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PUBLIC RECORD OFFICE

וד

C.O.

Reference :-

885/25

PUBLIC RECORD OFFICE, LONDON

ALLY WITHOUT PERMISSION OF THE BE REPRODUCED PHOTOGRAPHIC-

COPYRIGHT PHOTOGRAPH-NOT TO

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the 7th March,* transmitting a copy of a letter from the Attorney-General cover- ing a memorandum on the subject of the difficulties in the way of an expeditious liquidation of the business of Messrs. Freudenberg & Company, I have the honour to forward herewith a further memorandum by the Attorney-General regarding the difficulties involved in the question of the liquidation of enemy firms in general, and in particular with reference to the case of Messrs. Freudenberg & Company. 2. I would recommend for your approval the policy indicated in the memo- randum, and, should you agree to the Ordinance of which a draft is enclosed being passed on those lines, I should be glad if you would be so good as to communicate your approval by telegraph.

I have, &c.,

Enclosure 1 in No. 43.

JOHN ANDERSON,

Governor, &c.

FURTHER MEMORANDUM WITH REFERENCE TO THE ORDINANCE FOR THE LIQUIDATION OF ENEMY FIRMS, AND IN PARTICULAR WITH REFERENCE TO THE CASE Of Messrs. FREUDENBERG & COMPANY.

1. WITH reference to my memorandum dated 28th February, 1916, I have now had the advantage of a conference with Mr. Fraser, the member of the firm 01 the controllers who has the actual management of the control, and now submit the following further observations.

2. Private Estates of Partners. In paragraph 7 of the Report of the Inter departmental Committee of 17th December, 1915, it is observed that the liquida- tions should not extend to "the private estates of the individual partners," and directions are given accordingly in the telegram of the Secretary of State of 10th February, 1916. Two points have already presented themselves as to this phrase: one as regards the firm of Freudenberg & Company, and the other as to the business of Mr. Hagenbeck.

3. The articles of partnership of Messrs. Freudenberg & Company do not define the partnership property. The three partners consist of three brothers (one of whom, Siegmund Freudenberg, is a British subject) who, under the will of their late father, Mr. Philip Freudenberg, who died in 1911 and was at the time a partner with them in the firm, acquired the whole of his property in equal undivided shares, subject to a life interest of their mother in a special legacy of £50,000. A copy of the will and inventory sworn on its probate is attached.

"

are entered 4. It will be observed that in this inventory the "Hultsdorf Mills separately from the "assets of the partnership," and that the buildings and premises themselves are separately valued at Rs.225,000 about £15,000), while the one-quarter share of the deceased in the machinery, etc., on the premises, as assets of the partner- ship, is valued at Rs.200,000. The total value of the mills, together with the machinery, would thus seem to have been estimated at something over one million rupees, of which Rs.225,000 is not treated as partnership property. Further, the inventory includes a list of immovable properties which it also excludes from the assets of the partnership, and the most important of which is what is known as the "Freudenberg building" in the Fort. The half-share of the deceased in this building (it has not yet been ascertained who is the owner of the other half) is valued at Rs.250,000. The assessed annual value of this building for municipal purposes is about Rs.50,000. Two floors out of the five are occupied by the offices of the firm. I am assured by Messrs. Freudenberg's solicitors that the rent realizable by this building is about Rs.60,000 (£4,000) a year. The rents of this building, so I am assured by the controllers, are entered in the books of the firm. All the other immovable properties (though they do not appear in the inventory as firm assets) were, I believe, used or intended for the purpose of the business.

5. Under these circumstances it is clear that difficulties will arise with refer- ence to the phrase "private estates of the partners," unless the position is clearly defined at the outset. It must presumably be defined with reference to the object in view. The object of the measure of Imperial policy under consideration would appear to be to extirpate this (among other firms) from Colombo. It can hardly be intended, therefore, in the sale of immovables, that any fine distinction should be drawn between immovables which are part of the capital of the firm and immov- ables which are used generally for business purposes but which have never been

* No. 82.

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formally constituted part of the firm capital and the precise position of which it may prove difficult to define. Such a course must be taken as will on the one hand exclude the matter from litigation (with its usual vistas of appeals), and will on the other put the action to be taken on a clear and workable basis.

6. I have accordingly provided in the Ordinance

(a) That any question as to whether any particular property is property of the firm shall be determined by the Governor in Executive Council (Section 35);

(b) That, in the case of a partnership, the property of the firm shall be deemed to include all immovable property vested jointly or in co-owner- ship in the partners (Section 34).

As this latter provision goes beyond the instructions of the Secretary of State it should be submitted to his approval, and, in order not to anticipate that approval, I have, with relation to it, inserted the proviso "unless the Governor otherwise -orders."

7. The other point (referred to in paragraph 2 above) is less obscure. Mr. Hagenbeck carried on a general commercial business in the Fort under the style of "John Hagenbeck," and has no partners. In answer to recent inquiries, his solicitor, Mr. Arthur Alvis, has drawn attention to what he describes as a "private property" of Mr. Hagenbeck's, namely, an up-country estate. As the firm of John Hagenbeck" and Mr. J. Hagenbeck are the same there seems little reason in distinguishing between his commercial and his agricultural enterprises. If he is to be extirpated as a merchant it is difficult to see why he should be perpetuated as a planter. This is a question which will be further discussed in a later paragraph.

8. Debts to Enemy Subjects.—In the Secretary of State's telegram of 10th February, 1916, it is directed (in accordance with paragraph 5 of the Report of the Interdepartmental Committee, at foot of page 1) that no provision shall be made for enemy creditors. In view of the distinction that exists in law between enemies resident in British, Allied, or neutral territory and enemies resident in enemy terri- tory, the question arises whether this direction is to extend to enemy subjects not resident in enemy territory and in particular to our local enemy subjects interned in Australia.

9. The principal case in point is that of Mrs. Freudenberg, senior. Mrs. Freudenberg, under her late husband's will, is entitled to a life interest in the sum of £50,000. This sum, in accordance with the will, has been lent by her sons, as executors of the will (but in the name of their mother), to themselves (presumably as members of the firm), upon the security of a mortgage of the Hultsdorf Mills (with their machinery), the amount of the mortgage debt being, under the terms of the mortgage, payable on the death of Mrs. Freudenberg to the beneficiaries under the will (who are, again, themselves in yet another capacity, unless they, or any of them, die in the meantime). This document (a copy of which is attached) is peculiarly drawn, and would open up a most attractive field for litigation if the persons interested in it were allowed to come into Court.

10. The first of these would, of course, be Mrs. Freudenberg, who is represented in Colombo by an attorney and legal adviser, and who would (unless excluded as an enemy creditor) claim to have her life interest valued and paid over to her. In the event of the mills being acquired under the Land Acquisition Ordinance Mrs. Freudenberg would claim as a person interested, and would be entitled to appear in any reference to Court and to lead evidence and argue as to the value of the mortgaged property.

11. Further, under the mortgage referred to the partners of the Freudenberg firm themselves, in their capacity of beneficiaries under the will of their father, are (or may be argued to be) creditors of the firm to the extent of £50,000. This sum, it may be argued, constitutes a debt of the firm to the individual partners payable at a future date, and may, consequently, as a future debt, be estimated and proved in the liquidation. On this basis the partners themselves might (unless measures were taken to exclude them) claim to be 'persons interested" in any land acquisition proceedings that might be taken.

Other classes of debts that may have to be considered in the same connexion are:-

12.

(a) Debts due to other enemy firms under liquidation in the Colony;

(b) Debts due to other enemy firms under liquidation in other British

Colonies;