Dáil Éireann debate -
Thursday, 14 Jun 1973

Vol. 266 No. 4

Fóir Teoranta (Amendment) Bill, 1973: Second Stage.

Minister for Finance (Mr. R. Ryan)

I move: "That the Bill be now read a Second Time".

The primary purpose of this Bill is to extend the statutory limit on the amount of capital available to Fóir Teoranta to finance their operations. The opportunity is also being availed of to write off Exchequer loans equating to certain investments which were transferred to the company from Taiscí Stáit Teoranta and which are now worthless.

The company were set up under the Fóir Teoranta Act, 1972, and began operations in April, 1972. Their function is to provide reconstruction finance for potentially viable industrial concerns which are unable to raise capital from the normal commercial sources. Fóir Teoranta are, therefore, the last link in the chain of State assistance for industry. In order to be eligible for assistance from Fóir Teoranta the governing legislation requires that industrial concerns fulfill a number of conditions. The employment and capital employed in them must be significant, the promoters must have made a reasonable contribution to the initial capital and there must be evidence that failure to receive financial assistance would have serious repercussions at national or local level.

Fóir Teoranta have already disbursed approximately £5 million to firms requiring assistance. Some of this finance was used to honour investment commitments inherited from Taiscí Stáit Teoranta, which was dissolved in March of last year, but the greater proportion was in respect of applications made to the company. To date they have provided assistance to 56 firms with a total employment content of approximately 8,500 persons. For the most part this finance has been disbursed as longer term loans and the amounts of assistance provided in individual cases have ranged from as little as £2,500 upwards. In a few cases the company have undertaken to invest £250,000 or more in individual firms and in these cases the prior approval of the Ministers for Finance and Industry and Commerce has been obtained because of the very significant amounts involved. As the State lender of last resort, the company's objective is to take all possible steps to strengthen the position of a firm which have reasonable prospects of succeeding in the longer term. Therefore, they adopt a positive attitude towards applications for assistance. At the same time they must be prepared to refuse assistance where the evidence suggests that the applicant firm has no reasonable chance of ultimate success. Where necessary, they have insisted on management changes and the nomination of some directors as a condition of providing financial assistance.

The legislation which established Fóir Teoranta provided that the company could borrow to a limit of £7.5 million to finance their operations and it was expected at the time that this limit would suffice for a few years. The demand for reconstruction finance, however, has far exceeded what was anticipated. As I have already indicated, the company have disbursed approximately £5 million to date; in addition to this they have had to borrow £1 million to recoup the Industrial Credit Company in respect of bridging finance provided to Taiscí Stáit Teoranta and they have undertaken further commitments which have brought it close to the existing statutory limit on their borrowing powers. Amending legislation to increase their resources is therefore necessary to enable them to continue the useful work they have been doing to date.

Section 2 of the present Bill proposes that the new limit on borrowing by Fóir Teoranta be fixed at £17.5 million, an increase of £10 million on the present limit. Virtually all of the finance required by the company up to now has been provided from the Exchequer, as the returns on the company's share and loan investments. including those inherited from Taiscí Stáit Teoranta, have been negligible so far and this position is likely to continue for some years ahead at least. There is no prospect that the company will raise finance from alternative sources because the return on its investments would not enable it to meet the cost of servicing commercial borrowing in the foreseeable future. It is proposed therefore-in section 3 of the Bill-to raise from £7.5 million to £17.5 million the limit on the power of the Minister for Finance to provide loan capital to the company.

On the dissolution of Taiscí Stáit Teoranta its liabilities and investments were transferred to Fóir Teoranta. These included investments in Aviation Development Ltd., Cloth Manufacturers Ltd., (Cootehill), Everfresh Foods Ltd. and Fenian Gun Company of Ireland Ltd. These four companies have ceased trading and the amounts accruing to Fóir Teoranta from the realisation of their assets will be negligible. The book value of these investments stands at £1,142,000 and Fóir Teoranta carries a liability of an equal amount to the Exchequer in respect of them. The company proposes to write these investments out of its balance sheet and it is desirable that it be relieved of its liability to the Exchequer in respect of a similar amount. This is the purpose of section 4 of the Bill. It is inappropriate that the company should continue to carry a liability in respect of worthless investments which it has inherited from Taiscí Stáit and the write off of this liability will help towards giving a fairer reflection of the cost to the Exchequer of Fóir Teoranta's activities.

The high level of demand for reconstruction finance may be attributed to a number of factors such as the rapid technological change in industry, the continuing impact of free trade and the falling value of money as a consequence of which individual firms require larger amounts of assistance than had been envisaged. It is predictable that in this situation a number of basically sound industrial concerns will experience temporary trading difficulties and it is very desirable that the State should take positive action to ensure that these firms are not forced out of business unnecessarily. Fóir Teoranta provides an orderly and expert procedure for dealing with this problem and it constitutes a valuable element in the range of facilities designed to assist our industrial development.

The present legislation will make available to Fóir Teoranta an additional £10 million to carry on its functions. It is envisaged that this additional provision should suffice for at least two years ahead. I should qualify this, however, by pointing out that in the field of reconstruction finance it is even more difficult than usual to prediet requirements in advance. Apart from increasing the limits on the finance available to Fóir Teoranta no further changes in the company's governing legislation are considered necessary at this stage.

I confidently recommend the Bill for the approval of the House.

Mr. Colley

Let me say at the outset that, as far as this side of the House is concerned, this Bill will have no difficulty in securing passage through the House. When the decision was made to set up Fóir Teoranta, I regarded the provision of a company such as Fóir Teoranta as a very important link in the range of assistance, both financial and otherwise, available to Irish industry in a difficult and very competitive situation. However, the fact that the Minister has had to bring this Bill before this House, even allowing for the fall in the value of money to which I referred, is itself confirmation of how important a role Foir Teoranta is playing in regard to Irish industry. I think we can be grateful that this is so and that we can be reasonably certain that if we did not have Fóir Teoranta a number of the Irish industries which have received assistance might well not exist today. Consequently, the proposal of the Minister to increase substantially the money available to Fóir Teoranta is, as far as we are concerned, an acceptable proposition.

There are a few matters I would like to get some enlightenment on if the Minister could give it to me when replying. First, the arrangement when the company was set up was that it would, in the first instance, avail itself of the Industrial Credit Company to provide the management of Fóir Teoranta. This was necessary obviously when the company was being set up at the beginning and did not have its own management. Provision was made, however, to allow the board of Fóir Teoranta to decide in due course, after experience, whether it wished to continue with this arrangement or to recruit its own staff for administration and management. I should be grateful if the Minister could indicate whether the board has made any decision in this regard as yet.

Secondly, a matter of very considerable importance and a matter which was adverted to both in this House and the other House when the original legislation was going through was the problem of notice being given by the firm when it was getting into difficulties, and by "notice" I mean adequate notice. The experience has been that very often the request for assistance came when the company seeking assistance had not alone exhausted all other possible resources but needed assistance very quickly or was about to close down. I am speaking of experience before the setting up of Fóir Teoranta. This was quite unsatisfactory, as it meant that adequate examination of all the factors involved was hindered by the shortness of time and the urgency of the request.

There are very great difficulties involved in trying to overcome this problem. One of them is that any firm which finds itself in some financial difficulty usually comes to the conclusion that it is far better to conceal that difficulty than to disclose it, and frequently the disclosure of the difficulty might result in the closing down of the firm whereas the non-disclosure and the making of other arrangements could well enable the firm to carry on and overcome the difficulties.

There were suggestions on the discussion on the original Bill that Fóir Teoranta ought to insist that a firm which had not given adequate notice would automatically be debarred from availing of facilities of Fóir Teoranta. That, however, is not a practical proposition which can be applied in all cases. The board of Fóir Teoranta was concerned about this problem and realising all the practical difficulties involved. I would like to know whether the board of Fóir Teoranta has yet succeeded in devising a method which would ensure that more adequate notice of problems arising in different companies is given to Fóir Teoranta than was available in the past in the case of Taiscí Stáit.

The other matter I wish to raise is this. The experience not only of Fóir Teoranta but of its predecessors has been that in many cases where assistance is required the kernel of the problem when it is examined lies in a lack of management expertise in the company seeking assistance, and for very good historical reasons in this country we do not have a large pool of management skill. In a number of cases where various steps were necessary in order to put a company which was in difficulties on a sound footing, the one most important step was to provide adequate managerial skill. The practical difficulty involved here is that when a company has reached that stage of difficulty a man who has the requisite managerial skill normally will not take on a job of that kind in a failing company because there is no great future for him if the situation has gone so far that he fails to retrieve the fortunes of the company and his own reputation goes with it. If, on the other hand, he succeeds it may be that the compensation, not only in monetary terms, available to him may not be such to induce him to give up an adequate and satisfying position.

I had some discussion with the board of Fóir Teoranta about this problem. We discussed the possibility of Foir Teoranta recruiting some people with adequate management skill who could be placed for a temporary period in charge of companies which were in difficulty and which, in the opinion of Fóir Teoranta, needed this kind of management skill. The general idea was that since this pool of people would be employed by Fóir Teoranta, their job would be to go in and rescue one particular firm and, having done that job. go into another firm at the direction of Fóir Teoranta. However, the same kind of problem would not arise, as I have outlined, if one wanted to recruit someone who is already in another successful firm.

I would ask the Minister to tell us if any progress has been made with Fóir Teoranta in regard to this matter. If it has not yet been executed, is there any indication it is likely to be dons in the near future? There are other ramifications in this of some importance to industry other than what I have outlined. I think this approach, or something similar, is essential not only to enable Fóir Teoranta to do the job they have been required to do by the Oireaohtas but also as a general line of approach in dealing with industry in these increasingly competitive days. If the Minister can throw any light on this I should be grateful. In the meantime, so far as this side of the House is concerned, we support fully the purposes of this Bill.

Mr. R. Ryan

I am grateful to Deputy Colley for his remarks and his support of this Bill. As he has pointed out, the fact that we have had to come back to the House within a year of the commencement of Fóir Teoranta in order to seek additional monetary assistance indicates how urgent was the need for such an organisation. We would expect, as the years go by and as we overcome the transient difficulties of moving into a free trade situation, there would not be the same need. That may be so in the long run, but it is necessary that we have this assistance available at this sensitive time.

The present position is that Fóir Teoranta are operating with ICC staff who are in a separate section under an ICC divisional manager. It is working very successfully and the board of Fóir Teoranta do not see any need at the moment to set up a separate unit. If the necessity should arise to do it, and if ICC were unable to render this service in the future, then the matter would be looked at again. Apparently it is not required at the moment and, as Deputy Colley has recognised, Foir Teoranta are working successfully. It is useful that ICC would be dovetailed into the operation because one hopes that in the long run they would be taking over the credit requirements of these industries.

Deputy Colley also raised the question about notice. Many of the occasions in which Fóir Teoranta have to provide assistance arise because of inadequate management, because of a Micawber-like attitude on the part of the firms who hope that the difficulties will pass and that they will not need to look to a State-sponsored organisation or to their own bankers to get monetary assistance. It is surprising and disappointing to discover how many firms leave it to the last week before closure before they seek financial assistance elsewhere. Obviously it would be wrong for Fóir Teoranta to say that firms would not get assistance unless they gave a warning of one, two or three months because the cases that most require assistance are those who leave it to the last moment to give notice.

Fóir Teoranta are aware of the desirability of getting the longest possible notice. Sometimes the firms do not need money but an injection of new enterprising management. They have taken measures to advertise the availability of finance and management advice from Fóir Teoranta and they are anxious to generate this so that people will not look to Fóir Teoranta as a kind of fire brigade service to dampen down the fires. It is important to stop the fires developing in the first instance.

Deputy Colley referred to the difficulty of putting enterprising and efficient management into firms that are on the brink of collapse. That, of course, is not the most encouraging situation for any manager to enter but, nevertheless, there have been a a number of occasions where good management, introduced by Fóir Teoranta, not only saved the firms from collapse and thus saved employment but they have also developed the firms to such an extent that they have great promise fur the future.

With the passage of years we expect that the considerable investment being made by the State will be refunded. The loans given have, in the main, provided for postponement of the date of repayment and this is as it should be. Most of the firms in difficulty are in this position because of a shortage of liquidity. The longer the period they are given for repayment of the loans the better but one would see money coming back in the future.

This covers most of the points made by Deputy Colley but if there are specific matters I have omitted I can assure him I will shortly be having discussions with the Board of Fóir Teoranta and I will take up the matters with them. I shall communicate with the Deputy on the matter because I am aware of his continuing interest in this important matter.

Question put and agreed to.

Agreed to take remaining Stages today.