§ 53. Mr. Garro Jones
asked the Chancellor of the Exchequer whether his attention has been drawn to the special resolutions passed by Imperial Airways, Limited, on 18th June; whether he is aware that such resolutions, especially that which appropriates £150,000 of the full reserves of the company for the exclusive benefit of the ordinary shares dividend fund, deprive the Government's deferred shares of certain rights; whether the consent of this House has been obtained to this surrender of rights which belong to the taxpayer; and whether he will cause a White Paper to be issued to explain to the House the financial concessions and other alterations to which the Government have agreed without parliamentary authority.
§ Sir J. Simon
The answer to the first part of the question is in the affirmative. These resolutions form part of the comprehensive agreement with Imperial Airways for the Empire Air Mails Service, which has already been laid before Parliament and is described in the White Paper (Command Paper No. 5414). They were settled after full consultation with His Majesty's Government and their legal advisers; and I am satisfied that they effect an equitable adjustment between the deferred shareholders and the holders of the prior capital in the company to the advantage of both parties. I am not 1371 aware that specific parliamentary authority is necessary for a settlement of this nature; and I do not think the matter is of sufficient importance to lay a further White Paper. I will, however, circulate in the OFFICIAL REPORT a brief explanation of the main purport of the resolutions.
§ Following is the explanation:
§ In connection with the recent negotiations between His Majesty's Government and Imperial Airways, Limited, for the settlement of the Empire Air Mails Agreement, the position of the deferred shares of the company, all of which are held by His Majesty's Government, was reviewed and was found to be unsatisfactory in certain respects to both parties and particularly to His Majesty's Government, since it gave them no clearly defined right to participate equitably in any scheme which might hereafter be decided upon by the company for the capitalisation of undistributed profits from its reserves and their distribution among the shareholders in the form of bonus shares. On the other hand, it was realised that, owing to the peculiar apportionment of rights under the existing Articles, the rectification of this defect would mean that the ordinary shareholders would suffer if in any year the Board should decide, as a measure of prudence, to put a portion of the distributable profits to reserve instead of paying them out in full as dividends. Clearly it would not be right that the Board, in deciding upon their dividend policy, should have to choose between the alternatives of prejudicing the prospects of the ordinary shareholders or of offending against the canons of sound finance.
§ Accordingly, the Government agreed that, as a corollary to their own request, there should be set up a Dividend Fund into which there should be paid as a first charge on the distributable profits of the company for each year (after making provision for Income Tax, obsolescence and depreciation and suitable allocation to reserves) an amount equal to a dividend at the rate of 10 per cent. per annum on the ordinary share capital, together with the fixed rate of dividend on the issued preference share capital, if any. The sums thus carried to the credit of the Dividend Fund would thereafter be available for the payment of dividends on the prior capital of the company as and when the board might think 1372 fit, and would constitute a form of Dividend Equalisation Fund for the protection of the preference shareholders (if any) and ordinary shareholders. On the other hand, the position of the deferred shareholders was improved inasmuch as in future they became entitled to participating in any distribution by way of dividend of past profits accumulated in the company's reserves. The sum of £150,000 to be credited initially to the Dividend Fund by the transfer thereto of a portion of the accumulated reserves as at 31st March, 1937, consists mainly of profits which, if distributed in the form of dividends at the time, would have been payable exclusively to the ordinary shareholders. The small portion (less than £20,000) in which the deferred shareholders had a contingent interest could not have been claimed by them except in the event of the company being wound up. As a part of the general settlement with the company, and in view of the improvement in the position of the deferred shareholders, it was felt that the sacrifice of this small contingent interest was fully justified; and that the resolutions as finally submitted to the shareholders represented a fair and equitable settlement between the several classes of shareholders.