I move: "That the Bill be now read a Second Time."
The Bill provides for the establishment of a State-sponsored company, Fóir Teoranta, to cater for reconstruction finance for potentially viable firms which are in danger of closing down because of their inability to raise capital from commercial sources. The decision to establish this company has already been announced in the Third Programme for Economic and Social Development.
Cases have come to light in recent years where firms were on the verge of closedown because of serious financial difficulties although there was good reason to believe that they could be viable in the long term. While the State has provided ad hoc financial assistance to tide a number of such firms over their immediate difficulties, I consider that there is need for an orderly, established procedure to deal with any such cases in the future. I propose that this work be undertaken by a new State-sponsored company, Fóir Teoranta, the principal functions of which are set out in section 4 of the Bill. Briefly, these functions are to provide finance for eligible concerns by such means as acquiring shares and debentures, issuing loans and bill finance and guaranteeing borrowing. It is envisaged that finance on concessionary terms as regards both interest and repayment will be necessary in many cases.
In order to be eligible for financial assistance a concern must comply with a number of conditions. It must be engaged in an industrial activity. Employment and capital invested in it must be significant. The proportion of the promoter's contribution to its total capital and the prospects of profitability on a permanent basis must be reasonable. It must be able to show that further finance cannot be procured commercially and that failure to obtain financial assistance would have serious repercussions nationally or locally. It is the intention to interpret industrial activity in the broadest possible terms to include all economic activities that can reasonably be described as being of an industrial nature.
The criteria for eligibility for financial assistance cannot be measured in quantitative terms and it will be left to the board of Fóir Teoranta to decide in each particular case whether or not a firm should be regarded as an eligible concern. For instance, one of the criteria is that the capital and the employment content of the firm in difficulties must be significant; the measure of significance is bound to vary according to the area in which the firm is located. We will rely on the good sense of the board to ensure that the criteria are applied fairly in all instances. I want to make it clear, however, that, while the company may be a lender of last resort, there is no intention of applying State funds in propping-up industrial concerns which have no reasonable prospect of viability in the long term.
In the past the State on occasion has had to deal at very short notice with appeals for help from firms which were in immediate financial difficulties. The decisions to give help in such instances had to be taken under the threat of imminent closure of the firms concerned, with the result that a comprehensive examination of their affairs was not possible in the short time allowed. These ad hoc arrangements are obviously unsatisfactory, and in order to avoid a recurrence of this situation it will be the policy of the new company to insist as far as possible that firms in financial difficulties which need State assistance should give sufficient notice to enable their affairs to be examined in detail before the position becomes so critical that a close-down is imminent.
As a condition of granting finance, Fóir Teoranta may, in suitable cases, require applicants to employ consultants and implement their recommendations including changes in their board of directors and management. This is desirable in order to guard against the danger that State support would be given to concerns which might not of their own accord make the necessary changes in their internal organisation to improve the prospects of future viability. There may be special cases where, in order to maintain the continuity of a business, Fóir Teoranta might have to arrange to find a new owner or to negotiate a merger or other form of association with another firm. These arrangements can be made administratively and it is not necessary to cater for them in the Bill.
The company will have a nominal share capital of £100 and will obtain its financial requirements by way of Exchequer advances. Section 12 of the Bill fixes a limit of £3 million on aggregate borrowing by Fóir Teoranta for purposes other than those in connection with functions transferred to it from Taiscí Stáit Teoranta and section 13 fixes a similar limit on advances from the Minister for Finance to the company. I propose on the Committee Stage of the Bill to move amendments to sections 12 and 13 raising the limit in each case to £7½ million but these new limits will apply to moneys required to meet Taiscí Stáit's outstanding commitments as well as to moneys required by Fóir Teoranta for its own purposes. Taiscí Stáit's outstanding commitments amount to approximately £1.3 million so that the ceiling on moneys which Fóir Teoranta may borrow for its own purposes will be just over £6 million. The limits were fixed at the low level of £3 million in the first place to ensure that the Oireachtas would have an opportunity to review the company's activities inside four or five years. The Bill is now before the Dáil for a year and the growing demand for reconstruction finance combined with the falling value of money make it desirable to fix considerably higher limits on the amounts which the company may borrow. It is intended that the company will pay interest on Exchequer advances to the extent that a return will be earned by it on its investments.
Provision is also made in the Bill for the guaranteeing by the Minister for Finance of borrowings by the company from non-Exchequer sources.
While it is difficult to estimate the amount of assistance likely to be required for reconstruction finance in the average case, it is envisaged that the firms most likely to have to avail of the company's help will be small or medium-sized and I consider that, as much of the finance is likely to be on concessionary terms, the company should not provide financial assistance to any individual concern in excess of £100,000 without the consent of the Ministers for Finance and Industry and Commerce. This will be arranged administratively with the company. The company will have discretion in deciding what form the assistance will take in each case and the extent of any interest and repayment concession. Normally freedom from interest or deferment of interest will not be allowed for a period exceeding five years.
Section 19 of the Bill provides for the dissolution of Taiscí Stáit Teoranta, the transfer to Fóir Teoranta of the property and liabilities of Taiscí Stáit and the preservation of its existing contracts. Taiscí Stáit Teoranta was set up in 1964 principally to acquire share in and to issue loans to State-assisted industrial concerns. In practice the main function of the company has been the provision of loans on preferential terms in part substitution for grants for large-scale industrial projects. In the absence of a more appropriate State source the company has also been used to assist certain firms which found themselves in financial difficulties and which I referred to earlier.
Since its establishment Taiscí Stáit has provided assistance to 25 industrial concerns by way of preferential loans or share investments. In a majority of instances this assistance was for new industrial projects or the expansion of existing projects. The demand for rescue finance was not significant in earlier years but the position in this regard has changed in the past two years when the main emphasis has been on rescue operations. Taiscí has already assisted or has undertaken to assist twelve industrial concerns in urgent need of finance which they could not raise from the normal commercial sources. Taking into account the commitments which will be transferred to Fóir Teoranta, Taiscí Stáit's contribution to Irish industry will amount to approximately £8.8 million and of this approximately £3.0 million represents rescue finance. So far the company has had to write off loans and interest to the extent of £40,000 but it now seems most likely that upwards of a further one million pounds is irrecoverable.
The Industrial Development Act, 1969, confers powers on the IDA to guarantee loans for and to participate in the equity of industrial concerns and to give interest subsidies in respect of loans. In the circumstances there is no longer a need for Taiscí Stáit to continue to provide facilities to large-scale industrialists, while its present functions in regard to rescue operations will be superseded by the new company. It is proposed, therefore, that the company be dissolved to avoid the possibility of a duplication of State facilities. As I have already indicated, Fóir Teoranta will honour existing Taiscí Stáit commitments and will take over its existing investments.
The Bill contains a number of standard provisions relating to the formation and operation of the company. There are the usual requirements in regard to the form of the company's accounts and their presentation to the Oireachtas—section 16—the furnishing of an annual report and other information to the Minister—section 17 —and the contingency of membership of either House of the Oireachtas by the directors of the company—section 18. In accordance with section 5 of the Bill, the articles of association will provide that the number of directors, including the chairman, shall not exceed seven and that they shall be appointed by the Minister for Finance with the consent of the Minister for Industry and Commerce. While the board of Taiscí Stáit has always been comprised solely of civil servants, it is envisaged that, in accordance with normal practice in regard to State-sponsored bodies, the directors of Fóir Teoranta will be chosen mainly from outside the Civil Service.
The Industrial Credit Company has acted as managers to Taiscí Stáit Teoranta and has conducted the day to day administration of its affairs. This arrangement has proved satisfactory as the ICC has long experience in industrial finance; it has first hand knowledge of the problems of industry and its staff have the necessary skills required in this field. The Board of Fóir Teoranta will decide whether the company should have its own staff or whether the ICC should be invited to act as managers of the company. Either arrangement can be made administratively and there are no provisions in this regard in the Bill. Whatever course is followed by the board of Fóir Teoranta, close liaison with the ICC and other State agencies will be maintained.
In a period of rapid transition in industry it is inevitable that some firms, however well managed or fundamentally viable, will be confronted with special difficulties and will be unable to get assistance from the normal commercial sources. It is necessary, therefore, to ensure that no firm will be forced out of business unnecessarily. This Bill provides an appropriate means for the rehabilitation of potentially viable firms and I consider it as a vital link in the chain of measures to assist industrial development. I, therefore, confidently recommend the Bill to the House.