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EUROPEAN WAR.

261

CORRESPONDENCE

[March, 1915-March, 1918]

RELATING TO THE

LIQUIDATION OF ENEMY FIRMS IN BRITISH COLONIES AND PROTECTORATES.

GENERAL.

30263

No. 1.

THE SECRETARY OF STATE to THE GOVERNORS, &c.*

(Sent 4.50 p.m., 6th July, 1915.) TELEGRAM.

HIS MAJESTY'S Government have decided that surplus assets of enemy busi- nesses which have been wound up should be invested in British Government securities. Suggest therefore that you should immediately instruct Crown Agents to apply for allotment of War Loan equivalent to amount of such surplus. Applications must reach Bank of England on or before 10th July. Same applies to any other assets held by Government on behalf of enemy subjects.-BONAR LAW.

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No. 2.

INTERDEPARTMENTAL COMMITTEE ON THE LIQUIDATION OF ENEMY FIRMS.

REPORT.

AN Interdepartmental Committee, consisting of Sir G. V. Fiddes, K.C.M.G., C.B. (Colonial Office), Chairman; Mr. E. R. H. Blackwell, C.B. (Home Office); Mr. H. Fountain, C.M.G. (Board of Trade); Mr. E. J. Turner (India Office); Mr. C. Tennyson, C.M.G. (Colonial Office); Mr. H. W. Malkin, and Mr. R. T. Nugent (Foreign Office); with Mr. J. R. W. Robinson (Colonial Office) as Secretary, was appointed by the Secretary of State to consider the policy of the liquidation of enemy firms in the British Colonies and Protectorates. The Committee met on the 2nd and 9th of December, and submit the following unanimous report:-

*i*., Fiji, the East Africa Protectorate, Nyasaland, Somaliland, Uganda, Ceylan, Hong Kong Straite Settlemente, Bermuda, Jamaica, Trinidad, Windward Islande, Gold Coast, Sierra Leone, Nigeria, Zanzibar, and Malay States.

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We have considered the questions submitted to us in the Colonial Office letters of the 9th November and the 29th November in the light of a memorandum prepared in the Colonial Office, a copy of which is annexed to this report. We have come to the conclusion that, from every point of view, it is desir- able to substitute for the conservative system of liquidation described in the earlier of those letters a complete system of liquidation which will include the sale of the goodwill, trade-marks, land and buildings (whether freehold or leasehold), and other permanent assets of the firms affected. In Ceylon, where the local Govern- ment has hitherto been content to rely on a system of control, we think a system of liquidation on the lines suggested should be introduced, steps being taken to secure that Messrs. Freudenberg & Company's milling operations are continued in competent hands for the benefit of the Colony.

In the early stages of the War, when the deportation and internment of enemy subjects for military reasons rendered the introduction of a system of liquidation necessary, the conservative system which was introduced was not unsuitable to the circumstances. No one could have foretold at that date how long the War was likely to last, and, had it ended rapidly, a complete liquidation of the derelict businesses would have been unnecessary. Moreover, the fact that many of the more important houses affected possessed, at the outbreak of war, heavy accumula- tions of stocks, rendered a gradual disposal of these necessary for the protection of the local markets and the non-enemy creditors. Now, however, that stocks are to a great extent disposed of, and the War is being protracted, it is obviously undesir- able that the local Governments should remain, for an indefinite period, burdened with the maintenance of the permanent assets of the liquidated firms. Moreover, to postpone the sale of these assets much longer will be to deprive the goodwill and trade-marks of all their value. This would be an injustice to creditors where there is a deficiency of assets, and may also, in many cases, prove an injustice to enemy owners themselves, who may not be in a position to resume their trading operations in British territory after the War.

A further consideration with regard to the sale of trade-marks is that such sale is necessary for the protection of the British manufacturer, whose joint interest in the mark of “ face plait,” referred to in the memorandum annexed, is rendered useless so long as the enemy owner is prevented from trading. The interest of the enemy owner in the mark is inseparable in law from the goodwill of his business, and while the goodwill remains in abeyance the mark cannot properly be used on goods selected and distributed by another trader.

In

Assuming that the proposed change of policy is to be adopted, it becomes important to consider what debts of the firms concerned should be paid and to what extent the liquidation should be regarded as abolishing the liquidated firm's indebtedness. With regard to the first of these points, we understand that it has hitherto been laid down that the claims of non-enemy creditors are to be paid, if possible, in full, irrespective of those of enemy creditors, no provision being made for these latter by way of dividend or otherwise. We see no reason for advocating a different system in connexion with the complete liquidation now recommended. the great majority of cases we understand that the establishments liquidated are merely agencies of enemy houses elsewhere, so that the enemy creditor will have his remedy against the head office independently of the liquidation. In the few cases where the firm liquidated is an independent establishment the claims of enemy creditors may well be left to the consideration of their own Government after the War. Any balance that remains after payment of the claims of British, allied, and neutral creditors, should be retained until the end of the war and dealt with on the same footing as moneys in the hands of the Custodian under the Trading with the Enemy Acts.

With regard to the question of how far the liquidations should be regarded as closing the indebtedness of the liquidated firms, we understand that the present system of partial liquidation does not affect the unsatisfied indebtedness of the liquidated business. This, of course, is a natural result so long as the goodwill and capital assets of the firm are allowed to remain unrealized. If, however, the change of policy which we recommend is adopted, we think that a change should be made in this respect also, and that, after the completion of any liquidation, no action should be allowed to be brought in the Colony or Protectorate concerned against the liquidated firm or company, or against any of its members or remaining

*Nos. 17 and 58784.

assets, or against any official or other person concerned in the liquidation, for any debt incurred by it prior to the liquidation.

We would add that we do not recommend that the liquidations should extend to the private estates of the individual partners.

Our attention was also drawn to the fact that in certain Colonies (notably Hong Kong) the liquidators remain liable for the carrying out of current con- tracts in existence at the date of the liquidation, without any power of disclaimer. We understand that some of these contracts are still not completed. The liquida- tions should not, we think, be kept open merely in order to admit of the completion of these contracts. Power to disclaim should be given to liquidators, subject to a right of the other party to the contract to prove in the liquidations for any damage which he may suffer through the disclaimer, and all uncompleted contracts should immediately be disclaimed, except such as relate to goods which have actually been shipped to the Colony from the United Kingdom or elsewhere, but have not yet been delivered.

In conclusion, we desire to draw attention to the statements contained in the memorandum as to the credit facilities extended to the German firms in Hong Kong by the London acceptance system of the discount banks. We think it of great importance that, if this has not already been done, the competent authority should call the attention of the British discount house and banks concerned in the Far Eastern trade to the remarks on this subject contained in Mr. Ainscough's report to the Board of Trade. In our opinion, steps should at once be taken to secure that the London acceptance system is in the future extended to British traders, and that foreign traders are never again allowed to secure, by a misuse of the facilities afforded to them by British financing houses, an unfair advantage over their British competitors.

Since the above report was drafted, the Law Officers' opinion of the 6th December* with regard to the distribution of the assets of liquidated enemy firms in West Africa has been brought to our notice. The substance of that opinion appears to be as follows:-

(1) That the assets of any branch in any British dependency in West Africa of an enemy firm may be applied in satisfaction of any debt created either by that branch or by its head office in enemy territory or by another branch of the same office in any other British dependency or in allied or neutral territory or in territory occupied by Great Britain or any of her Allies, whether that debt be owing to the head office of a British, allied, or neutral firm, or to a branch of such a firm situated in a British dependency or in allied or neutral terri- tory, or in any territory occupied by Great Britain or any of her Allies; but that a neutral creditor should only be admitted to prove in the liquidation in respect of any balance of his debt which he may have failed to recover after prosecuting his remedy against the enemy debtor in enemy territory.

(2) That after all claims which may be admitted in accordance with the above principles against the assets of the various branches of the same enemy firm in different British dependencies in West Africa have been liquidated, so far as the assets of the various branches allow, any surplus funds remaining from such liquida. tions should be pooled, so far as may be required, to pay the debts due by the liquidated firms in respect of which satisfactory proofs have been lodged but which have not been satisfied.

We do not think that this opinion affects the principles upon which our report is based, but that report will, of course, have to be read subject to any decision which may be taken as a result of the opinion.

G. V. FIDDES, Chairman

(for the Committee).

J. R. W. ROBINSON, Secretary.

APPENDIX.

Memorandum.

17th December, 1915.

THE policy of liquidation was adopted in its present form partly because the enemy houses in British Colonies and Protectorates were found to be, in almost all cases, merely agencies of head offices in Germany, who were entirely under the

* No. 199 in Vol. VII of "Law Officers' Opinions."

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