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PUBLIC RECORD OFFICE

Reference :-

CO.885/25

PUBLIC RECORD OFFICE, LONDON

ALLY WITHOUT PERMISSION OF THE BE REPRODUCED PHOTOGRAPHIC-

COPYRIGHT PHOTOGRAPH-NOT TO

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for two or three years, or until the end of the war, and it was arranged under the scheme that Philip de Silva should work his plumbago pits under the supervision of the controllers, paying off first the fresh advance, secondly the other creditors, and finally Messrs. Freudenberg & Company. There appear to be very good hopes that all the debts of Philip de Silva could be liquidated in due course under this arrangement, as the market for plumbago is very favourable, but this could not be done until some time next year. If present conditions continue, however, it is stated that the other creditors would be paid off in a few months. The other creditors appear to have no preferential rights except in the event of the scheme being carried through. On the contrary, they are in the position of having postponed their remedies till the end of the war. If, however, the claim of Messrs. Freudenberg & Company were pressed at once it would mean the bankruptcy of Philip de Silva and very heavy losses on the part of his other creditors. The result would be that a British subject and British creditors would be seriously damaged, owing to the necessity of getting in the debts of an enemy firm. Moreover, the amount realized for the enemy firm in such a bankruptcy would be very small. The proceedings, owing to the congested state of the District Court and the dilatoriness of legal proceedings in this country, would be protracted, and it would not be for a very long time that the liquidators of Messrs. Freudenberg & Company would realize their

dividend.

2. If, on the other hand, a liquidation were to proceed, subject to the working out of the scheme, the following might be possible :--The further advance of Messrs. Freudenberg & Company and the claims of the other creditors might first be paid off, and then Philip de Silva might work off his indebtedness to Messrs. Freudenberg & Company under some compromise with the liquidator. As Messrs. Freudenberg & Company would, at any rate, lose heavily if Philip de Silva were forced into bankruptcy, the liquidators would be justified in making an arrangement with Philip de Silva under which part only of the claim of Messrs. Freudenberg & Company was realized. The question would be: Within what limit of time must this arrangement be carried out? It is probable that something practical might be done if the liquidators were allowed to proceed with some modification of the scheme up to the end of the present year. This would result in the local creditors of Philip de Silva being paid in full, and Philip de Silva being himself saved from collapse.

3. A difficulty on the other side is that if, owing to any untoward develop- ment, Philip de Silva was unable to carry through the scheme so modified, bank- ruptcy would be necessary, and the liquidation proceedings would be further protracted.

4. The Ordinance, in my opinion, should be drawn up in such a way as to allow of the existing scheme proceeding, but directions of the Secretary of State should be obtained as to the limits of time which should be observed in any arrangement made with Philip de Silva.

5. Outstanding liabilities.-The outstanding liabilities of Messrs. Freudenberg & Company are extremely large, amounting, apart from those of Philip de Silva, to several lakhs of rupees. It has been the policy of this firm to leave large sums of money outstanding in the hands of native traders for indefinite periods, with a view to securing their custom and binding them to supply the firm with goods on specially favourable terms. For example, in the case of Philip de Silva, he was bound to Messrs. Freudenberg & Company indefinitely to supply them with plum- bago at Rs.20 per ton below the usual market price. liabilities the controllers, in carrying out the control, did not think it right to press In dealing with these for early payment of the sums due, and in many cases entered into arrangements by which the debts were to be liquidated in easy instalments. In some cases this was done with regard to debts which should be otherwise proscribed. If these arrange- ments were disclaimed, and these and other debts called in, a very considerable embarrassment would be caused. The Secretary of State's telegram says that the collection of local debts from British creditors need not be hurried, but again it will be necessary that some limit of time should be observed, and directions might well be obtained on this head.

6. Prize Claim Appeals. Certain important prize claims of Messrs. Freu- denberg & Company are down for hearing next week. In the event of the Crown succeeding the controllers would under ordinary circumstances appeal, as the amount involved is large. If these appeals were lodged the final winding up of liquidation would be postponed to a very remote date. It is probable that before

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appealing the controllers might take directions of the District Court, under whose supervision the control is being carried on, and it is to be hoped that under the circumstances the Court would not direct them to institute appeals.

7. Private Estate of Partners.-The Secretary of State directs that the private estates of partners of enemy firms should not be sold in the liquidation. Difficulties would arise in the case of Messrs. Freudenberg & Company in determining what are private assets and what are business assets. It would be convenient, therefore, to adopt another formula. The late Mr. Freudenberg, the founder of the firm, died in 1911. By his will he left all his property to his three sons in equal shares. This property includes not only the mills, the manure works, and various warehouses, but the Freudenberg building in the Fort, one floor of which is used as the office of the firm, the other floors being let out. The solicitor for Messrs. Freudenberg & Company has produced to me the will and the articles of partnership. The articles of partnership, however, do not define what is and what is not partnership property. The mills are subject to a mortgage, in favour of the widow, of £50,000 sterling. Under the circumstances, as the Secretary of State presumably intends that all real estate of commercial character should be sold, it will probably be convenient to frame the Ordinance in such a way as to prevent any dispute arising.

8. Control of Liquidation.—In any enactment that is passed, whether with reference to this firm or any other, it will be essential that there should be some officer appointed to control the liquidations. If the liquidators are left to apply for directions to the District Court it is impossible to say when they will conclude. It will be necessary to appoint an officer as the Custodian of Enemy Property, and the custodian might very well supervise the liquidation, determine questions of policy, and generally expedite the course of events. The Secretary of State gives no direction that the system in force in England should be instituted in Ceylon, but if a Custodian of Enemy Property is appointed for the purpose of the liquidated firms, it may be anticipated that his functions at an early date will be extended. The duties of the Custodian of Enemy Property might be assigned to the office of Controller of Revenue, or might be imposed upon a special officer, as was done in various parts of India, where civil servants were appointed Controllers of Enemy Firms and liquidated their business in that capacity.

ANTON BERTRAM,

Attorney-General.

28th February, 1916.

SIR,

Enclosure 2 in No. 32.

Office of the Deputy Inspector-General of Police, C.I.D.,

Colombo, 26th February, 1916.

In reply to your letter No. 216/W, of the 14th instant, I have the honour to report as follows:-

(a) The following enemy firms were in existence when war broke out :—

1. Messrs. Freudenberg & Company.

2. Messrs. George Boysen & Company.

3. Messrs. Ch. & A. Bohringer.

4. Messrs. Marinitsch & Company.

5. Messrs. Muller, Ludecke & Company.

6. Messrs. Karl Festin.

7. Messrs. John Hagenbeck.

8. The Krawehl Coal Company.

9. Deutsches Kohlen Depôt.

(b) Vide 1 above. The business and buildings of this firm are being managed

and looked after by controllers, Messrs. Ford, Rhodes, Thornton & Company.

Vide 2 above. Messrs. Morrison & Bell are looking after the building

and stock in hand of this firm.

Vide 3 above. The buildings and stock of this firm are in the hands of

the Chartered Bank.

Vide 4 above. Interests of the firm are in the hands of the Hong Kong

& Shanghai Bank..

Vide 5 above. This firm closed down and does not now exist.

Vide 6 above. Mr. E. G. Jayawardene, M.M.C., is looking after the

interests of this.firm.