Foreign Credit Facilities in the United Kingdom: A Sketch of Post-War Development and Present Status

By Leland Rex Robinson | Go to book overview

CHAPTER XII ACCOUNTING METHODS OF INVESTMENT TRUSTS

THERE are a number of important differences between investment trusts and financing companies1 in their methods of determining net income, computing payments due under the corporation profits tax and maintaining unimpaired capital. Legal doctrine and business practice treat the former as dealing in investments, and the latter in money. The following variations in practice will make this clear.

A. For a quarter of a century it has been recognized in England that an investment trust may pay dividends even though the value of its investments is dwindling.

The sanction for this is found in what are known as the Lee v. Neuchatel series of decisions of the earlier Court of Appeal (Supreme Court of Judicature2). The Verner v. General Commercial Trust ("General and Commercial Investment Trust Ltd.") case arose from the friendly action of a stockholder who wished to ascertain whether an investment trust could continue to pay dividends when the

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1
See distinction in Chapter VIII.
2
These decisions are Lee v. Neuchatel Co., 41 C. D. I; Verner v. General Commercial Trust ( 1894) 2 Ch. 268; and Wilmer v. Macnamara, ( 1895) a Ch. 245. These cases all deal with dividends payable at a time of depreciating capital, and interpret the requirements of the Companies Acts with respect to distributable revenue. Although somewhat discredited in the tone of later decisions, they have never been definitely reversed in appeal to the House of Lords. Their significance for investment trusts is most clearly seen in the Verner Case, in which the defendant is a trust company. The principles enunciated were not intended purely for investment trusts, however.

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