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Australian Journal of Corporate Law/(2011) 26 Aust Jnl of Corp Law No 2/Articles/ Gatekeepers in nineteenth century corporate law: The case of Overend, Gurney Co Ltd (2011) 26 Aust Jnl of Corp Law 200

Gatekeepers in nineteenth century corporate law: The case of Overend, Gurney Co Ltd
Neil Andrews* There are unexplored themes between the use of soft law in corporate regulation, particularly the roles of professional gatekeepers, and growing interest in the fraud associated with the increased availability of limited liability after the mid-1800s. Lawyers and accountants played key roles in the conversion of the partnership of Overend, Gurney Co into a listed joint stock company as well as in seeking to attribute accountability for its subsequent failure. These events occurred at a formative time in financial capitalism as joint stock companies with limited liability expanded into banking, facilitated by these professions and the knowledge and skills of their members. The professions and their members were also changed by their work on the promotion, management and regulation of these companies. Gatekeeping literature is marked by assumptions that the state and the law are unable to regulate companies which reflects the laissez faire arguments used by governments and professionals in the mid-1800s to justify the further legal regulation of companies. It also, with some exceptions, ignores literature on the professional project of lawyers and accountants in advancing themselves as a group. Lawyers were significant in creating corporate law and in its application to the regulation of companies. Accountants partly came into existence as a profession because of this new way of structuring enterprises.

Gatekeepers are people too, and no less subject to psychological bias and cultural pressures than anyone else.1

1 Introduction
This was a limited liability concern; but don't let them find fault with limited liability; but rather with the unlimited fools that took shares in it.2

At 3.30pm on Thursday 10 May 1866 Overend, Gurney & Co Ltd, a pillar of the British banking system second only to the Bank of England, suspended payments. The Banker's Magazine described that 'Black Thursday':
as the shock of an earthquake. It is impossible to describe the terror and anxiety which took possession of men's minds for the remainder of that and the whole of the succeeding day. No man felt safe. A run immediately commenced on all the banks, the magnitude of which can hardly be conceived.3

The Times the previous day had noted the beginning of a 'mania of terror'. After Overend ceased to trade it observed that the shock would be felt in the remotest parts of the country. By 12 May it spelt the word 'Panic' with a capital and described how commerce was choking as confidence drained from the banking system.4 The Prime Minister and Chancellor of the Exchequer suspended the Bank Act.5 In the following weeks 10 other banks suspended payments including the Agra & Masterman's Bank with liabilities of 19 million. In all about 200 companies and firms were forced into bankruptcy. Interest rates rose to 10% as money disappeared.6 King, amongst other writers, regretted that 'there was never any official inquiry into the causes of the crisis which was as unique in character as it was unprecedented in magnitude'. He believed that the large numbers

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of unproductive inquiries in the 1840s and 1850s discouraged further efforts as many felt any remedy was not further legislation but further education of the public.7 The Royal British Bank scandal in 1857 had revealed the problems of banks with unlimited liability when one third of the wealthier shareholders moved abroad to escape their debts.8 Recent research has shown that, rather than reflecting an acceptance of greed and deceit, it set off another moral panic over the effects of joint stock companies and the share market on British life. Any remedies were only partly in more law and regulation. Parliament appealed to the older values of the evangelical economy and models of the firm. By stripping rights from shareholders to disclosure and other reliance on directors an attempt was made to encourage them to act more like partners in monitoring the business of an enterprise and the directors managing it.9 This reflects the appeal in recent years to the extralegal effects of sources, practices and people sometimes described as soft, smart or reflexive regulation. It also goes beyond it to what Tomasic and Akinbami have recently described as an essential element within companies operating in financial markets, trust, a combination of social responsibility, ethics and fiduciary duties.10 Some of these are to be found in the role played by professions in their management and governance. Three professions were significant in the floating and collapse of Overend and the attribution of responsibility: lawyers, accountants and financial journalists, the ancestors of today's financial analysts. Overend's incorporation as a company, its listing and collapse occurred in a formative period for financial capitalism and the emergence and development of these professions. The majority of the trading on the London Stock Exchange was changing from British and foreign government debt to shares in British and foreign companies.11 These professions, and distinctive specializations within them, were moulded by these changes and, in turn, led to other changes in the development of financial markets.12 Barristers were re-establishing themselves as professionals associated with the social and political elite and independent in their self-regulation. Both solicitors and accountants were emerging as organised professional groups and attempting to win for themselves the professional autonomy that barristers had regained. Finally, in a field where information was valuable, was the press. So much money was made out of the lack of transparency that market participants and their professional associates subverted disclosure requirements and fostered conflicts of interests. The power of financial journalists to reveal information and to name and shame made them powerful, but conflicts of interests, the manipulation of information by market insiders and inaccurate reporting made financial journalists and the media dangerously unreliable gatekeepers. A summary of the recent literature on gatekeeping which emerges from the revelation of corporate failures in the late 1990s, early 2000s and the present GFC (GFC) follows. This leads into an account of the conversion of Overend from a partnership to a listed joint stock company and its collapse and resulting litigation. The roles of the legal and accounting professions as gatekeepers in these events are considered. The conclusion draws together those issues which are seen in the gatekeeping literature or which remain unexplored in it.

2 The literature on the professions as corporate gatekeepers

I concede fully the danger that in allowing modern policy debates to frame historical research, we risk inflicting today's agenda on historical sources that were differently oriented. On the other hand, we respect history when we consult it carefully for the historical roots of modern problems.13

In explaining recent corporate failures there are four common explanations significant to gatekeepers: gatekeeper failure; misaligned incentives; herd mentality; and, a failure of ethics. Failure of ethics and greed are claimed to affect many, including the gatekeepers. Misaligned incentives are usually associated with corporate managers and their inflation of earnings to push up the price of their options; herd mentality is associated with individual and institutional investors' over concentration on quarterly results. Gatekeepers also suffer from these as they also have misaligned incentives and are subject to herd instincts. The accounting scandals of the early 2000s led to new regulatory law and policy requiring lawyers and accountants to be more attentive to their public and ethical duties seen, for example, in the US Sarbanes Oxley legislation. The GFC has seen a return to these issues in gatekeeping.14 In one of the most recent contributions to the discussion, Langevoortt seeks to answer the question of why financial institutions had retained so much of the risk of sub-prime loan instruments and considers the need to revisit Sarbanes Oxley in respect of the law and accounting professions and financial service firms. He believes that the problem may be in the structure of business organisations which promote loyalty and in the psychological effects of

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excessive risk taking.15 The underlying issue appears to be how to create confidence that participants in financial markets are trustworthy.16 The writers, many influenced by neo-classical economics and its pursuit of maximising shareholder value, see the law as too blunt an instrument to regulate financial markets and listed companies. They believe, like British laissez faire politicians in the 1800s, that the dynamics of the market are too complex to be grasped by policy and lawmakers. Intervention to correct the market, they claim, inevitably leads to further interventions so that the competition should run freely with a few permanent legal rules.17 State interference, according to them, will lead to misallocation of resources, economic inefficiencies and the overall loss of wealth.18 They accept that legal regulation should be used only where there is significant 'market failure'.19 Who are the gatekeepers? While there has always been an interest in third party liability the term appears to have been first used in the corporate regulation debate by Kraakman to refer to all private third parties who may become liable but also to those 'who could disrupt misconduct by withholding support' and who could be penalised for failing to do so. He distinguishes their duties from whistleblowing, resignation or other powers to punish wrongdoers. He sees it as the lightest of duties, an obligation to withhold assistance.20 It supplements direct enforcement which may fail for many reasons in deterring excessively risky transactions, including the cost of detection and prosecution and the limited assets of the company to pay any penalty or innocent parties including creditors and employees. Such penalties are only justified if they can lower the direct costs of enforcement and lower the incidence of the misconduct.21 Kraakman argues that duties have to be prescribed in advance as we only know if gatekeepers have failed after the event and so need to punish them rather than deter them.22 He distinguishes two kinds: those who are like bouncers who exclude wrongdoers and those who are chaperones with an ongoing relationship with the enforcement target. Securities law and company law have many examples of chaperones.23 He includes Stock Exchanges as bouncers, although they do not appear to fit within his definition of gatekeeper.24 One of the striking things about the gatekeeper literature is how it ignores what Larsen terms the 'professional project' of advancing the status and interests of the members of professional groups.25 In the case of English solicitors, for example, this involved a limitation on the expansion of numbers in the nineteenth century which created an unmet need for work. The professional associations saw this as increasing their members' status. The unmet demand created alternative professions including accountants who did the bookkeeping attorneys had once done, although the new solicitors often controlled the allocation of work to them.26 This status reinforced the legitimacy of solicitors' work. Yet they also needed to have a reputation for being useful to their clients to gain business. The gatekeeping writers ignore much of the literature about the professions and their development. This reveals that there was no golden age in which there were clear demarcations between being a member of the legal or accounting professions and being in business. They are also able to sustain conflicting conceptions of their respective professions.27 Coffee's is the most considered account of corporate and securities gatekeepers and he does recognise something of the significance of the professional development of lawyers and accountants in the nineteenth and twentieth centuries. He concludes:
Law and accounting are very different professions. But the history of each of the last century suggests that professions behave similarly. In common, they protect their autonomy; they resist broad duties to the public; and they invest very little in self-policing.28

Coffee considers the role of accountants, lawyers and security analysts in general and in the particular contexts of the failures of Enron and WorldCom.29 He recognises that the use of gatekeepers is an alternative to a regulatory approach which is based on formal law.30 His basic analysis is still founded on people as rational economic actors. He concludes that there are four general reasons why gatekeepers may fail: it is rational for them to acquiesce in the misconduct; imperfectly competitive markets lead to collusion; a decline in their reputational capital; and, a reduced exposure to litigation. He argues, for example, that the failure by auditors as gatekeepers has been produced by the conflicts of interests in their consulting activities and in the decline of the threat of litigation.31 The first ground includes the others in the sense that collusion may be rational where parties are rewarded,

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reputational capital may not be affected, or, that there is little chance of having to pay damages. Kraakman's work reflects this in looking at broader legal controls over good governance in corporations and in the regulation of their securities.32 Can legal rules induce gatekeepers to prevent misconduct at an acceptable price?33 Where penalties are not set correctly gatekeepers may over or under monitor34 and where the costs are too large gatekeepers may refuse to perform their roles, or to perform them in respect of the most risky parties who are most in need of being exposed or deterred.35 Most attention has been paid to the role of reputational capital and possible liability. Kraakman finds that what is at stake for the professionals is their reputation. Lawyers and accountants he claims, in particular, make attractive gatekeepers because of their investment in licences and standing.36 One weak spot is legal and accounting firms with a few clients as the continuation of patronage may be a bribe to encourage professionals to turn a blind eye.37 Coffee focuses on examples in the context of collusive behaviour. These include auditors with conflicts of interests from their consulting work and their increasing identification with the senior management of the company as their clients.38 Partnoy emphasises this aspect, preferring the term 'reputational intermediary' to gatekeeper.39 He complicates Kraakman's original analysis by pointing out that it has not been informed by all the rational choices, as some intermediaries may rationally decide that they will maximise their profits by depleting their reputational capital.40 He also has pointed out that responses are not always rational, so that when investment bank security analysts recommend the securities of the bank's investment banking unit, and are rewarded for it, the bank's reputations appear to have been unharmed: 'these banks have maintained their reputations notwithstanding the extraordinary attempts of their employees to deplete them.'41 He explains this by the high costs to others of entering investment banking and the difficulty of knowing who to punish because of mergers in the industry.42 Similarly he argues that accounting firms have benefited from the costs and licences created by the regulation of the securities industry.43 This could lead to problems of collusion. In respect of possible liability, Coffee's fourth reason, Coffee concludes that the gatekeepers must continue to be entrusted with discretions but exposed to a real threat of litigation to ensure that they exercise these properly using appropriate standards of reasonableness. The problem he sees for policy makers is to expand the discretion and not remove it from the law. So, for example, securities lawyers should be made to bear full responsibility for the adequacy of disclosure in the documents they approve.44 His suggestions for reform, however, include changes to formal law including procedural law, disclosure and principal and agency. He also recognises that there is much greater scope for peer review.45 As indicated in the quotation above he recognises that there are long standing problems in the accounting and legal professions. 46 A few writers have worked outside the rational choice analysis of economics and have looked at gatekeepers from sociological and psychological perspectives. Langevoort has done so to explain how institutional cultures develop perspectives on risk.As he writes:
Once gatekeepers find markers of hard work, intensity, optimism, and enthusiasm by people inside the organisation who seem dedicated and sincere, they relax their guard. ... what I want to show ... is how hard work, intensity, optimism, and enthusiasm can sometimes be the source of the trouble.47

Some have discussed the public duties or civic trusteeship role of gatekeepers to legitimise their actions and the professions as a whole.48 Some tend to assume a golden age of high professional standards in arguing that law and accounting have failed from the change within them from service to profit maximisation. For example, McWilliams claims that in the late twentieth century law and accounting sought to maximise profits and to protect it through devices, such as limited liability for accounting firms, which led to a cultural drift as they sought to retain clients and diluted the importance of reputation.49 He tends to blame the management of the companies which were the clients of these professional firms for the pressure which they placed on their professional advisers. The result was that the gatekeepers took on the values of their clients with managers in firms equally focused on maximising profits. Coffee also observes how law firms came to organise themselves more like accounting firms.50 McWilliams notes that the solution proposed in the early 2000s for the legal profession and more so for the accounting profession was external regulation, which further compromised their autonomy.51 Like nineteenth century lawyers he opposes this in the case of the legal profession as limits on lawyers' behaviour

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derived from their public ethos culture would be preferable.52 He does not recognise the ambivalence of lawyers' commitment to the public interest, which is balanced by their own professional and business interests as revealed in studies of the profession. Or the extent to which rivalry continues between lawyers, accountants and auditors for clients.53 He appears to endorse the struggle by lawyers, if not accountants, in resisting the state in dominating their profession and requiring them to exercise stronger gatekeeping powers.54

3 A brief history of Overend, Gurney & Co and its flotation and failure as Overend, Gurney & Co Ltd
Ten years ago that house stood next to the Bank of England in the City of London; it was better known abroad than any similar firm known, perhaps, better than any purely English firm. The partners had great estates, which had mostly been made in the business. They still derived an immense income from it. Yet in six years they lost all their own wealth, sold the business to the company, and then lost a large part of the company's capital. And these losses were made in a manner so reckless and so foolish, that one would think a child who had lent money in the City of London would have lent it better.55

Overend, Gurney was founded in the late 1700s as bill brokers and money dealers. By 1865 'it had obtained the highest commercial repute, and was universally considered ... to be one of the most flourishing and money-making concerns in the greatest commercial city in the world'.56 It was on the verge of becoming a limited liability company, a process in which a number of lawyers and accountants participated and about which financial journalists wrote. Its last decade as a partnership and limited company saw significant changes in company law permitting this. British governments had long resisted the idea of limited liability in general and the limited liability of banks in particular. Bagehot later observed that the:
Success of joint stock banking is very contrary to the general expectation of its origin. ... [A] great number of thinking persons feared that the joint stock banks would fast ruin themselves, and then cause a collapse and panic in the country.The whole of English commercial literature between 1830 and 1840 is filled with that idea. Nor did it cease in 1840.57

These beliefs coincided with the interests of the Bank of England which was incorporated with limited liability under Royal Charter. The restrictions on both incorporation and limited liability originally protected it and its monopolies.58 The granting of limited liability by simple registration had been resisted by leading corporate lawyers as immoral. Cox, a leading company law practitioner and author of a major company law text, wrote in 1857:
The Law of Partnership hitherto has been ... that who acts through an agent should be responsible for his agent's acts, and that he who shares the profits of an enterprise ought also be subject to its losses; that there is a moral obligation, which it is the duty of the laws of a civilised nation to enforce, to pay debts, perform contracts and make reparation for wrongs. Limited Liability is founded on the opposite principle ... .59

By that time limited liability had become available by registration except for banks. The insolvency of the Royal British Bank in 1856 saw initial sympathy for its depositors expand to include its shareholders as both faced ruin. The difficulties of compensating depositors and getting wealthier shareholders to pay the bank's debts led to the extension of limited liability to joint stock banking companies. This resulted from laissez faire principles and the desire to avoid another moral panic. The policy, as indicated above, was intended to make shareholders more like partners in more closely overseeing the activities of such banks.60 When Overend became a joint stock company with limited liability 7 years later in 1865 the previously unthinkable, a banking company with limited liability, had become acceptable as the Banker's Magazine pointed out:
The transformation of Overend, Gurney and Co's far-famed discount establishment into a joint-stock company, marks another era in the history of limited liability. The progress of the lately naturalized principle towards universal adoption has indeed been little short of marvelous. ... [I]t was introduced to the commercial world as a doubtful experiment. Its failure was prophesied by enemies, numerous and confident, and its most earnest advocates did not anticipate for it more than a qualified success. ... A formidable band of financial magnates arrayed themselves against it, and, with few exceptions, the representatives of the moneyed interest looked upon it with unconcealed dislike and apprehension; and

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yet, so completely has the experiment succeeded, that all these vaticinations have already passed out of memory. ... Our readers will remember how coolly it was looked upon by the banking world, and how many thought that public confidence could only be secured by establishments whose every shareholder stood in peril of the ruin which overtook the unfortunate adventurers in Royal British, the Northumberland and Durham District, the Western Bank of Scotland, and sundry other defunct banking corporations. When the directors of the Bank of Manchester resolved to reconstitute their company on the new principle, there were many who shook their heads, and prophesied the coming of some great disaster to the bold men who ventured on a course so unusual ... . And now we have the latest, and probably the greatest triumph which limited liability has yet achieved, in the announcement that the Messrs Gurney have followed the example of forming their extensive establishment into a similar undertaking.61

The Banker's Magazine went on to argue that limited liability was desirable for shareholders as it gave them 'ease of mind by the division of responsibility especially in times of financial hardship' and it gave 'depositors and discounters the unpaid capital of a number of shareholders to fall back on'. It referred to the possibility of small investors now being able to profit from the growth of banks:
And to the political economist it is a source of gratification to see the mass of small capitalists admitted to participation in the profits which result from great commercial undertakings. ... By joint-stock associations with limited liability, everyone who has a few pounds to invest can become a partner in some great trading concern. That after making great allowances for errors, failures, and frauds, the system works well for the shareholders, every one knows; and the conversion of Gurney and Overend's business into a corporation on the new principle, is only an additional illustration of its soundness, and of the confidence with which it may be regarded by every class of investors.62

The failure of Overend as a partnership In retrospect it is clear that the incorporation of Overend was a response to its failure as a partnership. In the 1850s there had been a boom in the British economy partly driven by the gold from the Australian colonies. In the late 1850s there were major changes to the partnership. A number of partners retired. Samuel Gurney a long standing member of the firm died. New partners were recruited. The firm entered into new areas of business apart from bill broking and money dealing. It began to lend on the security of the property of steamship and railway companies, on shares in these companies and on the security of goods held by merchants for trading. It lent 4 million of which only 1 million was recoverable by 1865 but the business of bill brokers and money dealers remained profitable.63 Stefanos Xenos, a Greek journalist and novelist and the proprietor of the Greek and Oriental Steam Company, which had borrowed from Overend, left an account of his dealings with the partnership which had ruined him and brought it to the brink of bankruptcy. He described the partners he dealt with in the firm in the early 1860s and attributes the failure of the partnership and of the subsequent limited liability company to the flawed character of David Ward Chapman, a view also held by the leading historian of the London discount market in the 1800s.64 Two of the partners, Samuel Gurney and John Henry Gurney, scarcely ever appeared in the office and Xenos never met them.65 Bankers are a form of gatekeeper and protector of investors. Xenos' account shows a lack of professionalism by some of the partners in the firm. It also illustrates a continuing characteristic of the financial capitalism which occurred in this period, professionals and intermediaries themselves became market participants. The bank which had once financed listed joint stock companies, amongst other clients, became a listed joint stock company. It passed through the gate of which it itself was a keeper. Xenos's descriptions of the partners bring out the pious professionalism and the pursuit of greed which coincided in the London financial markets. He describes Henry Edmund Gurney as:
a proud-spirited man, somewhat pompous ... but ... he had, many a time and oft, saved whole branches of commerce from a crash, by assisting those at their head. He was a member of the Society of Friends, and a man incapable of uttering an untruth, or playing a double game.66

Henry Edmund Gurney's approach to banking was professional and risk adverse:
To the success of Henry Edmunds Gurney's design three conditions were indispensable - a special knowledge of maritime property; a moderate rate of interest, say, never in any case to exceed 10 per cent, so that the shipowner may

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be able gradually to release his vessels; and an inviolable rule never to advance more than a certain amount on a certain valuation. Besides, the trade in which the mortgaged vessels were engaged should be closely inquired into, and the capabilities and honesty of their owners ascertained.67

Unable to deal with all the business Gurney relied upon his other partners, David Ward Chapman and Arthur George Chapman. Xenos wrote of David that his 'life was a round of pleasure. With the exception of the few hours daily devoted to business, his whole time was taken up in giving or accepting entertainments.''68 The professionalism of his younger brother, Arthur, was even less: 'he signed so many cheques ... his partners, to relieve him from this heavy work, presented him with an annuity'.69 The other junior partner, Robert Birkbeck, according to Xenos displayed the professionalism expected of a banker:
He loved his work, and took an active part in all of the concerns of the firm. Endowed with great self-possession, he stood unmoved admidst commercial storms, and more than once, by his foresight and determination, saved the good ship of Lombard Street from being wrecked amidst the labyrinth of shoals and banks admidst which the two other partners and their precious favourites had entangled her.70

David Chapman further delegated the work of the firm. With limited knowledge of the condition of ships, their owners and the trade in which they were involved inquiries were handed over to Edward Watkin Edwards. Edwards was a barrister and an Official Assignee of the Court of Bankruptcy. He was to use, for Overend's benefit, the information which he obtained in his official position.71 Xenos recounts how he was sent to Edwards in respect of his request for a loan of 80,000 for 6 months. Edwards approved it only after renegotiating the original terms Xenos had requested. He required a premium of 40,000 and 10% interest for 6 months.72 The loan was approved without Edwards coming to Xenos' office or inspecting the ships. Xenos received the money before security was given and there was no request to see the insurance contracts for the ships.73 Edwards also insisted that as a reward Xenos pay him an annual salary of 500 per year. Xenos also gave him a yacht as a friendly gift.74 In addition to his salary as an Official Assignee Edwards received a salary of 5,000 a year from Overend although he was unable to recall exactly what he did for the firm outside his office hours as Official Assignee. He lent this money to David Chapman under a secret arrangement. In 1864 his employment was ended when Birbeck pointed out the losses he had caused the firm. Edwards insisted on being paid 20,000 and given a testimonial that his employment had ceased as the firm was no longer engaged in business which required his assistance.75 By 1865 the firm was owed 4 million of which about 1 million was recovered. Its bill discounting business remained profitable.76 But with the outstanding bad debts it would have difficulty in continuing to trade. An anonymous pamphleteer claimed that these conflicts of interests were common in the City as he referred to Edward's examination on the affairs of Overend after its bankruptcy:
It is sufficient to observe and admire the spectacle afforded by Mr Edwards. He is engaged in transactions with the firm, with a single partner of the firm, with customers of the firm, and with his own customers; and all of these transactions it is, of course, his duty to keep perfectly disentangled, and to prevent their exerting any influence on each other. And all of this is undertaken by a gentleman who has 'a very bad memory as to dates' and finds it hard to recall amounts which are reckoned in hundreds of thousands. We can form, of course, no idea of the influence which Mr Edward's inaccuracy may have exercised on the fortunes of Overend and Gurney; but he has given us an extraordinary revelation of the underground agency at work in the City, and the extent to which one quiet man may make use of great names for his own purposes, and without compromising himself. Had not this criminal investigation been set on foot, Mr Edwards might, we dare say, have continued with equal credit and success, to transact a dozen or so opposing businesses, and to do justice to any number of conflicting interests, including his own.77

There is in this evidence of bankers behaving badly. Edwards, a lawyer and civil servant, in his role of an Official Assignee of the Court of Bankruptcy, and also an employee of Overend was compromised in any gatekeeping role by acquiescence in misconduct and collusion with little concern, it appears for his reputation, or liability. The failure of Overend as a limited liability joint stock company The partners of Overend by 1865 faced bankruptcy. They decided to continue the business but in the form of a joint stock company listed on the London Stock Exchange in the expectation that, with time, the value of

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the assets could be recovered. The good assets were to be transferred to the new company but not the doubtful assets. The partners were to guarantee any deficiency in the transferred assets. They proposed to raise 5 million by the sale of shares, but not call for more than 1,250,000 to be paid up as this would be sufficient to continue to carry on the business. The partners valued the goodwill of the firm which was to be transferred at 500,000. They proposed to accept half of this amount in the shares of the company and half in cash but to subject it to a security in favour of the new company. This was all disclosed to the four directors who joined the former partners as directors of the new company.78 The partners' solicitor referred these arrangement to a conveyancer who recommended that there be two deeds, one for the transfer of the goods and assets and the other to cover the doubtful assets which were to be retained and wound up by the partners of the old firm.79 On 12 June 1865 the deed of transfer was settled but was not executed as the company needed to be in existence for this to be done. The prospectus was issued on 13 June. It referred to only one deed, the deed of covenant in respect of the transfer of the business.80 That deed stated that the whole of the existing assets were to be transferred to the company as well as the liabilities, with the exception that that the company was to be at liberty to reject any of the business, and that the partners in the old firm guaranteed the payment of all that appeared as assets on the face of the books of the company.81 On 27 July the second deed was settled relating to the excepted accounts and signed at the same time as the first deed on 8 August several days after the company had commenced.82 The second deed was more particular than the first deed. It recounted the loss of 4 million as well as the failure of the partners to take any profits, which amounted to 1 million and which reduced the amount of bad debts to 3 million. It stated that half the price of the good will was to be set off against the bad debts and that the company was to have a lien over the shares, partly paid to 15, issued to the former partners. It stated that the company could call on the partners, who had large personal estates, if they defaulted on their guarantees. It limited the time the excepted accounts were to be held in suspense so that the deficiencies had to be made up by a particular time. This deed was not made available to potential shareholders to see nor provided to the stock exchange when an application was made for a quotation or listing.83 The unusual sequence of the timing of the two deeds and the issue of the prospectus was explained at the criminal trial, referred to below. The solicitor for the promoters, the partners who were to be directors, received the draft of the first draft deed. He took it to the promoters who submitted it to another conveyancer for an opinion. It was almost impossible to get the two conveyancers together to discuss their differing opinions as one was away from London campaigning in a general election.Finally, the day before the prospectus was to issue the first deed was settled. The second deed was not settled until 27 July. Cockburn LCJ, at the criminal trial, examined the drafts and noticed that the second deed had been subject to 'very strict scrutiny into its provisions, for every clause was altered' to which the solicitor, who was a witness, responded that 'scarcely a sentence of the original draft remained ...'.84 The Gurneys had been concerned that the obligations in it may cut across other obligations in family settlements. The 27 July came to be the date on both deeds but they were not executed by the parties until 8 August. As a result of this delay only the first deed was available for inspection at the solicitor's office by possible shareholders.85 The secretary of the stock exchange was also called at the trial. He was asked what deeds or documents he would expect to receive and responded those that supported the correctness of the prospectus and any deed of covenant by a firm which had sold its business to the company.86 Also unaware of the second deed the stock exchange granted a settlement or listed shares for trading.87 The Economist welcomed the floating of Overend as it would now have to publish its accounts so 'there would be revealed what the discerning City man most wanted to know how the firm's extra business bore to its legitimate bill dealing business'. '[I]t was a matter of public notoriety', it reported, that for some time the firm had transacted 'business not at all in general of an illegitimate or unprofitable character, but still of a sort different from those conducted by bill brokers pure and simple.'88 But it argued that the company was probably not viable as bill discounting could not be done by a limited company. The bill dealer could not afford bad debts but unlike the banker had no ledger of the business to assist them in forming a view of the worth of the business presenting the bills for discounting. This required long experience and unremitting care to avoid bad debts, and a manager, even if conscientious, could not provide this.89

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The market for bank shares was buoyant. The half paid 15 shares offered to the public sold for 24, a 9 premium. However in 1866 interests rates began to increase. Overend struggled to obtain funds. The company called on the guarantees given by the former partners in the second deed and news that they were selling assets to meet their obligations led to a further loss of confidence in the bank. Over 4,000,000 was withdrawn.90 On 22 May 1866 the company ceased to trade. Turqand and Harding were appointed as official liquidators.91 The litigation following the collapse of the company
Two faiths I had -- abiding ones --

That Themis' scales were sliding ones;

That Shareholders, confiding ones,

Would bleed, yet stand at ease;

That law kept its fangs and feelers

For small cheats and petty stealers;

And not for daring dealers

With millions like these.92

Litigation followed Overend's failure relating to its incorporation, listing and management. The shareholders faced further calls on their now worthless shares. Creditors were anxious to discover what had happened. A defence committee, established by the shareholders and chaired by a shareholder, Adam Thom, 93 engaged an accountant, Oswald Howell, 'a demon with books', to review Overend's accounts.94 The promoters and directors, lawyers and accountants had little to fear. The directors escaped both civil and criminal liability for the prospectus they had issued which the shareholders now claimed to be misleading.95 Judges were willing to give a wide scope to directors engaged in commercial enterprises with their inherent risks and were also to be constrained by the finding equitable or criminal fraud against people of similar social positions to themselves. The lawyers and accountants who were involved in its flotation were never at risk of any liability which may confirm Coffee's point that this leads to a reduction in attention to ethical and wider public duties. The litigation again revealed that responsibility for corporate fraud was difficult to locate.96 The government refused to prosecute the case. By the time the government's inaction was raised the Solicitor-General had been retained to act for some of the defendants. The response of the Prime Minister, Home Secretary and Attorney-General was that was with other ordinary cases of fraud any 'prosecutions must be conducted by the sufferers themselves'.97 Civil action against the promoters and directors Thom brought a civil action for fraud against the directors who had been promoters,98 which is where the Prime Minister, Gladstone, believed that the issue should have stopped.99 At the trial Malins VC found that the directors were liable:
It was disclosed (to the new directors) that the firm -- the name of which had such a magic charm in commercial circles -- was no longer what it had been; that it had not only ceased to make profits, but had been carried on at an enormous

Page 10

loss for several years, and that it was, in fact, at that time insolvent to the extent of 2,000,000, if not, 3,000,000. ... As they were about to induce others to advance them money for the purpose of carrying on this insolvent and ruined concern, could they, upon any principles of morality and justice, be right in concealing so appalling a fact? I am decidedly of the opinion that they could not. It seemed that they persuaded themselves that they might rely upon the guarantees of the partners to make good the deficiency of the assets ... But they were not bound to tell those whom they invited to take share of the speculation in which they were proceeding, and to give them an opportunity of judging for themselves whether they could join an insolvent and losing concern in the hope of turning insolvency into solvency, and ruinous loss into profit? I am decidedly of opinion that they were bound.100

In spite of these findings he then attempted to repair any damage to their reputation by also pointing out that their share dealings were different from most promoters:
I think it only an act of justice to the directors to say that I think their conduct shows that they could not have intended to do wrong, and what they did was the result, perhaps, of a too sanguine view of the prospects of the concern, and a too great a reliance upon the guarantee of the partners; and, though the shares rose to a premium, none of them sold their shares.101

The decision was overturned by Lord Hatherly LC taking a robust view that applicants for shares must know the risks they were taking:
I must consider the character of the purchase which the directors were empowered to make. They were not to buy an ordinary estate. This was a purchase of an extremely speculative nature. Everybody knows that all trades are speculative, and the trade of bill-broker cannot be considered at the least so. The company was to embark, therefore, in that which must always be a hazardous business -- a business entirely dependent on the prudence and dexterity of those who manage it.102

Prosecution of the promoters and directors The criminal process reflected the legislative changes made after the Royal British Bank scandal which had created a specific offence for directors of making false statements to induce people to become shareholders. There were 31 other counts.103 The claims were that the transfer of the shares had been entered into when the vendors were known to be in a state of insolvency and were contemplating bankruptcy,104 were losing money at 500,000 per year through 'rotten speculations' which had cost an amount close to 5 million.105 The process was complex for the shareholders in the absence of the government being willing to prosecute the case on the basis that the criminal law was not a regulatory tool in respect of directors but exceptional.106 The Lord Mayor found a case to answer on the charges, again brought by Adam Thom, after reflecting on the evidence for a week.107 The Recorder of London conducted the proceedings before a grand jury to obtain the bill of indictment required for trial.108 The directors applied for that trial to by a special jury which would remove it into the Court of Queens Bench. The application was granted by Cockburn LCJ who took note of the nature of the evidence and the strong feeling against the defendants exhibited by those present at the inquiry before the Lord Mayor. He found that this would ensure an impartial trial stating: 'There might be [an] advantage in a trial ... removed from the excitement which appeared to have existed in the city of London on the subject.'109 At the end of the trial Cockburn LCJ referred to the experience and background of the members of the special jury, who were drawn from London businessmen, as he commenced his summing up:
It is a great satisfaction to my mind ... to think that this case is be decided by twelve gentlemen of this commercial community, familiar with commercial and monetary transactions, conversant with accounts, and thoroughly acquainted with all the incidents of mercantile life.110

Later in his summing up he drew to the attention of the jurors the social position of the directors:
Do you suppose that men of business, men of fortune, men of commercial position, would joint themselves to a company of this kind, in which they were to embark large sums, without going into some calculations to see how far the terms proposed to them by the old proprietors were such as they could, as reasonable men, with prudence entertain?111

Page 11

The biographer of Thom's solicitor, George Henry Lewis, claims that Coleridge, the Solicitor-General, who defended the directors 'toadied to the prejudices of the Lord Chief Justice on class; repeatedly using words such as "power", "money", "position"'.He also claims that Cockburn LCJ in his summing up repeated his references to the wealth and importance of the accused and 'huffed and puffed about the shareholders having the audacity to bring a prosecution at all'. It was to Lewis, a social reformer, a further confirmation of how entrenched social and political power could prevent justice being done.112 This reflected similar judicial values seen in the Royal British Bank case a decade before. There the directors, on conviction, were given light sentences.113 It led the Manchester Guardian to write that it provided an example of:
the stock in trade of those agitators who endeavour to persuade the people that the laws of this country have been made by the richer classes with a sole view to their own interests, and a contempt of the equal rights of the poor.114

However not prosecuting was still justified on the basis that there were other punishments for these offenders. They faced ridicule and exclusion from polite society, although whether the second occurred has never been investigated.115 Cockburn LCJ was particularly incensed that the new directors had been charged and committed for trial. He used this to raise again the issue of where the power to prosecute such offences should be located and the need for a Public Prosecutor:
I know of no case which has produced so strong an impression on my mind in favour of what has long been my growing conviction, namely, that our system which commits the prosecution of offences against the public to a private prosecutor, a system which differing from that of every other European nation, is based upon a false principle. I cannot but think that a public prosecutor is necessary to the due and perfect administration of criminal justice. If there had been a public prosecutor here, I will undertake to say that he would not have put those three gentlemen on their trial.116

The gatekeeper groups involved in the float of the company

If the commercial laws of this country were not so complicated, surely the last person that two merchants ought to invite to step in to arrange their affairs would be a lawyer.117

The floating of the old partnership as a company involved solicitors and an older branch of the legal profession, conveyancers, and to a less visible extent, accountants. The role of these professionals is revealed mainly through the evidence in the litigation which followed the collapse of the company. That litigation revealed how closely accountants and solicitors and barristers worked together although they were also professional competitors for particular kinds of work. Any broader public duties and ethical activities for both solicitors and accountants were complicated in the 1860s by the competition between the two emerging professions for work, the reverse of Coffee's imperfectly competitive markets leading to collusion. Reader noted the multiple functions of the attorney which were reshaped in the 1800s: 'Inside the 18th century attorney, half a dozen later professional men - accountant, company secretary, and others -- were struggling to get out.'118 Sugarman observes of solicitors and accountants 'their mutual interdependence and cooperation as well as their on-going conflicts.'119 In the 1860s the Law Society took about 10 actions a year against accountants for giving legal advice and drafting documents for a fee. At the same time the emerging solicitors used the bar and the landed gentry as a social model, reflecting a distain for business with many having little knowledge of commercial law. Solicitors were happy to depict themselves as bad bookkeepers as this helped their image as learned gentlemen.120 The result was that on issues, such as the conversion of a partnership to a limited company, businesspeople were often likely to turn to an accountant.121 Lawyers, however, provided the legal frameworks which created the major work for accountants, insolvency and auditing. Lawyers provided accountants with 'the regulatory context within which they worked, some of the core categories, assumptions and languages of their professional lives'. Accountants also depended on solicitors for work to be referred to them, for which solicitors charged them.122 In corporate law a requirement for auditors was included in s 108 of the Railway Clauses Consolidation Act 1845. This was extended to other joint stock companies in 1856. Increasingly

Page 12

there was an expectation that they would be accountants.123 A decade after the failure of Overend, in 1879, following the collapse of the City of Glasgow Bank, legislation required professional external audits for banks. There were problems with its effectiveness.124 In the 1890s finally there was a rash of litigation against auditors which led some in the profession to push for professional bodies to stipulate what an audit meant. They were unsuccessful.125 Accountants and lawyers rationalized and popularized the use of the company as a business form, as shown by their role in the conversion of the Overend partnership into a joint stock company. They continued the transformation of partnerships into companies as they marketed their skills and services to the business community. Some of the writers on gatekeeping suggest that lawyers and accountants lost their professional standing as they emphasised the business aspects of their professions in the late twentieth century. Both were also businesses in the 1860s. As in North America in the twentieth century there was a duality in the lawyers' professionalism as '[t]he ideal model of the lawyer includes both the roles of "zealous advocate" and "guardian of the public interest".'126 At the same time the professions claimed regulatory and protective functions for their expertise which maintained the legitimacy of their respective professions. They appeared to maintain the rules for interaction of participants in the market and in this way fostered markets and the growth of capital. They also appeared to protect the interests of individuals as well as preserved the interests of the community.127 This is an enduring dilemma:
The moral entrepreneur promoting ideas of pure law and professionalism must also show a bottom line profit. The lawyer must face the related dilemma of fighting for the abstractions of justice or fighting for the particular interests of clients.In order to be successful, indeed even to survive the lawyer must do both.128

Lawyers were also active in making the law relating to listed companies. Potentially effective legislation was often compromised by lawyers for their interest group clients. Duncan McLaren, a member of the House of Commons, who unsuccessfully proposed more effective measures for the audit of banks in 1879, observed:
When a bill was passing through Parliament which seemed a good bill, interested parties whose affairs it cut into generally got up opposition, and the Government would say to the parties promoting the bill, in order to get rid of the opposition, 'oh, we'll make it optional in regard to so and so', and thus many an efficient and excellent measure was vitiated in its effect, and rendered worthless.129

Lawyers could justify such roles. Legal forms were adopted not to 'engulf the parties ... in the paraphernalia of the state legal system' but to secure their autonomy from it through 'the role of the rule of law in the facilitation and legitimation of a plurality of semi-autonomous realms'.130 Both lawyers and accountants argued, consistently with prevailing ideas of laissez faire, that it was impractical to use law to prevent dishonest people from deceiving others and that changing the law would weaken those characteristics of the City which had made it the global financial centre.131 These are familiar arguments in 2011.132 The Companies Acts of 1856 and 1862, which removed many of the protections for the public, created the most permissive company law regime in Europe. It was done on the basis that the public and shareholders had themselves to be vigilant and could not rely on others to do what they should be doing themselves.133 It reduced the role of the professions as gatekeepers and the courts as regulators. But their role had an ambiguity to it often informed by the cause they were arguing. Those who became judges could be more independent in their views. The courts were in the period engaged in administrative activities relating to companies. The events surrounding the bubble in limited liability companies and the business of Overend in the 1860s reveal an administrative system which was under-resourced and which blunted its effectiveness. The Master of the Rolls, in practice a vice chancellor in the Court of Chancery, had considerable administrative responsibilities for companies. He observed that his offices were filled with the papers relating to applications to wind up companies:
that the petitions for winding up new companies were becoming so numerous that there was a great probability of his chambers being choked with winding-up business. There could be no doubt that many new companies were started merely for the purpose of being wound up.134

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4 The legal profession as gatekeepers

Lawyers seek only so much justice as the client can afford and persuading clients to accept what the law offers became an important facet of lawyer/business relations.135

Coffee claims that lawyering is an old profession136 but, in the context of England, law was re-emerging as a profession in the 1800s.137 The boom in railway incorporations had enlarged the bar in the first half of the 1800s. In the second half it declined and junior barristers lost work to both solicitors and their seniors. In 1835 there were, perhaps, as few as 450 barristers and as few as 660 in 1885. By 1841 there were about 10,000 solicitors and, in 1881, about 12 500. In spite of the growth in population, the economy and government the number of solicitors was kept in check by insistence on high education standards and a widespread belief that solicitors found it hard to make reasonable incomes.138 Their education did not promote a knowledge of commercial law. Their ambivalence about appearing too interested in commerce had significant consequences. They relinquished bookkeeping as beneath them, promoting their own social status, but also boosting the emerging profession of accounting. The distain for commerce, promoting their resemblance to the landed gentry, threatened them with the loss of considerable income.139 It also put them out of the way of being gatekeepers in many corporate matters. Barristers continued to come from the upper classes. Solicitors represented a greater social diversity. There were 'eminent attorneys' who advised landed families who had a status similar to solicitors who acted for railway companies or foreign governments. These had some potential to be gatekeepers. But many solicitors were employed as clerks or as public accountants and were so demoralised in waiting to have sufficient legal clients that they developed 'habits of intemperance'.140 In creating the wealth of the leading solicitors and barristers company law was significant. The incorporation of railway companies 'was a veritable lawyers' paradise: complex and antiquated procedures were allied to time-consuming and costly lawyering'.141 The creation of companies and then limited liability companies by registration:
created much new work for solicitors. They were required to draft the companies' major constitutional documents, including the articles and memoranda of association; where companies failed, they were obliged to oversee the winding up. Legal confusion concerning the jurisdiction of the Courts of Bankruptcy and Chancery during the period 1848 to 1857 produced more rich pickings for the legal profession.142

Having helped to create a very permissive legal regime which had de-emphasised the role of lawyers as gatekeepers and reduced their exposure to liability lawyers now defended it against reforms which would have better protected investors or have reduced limited liability itself. They influenced law making by serving as members of committees, as expert witnesses, as writers of pamphlets and letters to the press and in public lectures. They wrote the textbooks and established the collections of precedent used in corporate law.143 The connections between the bar and the Lord Chancellor and Attorney-General gave it a significant influence in shaping government policy as did the Law Society through its links with the City and the government.144 Solicitors and barristers did not see themselves as protectors of public and ethical interests. Sugarman, who pioneered work transcending the conception of lawyering as either a business or a profession, revealed how 'the relative elasticity of the ideology sustains apparently divergent conceptions of the profession'.145 Coffee, in the more recent context of the collapse of Enron and WorldCom, notes that lawyers recognised their ethical duties to their clients but that they would be surprised to learn that they were gatekeepers for someone else.146 The multiple roles of lawyers not only as legal professionals but as entrepreneurs, promoters, managers and directors makes common agreement about ethics more problematic. As indicated by the behaviour of Edwards in his employment by Overend many believed that they were entitled to benefit from any conflicts of interest including the use of inside information or usurping business opportunities.147 It was the facilitative nature of corporate law which made corporate lawyers so useful to business people and made them so ineffective as gatekeepers:
[it] afforded the parties concerned the opportunity to make their own law (private law-making), and even the opportunity, on occasions, to by-pass or attenuate the state law or equitable obligations established by Parliament or the courts, that otherwise would apply. ... Facilitative laws illustrate the way in which the form of law itself may, through

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it enormous flexibility and the legal principles that sanction that flexibility, mediate or avoid the legal order. Thus, use and avoidance go hand in hand.148

Limited liability protected shareholders but also transformed the nature of the firm. It meant that shareholders could more safely neglect to monitor those who managed the company for them. In time the act of incorporation came to be reinterpreted by lawyers so it ceased to be seen as a collection of partners and more of an abstract entity. One change was to affect the separation of ownership and control as shareholders lost rights for 'indefinite expectations'. Directors changed from being seen as subject to control by the shareholders in the general meeting to being a separate organ of the company.149 Lawyers played key roles in the floating of Overend and in suing and prosecuting and defending the directors in a number of civil and criminal trials. It was a barrister, the conveyancer, who suggested to the solicitor for the promoters that two deeds be prepared. Conveyancers of the 1800s share some of the attributes of Coffee's corporate attorneys of the early 2000s. They were transaction engineers who had little contact with litigation and focused on structuring and drafting. They were 'wise counsellors' more like accountants in their professional approach as opposed to barristers and solicitors engaged in litigation who saw themselves as protectors and shields for their clients. The lawyers did little to protect third parties and even detracted from the protection of public interests. The inability of the conveyancers to put the interests of their clients ahead of their own in getting together to settle the deeds led to the second deed being agreed and executed after the prospectus was issued which led to the applicants for shares being misled. The lawyers did something else not noticed in the gatekeeping literature, they provided the defendants with the appearance of having acted on reputable legal advice and of having been diligent in honouring their limited obligations. This was a point made by Karslake for one of the defendants, Gordon, at the trial. He reminded the jury that few of the new shareholders had chosen to read the deed. If they had they would have realised other deeds were required. He went on to say:
The evidence as to the new deeds proves the reverse of fraud on the part of the new directors. They had separate counsel; and the alterations made by him were for the purpose of ensuring the whole effect of the advantage which was to be derived by the company from the transfer.150

Even at the trial it is difficult to see the lawyers for the shareholders as always protecting their interests as they created their own problems for them. Thom, the prosecutor had finally been able to secure the services of Kenealy QC who got the brief late on the Friday afternoon before the trial started on Monday 13 December 1869.151 He did not have the same familiarity with the accounting evidence as the instructing solicitor Lewis, who had appeared for Thom in the Lord Mayor's court at the Mansion House against the leading members of the bar. In between that hearing and the trial Lewis had successfully appeared for the director of another company, Richard Stuart Lane, on facts very similar to Overend but which had not been well marshalled by an accountant to show that Lane, Hanbury and Co was insolvent at the time it was floated.152 With the removal of the trial to Queens Bench Lewis could not appear as only barristers had the right of audience. In spite of Kenealy's reputation as an advocate the more competent and knowledgeable advocate may have been the solicitor, Lewis. The competition between lawyers and between lawyers and accountants for work could have led them to ignore their roles as gatekeepers and their ethical obligations. In respect of the legal profession there is little evidence of Coffee's four reasons for the common failure of gatekeepers. Edwards does show evidence of acquiescence in misconduct and collusion. The actions of others point to the fact that Coffee has observed elsewhere that, given their responsibilities and roles, they did not see themselves as having wider obligations to the public. They also, through their professional activities, provided the promoters and directors with some appearance of legitimacy for their actions which were misleading. Opinions and actions were also likely to be influenced by wider questions such as whether shareholders needed to be more alert before becoming shareholders and more active in the supervision of the management of companies in which they were shareholders.153

5 The accounting profession as gatekeeper

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The whole affairs in bankruptcy have been handed over to an ignorant set of men called accountants, which is one of the greatest abuses ever introduced into the law.154

Accountants were struggling towards professional status and autonomy in the 1860s. Lawyers spoke of accountants disdainfully and patronisingly. Accountants spoke of lawyers with irony, anger, deference and courtesy.155 Between 1799 and 1850 the number of practicing accountants in London grew from 11 to 210. In 1854 the first professional association was formed in Edinburgh and in 1880 one in England. The profession grew directly from the need for accounting and auditing of joint stock companies. Increasingly accounting firms were elected as auditors and appointed as liquidators.156 Accountants distinguished themselves from bookkeepers by stressing their independence and their duties to third parties.But from the beginning corporate auditors were conflicted in serving two masters, the directors and the shareholders.157 They also served the interests of creditors. Limited liability increased their plight as the majority of new companies were wound up in the period from 1866 to 1874.158 Parker claims that this explains the conservatism of accountants and also the attention they paid to balance sheets, the financial affairs of the firm at a particular time, rather than profit and loss over a period. This stressed the needs of creditors rather than investors.159 At the time of the floating and collapse of Overend the profession was in a period of transformation from the detection of fraud and error to the verification of financial statements suitable for use by investors who were concerned with financial performance rather than the honesty of management.160 As with the legal profession there was conflict between advancing the private interests of accountants and the public interests which they sometimes claimed to promote. It meant that the profession often maintained only the idea that it promoted wider civic values.161 Potential litigation against auditors and the unwillingness of the profession to establish standards for auditing led to some considering that audits were worthless but in spite of this the profession maintained its credibility in this activity.162 In this respect the accountants were partly to blame. The first modern text on financial accounting by Francis Pixley, Auditors: Their Duties and Responsibilities did not appear until 1881.163 The fault was largely with the law makers including the judges. The Joint Stock Companies Act 1856 provided a model 'full and fair Balance Sheet' but gave no further indication of what was capital to be maintained and what was profit to be distributed.The judges 'declared that dividends could be paid only out of profits ... then discovered that profits was an elusive and baffling concept'.164 Bryer argues that before 1889 and Lee v Neuchatel Asphalte Company165 that there had been some generally agreed standards but these were destroyed by that and later cases but there is a persistent body of opinion that the standards and rules had always been inconsistent or ambiguous.166 The law required audits to be performed but equivocated over the standard to be satisfied and the consequences of not meeting that standard when shareholders and third parties tried to hold auditors liable. In In Re British Bank, Nicol167 in 1859 a shareholder tried to avoid liability for calls on partly paid shares to meet the claims of the bank's creditors by asserting that he had been mislead by a deceptive balance sheet. Turner LJ stated that the fact that:
the false and fraudulent representations were discoverable by the auditors as representatives of the shareholders, implied knowledge of the misrepresentations on the part of the latter group notwithstanding the fact that they, the shareholders, had no actual knowledge of the misrepresentations.168

In Spackman v Evans169 in 1868 Lord Chelmsford, considering this statement, expressed the opinion that the auditor's possible knowledge could not lead to the presumption that a dispersed body of shareholders had acquiesced 'in the illegal actions of the directors'. He went on to add:
I cannot help expressing a doubt whether he was correct in holding that in the exercise of their duty [the auditors] would necessarily have discovered the fraudulent representations of the directors.170

As late as 1895 in In re London and General Bank (No 2)171 it was stated that: 'It has never yet been decided what is the exact character, nature, and extent of the duties of an auditor'. In the 1890s the professional bodies declined to define the requirements of a satisfactory audit although that is also partly explained by

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resistance to the idea that professional judgment should be replaced by rules and the lack of agreement about approaches to auditing.172 One other relevant factor to their role as gatekeepers is that promulgation of standards may have raised doubts about the ethics of their middle class members.173 Corporate bankruptcies in the 1860s and 1870s, including Overend, focused attention on the need to detect fraud.174 It was already recognised that it may be impossible to do complete audits of large companies. The Economist, in 1878, expressed the view that the magnitude of the operations of banks made their effective auditing impossible.175 Recognising this s 7 of the Companies Act 1879, requiring the audit of the accounts of banks, only required the auditor to examine the books of the company and not the underlying transactions and related documents.176 Auditors, however, in creating the demand for their profession based on their skills created expectations that they could detect fraud.177 They were too successful. J G Griffiths claimed in 1885:
It appears to me to the rooted opinion of the unenlightened public and of the ignorant portion of the press that auditor must fail in his duty if fraud has been affected, whether it is discovered or not ... The result of this ignorance has been that in cases where such frauds have been discovered, an immediate outcry is raised for the dismissal of the auditor ... Now, while all this unreasoning outcry is cruel and unjust, it would be well to consider whether and to what extent we are responsible for the ignorance that certainly exists as to our powers of control, and our ability to prevent and detect fraud by the process of audit we perform.178

Lawyers were also dismissive of the auditors' exaggerated claims. In Arnold v Armitage Lord Coleridge observed:
The public has been warned time after time that the signature of the most respected auditor could mean nothing, as they could only make out the balance from the information, correct or otherwise, given to them.179

The time of the criminal trial in Overend overlaps with the rising importance of the professional accountant as an expert witness as lawyers expressed a professional distain of commercial knowledge.180 An example, a prosecution similar to Overend, is the transfer of the business of Barned's to Barned's Banking Company, for publishing a fraudulent prospectus and for conspiring to do so. The summonses were withdrawn after the evidence of the official liquidator, Harmwood Walcott Banner, an accountant from Liverpool, and one of the official liquidators, that in his opinion the promoters and directors had acted honourably because they had also lost substantial amounts through their own investments in the company.181 Oswald Howell, 'the demon with books', retained by the committee of shareholders in Overend also became a witness in the criminal trial in Queens Bench before Cockburn LCJ. Howell's evidence and his treatment reveals the difficulties in accountants playing a gatekeeping role because of conflict over accounting standards and the lack of respect for them, or at least one of Howell's social status. Howell reviewed the Overend ledgers brought to the Mansion House in two or three horse drawn wagons and taken back into official custody every evening. He was able to go back a decade in the life of the company and the previous partnership.182 Finlason in his account of the trial noted that he had 'the zeal of an advocate, and whose evidence had some fatal defects ... so often observed in the testimony of what are called "experts"'.183 Howell's appearance at the trial had its own dramatic moments.He had published a pamphlet in which he stated that the directors, apart from one, had withdrawn their money before Overend's collapse. The Solicitor-General had acted for Howell in the resulting libel action brought by the directors. Howell was cross examined about this by the Solicitor-General, who now appeared for some of the defendants, and agreed he had published a pamphlet but stated that its contents were true as far as he was aware:
The Solicitor-General -- Well, is it true that everyone of the directors (except Mr Gibb) withdrew every shilling he had from the house before the collapse? -- Well, it is not literally so.

There was an action about it, was there not -- an action of libel? -- Yes; and you defended me. (Laughter)

Well, the best thing I could do for you, I believe, was to withdraw a juror? -- I wanted to fight it, but you would not.

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What! I didn't like it eh? -- No. (Much Laughter)

Warned by LCJ'Let me advise you not to publish anything else as to the affairs of other people!

Howell's claim related to companies associated with the directors withdrawing up to 1,455,000 in the period immediately before suspension of payments.184 The Solicitor-General continued to cross examine Howell on the pamphlet, before returning to his main point, that Howell could not tell whether a large profit had been made in the legitimate business of the old partnership.185 It was suggested to him that he should not have treated the 5 million to 7 million of deposits as debts. They would remain as deposits until replaced by others of equal amount as withdrawals of one customer were replaced by deposits of another. If the deposits were regarded as debts immediately payable the firm had unmet liabilities of 2,000,000 but if the deposits were regarded as floating capital only liable for future withdrawal there was no discrepancy and the firm was solvent. The patronizing language used in cross examination, like the language of Cockburn LCJ, reflected the patronizing view barristers and judges had of accountants:
This partly, indeed, arose from the professional infirmity, common to all accountants, of looking too much at figures, and forgetting that figures do not always represent the realities in fact. This tendency limits, if it does not deteriorate, the value of such professional assistance.186

Cockburn LCJ, in his summing up, said of the accounting evidence:

I confess that I have never been more bewildered in my life than I was by the figures which the accountants put before us. I am always unwilling to be the passive recipient of evidence which I do not understand, or to go through the mechanical process of carrying into my notes that which is unintelligible in my mind.

Further on in his summing up he stated that preferred the accounting evidence which was more favourable to the defendants although the witness was subject to conflicts of interests through payments he had received in other capacities from the defendants:
A very competent witness, Mr Harding, has told us that in his judgment the profits to be made upon such a business may be fairly estimated at from 180,000 to 190,000 a year. Attempts have been made to impugn the evidence of Mr Harding. It is said that he has made money by former transactions with the old firm; I do not mean in commercial speculations, but in the shape of business done as an accountant. It is said that they have supported his appointment as one of the official liquidators, and that he comes here, therefore, with a bias in their mind in their favour; but it has truly been pointed out that no such observations apply to Mr Turquand, and it has not been made to appear that Mr Turquand in any way dissents from the conclusion at which the coadjutor has arrived.187

It was not until the failure of the City of Glasgow Bank in 1878 that banking laws were further revised to provide for the examination of bank accounts by professional auditors. Even then most audits were conducted in complete secrecy because the banks feared that their reputations may be damaged by it becoming known that a public accountant was on the premises. The Company Act 1879 which required such audits, however, did not address the problems of how wide the scope of the audit should be or how independent the auditor should be. Conflicts of interests, compromising the auditors as gatekeepers, emerged. Directors nominated auditors, in the face of shareholder apathy, who did superficial audits. They were made aware that they held their appointments at the will of the board and not the shareholders. Writing in 1894 Kerr claimed:
Theoretically, auditors are chosen as disinterested and competent examiners of the companies' affairs. But in point of fact, they are always appointed for very different reasons. It may be safely asserted that not one election in hundred turns either on the candidates' abilities or their moral principles. It is either a case of nepotism, or of one turn deserving another.188

Accountants in this period were remarkably ineffective as gatekeepers. They were exposed to much greater

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risks of litigation than lawyers were. The profession emerged from the demands of the joint stock company but was dependent on lawyers both for work and the rules and principles used in it. They had limited opportunities and poorly developed practices. Those involved in the preparation of the returns to the stock exchange for the listing, or quotation, had done nothing to draw attention to the lack of profit and serious losses by the company. In the aftermath of its collapse Turqand and Harding were willing to act as receivers. Howell was to be troubled both by his passion for the shareholders' cause and the underdevelopment of accounting principles by the emerging profession and the uncertainty in those principles created both by the legislature and the judiciary. Nevertheless accountants overstated their claims to knowledge and skills in what they were able to do which appears to have both increased the income of individuals but also advanced and further legitimised the profession, Howell remains a cautionary tale for gatekeepers. He destroyed his credibility in the trial by the evidence he gave and appearing to take sides indicating, after the event, the perils for professionals in gatekeeping.

6 Conclusion
The collapse of Overend Gurney not only hurt depositors, the holders of notes it had discounted and shareholders. It led into a financial crisis of a scale not previously seen in Britain. There are limitations to this study. It is based on the evidence left after the collapse of the company and the attempt to lay blame on the gatekeepers who had appeared to fail. There were other gatekeepers in these events who have not appeared in this account. One group were financial journalists. There was an extensive business press in Britain by the 1860s. Through it proprietors and journalists provided a form of soft regulation promoting transparency and revealing conflicts interests through the voluntary disclosure of information, investigative reporting and naming and shaming. It consciously saw itself as the regulator of financial markets.189 Many journalists agreed that parliament and the courts could not legislate to enforce commercial virtue. Directors had to police their own behaviour through fear of being publicly exposed in the glare of publicity generated by journalists.190 Coffee notes in the context of the United States that the predecessor of the professional securities analyst was the financial journalist.191 One gatekeeper who could be claimed to have foreseen these consequences was Bagehot, in his role as a financial journalist. He criticised the lack of care by the management of joint stock companies and in those involved in note discounting in particular, as a business which required a high degree of care and attention to detail. He expressed a concern based on information he had about Overend, that it had been conducting business other than discounting notes which needed to be disclosed.192 A major flaw in gatekeeping literature is its idealization of the gatekeepers at least in law, accounting and auditing as professions which were devoted entirely to public ideals at some time in the past. It fails to observe how the roles of lawyers and accountants were transformed at the same time as they popularised the use of the commercial company, how they developed the skills to service this new form of enterprise and how they participated in making the law and practices which further transformed these business forms and the services which they provided. These professions are not the same 140 years later and in different countries although there has been some uniformity in developments across jurisdictions. The gatekeeping literature does recognise features of professional practice which are now different. Accountants mimicked their large corporate clients in adopting their structures and management techniques to provide services to them. Lawyers followed. In large law and accounting firms management techniques were used to ensure workers were fully productive. The examples seen in the incorporation and listing of Overend reveal some of the correctives to gatekeeping literature but also provides some examples of issues which that literature discusses as the two professions were adapting to commercial changes.There is surprising little concern reflected in the gatekeeping in Overend about reputational capital, a major concern in gatekeeping literature, or possible liability of any gatekeepers. One area of reputational damage is not to individuals but to the accounting profession produced by the disorder in accounting principles. Individual accountants appear to have been able to negotiate their way through that. The lawyers and accountants involved in the incorporation and listing of Overend show the facilitative power of these professions in transforming a failing firm into a listed company. Neither appeared to do much to protect the interests of third parties who were not their clients. Consistent with the literature on the history of the legal and accounting professions they were able to articulate different

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conceptions of the profession, including the conveyancers acting for the promoters and the old partners. They appeared again in respect of liability in the civil and criminal trials, or gatekeeping after the event, for the plaintiff and the prosecutor as well as for the defendants. They relied on their expertise to legitimise their roles but in ways which enabled clients to advance and protect their interests. There is evidence of the transactional engineering approaches of contemporary company lawyers in the work of the conveyancers. It was a conveyancer, focused on structuring and drafting, who produced the problems caused by two deeds which meant that the second deed was not available for inspection by either prospective shareholders or the stock exchange. There are examples of the collaboration between lawyers and accountants in the civil and criminal trial for both the plaintiffs and prosecution and the defence. It confirms how lawyers engaged accountants on behalf of their clients to prepare evidence and as expert witnesses and were creating the legal framework within which the accountants practiced their professions. In some ways their obligations were to the legal profession and their ability to be independent gatekeepers was limited. There is also an indication that judges, including Cockburn LCJ, had different views of accountants depending on their social standing. He appears to have been more willing to accept accountants such as Turquand and Harding who belonged the upper middle classes and were frequently involved in major insolvencies in association with corporate solicitors. Accountants from the non-elite part of the profession, such as Howell, were treated very differently. Their status as professionals appears not to have been determined by their competence as by their social standing. There is the evidence of the toleration of conflicts of interests and collusion which remains at the heart of the professions as gatekeepers. Edwards, the Official Assignee in the Court of Bankruptcy, was an employee of Overend before its incorporation.While his conduct was criticised it was also tolerated. Also Cockburn LCJ was dismissive about Harding's conflicts of interests as the former accountant and liquidator of Overend. Harding, however, as noted he belonged to the elite of the accounting profession. Undeveloped and conflicting legal and accounting standards made liability elusive for promoters and directors but also lawyers and accountants. Partly this reflected an unwillingness to regulate business but promote an autonomous regime for commerce in accordance with prevailing views of laissez faire. Neither accountants nor lawyers agreed over how the solvency of a bank was to be determined, particularly in respect of the balances of depositors. Could they be treated as being replaced by other depositors as they were withdrawn? That was a key issue in determining the allegations against the defendants in the criminal trial. In the civil trial the standard required for civil fraud was also subjective. Malins VC thought that the directors were liable for concealing that the firm was in difficulties at the time of its incorporation and took too positive a view of the guarantees of the partners and the prospects for the business. Lord Hatherly LC believed that all business is speculative and that bill broking was particularly hazardous and that the prospective investors were aware of this. This unwillingness to impose too close a regulation on business and the corporate form is reflected in the continuing literature on gatekeeping. There is an assumption that law is too blunt an instrument to regulate and that softer forms of law, such as discretion vested in professional firms, are more effective. The problem with that is that the professions developed with the joint stock company and the joint stock company in turn responded to the availability of their services. Having co-evolved they are mutually dependent which may limit their abilities to act as gatekeepers in respect of each other or the inclination of their members to act in response to wider public interests.

The prospectus for Overend, Gurney, And Company (Limited)

OVEREND, GURNEY, AND COMPANY (LIMITED)
The company is formed for the purpose of carrying into effect an arrangement which has been made for the purchase from Messrs Overend, Gurney, & Co, of their long-established business as bill-brokers and money-lenders, and of the premises in which the business is conducted; the consideration for the good-will being 500,000, one-half being paid in cash, and the remainder in shares in the company, with 15 per share credited thereon, terms which, in the opinion of the directors, cannot fail to insure a highly remunerative return to the shareholders.

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The business will be handed over the new company on the 1st of August next, the vendors guaranteeing the company against any loss on the assets and the liabilities transferred.

Three members of the present firm have consented to join the board of the new company, in which they will also retain a pecuniary interest. Two of them (Mr Henry Edmund Gurney and Mr Robert Birkbeck) will also occupy the position of managing directors, and undertake the general conduct of the business.

The ordinary business of the company will, in this arrangement, be carried on as heretobefore, with the advantage of the co-operation of the board of directors, who also propose to retain the valuable services of the existing staff of the present establishment.

The directors will give their zealous attention to the cultivation of business of a first-class character only, it being their conviction that they will thus most effectually promote the prosperity of the company, and the permanent interests of the shareholders.

Copies of the company's memorandum and articles of association, as well as the deed of covenant in relation to the transfer of the business, can be inspected at the offices of the solicitors of the company.193

* Professor of Law, Law School, Victoria University, Melbourne, at <Neil.Andrews@vu.edu.au>. I thank the Institute of Advanced Legal Studies, University of London, for its hospitality and the use of its library which also made accessible the British and Guildhall Libraries. A draft of this paper was presented at the Corporate Law Teachers Association Annual Conference in 2009 at the University of Technology, Sydney. I am grateful for the comments of the participants and of the two anonymous reviewers. It was revised and presented, by Professor Roman Tomasic in the author's absence, at a British Council Funded Co-Reach Workshop at Durham University in January 2010. I am grateful for his and Professor Paddy Ireland's helpful comments on it. 1 D C Langevoortt, 'Chasing the Greased Pig down Wall Street: A Gatekeeper's Guide to the Psychology, Culture, and Ethics of Financial Risk Taking' (2011) 96 Cornell L Rev 1209 at 1244. 2 Mr Muntz MP speaking to the House of Commons on the government taking over the prosecution of the Overend, Gurney & Co directors quoted in W F Finlason, A Report of the Case of The Queen v Gurney and Others in the Court of Queen's Bench: (The Summing Up Revised by the Lord Chief Justice) with An Introduction, Containing a History of the case, And an Examination of the Cases at Law and Equity, Applicable to It; Or illustrating the Doctrine of Commercial Fraud, Stevens and Haynes, London, 1870, p 95. 3 'The Panic of 1866' (1866) 26 Bankers Magazine (June) 637 at 639. The collapse is described in G Elliot, The Mystery of Overend & Gurney: A Financial Scandal in Victorian London, Metheun, London, 2006. 4 T E Gregory, Statutes, Documents and Reports, Vol 2, Oxford University Press, Oxford, 1929, pp 127 et seq. 5 This was a guarantee to the governor and directors of the Bank of England that, if it were to breach its legislation by releasing more gold than it was required to maintain to underwrite its bank notes, they would use their best endeavours to procure retrospective legislation validating its actions. 'The Panic of 1866' above n 3, at 639. The Bank of England had recognised the systemic risk that its collapse represented and appointed a committee to judge whether a rescue operation could be mounted. It judged that things had gone too far. P Ziegler, The Sixth Great Power: Barings 1762-1929, Collins, London, 1988, p 182. 6 Its collapse was caused by short selling of its stock and false telegrams which had prematurely reported its insolvency. 'The Suspension of Agra and Masterman's Bank' (1866) 26 Bankers Magazine (July) 789 at 789-92; 'The Panic and the Money Market' (1866) 26 Bankers Magazine (July) 792 at 792-5. 7 W T C King, History of the London Discount Market, George Routeledge & Sons, London, 1936, p 244, and R McQueen, A Social History of Company Law: Great Britain and the Australian Colonies 1854-1920, Ashgate, Farnham, Surrey, 2009, pp 167-176. This is a view supported by Taylor who has concluded that by the late 1860s limited liability was so well established that it could not be reversed. J Taylor, Creating Capitalism: Joint Stock Enterprise in British Politics and Culture, 1800-1870, Boydell & Brewer, Woodbridge, Suffolk, 2006, p 211.

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8 J Taylor, 'Company Fraud in Victorian Britain: The Royal British Bank Scandal of 1856' (2007) 122 English Historical Review 700 at 708. 9 Ibid, pp 701, 711. 10 R Tomasic and F Akinbami, 'The Role of Trust in Maintaining the Resilience of Financial Markets' (2011) 11(2) Journal of Corporate Law Studies 369 at 371-3. At 380-1 they specifically recognise the importance of gatekeepers in this. 11 R C Mitchie, 'The London Stock Exchange and the British Securities Market, 1850-1914' 61 (1985) 38(1) Economic History Review 61 at 62-3. 12 J C Coffee, Gatekeepers: The Role of the Professions in Corporate Governance, Clarendon Press, Oxford, 2006, pp 108-9; R Chandler, J R Edwards and M Anderson, 'Changing perceptions of the role of the company auditor, 1840-1940' (1993) 23(92) Accounting and Business Research 443 at 457; R H Parker, 'British men of account' (1978) 14 Abacus 53 at 57. 13 J H Langbein, 'Response' (2005) 26(1) Journal of Legal History 99 at 104. 14 Section 307 of the Sarbanes Oxley Act (15 USC 7245 (2008)) empowers the SEC to enact 'minimum standards of professional conduct'. See C Harrington, 'Attorney Gatekeeper Duties in an Increasingly Complex World: Revisiting the Noisy Withdrawal Proposal of SEC Rule 205' (2009) 22 Georgetown Journal of Legal Ethics 893 at 893. 15 Langevoortt, above n 1, at 1213. 16 Tomasic and Akinbami, above n 10, pp 371-3, 380-1. 17 F von Hayek, The Constitution of Liberty, Routeledge, London, 1960, p 154. 18 Eg, R Posner, 'Theories of economic regulation' (1974) 5 Bell Jnl of Economics and Management Science 335 and G Stigler, 'The sizes of legislatures' (1976) 5 Jnl of Legal Studies 17. 19 J Kay and J Vickers, 'Regulatory reform: an appraisal' in G Majone (Ed), Deregulation or re-regulation? Regulatory reform in Europe and the United States, Pinter Publishers, London, 1990, p 223, at p 248. 20 R Kraakman, 'Gatekeepers: the anatomy of a third party enforcement strategy' (1986) 2 Jnl of Law, Economics and Organization 53 at 54 n 3. 21 Ibid, p 56. 22 Ibid, p 60. 23 Ibid, pp 63-4. 24 Ibid, p 65. 25 M S Larson, The Rise of Professionalism, Norton, New York, 1976, pp 66 et seq. 26 A Abbott, 'Jurisdictional conflicts: a new approach to the development of the legal professions' [1986] American Bar Research Journal 187 at 196. 27 D Sugarman, 'Simple images and complex realities: English lawyers and their relationship to business and politics, 1750-1950' (1993) 11(2) Law and History Review 257 at 258. At 294 he poses a number of questions. 'Were lawyers independent or depenendent on particular interests, gentlemen or in business, scientists or practitioners, guardians of public or private interest, aristocratic and anti-commercial or contractual and self interested, officers of the court of the hired hands of the client?' See also M B Fox, 'Gatekeeper Failures: Why Important, What to Do' (2008) 106 Michigan L Rev 1089 at 1102. 28 Coffee, above 12, p 362. He notes on p 360 that both professions still fight to maintain their autonomy. 29 Ibid. 30 Ibid, p 9. 31 Ibid, p 146. 32 Reinier Kraakman, 'Corporate liability strategies and the costs of legal controls' (1984) 93 Yale LJ 857. 33 Kraakman, above n 19, at 75.

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34 Ibid, at 76. 35 Ibid, at 77. 36 Coffee, above n 12, pp 70, 368-9. 37 Ibid, p 71. 38 Ibid, pp 146, 168-9. 39 F Partnoy, 'Barbarians at the gatekeepers? A proposal for a modified strict liability regime' (2001) 79 Washington University Law Quarterly 491 at 491 n 2. 40 Ibid, at 498. 41 Ibid, at 526. 42 Ibid, at 527. 43 Ibid, at 528. 44 Coffee, above n 12, pp 371-2; S P Koniaks, 'When the hurley-burley's done: The bar's struggle with the SEC' (2003) 103(5) Columbia L Rev 1236 at 1279-80. 45 Coffee, above n 12, pp 334-6. 46 Ibid, p 362. The oldest professional accounting association, the Society of Accountants in Edinburgh, only developed rules to expel members in the late 1800s as a result of scandals. It may have been reluctant to do so before in order not to suggest 'that members of the new professional organisations were capable of unbecoming behaviour'. S P Walker, 'The criminal upperworld and the emergence of a disciplinary code in the early chartered accountancy profession' (1996) 1(2) Accounting History 7 at 11. The rules remained symbolic and were not implemented: ibid, at 30. 47 Langevoortt, above n 1, at 1214. 48 M C McWilliams, 'Guardians adrift: the social anthropology of the corporate gatekeeper professions' (2007) University of Louisville L Rev 225 at 232-3, 259-60. McWilliams draws on the work of Clifford Geertz. He locates problems for gatekeepers in the culture of and how the group which came to constitute it has 'notions of self-regard so potent that tend to push behaviour beyond the usual social boundaries' including the correctives which are usually applied within corporate culture of 'monitoring, bonding, trust, and fiduciary duty': ibid, p 248. 49 Ibid, pp 263-71. 50 At the same time the employment of in-house lawyers meant that outside lawyers knew less about their corporate clients and were less able to play the role of 'wise counsellors' able to change the minds of their clients over illegal or reckless behaviour: Coffee, above n 12, pp 194-5. 51 Ibid, pp 274-80. 52 Ibid, pp 280-2. 53 D Sugarman, 'Whom colonized whom? Historical Reflections on the Intersection between Law, Lawyers and Accountants in England' in Y Dezalay and D Sugarman (Eds), Professional Competition and Professional Power: Lawyers, Accountants and the Social Construction of Markets, Routeledge, London, 1995, p 227, at pp 228, 235. 54 Coffee, above n 12, p 104. 55 W Bagehot, Lombard Street: A Description of the Money Market, Henry S King & Co, London, 1873, p 18. Bagehot wrote this book in response to the failure of Overend which had its office in Lombard Street. 56 Finlason, above n 2, p 32 citing Vice Chancellor Malins. 57 Bagehot, above n 55, p 13. 58 7 Anne c 7 s 61 and 7 Geo IV c 46. In 1708, for example, it had introduced into its Charter a provision which restricted other bodies corporate from borrowing, owing, taking up any sum of money on their bills, notes payable on demand at less than 6 months from the time when the money was borrowed. This was not modified when the Chancellor of the Exchequer, Robinson, told its directors that 'such privileges were out of fashion' but many of its exclusive privileges were maintained:

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H Ayres, Banks and Banking under Limited and Unlimited Liability, Davies & Co, London, 1863, pp 4-5. 59 E W Cox, New Law and Practice of Joint Stock Companies, 4th ed, Times Law Office, London, 1857, p 42 and n 38. 60 21 & 22 Vic c 91. Thirty days notice was required if a bank was already incorporated but no existing incorporated bank applied: Ayres, above n 58, p 12. 61 'Overend, Gurney, and Co, Ltd', Bankers Magazine (No 157 August 1865), p 905, at pp 907-8. 62 Ibid, pp 906-9. 63 Finlason, above n 2, pp 36-7. 64 King, above n 7, pp 245-51. 65 S Xenos, Depradations; or; Overend, Gurney, & Co, and the Greek and Oriental Steam Navigation Company, published by the author, London, 1869, p 68. 66 Ibid, p 66. 67 Ibid. 68 Ibid, pp 64-5. 69 Ibid, p 66. 70 Ibid, p 68. 71 Ibid, p 84. A Victim, Managers and Marionettes: Addressed to Directors, Mis-Directors, and -- Dupes, Effingham Wilson, London 1869, p 24 quoting from The Times. 72 Xenos, above n 65, pp 79-83. 73 Ibid, p 84. 74 Ibid, pp 140-56; Victim, above n 71, p 24. 75 Ibid, pp 22-6. 76 Finlason, above n 2, p 39. 77 Victim, above n 71, pp 26-7. 78 Finlason, above n 2, pp 39-41. 79 Ibid, p 43. 80 Ibid, p 46. 81 Ibid, p 72. 82 Ibid, p 48. 83 Ibid, pp 72-3. 84 Ibid, p 144. 85 Ibid, pp 134-6. 86 Ibid, pp 148-9. 87 Ibid. 88 1865 Economist 845-6. 89 'Why Discount Companies Have Not Been So Successful as Might Have Been Expected'1860 Economist (15 December

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1860) (No 903) pp 1392-3. 90 Finlason, above n 2, p 74. 91 Ibid, p 166. 92 Victim, above n 71, p 31, quoting 'Overend and Gurney (A Promoter's Protest)' in Punch referring to the committal of the Overend Gurney directors for trial. 93 A Scot he had been a lawyer and served in official roles in Canada where he been the Recorder for the Hudson Bay Company at its Red River settlement, now Winnipeg. 'Thom, Adam' Dictionary of Canadian Biography OnLine 1881-1890 (Vol XI). 94 J Juxon, Lewis and Lewis, Collins, London, 1983, p 83; Finlason, above n 2, p 73. 95 The prospectus is an Appendix. 96 J Taylor, 'Company Fraud in Victorian Britain: The Royal British Bank Scandal of 1856' (2007) 122 English Historical Review 700 at 701. 97 Finlason, above n 2, p 83. 98 Similarly in Royal British Bank failure the more recent shareholders took an action for fraud against the directors arguing that they had been induced to buy by their misrepresentations: Taylor, above n 96, at 706. 99 Ibid, at 721. 100 Finlason, above n 2, pp 72-3. 101 Ibid, p 59. 102 Ibid, pp 61-2. 103 20 and 21 Vict c 54; Taylor, above n 96, at 702, 719. 104 Finlason, above n 2, pp 116-17. 105 Ibid, pp 118-19. 106 J Taylor, 'Commercial Fraud and Public Men in Victorian Britain' (2005) 78 Historical Research 230 at 231-2, 251-2. 107 Finlason, above n 2, pp 69-70. 108 Ibid, p 71. 109 Ibid, p 77. 110 Ibid, p 209. 111 Ibid, p 236. 112 Lewis was reminded of the case in the late 1890s when he learnt of the suicide of a retired army officer in Lambeth Workhouse who had lost his savings in the collapse of Overend: Juxon, above n 94, pp 86-8. 113 One, Stapleton, was fined a shilling. A lawyer, a member of the House of Commons, related to a director of the Bank of England Lord Campbell LCJ said that he left the court without a stain on his character and that he would be glad to see him 'practicing in any court over which he presided.': Taylor, above n 106, at 247. 114 Quoted in Taylor, above n 96, at 717. 115 Taylor, above n 106, at 241. 116 Finlason, above n 2, p 193. 117 Xenos, above n 65, at 84.

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118 Sugarman, above n 27, p 271 quoting W J Reader, Professional Men: The Rise of the Professional Classes in Nineteenth Century England, London, 1966, p 43. 119 Sugarman, above n 53, p 226. 120 Ibid. 121 Ibid, p 233. 122 Ibid, p 230. 123 Ibid, p 228. 124 S P Walker, 'More sherry and sandwiches? Incrementalism and the regulation of late Victorian bank auditing' (1998) 3 Accounting History 33 at 35. 125 R A Chandler, 'Judicial views on auditing from the nineteenth century' (1997) 2(1) Accounting History 61 at 74-5 and 'Taking responsibility: the early demand for institutional action to define an auditor's duties' (1997) 1(3) International Journal of Auditing 165. See also J M Reid, 'Judicial intervention in accounting behaviour: a re-evaluation of the nineteenth century experience' (1987) 6(1) Journal of Accounting and Public Policy 9. 126 D M Trubeck, Y Dezalay, R Buchanan and J R Davis, 'Global restructuring and the law: studies of the internationalisation of legal fields and the creation of transnational arenas' (1993-1995) 44 Case Western Reserve L Rev 407 at 459. 127 Ibid, at 459-60. 128 Y Dezalay and B G Garth, 'The confrontation between the big five and big law: turf battles and ethical debates as contests for professional credibility' (2004) Law and Social Inquiry 615 at 618. Coffee notes that in the nineteenth century the professions of law and accounting represented 'moral callings' in which men could serve society at the same time advancing their economic interest: above n 12, p 105. 129 Walker, above n 124, at 35, quoting D McLaren, Scotsman, 24 December 1878. 130 D Sugarman, 'Legality, Ideology and the State in England, 1750-1914' in D Sugarman (Ed), Legality, Ideology and the State, Academic Press, New York, 1982, p 215. 131 Sugarman, above n 27, at 274-5. 132 Koniaks, above n 44, at 1247. 133 Ibid, at 275. 134 The Financial Lessons of 1866: A Letter Addressed, by Permission, to the Right Hon WE Gladstone MP by a City Manager, Smith Elder & Co, London, 1867, pp 31-2 (original emphasis). The judges of Queens Bench, Common Pleas and Exchequer had held a conference to decided what to do to assist creditors recover against the shareholders: Taylor, above n 96, p 707. 135 Sugarman, above n 27, at 277. 136 Coffee, above n 12, p 103. 137 Sugarman makes the point that in the 1880s the profession looked remarkably as it had in the 1680s, partly because of the decline in numbers, professional organisation and education which had occurred in the intervening period: above n 27, at 262. 138 Sugarman notes the problems in deciding who was a practicing barrister and who was not. The maximum number was between 1,010 and 1,450: ibid, at 264. 139 J Thomas, 'The courts of England and Wales, commercial education and the changing business of the City of London' (2000) 16 Arbitration International 141 at 141, 143, 145, 151. 140 Sugarman, above n 27, at 269-70. 141 Ibid, at 273. 142 Ibid, at 274. 143 Ibid, at 275.

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144 Ibid, at 282, 283. 145 Ibid, at 258. 146 Coffee, above n 12, p 192. 147 Sugarman, above n 27, pp 279-80. 148 Sugarman and Rubin, 'Towards a new history of law and Material Society' quoted in ibid, at 275-6. This view of the facilitative role of lawyers is confirmed by Michie's analysis of reasons for listing on the London Stock Exchange after 1850. It was rarely to raise capital but to share risk, stimulate custom, convenience in being easier to manage, continuity and ease in mergers. R C Mitchie, The London and New York Stock Exchanges, 1850-1914, Allen and Unwin, Boston, 1987. 149 P Ireland, 'Company law and the myth of shareholder ownership' (1999) 62 Modern L Rev 32 at 42-4. Blair argues that the corporate form, unlike partnership, also locked in capital, making it impossible for shareholders to remove capital without authorisation from others involved in the enterprise. This protected other investors and also those who contributed non-financial assets; M M Blair, 'Locking in capital: what corporate law achieved for business in the nineteenth century' (2003) 51 UCLA Law Review 387 at 392-3, 430-3. 150 Ireland, ibid, at 200. 151 'Overend, Gurney & Co -- Trial', Bankers Magazine (Supplement) (No 110, January 1870) p 1. 152 Juxon, above n 94, at 85. Lewis had long appeared for criminals but by the mid to late 1860s he found his clients were changing and were often from the middle classes and involved in some financial crime: ibid, at 80. 153 This seems to underlie the conflict between Thom and Finlason seen in two of their publications: A Thom, Overend and Gurney Prosecution: In Its Relation to the Public as Distinguished from the Defendants, Effingham Wilson, London, 1869, and, A Barrister, Overund, Gurney & Co (Limited): A Plain Statement of the Case, James Gilbert, London, 1867. 154 Mr Justice Quain in 1875 cited in Sugarman, above n 53, p 228. 155 Sugarman, above n 27, at 228, 235. 156 Coffee, above n 12, p 111. 157 Ibid, p 103. Accounting in the United States developed under the influence of large numbers of British chartered accountants who migrated after 1875, created in part by the accounting and audit requirements in the British companies legislation. T A Lee, 'UK immigrants and the foundation of the US public accountancy profession' (2002) 12(1) Accounting, Business and Financial History 73 at 87-9. 158 Twenty four per cent were wound up within 3 years, 57% within 10 years and 70% within 20 years: Parker, above n 12, at 55. 159 Ibid, at 56. 160 Chandler, Edwards and Anderson, above n 12, p 444. 161 Chandler, above n 125, p 166. 162 Ibid, p 75. 163 R A Bryer, 'The Laws of Accounting in Late Nineteenth Century Britain' (1998) 3(1) Accounting History 55 at 62. 164 L C B Gower, Principles of Modern Company Law, 5th ed, Sweet and Maxwell, London, 1992, p 243. See also J M Reid, 'Judicial Views on Accounting in Britain Before 1889' (1987) (67) Accounting and Business Research 247. 165 (1889) LR 41 Ch D 1. 166 Bryer, above n 163, at 62. 167 (1859) 3 De G & J 387. 168 Ibid, at 441. 169 (1868) 3 LR 171.

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170 Ibid, at 236. 171 [1895] 2 Ch 263 at 677. 172 Chandler, above n 125, at 171. 173 Ibid, at 172. 174 Chandler, Edwards and Anderson, above n 12, at 446. 175 Walker, above n 124, at 44; 1878 Economist 1374. 176 Ibid, at 45. 177 Chandler, Edwards and Anderson, above n 12, at 446, 448. 178 J G Griffiths, 'Accountants and the public' (1885) Accountant (December 26) 8 at 9, quoted in Chandler, Edwards and Anderson, above n 12, 447. 179 [1885] 1 TLR 670. 180 Thomas, above at n 139, p 151. 181 'The enquiry into Barned's Bank' and Prosecution of the Directors of Barned's Banking Company', Bankers Magazine, (Vol 30, No 110 Jan 1870) pp 6-10, 18-22. 182 Juxon, above n 94, p 83; Finlason, above n 2, p 73. 183 Ibid, p 51. 184 O Howell, Report of Oswald Howell to the Committee of the Defence Association, 29 January 1867, The Committee, London, 1867, pp 32-3. 185 'Overend, Gurney & Co -- Trial', above n 153, p 25. Howell published a letter the following day criticising his cross examination by the Solicitor-General as being unfair. The Chief Justice: 'said it was a gross contempt of court; and he felt disposed to commit the witness for contempt of Court unless he apologized for it.' ibid, p 27. 186 Finlason, above n 2, pp 52-3. 187 Ibid, pp 232-3. 188 Walker, above n 124, p 44, quoting A W Kerr, Scottish Banking During the Period of Published Accounts 1865-1896, Effingham Wilson, London, 1898, p 155. 189 Taylor also notes that journalists were capable of sensational writing and that large London-based shareholders preferred to go directly to the directors to find out the facts: Taylor, above n 7, pp 217-18. 190 M Poovey, 'Writing about Finance in Victorian England: Disclosure and Secrecy in the Culture of Investment' (2002) 45(1) Victorian Studies 27. 191 Coffee, above n 12, p 253. They started with a simple duty to the client but became complex as they developed conflicts of interests: ibid, pp 101-4. 192 'The State of the City', Economist, (12 May 1866) p 533 at p 533. 193 Finlason, above n 2, pp 46-7.