I have given a considerable amount of thought to this matter, because I have had representations from other sources also in favour of this change. I should like to facilitate companies who wish to make the change, but it will be necessary to have many safeguards and, indeed, I have some doubts whether it will be feasible to provide in law adequate safeguards to cover all cases. I do not wish to suggest that I have reached a final conclusion in the matter, but I certainly would desire not to rush into action in regard to the matter at this stage, without a great deal of further examination of it. I would ask the Deputy to allow it to stand over until the second Bill comes along.
It is necessary to bear in mind in this regard that the interests of others than the preference shareholders are involved. We shall also have to have regard to the interests of the creditors of a company. So far as these creditors are concerned, they would have entered into dealings with the company on the basis that its issued share capital could not be reduced, except in accordance with the procedure set out in existing company law. Any alteration of the basis on which preference shares had been issued might involve a reduction of the assets of a company, with consequent lessening of the security of its creditors. Before existing preference shares could be made capable of being redeemed, not only should the consent of shareholders be obtained in the prescribed manner but dissenting creditors would also have to be given opportunity of appeal to the courts.
The whole theory of the Companies Acts at present is that capital invested in a company should be invested permanently. Those who have business with a company can ascertain from its published accounts what its capital resources are and they should not find that, having extended credit, these resources could be reduced. It would be a serious step to take to facilitate what would in effect be a withdrawal of capital without having complete safeguards for all persons having dealings with the company.
There are provisions in the Companies Acts at present relating to the reduction of share capital. There is a prescribed procedure for an appeal to the courts by creditors who dissent from a proposal to reduce the share capital of a company. The courts must be satisfied before permitting any reduction of capital that every dissenting creditor has been either paid or secured. The courts are entitled to take into account the representations of creditors as well as the representations of dissenting shareholders before deciding on an application to permit a reduction of capital.
It is possible for a company to carry out the alterations which the Deputy has in mind when it has secured the consent of the court to a reduction of its preference share capital. I do not think that we should go any further in the matter until it has been very carefully considered with regard to the adequacy of the safeguards to be provided to prevent such facilities being abused in any way.