixteenth century which was said to depend on the length of the Chancellor's foot. The day of Judge-made law was over. He was surprised that the Government should have introduced a Bill which contained a clause enabling a Judge to excuse a man for having broken the law. Judges were not the best tribunal to decide as to what was duty in the abstract, but only as to what was duty in the legal sense. He therefore hoped this clause would be reconsidered. Amendment proposed—

"In page 19, to leave out Clause 32."—(Mr. Hills.)

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said that men were made directors of companies for different reasons. A man might be an inventor, for instance, and it would be rather hard if, having been made a director became of his expert knowledge, he were held to be responsible for some great financial blunder in which he had no part, and against which he was never expected to protect the public. Or, they might have a man who was a great expert in finance, and who was put on the board purely because of that. There might be another branch of the business which he knew nothing about, which he was not expected to understand, and which was more or less left to other directors. So long as each director acted honestly in the special branch of the business allocated to him, he ought to have some protection. But he was not, of course, in favour of protecting the directors who grossly neglected their duty, and who showed that the trust which the public rested in them was misplaced. But the point was that they must not frighten away the best class of men. That would be a very bad thing. There was a certain kind of men who would be frightened away if they made the too stringent, but the very last to be kept away would be those men whom they did not desire to see made directors; they would put a premium upon that class of directors if they made the law so stringent as to keep everybody else off. They wanted, after all, to encourage the best men, and they must not frighten them away by extravagant provisions, the simple reading of which would prevent a nervous man from becoming a director, for the pay was not sufficient inducement to a man of that kind to go on. While he did not think they should insert provisions of that kind to frighten desirable men away, he wanted such protection of the public as was given in the Judicial Trustees Act. He wanted to insert something of that kind. He did not quite like the first sub-section, he candidly confessed. He did not like it when his attention was called to it first of all, and he liked it still less after consulting those responsible for introducing it. He had not quite liked to accept responsibility upstairs, but he had taken counsel since about it, and those who were responsible for the clause agreed that perhaps on the whole the words of the first subsection were too wide for the purposes of protecting the honest director, who had made a mistake through no fault of his own. It might be that a director of that kind was amply looked after under Subsection (2), taken from the Judicial Trustees Act, and which, no doubt by this time, had stood the test of judicial interpretation. The Speaker had put the question in such a way that he could move the omission of Subsection (1), and the hon. Gentleman would find that Subsection (2) on the whole offered fair and reasonable protection for the defence of the innocent and honest director whom it was desirable to encourage. If the hon. Gentleman would agree to that he should be very happy to assent to an Amendment.

pointed out that by the Act of 1890, every director was responsible for every statement in the prospectus, and made at the time he was a director, and he could only excuse himself if he could show not only hisbong fides, but that he reasonably believed the statements made in the prospectus. He approved Subsection (1) on the whole, and he ventured to press upon the right hon. Gentleman to keep the section as it stood. If they struck it out, and left in Subsection (2), they had this difficulty. In an action for misfeasance under the Act of 1890, a jury would naturally be inclined to be prejudiced against a director who had in any way allowed the plaintiff to be misled by a statement in the prospectus. In reference to Subsection (2), which was taken from the Judicial Trustees Act, and which dealt with other proceedings, he ventured to submit that there would be very considerable difficulty in dealing with the question of when the Court was to intervene in a case. They had not to assume the case of a man guilty of fraud or moral obliquity, but simply that of an expert who understood the technical part of the work, who had foolishly taken on trust the statements inserted in a prospectus, and who, possibly, had sat side by side with somebody else, and had not attended to what was being discussed.

said the argument used by the hon. Gentleman in support of his Amendment was the most extraordinary he had ever heard advanced in that House. It was that if a director, though he acted honestly and reasonably, was negligent, then, because the director was negligent, they were to set up a standard of what was negligent. How could a Court of law possibly set up a standard of what was negligent and what was not negligent? Who was to say whether a man was competent or whether he was not? He hoped the President of the Board of Trade would not accept the Amendment for the omission of Sub-section (1), because if a director had acted honestly and reasonably, what more could they require from a man of business? Everybody with any common sense knew what reasonable competency was, and, as the President of the Board of Trade had repeatedly pointed out, there were many public companies whose directors were appointed solely and wholly because of their knowledge of the particular branch of industry in which the company operated. If an engineer sat on the board it simply meant that it was because he had expert knowledge. He took no part as a director in the general administration of the company, but solely concerned himself with that with which he was thoroughly competent to deal. To penalise certain directors because in the opinion of some people others had failed to do their duty would be to act unreasonably. He hoped the Government would adhere to the clause as it stood.

said that by this Bill a fine amounting to £125 per day might be inflicted upon each officer and director for breaches of technical rules that might not be discovered until some years afterwards. Further, the director or officer might be quite ignorant of his breach, by which no one would be damaged, yet the director or officer for 100 days might be fined £12,500. Why should they not be allowed to go to the Court to express their regret, and obtain the requisite relief before anyone was damaged?

said there was this objection to the withdrawal of Sub-section (1), that the director who had made a slip would have to wait until proceedings were taken against him under Sub-section (2). Under Sub-section (1) he would be able to make anex parte application, and the Court could grant him relief; but under Sub-section (2), he would have to wait in terror, with this hanging over his head, until proceedings were instituted. He fully admitted that the words "honest oversight, inadvertence, and error of judgment" were some what wide, and the effect of the subsection might be to extend the law in a direction that was not desirable; but he hoped that the President of the Board of Trade would see his way to allow a director to take the initiative and make anex parte application for relief from the liabilities he had inadvertently incurred. A director could make application just in the same way as a Parliamentary candidate appliedex parte for relief if he had made a mistake during the election.

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hoped the right hon. Gentleman would retain the subsection. He appreciated entirely what had fallen from the hon. and learned Gentleman the Member for Cambridge University and from the hon. Member for Mansfield; but manifestly on a question like this it was only fair that the directors themselves should have their say. It happened that there was a body of gentlemen of the highest position and integrity in the business world, the Institute of Directors, who seemed to think that directors required all the protection that could be given to them by this clause. Indeed they had circulated a short statement on this subject, asking for further protection than that granted. He did not press for the further measures for which they asked, but he did ask for the retention of what had been approved already upstairs. He urged the President of the Board of Trade to consider that the liabilities of directors were being increased by the Bill, and unless they were given increased protection, the class of men most wanted on the boards of public companies would be deterred from giving their services. Not only would men of high integrity and position be deterred but also experts in special departments. He would instance the case of an electrician who was properly put on a board of directors because of his special knowledge, yet could not possibly concern himself with the general management of the company's business: Was such a director to be made liable without the protection given him by this section and by the fist subsection? He did not understand the remark which had been made as to Judges being incompetent to deal with such a matter as this, and in fact, he altogether demurred to any such view. Judges would be well able to exercise the powers they were called on to exercise under the whole section. The House could not expect all directors to be competent any more than they could expect all lawyers to be infallible. He urged the President of the Board of Trade to retain Subsections (1) and (2), contending that they did not go beyond the requirements of the case.

also appealed to the right hon. Gentleman to maintain the clause as it stood. This Amendment would take away a considerable amount of protection given by the Bill. Very great responsibility would be thrown on the directors, and consequently there was all the more reason for giving them proper protection. Was it a fact that the highest legal luminary in the land had approved of this clause and that in fact it was a clause of his own creation? He believed this was a clause framed by the Lord Chancellor, and therefore it was rather strange they should be listening to people who told them it was not a proper one. It had further to be borne in mind that the clause had been recommended by the Committee on the Companies Act—a body of very eminent men consisting of all classes—who had all the evidence before them. He did not wish to enter into any argument with legal gentlemen, but he knew that any litigation in the future must be for their benefit. On the grounds that the clause was approved by the Lord Chancellor, that the responsibilities of the directors would be immensely increased, that the Companies Act Committee had unanimously approved it, he appealed to the President of the Board of Trade to adhere to his original decision and to pass the clause as it stood.

hoped the Governmen would adhere to the compromise which had been suggested by the President of the Board of Trade, as it would give all reasonable protection to the directors and would not involve the Courts and the directors themselves in very difficult questions. Subsection (1) negatived. Amendments proposed—

"In page 21, line 12, at the end, to insert the words 'and (c) have the name of the company and of the country in which the company is incorporated, mentioned in legible characters in all bill-heads and letter paper, and in all notices, advertisements, and other official publications of the company.'"
"In page 21, line 20, after the word 'certified,' to insert the words 'in the prescribed manner.'"
"In page 21, line 20, to leave out from the word 'translation,' to end of line 22."—(Mr. Lloyd-George.)
Amendments agreed to.

moved to add at the end of Subsection (6) in Clause 35, the words: "A share transfer or a share registration office would be deemed to be a place of business within the meaning of this section." He said that the object of the clause was to make clear the words "a place of business." He had asked some of his legal friends whether a transfer office in this country belonging to a company abroad would constitute a place of business, and finding that opinion on the point was divided he put the Amendment on the Paper. He thanked the President of the Board of Trade for having intimated his acceptance of the words, because they would enable the holders of shares in companies in South Africa and other parts of the world to obtain at Somerset House all the particulars relating to their investment. Amendment proposed—

"In page 21, line 22, at the end of Sub-section 6 to add the words 'a share transfer or share registration office would be deemed to be a place of business within the meaning of this section'"—(Mr. Markham.)
Question proposed, "That those words be there inserted."

remarked that there were many companies having offices in this country who did their share business through Mr. Pierpont Morgan's offices, and the proposed Amendment would cause inconvenience to such American companies. Amendment agreed to. Amendment proposed—

"In page 21, line 32, to leave out from the word 'which,' to end of sub-section, and to insert the words 'by its articles (a) restricts the right to transfer its shares, and (b) limits the number of its members (exclusive of persons who are in the employment of the company) to fifty, and (c) prohibits any invitation to the public to subscribe for any shares or debentures of the company.'"—(Mr. Lloyd-George.)
Question proposed, "That the words proposed to be left out stand part of the Bill."

said he was indebted to the right hon. Gentleman for the alteration. He did not believe in numbers in this connection, and he would have been glad if the number had been excised altogether. It would have worked very much better. He had no doubt that the legal advisers of companies would get round this particular clause, but he thought he had been fairly met and so he accepted it.

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said that when the Bill was in Committee he thought it was unnecessary to specify the numbers to which a private company should be limited. But the right hon. Gentleman took the other line, and in view of his greater experience in such matters he himself rather feared that he might be wrong. The President of the Board of Trade had in some previous incarnation attained to such a firm grasp of the principles of business, that he never felt quite comfortable when he was not in accord with the right hon. Gentleman's views. Having made inquiries in the City in regard to the matter he had arrived at the conclusion that the number fifty would probably cover every really private company, and that some restriction was probably necessary, because if no number were inserted in the clause the means of evading the law would be greatly facilitated. Amendment agreed to.

moved an Amendment to prohibit a private company from allotting or transferring any of its shares to a public company. He thought it was in accordance with the object of the Act if a private company were to transfer a large proportion of its shares to a public company it should be possible to secure in that way all the advantages of a private company in the matter of balance sheets.

,

in seconding the Amendment, said it would shut one of the doors which were left open to fraud under the provisions which would now be applied to private companies by this Bill. He would have liked the hon. Member's Amendment to have also prohibited the transfer of any of the shares of a private company to trustees to be held in trust on behalf of a public company. That would still further have prevented the evasion of the law. But if the hon. Member thought it would be inconvenient to accept that suggestion, he would not press it. Unless some such Amendment as that moved by the hon. Member was carried, this section might be used for the evasion of the Companies Acts altogether. Amendment proposed—

"In page 21, after the words last inserted, to insert the words, 'and (d) prohibits the allotment and transfer of any of its shares to a public company.'"—(Mr. J. D. White.)
Question proposed, "That those words be there inserted."

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in opposing the Amendment, said it would prevent a big steamboat company from taking shares in a company which owned a tug boat or a trawler. It would prevent a colliery company from taking shares in a waggon-building company, and it would, in short, prevent a public company from taking any sort of financial interest in smaller companies, though the public company might be interested in encouraging the business for which the smaller companies were formed. He believed if they were to do that they would be going the wrong way. To prevent a public company from exercising the rights of a private individual in regard to the acquirement of shares would be really to impose a limitation by law which he could not understand, and yet that was what must be the position if they prohibited the transfer of shares in the way proposed by the Amendment. He ventured to say that if the share lists in London were examined it would be found that there were dozens of cases in which one limited company held shares in other limited companies whether private or public.

said that although he sympathised much with what had been said by his hon. friend who moved the Amendment, he thought it was rather risky to accept one Amendment of this sort, dealing with such a complicated matter as company law, without full time being allowed to consider it. The Amendment in the form in which it had been moved did not appear on the Paper, and therefore he did not think it would be desirable at this stage to accept it. It might have a very far-reaching effect. He was not prepared to agree with all that had fallen from the hon. Member for the Everton Division of Liverpool, but there were legitimate occasions when the transfer of shares to a public company by a reallybona-fide private company might be indulged in. A private company which desired to take that course would be put out of count entirely by this clause. He did not think the Amendment was necessary for the real definition of a private company.

asked whether the clause could not be evaded by putting shares in the name of a nominee of the company. Question put, and negatived.

moved to insert words providing that wherever in the Companies Acts a minimum of sever members was required only two members should be required in the case of a private company. He said that a minimum of two in a private company should be sufficient. Amendment proposed—

"In page 22, line 17, at the end, to add the words '(4)Wherever in the Companies Acts a minimum of seven members is required only two members shall be required in the case of a "private company."'"—(Mr. Rawlinson.)
Question proposed, "That those words be there inserted."

asked whether two instead of seven would be required to form a limited company in the future. He thought seven signatures were required to assure thebona-fides of the company.

said that all that would be necessary if the minimum were to remain at seven would be to get five-clerks to take a merely nominal interest in the concern. Question put, and agreed to. Amendments proposed.

"In page 22, line 34, after the word 'passed," to insert the words 'by a majority of shareholders of that class representing three-fourths of the capital of that class.'"
"In page 22, lines 34 and 35, to leave out the words 'by shareholders of that class.'"
"In page 22, line 36, to leave out the words 'passed and.'"
"In page 22, line 37, to leave out the words 'be a valid special resolution binding,' and to insert the word 'bind.'"—(Mr. Lupton.)
"In page 23, line 2, to leave out from the word 'company,' to the end of the clause, and to insert the words 'nor any other assurance company to which the provisions of the Life Assurance Companies Acts, 1870 to 1872, as to the annual statements to be made by such companies apply, with or without modification, if the company complies with those provisions.'"
"In the first Schedule, page 27, line 17, to leave out the word 'preference.'"—(Mr. Lloyd-George.)
Amendments agreed to. Motion made, and Question, "That the Bill be now read a third time."—(Mr. Lloyd-George.)—put, and agreed to. I Bill read the third time, and passed