Evening Post. THURSDAY, OCTOBER 25, 1934. TIGHTENING UP THE LAW

Evening Post, Volume CXVIII, Issue 100, 25 October 1934, Page 12

Evening Post. THURSDAY, OCTOBER 25, 1934. TIGHTENING UP THE LAW

The third and final report of the Companies Promotion Commission, which was presented to Parliament last night, is less exciting than either of its predecessors, but it. displays exactly the same merits and is of even greater importance. A dramatic interest attached to the two interim reports of the Commission because they gave details of its investigations into the operations and tangled inter-relations of a number of investment trust companies which were considered by the Government and the Legislature to be of sufficient importance to justify the passing of a special Act providing the machinery for a more detailed investigation. With this line Of inquiry the Commission was no further concerned, and the subject of its final report is the recommendation of additional safeguards for the protection of the investing public from the risks to which they are exposed by the laxity of existing methods of control, especially in regard to company promotion. Constructive reform is almost always a more difficult and less attractive task than the exposure of tho mischiefs which make it necessary, but when, as in this case, it proceeds upon the principle that prevention is better than cure, and propposes to attack the mischief, or the greater part of it, at its source, it is, as we have said, of greater importance than tho preliminary work.

There is one innovation on which tho Company Promotion Commission may be congratulated. In framing its recommendations it has, of course, had to consider not merely the letter of the statute law, but the interpretation that may have been placed upon it by the Courts, and how important these maybe is indicated by one of its recommendations:

That, in publishing tho Companies Act, the Government Printer should bo instructed to insert as a footnote at tho bottom of tho pa go which contains Section 40 of the Companies Act a brief rofcroneo to tho etiso of Tho King v. Kylsant, with a brief statement of tho principles enunciated by tho Judges who affirmed tho conviction, in that case.

This section is the one which sets out the requirements of a valid prospectus at considerable length, but evidently, in the Commission's opinion, not with such clearness that the rulings of the Judges would not make a valuable addition. This course would itself be a considerable innovation, on which no doubt there is a good deal to be said on both sides, but, partly for that reason, it is not the one to which we have referred as a matter for congratulation. What we had in view was the Commission's use of a literary authority, whom it is a pleasure to find invoked in such a document.

Shakespeari> would hardly be recognised as a legal authority in any of our courts, but he is "rich in saving common sense," and no Judge could have given us a better statement of the principle for which he is cited by the Commission, and which for the law-maker, if not for the law-interpreter, is of capital importance: We must not make :i scarecrow of the Law, Sotting it up to fear tiie birds of proy, And lot it keop one shape, till custom mukq it Their porch and not their terror. This remarkably happy quotation from "Measure for Measure," unfortunately marred by a mistake in the second line which we have corrected, exactly expresses the process which the Commission desires to amend. There is, as the report says, "a considerable body of law designed to prevent abuse and to protect die public." The public have taken it at its face value, but the abuses which it was designed to protect have nevertheless flourished because ingenuity has discovered means of reconciling a formal compliance with all the advantages of violation. The old phrase was "to drive a coach and six through an Act of Parliament." Our Companies Act, based upon the original British Act of 18G2 and brought up to dale from time to time, has on the whole served its purposes remarkably well, but those parts of it through which the professional com-pany-promoter can drive his coach and six or his sedan cur in perfect comfort, must be strengthened at once. The most sweeping of the changes recommended by the Commission in regard to company promotion is do-

signed to exercise a strict control over it from the source. The proposal is that a Corporate Investments Bureau shall he established with comprehensive and drastic powers of supervision, investigation, and control. The functions of the Bureau are to include the supervision of prospectuses, the investigation of complaints, the insistence upon candid disclosure, the prosecution for breaches of the Act, the application for "injunctions against unconscionable and specious schemes, and representations," the registration of promoters, directors, brokers, salesmen, and valuers, with power to strike off the register and to prevent the unregistered from operating, and the exorcise of all the powers of search and inquiry that are conferred by the Companies (Special Investigation) Act, 1934 It is also proposed that the Corporate Investments Bureau should exercise similar powers of regulation and control over sharebrokers and stock exchanges; and that it should be administered by a controller with a council of three members and a skilled staff. No estimate of the cost is submitted, except that "it should be small and might be met by a small levy on. companies." The opinion is also expressed that "control would have a considerable moral effect on company promotion, and that legal action would be rare." The moral effect of these draslic provisions and many others that Aye have not mentioned upon company promoters of the speculative class is certainly likely to be considerable, but what effect they may have in I he discouragement of legitimate enterprise is obviously a matter for serious consideration.

A hurried glance at a few of the many other recommendations in this remarkably comprehensive and elaborate report is all that is possible now. The abolition of the bond system in connection with landutilisation companies, the requirement that an investment trust company shall not carry on business unless it has a subscribed capital of not less than £40,000, of which at least £20,000 has been fully paid up in cash, and a whole schedule of additions to the information that must be included in the prospectuses of various kinds of companies are among the most important. Mr. Barton and his colleagues are to be congratulated upon the industry, the thoroughness, and the microscopic care displayed in a report on which even an expert might hesitate to pronounce a definite conclusion at sight.