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3. The modification would not however affect the objections to my original proposals, made in C.A.3366. discussion of these with Macdougall I am afraid I still feel that it would be difficult to accept the revisions proposed in your telegrams referred to above.
4. So far as the difficulty of constructing a sliding scale is concerned, I appreciate that any scale would have to be arbitrary. I do not however think that this is itself
a fundamental objection to the scheme. Provided it is agroed that it is inequitable to place the whole of the loss on either the debtor or creditor in the case of repayments of capital sums not due some scale is better than no scale at all. I should not see objection to having one scale to apply to repayments of capitals aume (ae to which see further paragraph 7 below) and another applying to outstanding occupation debts,
5. As regards your proposal that all payments to the liquidator would be invalid since liquidator cannot be regarded as authorised agent of the liquidated bank the latter point was of course fully appreciated when I made my original proposals. The case for partly validating repayments of overdrafts or capital sums deemed duc reets however on the need to preserve some kind of equity between debtor and creditor. While I appreciate that the bank does not receive any benefit from payments made to the liquidator it would not be equitable to place the loss entirely with the debtor who had no means of contesting the Japanese right to act on behalf of the liquidated banks, My proposal, which would have the effect of dividing the loss between the debtor and creditor, seems in the circumstances more equitable than your own suggestion which will permit banks to gain by the operations of the liquidator in discharging liabilities and also to gain by invalidating payments of debts due to the banks.
6. I have of course given careful thought to the possible effect of the scheme I have suggested on the position of the liquidated banks, I am not however entirely sure that it will necessarily have a seriously adverse effect upon them for the reasons indicated below. I understand that in Malaya the
iquidated banks may, when their assets and liabilities are evalued, actually make a profit. I consider that any actual rofits arising in this way should bettaken by Government to
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