Deputy Belton sounded the keynote of the Opposition speeches to the Debentures Bill. He rose to speak on the Second Reading. He said: "We are not going to oppose the Bill. We merely offer criticism founded on suspicion." Both he and Deputy McMenamin, as well as Deputy Dillon, went on to offer criticism of the Bill founded on suspicion. If their suspicions had been well founded there might be something to be said about it.
Agricultural Co-operative Societies (Debentures) Bill, 1934—Second Stage (Resumed).
I think they were.
They were not well founded.
Well, then, show us if they were not.
Deputy Belton said: "I wonder has the Agricultural Credit Corporation made advances to such societies that cannot be recovered now?" He went on to say: "The Bill might be a way of recovering a bad debt at the expense of the State; in other words, saving the faces of people who were entrusted with money and who did not exercise ordinary prudence in advancing that money." Now, first of all, the Bill aims at giving co-operative societies the right to guarantee advances by giving over their rights on the uncalled share capital; but the State, as such, does not come into it at all. Both Deputy McMenamin and Deputy Belton were altogether wrong when they said that the taxpayers or the general community were going to pay anything on foot of this Bill.
Power is being taken to give co-operative societies the right to issue debentures and to give them that right retrospectively. From 1928 onwards a certain number of co-operative societies wanted cash, and they went to the Credit Corporation and asked them to advance loans. The Agricultural Credit Corporation pointed out to the then Minister for Agriculture, Mr. Hogan, that they could not take as security the uncalled share capital of the societies. Mr. Hogan, however, asked them to advance the money and said that he would introduce legislation which would legalise the position. Deputy Belton's and Deputy McMenamin's suspicions that the Agricultural Credit Corporation were in some way incompetent are altogether unfounded.
I did not say anything of the kind. I did not even suggest it.
That was the whole tone of the Deputy's speech.
I mentioned the society, not the corporation.
I think that, anyway, Deputy McMenamin proved very well that he did not know what he was talking about last night.
I never named the corporation. I talked about societies.
Deputy McMenamin said, anyway, that the Bill was all hog-wash. That was one of his expressions. Another one was that it was an outrage. He was followed by Deputy Belton, whose criticism was as I have pointed out. The facts of the matter are that Mr. Hogan promised that he would legalise the position. The Agricultural Credit Corporation took every precaution to see that, when this Bill would become law, they would have a complete legal right to recover the advances they made. As Mr. Hogan suggested, they got actually the co-operative societies to whom advances were made to alter their rules by 1928. One society had as a rule:—
"That any loan or loans from time to time made by the Department of Agriculture and Technical Instruction for Ireland to the Society and any interest thereon, shall constitute a first and paramount charge upon the uncalled balance of the ordinary share capital of the Society for the time being."
That rule was changed so that
"any loan advanced by the Agricultural Credit Corporation upon the uncalled capital shall constitute the first paramount charge."
The agreement that was drawn up with the society to which the money was advanced contained a clause something like this:—
"And whereas it is hereby recognised by the Society that the obligation of the Society to grant to the Corporation when called upon to do so a charge or lien upon its uncalled capital shall remain binding upon the Society notwithstanding the execution of these presents and that the Society will give such lien or charge on its uncalled capital when called upon by the Corporation so to do, such lien or charge to be an additional security to the Corporation in addition to these presents and to contain such necessary reasonable and proper clauses stipulations and conditions as the Corporation shall deem fit...."
What is that from?
That is an extract from an agreement between a co-operative society and the Agricultural Credit Corporation.
How much money has been advanced already?
Between £4,000 and £5,000—that is to co-operative societies with the understanding that when this Bill becomes law they will give the Agricultural Credit Corporation the first charge on the uncalled capital.
Is this an agricultural society or a co-operative society?
A co-operative society.
They are included in this Bill under ordinary societies?
They are co-operative societies.
Are they not ordinary societies?
They are agricultural co-operative societies. I think what I have said should do away with Deputy Belton's suspicions about the matter. It was a straightforward, open and above-board transaction. This Bill aims at giving legal sanction to what was an honourable understanding, and, I would say to what was a legal binding contract in the ordinary way between the Agricultural Credit Corporation and the co-operative societies who have got money from them. I will deal now with some of the other points that were made. Deputy Dillon said that this Bill might involve the unfortunate shareholders in a liability they never meant to undertake.
Anybody who has any knowledge of co-operative societies, or of any other business for that matter, knows that at some time or another a co-operative society or business may get into such a position that cash is necessary. Instead of realising some of their assets they proceed to the bank or to somebody else and ask them to give them cash and they give as security their assets — fixed assets or bonds, or something else. One of the assets of a co-operative society is the balance of the uncalled capital which the members subscribed. The liability of each member is limited to the extent of the number of shares which he has undertaken to subscribe and upon which he has paid a deposit. Deputy Dillon said that the members of these societies did not know much about finance and that some dire results would happen if the committee of the society decides to give debentures upon the uncalled shares. If the committee or if the society is likely to play ducks and drakes with its funds, it does not matter very much whether they incur a debt in the form of an ordinary debt or in the form of a debenture. It usually happens that when a business or a society issues debentures that it changes the cash it gets for these debentures; clears off an old debt, or uses the money for the carrying out of further construction works in the establishment or for reproductive works.
The debentures in this particular case cannot be issued by the society until it gets the approval of the Minister for Agriculture. I think the Dáil may rely upon the Minister and his officials examining every proposition that comes up for application or for permission to issue debentures, with due care, and that the Minister and his Department will be particularly anxious to see that the credit of not alone the particular co-operative society but of all co-operative societies in general will be kept as high as possible and above suspicion. It is only such societies as will make good use of the money they will get from the issue of debentures that will be permitted by the Minister to issue debentures. I would say that there is no reasonable objection to giving co-operative societies power to issue debentures, particularly under those circumstances and with those safeguards. I think that even without these safeguards in the Bill, with the Minister having power to refuse them permission to issue debentures, it would be perfectly legitimate for the Dáil and a good stroke of business on their part to give co-operative societies outright the power of issuing debentures if necessary.
A number of Deputies adverted to the fact, and I adverted to it myself when speaking first on this Bill, that one of the things which kills co-operation is that certain men know if they become members of a co-operative society or go on the committee, the next thing that will be put up to them is to sign a guarantee. There you have five or six or 12 men who are to carry the principal burden of the society. I think it would be good business to organise the co-operative societies on the system that they should give debentures so that the members of the society would be equally liable. It would be a convenience to a great number of members too, because every member of a co-operative society does not want to pay all his share in full unless it is absolutely necessary. It is difficult sometimes to get them to pay the share capital when called upon. But they would have no hesitation in paying the uncalled share capital if called upon when the company would have to wind up. This Bill could have saved in the past a lot of co-operative societies from winding up if there had been some means of turning their uncalled share capital into cash — as this Bill enables them to do. It will enable several societies which are going ahead to extend their business. Such societies may want to take advantage of the Cereals Act or other Acts or to extend their premises and put in new machinery; and it will give such societies an opportunity of cashing their uncalled shares without an undue pressure upon their members. I do not think there were any other points raised which I have to deal with. I want to again stress the fact that this is not a Bill which is going to impose any additional tax or any additional charge on State funds. It is simply a Bill to make arrangements between co-operative societies and their creditors, and to facilitate them by making it legal to make a charge upon their uncalled share capital.
The Minister in speaking said that one purpose suitable for the issue of debentures was to pay off old debts. Does the Minister think that would be a suitable occasion to issue debentures and make a charge on uncalled share capital?
I do, if the debtor was pressing.
You would not go to your shareholders and say "Now the time has come when we must call up capital to pay liabilities", but you would issue debentures and put the debt on the long finger?
In doing that I am only translating the debt from one form to another. I only stress that in order to point out to Deputy Dillon that even the ignorant member is not being penalised in any way. An added burden is not being put on him. It is simply translating the debt from an ordinary form of debt into a debenture form.
That is the very mistake which the Minister is making. Suppose a member is face to face with a debt. The manager comes to the committee and says "We must get money to pay this debt. There are two ways of doing it. One is to wind up the business, sell the assets and pay off the debt. There is another nice way of putting it over on the members; we could issue a debenture on the uncalled share capital, get the money to pay the debt and if we go burst in a couple of years we have always the uncalled share capital to fall back on." If the Minister were to call in the unshared capital they would have an opportunity of saying "We do not seem to be doing as well as we anticipated. Pay off the debt out of whatever assets we have and do not drag us any further into it." If the Minister says that the committee can issue debentures to pay off the debt the unfortunate shareholders will be let in for liabilities which many of them may not want to shoulder at all. That is a very definite danger which I foresee, and I am seriously afraid it will involve a number of men — on many of whom it will be a great embarrassment — in a liability which they did not anticipate, and would not be prepared to undertake if they fully understood it.
I do not think Deputy Dillon clearly understands the legal liability of a co-operative member.
Indeed I do.
A member is liable to the extent of his share.
I have been a co-operative member for 15 years, so I ought to know.
The Deputy ought to know then that the usual way for co-operative societies to raise funds when they get into a difficulty is to ask two or three or five or six of their prominent members to give a guarantee. I think myself that from the point of view of co-operation it would be much better for the shareholders to have to face up to the thing, instead of passing it on to five or six men who would come forward and sign a guarantee.