CONVERSION OF LOANS

New Zealand Herald, Volume LXX, Issue 21515, 12 June 1933, Page 10

CONVERSION OF LOANS

CROWN AND SPECIAL RATES REVENUE LOSS FEARED In a letter to the Herald an Auckland solicitor with local body experience puts forward the disquieting theory that local authorities, by converting loans under the provisions of the recent legislation, will automatically forfeit the special rate payments now being received by them from the Crown in respect of such loans. Seeing that in one Auckland suburban borough every eighth house is in possession of the Crown as mortgagee, and in some other districts the proportion may be even greater, the solicitor considers that, if his theory is correct, conversion will impose such an additional burden on the private ratepayer in certain districts as to ,putweigh any saving in the interest charge. By the judgment of the Court of Appeal in a well-known case, the King versus the Inglewood Borough Council, decided in October, 1930. the Crown, upon taking possession of a property as mortgagee, becomes liable for special rates already struck as security for loans. However, it is not liable for special rates struck as security for further loans after it has taken possession. The contention now is that if a loan is converted under the provisions of the Local Authorities' Interest Reduction and Loans Conversion Act, 1932-33 the rating security of the converted loan will date from the resolutions effecting the conversion and not from tho resolution imposing the original loan; therefore the Crown, as mortgagee, will be released from liability to pay the special rate in respect of the loan. It is claimed that as upon the conversion new debentures are issued at a new rate of interest, a court of law could only regard the transaction as a redemption of the old loan, and the raising of a new one subscribed by the former bondholders. » A contrary view was expressed yesterday by a local body official, who said that as far as he could see the rating security of a loan was unaffected by a conversion in terms of the new Act. The local authority was not obliged to collect the whole of any special rate, and the reduced interest charge could therefore be met without formally altering the amount of the rate. Whether the conversion amounted to a redemption was open to argument. If any bondholders dissented from the conversion and accepted the one-third reduction in interest, their portion of the original loan could only be considered as still running.