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PUBLIC RECORD OFFICE

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Reference :-

'། ། ། * mmmmmC.O. 885

-15 PUBLIC RECORD OFFICE, LONDON

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

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and issuing new ones, and that it was accordingly necessary to consider whether the debentures issued under the Trust Deed of 5th August, 1896, fulfilled the conditions laid down in the correspondence referred to, which had been embodied in the first proviso to clause 14 of the proposed Ordinance. That that proviso run as follows:-"That the debentures to be deposited as aforesaid shall be such us give an exclusive first charge upon the commercial assets or undertakings of the said Company, and are in existence at the time of the application by any Bank in respect of an intended issue under the provisions of this Ordinance."

That Mr. Bertram Cox was to observe that the British South Africa Company was authorised by clause 24 (sub-section 1) of the Charter of Incorporation to issue shares of different classes or descriptions, to increase the share capital of the Company, and to borrow moneys by debenture or other obligations, and that the members were required by clause 25 to execute a Deed of Settlement providing so far as necessary for, inter alia, the classes and descriptions of shares into which the capital of the Company was divided, and the terms and conditions of membership of the Company. That the Deed of Settlement was duly executed on the 3rd February, 1891. That by Article 94 A. (4) the Directors were empowered "to borrow money for any of the purposes of the Company to an amount not exceeding, save with the approval of the Company in meeting, one-half of the nominal amount of the capital for the time being subscribed, and to rise or secure the repayment of borrowed money in such manner, and on such terms as they might think fit, and in particular by means of Bonds, Debentures, or Debenture Stock of the Company

or by mortgage, or charge of all or any of the property and assets of the Company, including its uncalled capital, or by any two or more of these modes together."

That the original share capital of the Company was £1,000,000, but that by Article 49 of the Deed of Settlement the Company in General Meeting was empowered, from time to time, to increase the capital by the creation of new shares. That at the time when the Trust Deed of the 5th August, 1896, was entered into the nominal amount of the Company's share capital was £2,500,000, and that under that Deed Debentures to the amount of £1,250,000 were issued. That it was believed that the share capital of the Company had been increased since the date of that deed, but that, in any case, it was clear from Article 94 A. of the Deed of Settlement (quoted above) that, with the approval of the Company in meeting, the share capital might be increased, and that so far as the provisions of the documents already cited were concerned, there appeared to be nothing to prevent the Directors of the Company from increasing the debenture issue in proportion to any duly sanctioned increase of the share capital.

That it would, however, be seen from the correspondence, and in particular from the letter of the 13th December, 1900, from the Secretary to the British South Africa Company, that the Company had obtained counsel's opinion on the question whether the debentures issued under the Trust Deed of 5th August, 1896, constituted an exclusive preferential first charge on the Company's assets, and that they have been advised by Mr. F. B. Palmer that, though the Trust Deed did not expressly prohibit the creation of securities ranking pari passu with the Debentures, it would be inconsistent with the Deed to hold that it would be competent for the Company to issue such securities, for the reasons which were stated in his opinion.

That it should be observed that the Company had guaranteed the interest on the First Mortgage Debenture Stock and First Mortgage Debentures of the Bechuanaland Railway Company, Limited (now the Rhodesia Railways Company, Limited), and on the First Mortgage Debentures of the Mashonaland Railway Company, Limited. That copies of the guarantees in question were enclosed, but for the reason stated in the Treasury letter of the 29th April, 1899, it was presumed that those documents did not affect the question now submitted for my report.

That Mr. Bertram Cox was to forward, in addition to the enclosures already indicated, a copy of the Charter of Incorporation of the British South Africa Company, a copy of the Deed of Settlement of 3rd February, 1891, a copy of the Trust Deed of 5th August, 1896, a copy of the Southern Rhodesia Order in Council of 20th October, 1896, and a copy of the question submitted to Mr. Palmer.

That since the Charter of Incorporation was granted to the Company it had been decided to vary some of its provisions and a Draft Supplementary Charter had accordingly been prepared. That under the Supplementary Charter a Supplementary Deed of Settlement became necessary, and that a Draft had been prepared and accepted by the shareholders at an Extraordinary General Meeting of the Company.

That the formal steps necessary to give effect to the Supplementary Charter and the Supplementary Deed of Settlement had not been fully completed, but that the enclosed

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drafts might be taken as finally settled. That those documents were sent for complete- ness of reference, but that they did not appear to affect, in any way, the nature of the security afforded by the Company's debentures.

That Mr. Bertram Cox was to request me to take the papers into my consideration, and to inform you :----

(1.) Whether the debentures of the British South Africa Company secured by the Trust Deed of the 5th August, 1896, were, in all respects, a security fulfilling the conditions prescribed by the 14th clause of the Ordinance which had been passed by the Legislative Council of Southern Rhodesia, special regard being had to the first proviso thereto; and

(2.) If not, what further steps the Company would have to be called upon to take in order to justify the acceptance of their debentures under the clause ?

Mr. R. J. Parker, one of the Junior Counsel to the Treasury, has, at the request of

the Treasury, conferred with me on this matter, and he concurs with me in the conclusions at which I have arrived,

pari

In obedience to your commands I have the honour to

Report-

1. That I agree with the opinion of Mr. Palmer, that the Company would infringe

the terms of the Deed of the 5th August, 1896, if they were to issue securities to rank

passu

ssu with, or in priority to, the debentures secured by the Deed. must observe, however, that these debentures, constituting as they do a floating charge only, might be postponed to the interest of any mortgagee of any part of the property who took without notice of the terms of the 3rd clause of the Trust Deed, but, as this danger is inherent in any security of this nature, I think that it cannot be taken as preventing the debentures from being regarded as complying with clause 14 of the Ordinance which was drawn in view of the existence or creation of debentures constituting a floating charge.

I must, however, further point out that the 25th clause of the Trust Deed, coupled with the terms of the 3rd Schedule, confers upon a meeting of debenture holders the power of releasing any part of the property on which the debentures are secured, and of postponing the security of the debentures to any fresh security created by the Company. This creates a difficulty which does not appear to have been in any way waived by the Treasury, and upon the whole I am of opinion that debentures secured by a Trust Deed which confers such a power upon a meeting of debenture holders at which one-twentieth in value would form a quorum cannot be regarded as complying with clause 14.

2. Assuming that all legal formalities necessary to secure to the debenture holders the benefit of the charge so far as it relates to land have been complied with according to the lex situs, I think it would be sufficient in order to justify the acceptance of the Company's debentures under the 14th clause of the Ordinance, if by means of a Supplementary Deed between the Company and the debenture Trustees executed with the sanction of a special Resolution of the debenture holders under the regulations contained in the 3rd Schedule to the Trust Deed of the 5th August, 1896, some such proviso as the following were added to the 25th clause of such last-mentioned Deed, that is to say :-

"Provided always that if and so long as any debentures hereby secured shall be deposited under clause 14 of the Ordinance for Southern Rhodesia No. 7 of 1899, entitled An Ordinance to regulate Banking, and to secure and regulate the circulation of bank notes, none of the majority powers conferred on the debenture holders by the provisions of the said 3rd Schedule shall be exercised so as either (1) to release any property of the Company from the charge created by these presents or the debentures, or (2) to enable the Company to create any mortgage or charge on any part of its property ranking in priority to, or pari passu with, the charge created by these presents, or the Debentures."

The Right Hon. Joseph Chamberlain, M.P.,

&C.,

&c.,

dc.

I have, &c.,

R. B. FINLAY.