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____________________