REPORT OF THE SELECT COMMITTEE ON THE PETITIONS OF THE BANK OF NEW SOUTH WALES AND BANK OF OTAGO (LIMITED), AND ON THE LIABILITIES OF THE PROVINCE OF SOUTHLAND.

Appendix to the Journals of the House of Representatives, 1866 Session I, F-04

P.—No. 4.

REPORT OF THE SELECT COMMITTEE ON THE PETITIONS OF THE BANK OF NEW SOUTH WALES AND BANK OF OTAGO (LIMITED), AND ON THE LIABILITIES OF THE PROVINCE OF SOUTHLAND.

PRESENTED TO BOTH HOUSES OF THE GENERAL ASSEMBLY, BY COMMAND OF HIS EXCELLENCY.

WELLINGTON.

1866.

F.—No. 4>

The prayer of the two Petitions referred to the Committee is substantially the same. Eoth the Bank of New South Wales and the Bank of Otago (Limited) have made large advances to the Southland Government, and both ask that an assurance should be given them that they will receive full payment. The Bank of Otago, by negociating the sale of land, has been recouped a considerable portion of its claim. To this extent the Bank came in under the Southland Provincial Debt Act, but it does not appear to have come in under it in the precise terms of clause seven. The Bank of New South Wales has neither come in under the Act nor negotiated the sale of land. The complaint made by both the Banks is, that under the terms of the Act they will be liable to have debentures, unsaleable, except at a heavy discount, given them in satisfaction of their claims, and that therefore they may be considerable losers in the final settlement, apart from the losses by the locking up of their capital to which they have been already subjected. In considering their prayer that they may be guaranteed a payment in full, in money or in what will realize money, the question at once arose whether the Assembly has made the General Government liable for the debts of the Province of Southland. The intention of the Southland Debt Act seems to be rather to make the Government the trustee of the estate —to dispose of it for the benefit of the creditors. Still it seems to have been accepted that the estate was fully equal to the burthen, and that therefore the Government was, not later than the Ist of January, 18G8, to satisfy all debts which might then remain unpaid out of the proceeds of land by payment in debentures of corresponding amounts. Clauses five and six seem to leave the Government no option as to such payment, and thus the Act virtually makes the Colony liable for the unpaid debts of the Province on the Ist of January, 1868, to the extent of satisfying them in debentures. But the discretion is left to the Government to choose the term, not being longer than thirty years, over which the debentures shall extend, and the place at which the interest and principal shall be made payable. The market value of the debentures will much depend upon the currency and place of payment. The Committee thus find that whilst the Government is bound to satisfy the claims unpaid on the first of January, 1868, by payment in debentures, the option is left of making these debentures of more or less market value. The question now arises whether it is for the credit and interest of the Colony to make this payment (which it has voluntarily undertaken) in a shape wliich will realize 20s. in the pound to the creditors. The Committee are of opinion that 20s. in the pound should be secured to the creditors for the following reasons: — (a) Because it was evidently assumed that the estate would be sufficient to cover such payment, in evidence of which the Government as trustee was directed, as before stated, to issue debentures to the amount of the debts unsatisfied on the Ist January, 1868, and it is not to be supposed that in allowing the Government to fix the nature of the debentures, the Assembly intended to invest it with an indirect power of compounding the debt. In the absence of proof to the contrary, the presumption is that the intention was the debentures should be worth their nominal value. (b) Because in administering the Southland Debt Act, the Government has evidently proceeded upon a like assumption as to the value of the estate, since it has allowed creditors who purchased land to receive a preference payment. (c) Because the Southland Province, on which the payment will ultimately fall, lias by resolution in the Provincial Council, (see Appendix) contemplated the course recommended. (d.) The amount of the concession asked supposing, there were no claim in honor to it, and that it were only made as a matter of policy, is not large. It is not likely there will be more than £300,000 inclusive of interest left unpaid by the Ist January, 1868; and, if the present rate of sales continue, there will be less. Suppose the debentures to be worth 90 per cent, the difference would not amount to more than £30,000, whilst it is quite reasonable to suppose that by the date named

REPORT OF THE SELECT COMMITTEE ON THE PETITIONS OF THE BANK OF NEW SOUTH WALES AND THE BANK OF OTAGO (LIMITED), AND ON THE LIABILITIES OF THE PROVINCE OF SOUTHLAND.

F.—No. 4.

New Zealand securities will have resumed their normal value, and be worth par or over, in which case the guarantee asked would cost nothing. The Committee cannot but add that the giving such a guarantee is calculated to have the effect of improving the value of New Zealand securities, since it would indicate the determination of the Colony to meet all its liabilities, honorable as well as legal. As a very great evil arises from allowing debentures to be negotiated through a number of different channels, the determination to pay in full will leave it open to the Government to dispose of the debentures and to pay in cash. For this purpose it would seem reasonable that a period not exceeding four months should be allowed the Executive after the Ist January, 1868, to negotiate the debentures, in case it elected to pay in cash. The Committee are of opinion that whilst the Southland estate should not be realized too hastily, so as to unduly injure the persons who may be affected by such hurried realization, the Government should exercise a due watchfulness in promoting the sale to prevent the too large accumulation of interest and to protect the debentures. To guard against the too large accumulation of interest, and to set a term to the realization of the estate, the Committee think the debentures should have a currency of not more than ten years. As the possibility of a reduction in the upset price of land tends to prevent purchases, it seems desirable that the Government should make known its intention of not reducing the upset price under the powers given by clause 15 of the Southland Debt Act for a period of years, say, —within the date over which it is decided to make the debentures payable. It will be desirable also as a further means of inspiring confidence that clause 15 should not be acted upon without the Assembly being first made aware of the intention to do so. The Committee are of opinion that if the proceeds of the land sales are rigorously impounded to meet the debt, the Government to promote the prosperity of the Province, should be empowered at its discretion, to allow the Province the use of the pastoral rents which accrue after the Ist January next, for appropriation by the Provincial Council. The Committee make the following recommendations as deductions from the above :— 1. That it be provided, by an Act amending the Southland Debt Act, that the creditors shall receive an equivalent to 20s. in the pound for the amount of their claims, with interest added, and that in the event of such claims being paid in cash, a period of four months after the Ist January, 1868, be allowed for settlement. 2. That the Banks be allowed six months to come in under the amended Act, and that on their so coming in they deliver up the debentures they hold of the Southland Government or give an order to the agent of the Government to receive them in London: a certificate to be handed to the Banks on the debentures being surrendered, stating the amount of their claims and undertaking to satisfy them with interest in the manner recommended by the last clause. 3. That in calculating the final accounts to be paid to each creditor, including the Banks, for principal and interest, the latter shall be computed at the rate of 6 per cent, per annum from Ist January, 1866, in accordance with " The Provincial Liabilities Confirmation Ordinance, 1865." 4. That the debentures should have a currency of not more than ten years, and that >power be given the Government to negotiate them, and to settle with the creditors in cash. 5. That the Government be empowered to issue debentures sufficient to realize the amount of the claims oiitstanding on the Ist January, 1868. 6. That the proceeds of the Southland land sales should be paid to an account in the name of the Comptroller, to be called " The Southland Debt Redemption Fund," upon which the interest of the debentures should be charged, and from time to time the balance be invested in such securities as the Governor in Council may direct, and the interest arising therefrom be placed to the credit of the fund, such fund to be held for the redemption of the debentures. 7. That the Province at the discretion of the Government be allowed for appropriation by the Provincial Council the pastoral rents after the Ist January next. 8. That the Government should make known its intention not to reduce the upset price of land for a period of years, under the powers conferred by clause 15 of the Southland Debt Act, and that this clause should not be acted on without an intimation that it is intended to do so being first made to the Assembly. 9. That a Bill be introduced giving effect to such of these recommendations as require the sanction of the Legislature. As the remarks in sub-clause B may be liable to misconstruction the Committee desire to express the opinion—that the Government in administering the Southland Debt Act has exercised excellent judgthent, and has kept in view as much as possible the speedy promotion of the land sales and the speedy settlement Avith the creditors. Julius Vogel, Chairman of Committee.

2

F.—Xo. i.

APPENDIX. Resolution passed by the Southland Provincial Council. Resolved —" That whereas as the General Government has undertaken to meet the liabilities of the Province of Southland, and, in order to extinguish the same, has assumed the entire control of the Provincial estate; and that " The Southland Debt Act, 1865," provides that claims unpaid at the end of two years shall be paid by debentures having a period of not more than thirty years to run, such debentures being unlikely, judging from the state of the money market for some time past, and the rates at which New Zealand debentures have been sold to be saleable at par, would, if accepted by the Banks which have advanced moneys to the Province in liquidation of these claims, entail on them a serious loss. " This Council, seeing then that the arrangements which would be effected by the above-named Act would inflict a loss upon the creditors of the Province, and being desirous that all claims against the Province should be fairly and equitably adjusted, is of opinion that the provisions contained in the Southland Debt Act for settling those claims should be altered by an Amendment Act which would provide that after the lapse of the two years specified therein, all outstanding debts should be covered by the issue of Debentures having five years to run, and bearing (J per cent, interest. " This Council is also of opinion that the provisions contained in the 15th clause of the Southland Debts Act, whereby the Governor is empowered at any time to alter the price of land in the Province, has led to the expectation that in case large sales should not occur in the course of the next eighteen months, the price would be lowered. This anticipation, as this Council has good reason to believe, has prevented intending purchasers of large areas from investing, thus defeating the chief object of the Act, which was passed with the view and in the hope that large sales of land would in a few months give material relief to the Province from the pressure it sustained. " This Council is well aware that the changes in the price of land which have taken place within the last feiv years have acted injuriously by checking the sales; the public, looking forward to a probable reduction in price, bought very slowly. A similar result is likely to ensue so long as the price can be at any moment altered by an Order in Council imder the provisions referred to. " This Council is therefore of opinion that clause 15 of the Southland Debt Act should be repealed, and some provisions enacted whereby the price would be fixed for a term of years. " The Council approves of the present price of one pound per acre, and it suggests that it not be lowered for a period of twenty years at least." Passed the Provincial Council, 20th March, 1866. W. H. Aylmer, Clerk of Council.

3