"And in cases where no such increase of nominal capital may be resolved upon, an unlimited company may, by such resolution as aforesaid, provide that a portion of its uncalled capital shall not be capable of being called up, except in the event of, and for the purposes of, the company being wound up."
"A limited company may by a special resolution declare that any portion of its capital which has not been already called up, shall not be capable of being called up, except in the event of, and for the purpose of, the company being wound up; and thereupon such portion of capital shall not be capable of being called up, except in the event of, and for the purposes of, the company being wound up."
The first paragraph of this clause (the fifth in the Act) was designed to meet the case of unlimited banks whose capital was all paid up, and who might desire to register under the Act, but who would practically be debarred therefrom because of their thereby making themselves absolutely limited, as would have been the case under the clause as it originally stood in the bill.
Mr. Shaw having thus extricated the committee from a difficulty which at one time seemed insurmountable, the remaining clauses were rapidly proceeded with and disposed of.
The bill was finally passed on the loth of August, 1879, and it now constitutes the Act 42 and 43 Vict., c. 76, entitled, "An Act to amend the Law with respect to the Liability of Members of Banking and other Joint-Stock
Companies, and for other purposes," which contains the following clauses:-
1. Act may be cited as the Companies' Act, 1879.
2. Act shall not apply to Bank of England.
3. Act shall be construed as one with the Companies' Acts, 1862, 1867, and 1877, and those Acts, with this Act, may be referred to as the Companies' Acts, 1862 to 1879.
4. Any company registered before or after the passing of this Act as an unlimited company may register under the Companies' Acts, 1862 to 1879, as a limited company, or any company already registered as a limited company may re-register under the provisions of this Act.
The registration of an unlimited as a limited company shall not prejudice any debts entered into prior to registration.
5. Is Mr. Shaw's clause, referred to above.
6. Provides that a bank of issue, registered as a limited company, either before or after the passing of this Act, shall not be entitled to limited liability in respect of its notes.
7. Provides for a compulsory and independent audit once at least every year, by auditors appointed by the shareholders.
8. Enacts that every balance-sheet shall be signed by the auditors, and by the secretary or manager, and by at least three of the directors.
9. Contains provisions for closing the registration of a company formerly registered, and dispenses with the delivery of the necessary documents when re-registering under this Act.
10. Company registering under this Act may avail itself of the privileges conferred by the Act, notwithstanding any provisions contained in any Act of Parliament, Royal
Charter, or other instrument constituting or regulating the company.
In the above form the bill was passed, and it will therefore be seen that the idea of a uniform balance-sheet was given up.
There can be no doubt that the Act, although far from perfect, is a step in the right direction, and secures to creditors a better class of shareholders than was likely to exist upon the old basis, when it was brought home to them by the bank failures what risks they ran.
The Act being a purely permissive one, it was not to be expected that a great rush would be made by the unlimited banks to take advantage of its provisions. The chancre of the relations between the shareholders-the debtors, and the depositors-the creditors, was too sweeping to admit of any hasty or ill-considered action. Although the shareholders had no doubt of the advantage of the change to them, they feared that the reduction of the security might frighten depositors, and lead them to remove their business to banks remaining unlimited. Hence, although the unlimited banks had approved of the measure, and had used their influence to get it passed, after it became law there was some reluctance exhibited to take advantage of its provisions, and no bank seemed to care to be the first to make the experimental plunge. At length, however, on the 24th of October, a meeting of the unlimited banks was held in London to consider the subject, and the conclusion was generally come to that it would be advisable to register under the Act. Accordingly, shortly afterwards, announcements were made by some of the loading London and country banks that they would do so. Among these may be mentioned the London and Westminster, the National Provincial, the London and County, and the Manchester and Liverpool District banks. And the ice having been broken by such high-class institutions, others followed suit in quick succession. A still greater impetus was given by the remarks of the chairman of the London and "Westminster Bank at its annual meeting in the following January. He stated that since the bank had come under the Act, the number of accounts and the amount of deposits had increased, and the proprietors had become of a better class. We believe this is the experience of the large majority of the banks which have registered. It is natural that it should be so, for the public are wise enough to see that the limited liability of a wealthy proprietary is a greater security to them than the unlimited liability of men of straw, into whose hands there is a danger of such shares falling, since the risks of holding them have been proved to be so great.
Of the high-class London banks, the "Union and the Joint-Stock are still holding aloof from registering, as they consider a sufficient time has not yet elapsed since the registration of their neighbours to test the expediency of doing so themselves.