CO882-(6-8) — Page 586

PUBLIC RECORD OFFICE

Reference :-

C.O. 882

ALLY WITHOUT PERMISSION OF THE BE REPRODUCED PHOTOGRAPHIC- COPYRIGHT PHOTOGRAPH-NOT TO

8 PUBLIC RECORD OFFICE, LONDON

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(VII) Special stress may be laid on the fact that although the shares are not "trustee securities" yet large sums of trust money have been invested in them under special provisions in wills, being the holdings of former share- holders and of persons whose confidence they fully enjoyed: that the holdings were only continued because the Company was a "family concern" dominated by a few firms whose interests were similar and whose successive partners were quite certain to be Directors of the Company by the "unwritten law"; that such families and firms have no similar Company under their command, and that there will be great loss to widows and others when their trustees are com- pelled to invest in "trustee securities" bearing a much lower rate of interest. 3. The writers submit that the above arguments will be hard to answer, and that If they do nothing beforehand by way of precaution, the Court will almost certainly award a very large sum as compensation under this heading. The principle of the proposed scheme was to give the option as to the date of payment to the shareholder. The longer the period the shareholder has to look around for another investment, the less reason there will be for giving him any sum for loss of interest, and the more reason will there be for hoping that the money market will not be confused by the possibility of a large sum being thrown upon it in one day of uncertain dawning, and the stronger, it is submitted, in every respect will be our case on this most important point.

4. It may be convenient to mention here what is the law of the Colony affecting trustees and the investments that are open to them.

A. Local trustees, i.e., trustees subject to the law of the Colony come under Section 40 of the Conveyancing and Law of Property Ordinance, 1886, as amended by Ordinances XIV. of 1903 and VII. of 1904, which (as amended by the two aforesaid Ordinances) is as follows:-

Trustees having trust money in their hands which it is their duty to invest shall be at liberty at their discretion to invest the same in any of the parliamentary stocks or public funds or Government securities of the United Kingdom or India or any British Colony or any securities the interest on which is or shall be guaranteed by Parliament or upon freehold or leasehold securi- ties being held for a term whereof 100 years at least shall be unexpired at the time of such investment or in or upon the debentures or debenture stock or guaranteed or preference or ordinary stock or shares of any railway or other company a fixed or minimum rate of interest on which is guaranteed by the Government of the Straits Settlements or any other British Colony or in or upon the debentures or debenture or rent-charge stock of any railway canal dock harbour gas, water or other company or body incorporated by special Ordinance of the Legislature of the Straits Settlements or by Royal Charter or in or upon the guaranteed or preference stock or shares of any such company as aforesaid which shall have paid dividends upon its ordinary capital for at least three years prior to the time of investment or in or upon the debentures or debenture or rent-charge stock of any railway canal dock harbour gas water or other company or body incorporated in the Straits Settlements which shall have paid a dividend at the rate of not less than five per cent. upon its ordinary capital during each of the last three years prior to the time of investment or in or upon the stocks bonds debentures or securities of any public body muni- cipality or local authority in the Straits Settlements the revenues of which are under the control of the Government of the Colony and also from time to time to vary any such investment as aforesaid for others of the same nature pro- vided always that no such original investment as aforesaid shall where there is a person under no disability entitled in possession to receive the income of the trust fund for his life or for a term of years determinable with his life or for any greater estate be made without the consent in writing of such person. This section applies to trusts created either before or after the commencement of this Ordinance."

The local area of investment under this section is a very restricted one; it would not include the ordinary shares of the Tanjong Pagar Dock Company though it would include their debentures, they being a Company incorporated in the Straits Settle- ments which have paid a dividend of not less than five per cent. upon their ordinary capital, &c.

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The only local Government securities at present available (apart from municipal debentures) would be the Post Office Savings Bank, but the amount of each investor in that is limited to $1,500.

B. As to English trustees, at present there are no local investments available for them, but the proposed inscribed stock will be an available investment, provided it complies with the requirements of the Colonial Stock Act, 1900, as to registra- tion, &c.

5. With regard to the effect which the expropriation and the payment of the compensation money is likely to have on the general business of the Colony, the writers submit that a gradual payment would be infinitely preferable to the payment of the whole on a fixed date, whenever that might be, and whether or not notice of it were given in advance. Opportunities for investment do occur from day to day, they cannot wait for a long period, and must, therefore, be either met day by day or waited for until they come.

6. In reply to question 8 of the previous questions submitted to counsel:- "Whether, having regard to Section 10 of the Ordinance, the Company can success- fully contend in the circumstances that they are entitled to an allowance on behalf of the shareholders for loss of interest and cost of re-investment "-counsel's opinion. was as follows:-

7. Section 14 of the Ordinance provides for the recoupment of loss of interest pending re-investment and for cost of re-investment, and Section 10 gives the Com- pany three months after the award in which to exercise the option to take payment in inscribed stock. But we think that the arbitrator may properly be asked to make his award in the alternative, giving compensation for loss of interest only to the extent that the Directors elect to take cash, and to the extent that they elect to take inscribed stock making no such allowance.

The writers venture to think that it is probable that the Directors will take no inscribed stock (or hardly any) at a price at which it would be fair to give it.

Before reading counsel's opinion it had not occurred to the writers, nor was it mentioned in the Council proceedings, that the Court had anything to do with the inscribed stock. It was thought that under Section 14 the Court would award a certain number of dollars: thereafter Government would inform the Directors that inscribed stock would be created (there is no such stock now) and would be issued on terms to be mentioned by the Government: the Directors would then (Section 10) intimate whether any of such stock would be accepted. Then the procedure laid down in Sections 16 and 22 would naturally follow.

The rate of interest on the inscribed stock will, it is believed, be only three per cent. It would seem, therefore, that, whether the Court can award inscribed stock in the alternative or not, it is improbable that many shareholders will take it as payment of compensation, when by demanding cash they can get 12 per cent. interest on their shares until the date of payment, their compensation in full, and allowance for loss of interest and cost of re-investment, and therewith could proceed to buy inscribed stock or invest in other securities if they desired. The rate of interest on the inscribed stock will be very low compared with that ordinarily paid on debentures and mortgages in this country.

There is, of course, no provision in the Ordinance for any scheme such as that previously proposed, viz., the offer of an advance of $240 per share; but neither is such a scheme prohibited and in submitting it for consideration the proposers sup- posed that it would be a transaction altogether outside the Ordinance, but not in any way an unusual one, as the banks constantly make advances against the deposit of shares. After the award, the shareholder would repay his advance, receive his shares back, and then get his compensation, the two operations being of course put through at the same time, the transaction being similar to the paying off of a mortgage. and a new conveyance of property. A local bank manager with whom the scheme has been discussed confidentially considers it a good one, but in order to make it operative he thinks the rate of interest charges on the advance should only be three per cent. If a higher rate were charged, he thinks a shareholder might prefer to take advances from the banks and speculate on the sum awarded by the Court for loss of interest exceeding that which he would pay in higher interest to the bank. and the sooner Government made the payment after the award is published the better on this point would be the position of the shareholder, who would :----

A. Draw 12 per cent. interest on his shares to the date of paying off.