LIMITED LIABILITY.

Daily Southern Cross, Volume XIV, Issue 1088, 1 December 1857, Page 3

LIMITED LIABILITY.

{From the S. M. Herald.) An A.ct of the South Australian Legislacure, passed lust year, and intended to limit liability in Joint Stock Companies, having been brought under the considera tion of the Imperial authorities, has been condemned as going too far in removing responsibility, and the following explanatory dispatch- with reference thereto, has been sent to the Governor : — Downing-atreet, 18th June, 18.57. Sir — With reference to my despatch, No. 16, of the 6th ultimo, I transmit herewith, for the consideration of yourself and of your responsible ad risers, the enclosed extract of a letter (Treasury, sth June, 1857), from the Secretary to the Board of Treasury, containing the views entertained by the Lords Commissioners in respect of the provisions of the Act of the Legislature of South Australia, No. 5, of 1856, entitled "An Act to amend an Act intituled An Act to provide for the Registration of Joint Stock Companies, and for limiting the liability of members thereof," I have, &c, H. Labouchere. Governor Sir R. G. Macdonald, C.8., &c, &c, &c.

Extract of a letter from James Wilson, Esq., to H. Merivale. Esq., dated Treasury Chambers, 6th June 6th, 1857. 11 The Lords Commissioners of her Maiesty's Treasury, have had under their consideration the Act No. 5 of 1856, of the Legislature of South Australia, entitled 'An Act to amend an Act to provide for the Regis - I nation of Joint Stock Companies, and for limiting the liability of members thereof," transmitting in your letter of the 12th ultimo. "Their Lordships have directed me to request that you will observe to Mr. Secretary Labouchere, that by the provisions of the Act of 18th June, 1856, the amendment of which js now proposed, the liability of | shareholders of registered Joint Stock Companies, in I respect of the debts of such companies is limited to the amount of the shares to which they shall have subscribed respectively. The only secuiities for the credi tors which the Act provides consists in the appointment of auditors by the shareholders— a provision which experience has shown, particularly in the case of banks, to be of little value ; a penalty on the directors who shall declare and pay any dividend when the company is known by them to be insolvent ; and the enactment that, when three fourths of the subscribed capital of a company shall have beeu lost, its affairs should be j wound up, and the company be dissolved. Banks and assurance companies are expressly excepted from the pi ovisions of this Act. "By the Act No. 5 of 1856, now under consideration, it is proposed to remove the exception contained in the former Act, and to extend to banks and assurance companies the benefit of its provisions. "The reason for the exception contained in the first Act appars to my Lords to be obvious, and no grounds are stated in the report fram the Attorney-General of South Australia (the only explanatory document which

accompanies the Apt No. 6 of 1888) for repelling it. Bank! and awuraixoe companies differ essentially from other joint-stock companies in the character of their business, inasmuch as they are not only trustees for money deposited with them, bat are also dealers in money, and the money with which they deal is to a great extent thfe property of others. In the case of ordinary trade th» risk incurred is greatly proportioned to the capital invested j but in the case of banka, unlcad the amount of debts to be contracted by them is restricted, the amount of their liabilities arinin^ irom lac use of deposits may greatly exceed the amount of the subscribed capital, and in the event of tmu<Wieut or improvement management, that capital alone would afford inadequate security to depositors and other creditors. It is, therefore, in the opinion of my Lords, consistent with sound policy that those who undertake the charge of money, and derive large profits from its use, in a business which with ordinary prudence is attended with little risk, should be required to give an unusual guarantee to the public against «ny abuse of the trust. "In the case of colonial banks, regulations have been in force for many years, and hare been acted upon generally, with very trifling modifications, in all the colonies, by which reasonable security is Afforded to th« creditors of incorporated banking companies, while individual shareholders are relieved from the excessive riskof unlimited liability. The principle adopted by those regulation* is, that the shareholders should be responsible to the extent of twice the amount of their subscribed shares ; and that the total amount of the debts and habilites of a company, am and above the amount of deposits, shall not at any time exceed three times the amount of the capitnl stock subscribed and actually paid up. By the Utter clause depositors are secured against the employment of iheir money ' in speculate c investments, beyond a certain amount proportioned to the capital of the shareholders, and the shareholders are themselves secured against unlimited demands against them by the operation of both clauses. It is usual, also, in the deeds of settlement entered into by the shareholders to piovide for the winding*up of the bank iv the event ot one- lour th of the capital being lost —a provision which is calculated to afford • further security, both to the public and the shareheldera. "My Lords presume that the incorporated banks of South Australia are now subject to the foregoing provisions. It is not alleged that they have operated with inconvenience, or prevented the extension of banking business in the colony to the full extent to which such business can be carried on with advantage to the community. But, without any reason assigned it is prey posed to abrogate these wholesome regulations, and leave the public without any guarantee, exposed to all the risks of mismanagement by banks, the consequence; of which may not be ascertained until three-fourth* ot the capi< al are lost i my lords cannot but think that the measure is fraught with danger to the public, and is calculated in the end to biing the institution of banking itself into disrepute. "I am to &Jd that my Lords have confined their observations on the subject to the measure as it affect* banking companies, because the consideration of legislation respecting those institutions comes more partiOulaily under the cognisance of this Board ; but they think it right to observe that objections miry he uzgert, with i^o less force, to the extension of the proposed measure to assurance companies, the management of which constitutes a trust of peculiar weight and importance, the fulfilment of which can only be secured by attaching great responsibility to those who undertake it."