§ Order of the Day for the Second Reading read.
*LORD BALFOUR OF BURLEIGH: My Lords, in moving the Second Reading of this Bill, I shall not occupy many minutes, because the Bill itself, though of considerable importance, is not of great length, and will not require very much explanation. Its object is to allow a Limited Company, incorporated under the Limited Liability Acts, to alter its Memorandum of Association within certain limits. The necessity for such a measure arises from the difficulty which is experienced in getting the most necessary alterations made in a Memorandum of Association of a Limited Company, even when the shareholders are unanimous. Requests for permission to make such alterations come, from time to time, before both Houses of Parliament in the form of Private Bills, because it is only by the authority of Parliament that alterations in the Memorandum of a Limited Com-
pany can be made, with some slight exceptions. It is, of course within your Lordships' knowledge, that to get an alteration, a very simple alteration, perhaps, made in a Memorandum in this way is both expensive and troublesome. I am far from saying there should not be some trouble, if not some expense, necessary before an alteration should be permitted to be made in the Memorandum of Association of a company, which is an important document and one to be treated with great respect. It is not to be lightly altered, or altered to the prejudice of those who, upon the faith of it. have taken shares in a company. But the point I wish to put before your Lord-ships is that the present state of matters imposes undue and unnecessary difficulty and undue and unnecessary expense in getting oven the simplest alteration made in a Memorandum of Assosciation. Now, no alteration in a Memorandum of Association of a company can be made except as provided in the 12th section of the Companies' Act. 1862. The provisions of that section are to the following effect:—
That if any Company limited by shares desires to modify the conditions contained in its Memorandum of Association it can do so if authorised by its regulations as originally framed or so altered by special resolution; hut the purposes of the alterations which is proposed to be made in the Memorandum of Association are limited to the following matters:—'The capital may be increased either by the issue of new shares, or, if desired, fully paid-up shares may be converted into stock;'
But with that exception, and save as therein provided, in the case of change of name no alteration can be made by any company in the conditions contained in its Memorandum of Association. it is, therefore, the law at the present time that the objects of a company, as first stated in its Memorandum of Association, cannot be departed from, except as I have mentioned. In other words, the Memorandum of Association is the charter of the company, and no alteration can be made in it, however much it may be for the good of the company, or however anxious or unanimous the shareholders may be in their desire to effect the alteration. My Lords, I may be allowed, perhaps, to quote two sentences, one from the judgment of the late Lord Cairns in giving a decision in this House in the case which is the
leading authority in these matters, where he uses these words—
A Memorandum cannot be so qualified by the articles as to give power to extend or change the business or objects of the company by a special resolution;
and the noble Earl opposite (Lord Selborne), in giving judgment in the same case, said—
The Memorandum of Association is, in fact, the fundamental and, except in certain specified particulars, the unalterable law of the company which is incorporated by it.
Now, as I have said, if it is necessary for a company to make even the simplest alteration in its Memorandum of Association it often happens that the expense and trouble are out of all proportion to the value of the alteration itself or the benefit to be obtained by it. This, my Lords, is not a new matter. It has been before Parliament on a previous occasion, and last year Parliament appointed a Joint Committee of both Houses to consider it. That Joint Committee was composed of Members of your Lordships' House and of the House of Commons, whoso names will, I am sure, command the confidence of all. Prom this House there were appointed the Lord President Earl Morley, Lord Herschell, Earl Crawford, and Lord Hillingdon; and from the other House Mr. Courtney, Mr. Bristowe, Mr. Haldane, Mr. Baikes, and Sir Horace Davey. That Committee deliberated upon the matters referred to it and reported unanimously that it was expedient power should be given to companies to alter their Memoranda, of Association or Articles of Association within certain limits, which they described, and always subject to the approval of the High Court in England and Ireland, and, if in Scotland, to the consent of the Court of Session. My Lords, the limits which the Select Committee recommended should be imposed upon alterations are that every Member of a company, who by himself or by his authorised agent, has expressed dissent from such resolution, at any meeting held for passing the same, and every holder of debentures or debenture stock, or any class of persons whose interests will, in the opinion of the Court, be directly affected by such power to alter may appear before the Court, and be heard in regard to sanction being given to the Resolution
which has been passed. The Committee recommended that those two conditions should be imposed in cases of alterations being made. The first is that where the alteration has reference to the object of the Memorandum of Association, the new object shall be "cognate" or "ancillary" to the present objects of the company; and the second recommendation is that the application for the proposed alteration shall be based upon circumstances which have arisen since the registration of the company. In the main, this Bill carries out the recommendations of the Committee. You will find in the 1st clause a power given to the company to pass a special Resolution for altering the provisions of its Memorandum of Association. Before that alteration can take effect, the consent of the High Court in England and Ireland, and in Scotland of the Court of Session must be obtained; and before that consent can be given it is necessary that the Court shall be satisfied, in the words of the clause, that the new or extended objects are cognate or ancillary to the objects, or some of the objects, of the company as expressed in its Memorandum of Association. I think the provision will commend itself to your Lordships that the alteration shall be for kindred objects only; and so careful have the framers of the Bill been to accept the recommendations of the Committee that they have taken them exactly in the words in which the Committee gave them. My Lords, I should be perfectly willing that the words of this section should be carefully scrutinised in Committee, and I should hope that the noble Lord opposite, who was Chairman of that Committee (Lord Herschell), will be able to guide us as to whether the proviso as to the extension of powers being for "cognate" or "ancillary" objects is sufficiently legal phraseology to be adopted in the Bill and passed into an Act without some words of limitation or explanation ensuing upon them. But as the Committee was a joint one of both Houses of Parliament, the object has been to adhere as strictly as possible to the language of the recommendations of that Committee; and in the form in which I now present it to your Lordships it has passed the other House of Parliament after careful scrutiny in the Grand Committee. Then, my Lords, the other provisions in the Bill are that Lord Balfour of Burleigh
sufficient notice shall be given to every holder of Debentures and to every creditor that changes are proposed, and that they shall have the right to appear and object before the Court. There commendation of the Committee that the application shall be based on circumstances which have arisen since the registration of the company was placed in the Bill when it was before the other House of Parliament, but was deleted in its passage through that House because it was thought that the expression was too vague to be a real safeguard, and that, on the whole, it was better that it should not be made permanently the law. There is one other clause in the Bill upon which I think it necessary to say a few words, and that is the 2nd clause as to giving certain powers. That is a clause which was introduced into the Bill in the other House of Parliament, and the object, as I understand it, is to supply power to make new alterations in a Memorandum of Association, which would remain impossible after the passing of this Bill if that power were not given I venture to think it is right that the power which is given in this clause should be given, though not perhaps exactly in the words in which it now stands. The clause has not been framed by the Board of - Trade; it was inserted, as I have said, in the other House of Parliament, and I think the wording of it will require to be somewhat carefully examined in Grand Committee of this House if your Lordships are willing to give the Bill a Second Reading and to refer it to the Committee. I think one change which may be required in it may be that the alterations dealt with in the 2nd schedule should, like the other alterations, be made only with the sanction of the Court, and after full opportunity has been given to those interested of being heard. I think in that or in some other way that section may be amended so as to bring it into harmony with the other provisions of the Bill. I do not know that any other point requires discussion at this stage. If your Lordships will give the Bill a Second Reading, I propose to refer it in the usual way to one of the Committees for consideration. As there are many Members of the House who are better qualified to judge of the legal aspects of the measure than I can hope to be, I trust they will
give it their attention. My Lords, I beg to move the Second Reading of the Bill.
§ LORD HERSCHELL: My Lords, with regard to the main object of this Bill, I have only to add a few words upon one point with regard to what the noble Lord who has moved the Second Reading has said, that it carries out the recommendations of the Joint Committee of last Session with an exception which I have no objection to. It has, indeed, been suggested by many of those who are in favour of the objects of this Bill that it might be desirable to give an alternative for the procedure under the Bill, and that there are many cases in which the Board of Trade might very well deal with the matter instead of its being left to the Court; that the application to the Court involves considerable expense and delay, and, therefore, that you might give an alternative power of applying to the Board of Trade unless they thought it was a case which ought to be referred to the Court. I think that is a suggestion worthy of consideration; but, of course, it would be an important change which, as it has only been recently suggested, I am not at present prepared to advocate. Still, I think it worthy of consideration. The only other clause to which I need refer is that which the noble Lord opposite has mentioned. I do not think those who framed the Bill can fully have foreseen all the results which will flow from it, because, as it is worded, it would give an interested majority of the shareholders power to prefer themselves by a special resolution, because they might be able to carry the requisite number with them, both as regards the payment of dividends and the repayment of capital. For example, as far as I can see, supposing you had Preference shares and Ordinary shares in a company, and the Ordinary shareholders could obtain a majority of three-fourths, which would not be an impossible case, they might give themselves a preference over the Preferred shareholders, because the Bill provides that any company may, by special resolution, affix preference in payment of dividends to any of its shares. Of course, that could not have been intended, and it is obvious that that clause will need some limitation. I am not sure that I quite 434 understand the exact class of cases which it is intended to provide for. Perhaps, if I understood that more fully, it would be easier to suggest the necessary qualification; but as the clause at present stands, its scope, I think, is wider than can have been intended by those who introduced it into the measure.
§ *THE EARL OF MORLEY: I am extremely glad that Her Majesty's Government have been able to introduce this Bill. I think the object in view is a very desirable one, and the Bill will relieve Parliament from the necessity of passing extremely anomalous and inconvenient Bills. As the noble Lord who moved the Bill has informed your Lordships under the present law with regard to companies, their memoranda are unalterable, except in certain defined cases, and the only way in which a Limited Company, not a Parliamentary Company, has of doing so, is by a private Bill introduced into Parliament. The inconvenience of that has been felt for many years, and I think the House will agree that it is extremely undesirable that Parliament should interfere, except where absolutely necessary, with regard to Public Companies, which are not Parliamentary Companies. The whole jurisdiction over Joint Stock Companies is with the Courts of Law, and not with Parliament; and I am extremely glad that Her Majesty's Government have introduced a Bill which will extend that jurisdiction under certain well-defined conditions to the alteration of Memoranda of Association of such companies. I ant also glad to find that the noble Lord who moved the Second Reading of the Bill and the noble and learned Lord behind me have called attention to Clause 2 of the Bill. I think the clause as it at present stands would be extremely dangerous, to say the least of it; and I hope it will be thoroughly considered in Committee before any such power is given to companies. At any rate, I would suggest that such power should not be given as to capital orshares at present issued. It might be possible, as in railway legislation, that power should be given to divide capital into Preferential and Deferred when a certain amount of it has been paid up; but that is a matter for the consideration of the House in Committee. I would also suggest, for 435 the noble Lord's consideration, whether it might not be possible to, in some directions, extend the scope of this Bill, and under the same restrictions as are imposed where a Memorandum of Association is to be altered; whether it would not be well to give power to amalgamate companies. Occasionally Private Bills are introduced for this purpose, and I think it might be well here to give powers to do that in the High Court There are one or two other small matters for comment, but they are rather for Committee than for the House; but the Bill itself, as the noble Lord has stated, is in strict accordance with the recommendations of the Joint Committee of last year, and I sincerely hope it will become law during the present Session.
§ *LORD BRAMWELL: I am not going to say a word against the intention of this Bill, but I desire to make one or two remarks upon it. It is a strong measure that when a man enters into a particular business he should be made a partner in another. A man enters into partnership with a number of people, the form of the partnership being a Limited Liability Company. That partnership is for the purpose of carrying on a particular business, and the proposal of this Bill is that power shall be given to make him a partner in a different concern, that is to say, in the old business that he had agreed to join, with such addition to it as the majority of the shareholders may desire, and which the Court may think reasonable. Now I cannot help thinking that is really rather a strong measure. A man is to be made against his consent a partner in a business which he may dislike very much, which may be opposed to his own particular interests, and which may possibly go against his conscience, for it may be that the additional business is the sale of intoxicating liquors, or what not, which he may object to. Now I do think, whatever may be his reason for objecting, that a man should be enabled to get out of the new partnership; he should not be compelled to be a partner in a business which he had rather have nothing to do with. It is true that the Court has power to grant it in such terms as may be thought fit; but the Court, for anything I know, might not accede to this 436 sort of objection which I am now taking: that would be wrong, and we should not give the Court the power of doing wrong. Your Lordships may think it a reasonable thing that a man should be at liberty to get out of the new business, and perhaps the noble Lord who has charge of this Bill will take that into his consideration. It may be said he can get out because he can sell his shares. But perhaps he cannot sell, because there may be no market for them, or they may be worth less than nothing, I think there should be some provision made by which a dissentient partner should be at liberty to retire from the firm. That is one matter which I wish to suggest for the noble Lord's consideration. The other matter is this: I do not find any procedure laid down in the Bill for making application to the Court. I do not see what step is to be taken for that purpose, whether any summons is to be issued, whether any notices are to be served, or whether there is to be any advertisement. Perhaps the noble Lord will think it right that there should be some arrangement made about that matter also. I have only one word more to say, my Lords, and that is that I entirely concur in the criticism which has been passed by everybody upon Clause 2. It is impossible in reason that it can stand as it does.
§ Bill read 2a (according to order).
§ *LORD BALFOUR OF BURLEIGH: In moving that the Bill be referred to the Committee on General Bills I should like to explain, with the view of endeavouring to meet what has been suggested at this stage, that I have entered into communications with the noble Lords who are Chairmen of Committees, and it has been explained to me that the Committee on Law has four or five Bills before it, while the Committee on General Bills has scarcely any, and that, after all, this matter is in great part of a general nature, as well as partaking of the nature of a legal measure. If it is thought that the Committee on General Bills is not strong enough in legal talent, I would venture to suggest that one or two of the legal Members of the House should be added to that Committee, rather than that all the Bills of a legal nature should be concentrated in the Committee on Law, 437 which would cause an amount of delay and the inconvenience which the other course would prevent.
§ LORD HERSCHELL: I quite agree with the noble Lord as to this Bill being-one upon which legal opinion may well be brought to bear; but the fact is, that that may be said of so many Bills that it is difficult to discriminate between those that must go to the Law Committee and those that may go to the Committee on General Bills. We should endeavour, as far as possible, I think, to distribute the work of the House between the two Committees, and to avoid throwing it all upon one. This, after all, is really a matter of trade, and the legal opinion is only wanted to assist in putting it in proper form. I think the difficulty might be got over by adding some of the legal Members of the House to the Committee on General Bills for the purpose of this Bill being considered there, the General Committee having certainly more leisure at present than the Law Committee.
§ Bill committed to the Standing Committee for General Bills.