THE CASE FOE THE DEBENTUREHOLDERS.

Star (Christchurch), Issue 6122, 8 March 1898, Page 1

THE CASE FOE THE DEBENTUREHOLDERS.

A correspondent writing in the current number of the New Zealand Journal, of Insurance; Mining and Finance, over' the signature " Colonist," strongly contests the assumption that the claims of the : deben-ture-holders in the Midland Kail way Coni.pany were extinguished by the arbitrator's award. After referring to an article' favouring this assumption which appeared in the February number of the Journal, he goes on to say :— lf you refer to those . proceedings you will ascertain that the debenture-holders took no part in them, and, further, that 'the arbitrator (Mr Blake) very pointedly stated that he was not in any way adjudicating on their claims, which were of i\n entirely different nature to those of the shareholders. You, however, appear to assume that their rights and interests were identical, whereas I think that I can satisfy any candid •<vnd intelligent mind that the debentureholders have very important rights conferred upon them by statute which the shaseholder3 never possessed or laid claim to. In passing, it may be remarked that the arbitration proceedings were entered into in accordance with the express conditions of the contract between the company and "the Government, and ■were not the .result ,of the Government of the day •'• being Wearied into an ■agreement " to. -arbitrate, as your article. states, To return • tooiir subject. Tho New Zealand Midland Railway Company was formed under the provisions of the Eailway Construction Act, 1881, and the East and West Coast Eailway Construction Act, 1884. The last- : mentioned Act was passed, a3 i,ts preamble .states, ftir the purpose of affording. further facilities for the construction of a line of railway to connect the east and west coasts of New Zealand. It may be pointed out -that one of the chief facilities afforded by both Acts was to grant any company taking advantage of their , provisions unlimited borrowing powers, irrespective of the paidup capital of such company. In England and other European countries Parliament jealously restricts the borrowing powers of •'-railway' 'companies, well- knowing the miseries that have often in the past resulted from unrestricted borrowing powers. This was pointed out in our Upper House by one of its oldest and ablest members (since deceased), and is recorded ■in Hansard. But New Zealand was at that' time desperately in need of monetary expenditure, and therefore unlimited power to borrow was granted, irrespective of the capital of the borrower. This, however, is . merely by the- way. What I want specially to direct attention to are the clauses of the Act of 1884 > under which the debenture-holders have borrowed. Clause 9 states that "the com-pany-may from time to time, under the . authority of this Act, borrow, and for such purposes may issue debentures under this Act." Clause 13 states that "all such debentures and the interest payable thereon shall bo a first charge on the entire assets of the company, including the railway and everything pertaining thereto." Can anything be clearer? Not one word from beginning to end of the elaborate clauses dealing with the borrowing powers hints that a lender's rights are anything more oi- less than what the Act proclaims them to be —viz., a first charge on the entire assets of the company. Surely if it was J intended that the debentures should be only a second charge on the company's .assets — which is virtually what your article contends — it would have been so expressed. To put it in another way : You assume that it was only the estate or interest of the company in the railway, &c, that was pledged to the debentureholders, whereas the Act of 1894 declares it to be the railway itself* which is, of course, an entirely different thing. To enforce my argument still further I would point out that the contingency of the in- . solvency of any company formed under . the provisions of the Acts of 1881. and 1884 was clearly contemplatedby the Legislature. The insolvency of any such company, whilst its contract was still incomplete, of necessity implied its inability to fulfil that contract, and the failure to fulfil necessarily implied forfeiture under Section 126 of the Act of 1881, unless, as is provided by the Act of 1881, some other, arrangement could b& come to. Now, when, as in the case of the New Zealand Midland Kailway Company, a company admits its inability to pay either the principal or the interest on its debentures, it clearly has arrived at that stage, the possibility of which was in the minds of the Legislature when it authorised the borrowing powers above referred to. The question . then immediately arises : What remedies have the debenture-holders in such a contingency ? The answer is perfectly explicit. Clause 14 of the Act of 18S4 enacts that on any debenture-holder satisfying a judge of the Supreme Court that either principal or .interest is in arrear, the judge can order the entire assets of the company, including the railway, to be absolutely sold for the benefit, of the debenture holder. There is not one word or hint in the clause last mentioned, or, indeed, in any clause, relating to the company's borrowing powers and retnedies, about the Government's rights of forfeiture. But your argument, if it amounts to any thing, amounts to this : That .precisely at the inom6nt that the debenture-holders are entitled to step in and enforce the remedy, expressly provided by statute for- their protectection, the Government of the colony can * step in and say, "No you don't; this ia .our property." Can absurdity proceed further ? Why, Sir, when Mr Buckland introduced his celebrated " Washerwoman and Manglers Bill" into the House of Kepresentatives a few years ago, it at all events had the merit of being both original and amusing. But if your contention be correct the elaborate machinerj sot up by Parliament for the protection oi the first charge expressly guaranteed tc the debenture-holders by statute is nothing •but, a mockery, a delusion and a snare without even the merit of being funny, anc designed only with the intention of train in<» Iwdding politicians in the avfc of iiov, to frame Acts of Parliament? so as to bi ■able to swindle foreign creditors. Truly j noble ambition !, But perhaps yon wil ask: What, then, becomes of the Govern

ment's rights of forfeiture referred to in Clause 126 of the Act of 1881 ?. Is that also purely a bit of humbug, introduced for the purpose of exercising budding legislators? -Not at all.. That provision is binding on the Midland Railway Company's shareholders, and they "in list forfeit their •£250,000 capital, being all their interest in the concern, . Not a bad mouthful»for a hungry colony !.'■ But, according to your doctrine, it is uot enough. Having baited our hook skilfully »and induced innocent debenhire-hiolders to lend .£750,000 on what by statute we stated unreservedly to- be a first charge, we coolly turn round and say what we declared to be a first charge was really only a second" charge. " Very sorry, old fellow, that you lose your security, but that is our idea of integrity and honour as expounded by the leading financial journal of New Zealand." Sir, I cannot believe that if the facts were .understood by the House or by the country that the right of the debenture-holders to their security would for one moment be contested. I have no interest directly or indirectly in championing *the cause of the debenture-holders, but I do confess to having a strong sense of the disgrace that would attach to the colony and to everyone of its inhabitants were the Government to repudiate the solemn obligation to the debenture-holders which was entered into by the Act of 1884. The questions at issue are of such momentous consequence to the colony that I make no apology for writing at sncli length. If I shall have succeeded in dispelling the apathy in regard to this great question, and in arousing the conscience of the Press and of ' the people in regard to it, I shall have attained my object. What the atti-' tude of the Government is with respect to the debenture-holders I have no means of knowing, nor dees anyone appear to know. It is sincerely to be hoped that when the matter comes to an issue they will do nothing to compromise the fair fame and integrity of the colony. In the meantime it is the manifest duty of the Press and of the people to get hold of the true facts, and not allow the colony through apathy or ignorance to drift into an act of repudiation which would be a lasting stigma on us and on our children.