Dáil Éireann debate -
Wednesday, 16 Jun 1976

Vol. 291 No. 8

Fóir Teoranta (Amendment) Bill, 1976: Second and Subsequent Stages.

Minister for Finance (Mr. R. Ryan)

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

The purpose of this Bill is to extend the statutory limit on the amount of capital available to Fóir Teoranta to finance their operations. The company were established under the Fóir Teoranta Act, 1972 and they 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. They are, therefore, an important link in the chain of State assistance for industry. Assistance under the Act is available for firms engaged in an industrial activity or an activity ancillary to industry. This definition includes manufacturing industries allied to building such as structural steel, joinery manufacture and manufacture of pre-cast building components.

In order to qualify for assistance from Fóir Teoranta, firms must comply with a number of conditions which are laid down in the 1972 Act. 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. Finally, Fóir Teoranta must be satisfied that the firm have good prospects of profitability, if necessary after reorganisation.

As the State lender of last resort Fóir Teoranta are faced with a heavy responsibility in dealing with applications. The decision of the company will usually determine whether a firm will continue in business or whether they will be forced to discontinue their activities with serious economic and social implications for owners, the workforce and the area in which they are located. It is necessary, therefore, for the board of Fóir to consider applications thoroughly and with full understanding of all the implications. In a period of economic difficulty such as we have recently experienced the task of the company has been especially onerous. However, while continuing to operate within the statutory criteria, the company have shown sympathetic understanding of the difficulties which some firms have encountered and have been able to provide the assistance which enabled the firms to remain in operation. In this way Fóir Teoranta have been able to avert dangerous threats not merely to industrial production and employment but have also contributed to the preservation of the industrial structure of the country. The productive capacity thus preserved will be extremely valuable with the recovery in industrial activity.

It is inevitable, of course, that applications for assistance must be rejected because they fail to meet the tests applied by the company. Most of the rejections have taken place because the applicant firm were unable to demonstrate that, even with assistance from Fóir Teoranta, they had a reasonable prospect of ultimate success. Before such cases are rejected, Fóir Teoranta investigate the firms circumstances and normally consider whether the firm might survive in association with some other group. It is ironic that while the firms which fail attract publicity, there is little attention paid to the achievements of the company and the success attained as a result of Fóir intervention.

The grant of assistance by Fóir Teoranta does not, of course, guarantee success for a firm. The difficult conditions of the past two years have interfered with the recovery of some firms to which aid was given by the company and have even contributed to the failure of some such concerns. As opposed to this, however, some of the firms assisted by Fóir Teoranta over the past years are making notable progress and most of those assisted are meeting their obligations to Fóir.

To date Fóir Teoranta have disbursed £15 million and have commitments for a further £1.5 million. A measure of the company's activity is that in slightly over four years they have provided assistance to 174 firms with a total job content of about 30,000. The bulk of Fóir assistance has been by way of loan finance but they have also availed of their powers to take an equity stake in firms and to guarantee loans raised from financial institutions.

Apart from providing finance the company take all possible steps to strengthen the position of any applicant firm which, despite its immediate problems, has reasonable prospects of succeeding in the longer term. Such steps frequently include investigation of association with a stronger firm, changes in management and at board level, and the introduction of consultants to deal with particular functions within a firm. Inadequate or defective management constitutes one of the basic causes of the difficulties leading up to an application for assistance from Fóir Teoranta. Many of the firms find it difficult to a attract and retain persons of proven managerial calibre. For this reason Fóir Teoranta established their own management services unit, the members of which are specialists in the main areas of management and are available for assignment to firms where assistance at managerial level is urgently necessary. This has proved a valuable service to certain firms and it also has the merit of enabling Fóir personnel to gain first-hand knowledge of the operations of some of the firms with which they are associated.

Fóir Teoranta are reaching the limit of their borrowing powers, which were fixed at £17.5 million by the amending Act of 1973. Amending legislation to increase their resources is therefore necessary to enable the company to continue the valuable work they have been doing to date. Section 2 of the Bill before the House proposes that the new limit on borrowing by Fóir Teoranta be fixed at £35 million, an increase of £17.5 million on the present limit. On the basis of disbursements since the establishment of the company, the extension proposed should suffice for another three to four years depending on demands for reconstruction finance. To date this year, the demand for the company's facilities is short of that experienced in previous years, but this position could change quickly should the pace of industrial recovery accelerate.

Virtually all of the finance required by the company until now has been provided by the Exchequer as the returns on the company's share and loan investments, including those taken over from their predecessor, Taiscí Stáit Teoranta, have been comparatively small so far. While the company's income from their investments and the repayment of loans may be expected to grow, it will be far short of the amount which they are likely to have to advance in respect of new applications for assistance nor will it meet the cost to the Exchequer of providing the funds in the first instance. It is proposed, therefore, in section 3 of the Bill, to raise from £17.5 million to £35 million the limit on the power of the Minister for Finance to provide loan capital to the company.

Fóir Teoranta provide an orderly procedure for assisting Irish firms giving worthwhile employment which are unable to obtain their financial requirements from commercial sources. The services of the company have been of particular value in coping with the effects of the recent world-wide economic recession. The proposed legislation will make available to Fóir Teoranta an additional £17.5 million to carry on their functions. Apart from increasing the limits on the finance available to the company, no further changes in the legislation are considered necessary at this stage.

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

Mr. Colley

When I introduced legislation setting up Fóir Teoranta, I said it formed part of an overall package tied in with the reconstruction of the IDA—legislation for which I had introduced earlier—to give the necessary assistance to industrial development. It was hoped it would form part of an early warning system to indicate when industries were likely to be in need of assistance and to enable, as the Minister said, and orderly approach to be adopted to the decision of whether such assistance should be given.

Fóir Teoranta have demonstrably served a very useful purpose and have done very useful work. Unfortunately it is clear that the early warning system we had hoped for has not developed. I am not faulting the Government for that because I am well aware of the enormous difficulties involved. Developments within the last few days make it quite clear that the early warning system it was hoped to develop has not worked. A case of a substantial amount of employment about to disappear appears from the newspaper reports to have occurred without any advance knowledge on the part of the Government. As I said, I am not blaming the Government for the non-working of an early warning system, but in my view special and redoubled efforts should be made to try to make such system as we have more effective.

One of the major basic difficulties involved is that if a firm are getting into difficulties, the last thing they want to do is disclose that fact because the mere disclosure of impending difficulties may bring all their creditors down about their ears at the same time and actually close them down, whereas non-disclosure can enable them to weather the storm and perhaps recover fully from the difficulties. Nevertheless, the non-existence of an effective early warning system undoubtedly reduces the possibilities of Fóir Teoranta giving adequate and effective assistance in certain cases. Therefore, I urge the Minister to ensure that this question is again examined urgently with a view to trying to devise a more effective system than we appear to have at the moment.

The Minister may recall that when I set up this company I expressed a view that it would be desirable from many points of view that Fóir Teoranta would recruit a corps of managers who could be put into firms seeking assistance to get them on their feet, and then move on to another firm in similar difficulties. The practical difficulty, apart from the difficulties for a smallish firm seeking assistance from Fóir Teoranta, of getting such a manager is that if they were in difficulties, a competent manager would not particularly want to take on the job involved. If he failed because the situation had gone too far, not alone would he be out of a job but his reputation could be seriously damaged.

When the amending legislation of 1973 was before the House, I inquired further in regard to this matter. I was very pleased to note the statement which the Minister made today to the effect that Fóir Teoranta have established their own management services unit, the members of which are specialists in the main areas of management and are available for assignment to firms where assistance at managerial level is urgently necessary. This is a very welcome development. I am pleased to note it has been achieved and, according to what the Minister says, is working well.

The Minister may also recall that at the time the company was set up I indicated that, while of necessity and to get the company off the ground the services of the Industrial Credit Company would be used for the administrative and managerial purposes of Fóir Teoranta, nevertheless, I as Minister had expressed the view that the board were free, and were urged, to examine the desirability of setting up their own management and administrative structures within Fóir Teoranta.

On the discussion on the amending Bill in 1973 I inquired what had happened about this. On that occasion the Minister told me that ICC were providing the management, that they had set up a special section for this purpose, and that Fóir Teoranta at that time, at least, found it a satisfactory arrangement. I should like to know if that is still the position. I hope that my concern in this regard is not going to be taken as a reflection on ICC or their staff. On the contrary, I have an extremely high opinion of that company and their staff. My concern is that the criteria applicable to the ordinary activities of Fóir Teoranta are different from those applicable to the ordinary activities of the Industrial Credit Company. While there is a special section of the Industrial Credit Company dealing with the activities of Fóir Teoranta they can be expected to operate different criteria. Nevertheless, if there is interchangeability, as presumably there is, between one and the other, there is a danger that the criteria of the Industrial Credit Company, which are the normal commercial criteria applied, may get undue emphasis in the consideration of applications by Fóir Teoranta.

I do not say that that is happening; I have no evidence that it is happening. I have of course the usual number of complaints that one would expect to get in the case of any company of this kind, or indeed as one gets in relation to the IDA and the ICC, complaints from persons who have been refused assistance. In most such cases, if not all, I am satisfied that the refusal was justified. One can expect persons who are so refused to complain that the approach adopted by the particular body was wrong. I am not saying I have any evidence that the approach adopted by Fóir Teoranta in a particular case was wrong, though I have received complaints. But I am concerned at the possibility, if the management and administration of Fóir Teoranta are carried out by a section of the Industrial Credit Company, that quite unconsciously the persons concerned may tend to give undue emphasis to the normal criteria of the ICC rather than to the special criteria to be applied by Fóir Teoranta as laid down in the original Act establishing the company.

There is another matter on which I would appreciate some information from the Minister. The position was that assistance for a sum in excess of a quarter of a million pounds by Fóir Teoranta required the consent of the Ministers for Finance and Industry and Commerce. This was an administrative arrangement. I should like to know if that is still the arrangement. I note the Minister's statement that the increase in the company's borrowing powers and the corresponding increase in the amount which may be advanced by the Minister for Finance to the company proposed in this Bill is hoped to cover this situation for another three or four years, depending on the demands for reconstruction finance. I would have thought it unlikely that it will do so. Indeed, I recall expressing the same hope when I introduced the original Bill but, in fact, it did not last that long at all.

In view of the economic situation and the strains experienced by various industries since then, one would have thought that the demands would be even greater now than in the past. The Minister tells us, "To date this year, the demand for the company's facilities is short of that experienced in previous years..." I find that quite ominous because we are dealing with industries in difficulties, unable to secure additional finance from ordinary commercial sources, whose closure would be of significance either nationally or locally and who have a viable future. If we recall these criteria I think that anybody would expect that the demands on Fóir Teoranta this year would be greater than at any time in the past. To find that they are in fact less suggests that too many of our industries, large or small, which are experiencing difficulties at present may be giving up the ghost and not even seeking the assistance of Fóir Teoranta, where special terms are available, including conditions of non-repayment for a certain number of years and special rates of interest. If firms are not seeking the assistance of Fóir Teoranta this year to the same extent as last year, it would suggest that they cannot see any possibility of survival in the future. If, on the other hand, it is suggested that they are not seeking this assistance because they do not need it, that does not square at all with the other indicators we have in regard to the situation of the economy and industry in general. I hope the Minister will be able to throw a more hopeful light on that fact to which he has adverted, that the demands from Fóir Teoranta this year are less than in the past. It is an extremely gloomy development that that should be so.

Subject to those observations and the few queries I have put, so far as this side of the House is concerned this Bill is not only acceptable but to the extent that it would facilitate assistance to industries which are potentially viable, but which are at present in difficulty, this Bill is welcome. We are anxious to ensure in any way possible that assistance of this kind is readily available to potentially viable industries going through a particularly difficult time at present to ensure that in the future they will overcome those difficulties and hopefully go on to expand and provide further employment. It is undoubtedly true that in almost all cases it is cheaper to assist industries to keep going and to continue providing employment, and hopefully to expand in the future while they are in difficulty than to start from scratch with a new industry to create employment. For that reason the assistance that can be provided by Fóir Teoranta to existing industries is extremely important and from the point of view of the Exchequer is probably a cheaper and in many cases a sounder investment than the large sums which have to be provided for the creation of new industries. For all those reasons we on this side of the House welcome this Bill and are anxious not to hold up its passage in any way.

Minister for Finance (Mr. R. Ryan)

I am grateful for Deputy Colley's constructive comments on this Bill. I am able to give him a number of assurances which will help his and the public's understanding of the position. So far as the fall-off in the demand for Fóir's resources this year is concerned, it is attributable in the main to two factors. The considerable difficulties which were generated throughout 1974 and 1975 as a result of global recession, had the effect of shaking out the weaker firms. Therefore we are in a position in which we have not as many weak concerns as we had previously. A number of them were very fortunately helped over the difficulties of the recession by reason of assistance which they received from Fóir Teoranta and elsewhere. Some were unable to survive. If the recession had not occurred it is possible that a number of those would eventually have failed anyway because of technological changes and market requirements. The serious nature of the recession and its extent brought to a head the crisis in a number of firms that were pointing towards crisis in any event.

As far back as 15 years ago a number of firms were identified as potentially at risk in the new environment which was going to develop with advances in free trade, modern technology, market requirements and so on. Fóir Teoranta must have regard to all these matters whenever they are considering the prospects for any particular firm. The criteria which are laid down in the 1972 Act are fairly tight, but they are not unreasonable. Fóir Teoranta are not an organisation to preserve jobs at all costs. That would impose on the community as a whole a cost which could not be a justified because it would not be a cost which could generate any capacity to repay the very high cost of maintaining jobs. Fóir Teoranta must ensure as they are advancing money and granting aid at various times that the concern which they are helping will be so structured and operated and have markets available to it, so as to ensure that it will be successful and that it will in due course be able to repay money which may be advanced to it.

A great deal of Fóir's work is related not merely to money advanced by Fóir but to advising management on better production procedures, managerial practices, marketing and so on, and negotiating on behalf of firms that are in difficulties for assistance from other financial institutions and public and State agencies. Deputy Colley, on every annual report of Fóir Teoranta, and I on innumerable occasions referred to weaknesses in management, which is one of the principal causes for failure of firms that have come to Fóir Teoranta for aid. One of the most distressing, disappointing aspects which I referred to in 1973, before we had the trauma of the last couple of years, is the long delay on the part of management before giving warning of their difficulties.

In order to overcome this, Fóir Teoranta have repeatedly drawn the attention of private banking and financial interests, the IDA and other agencies to the availability of the services of Fóir Teoranta and have encouraged others to advise their clients of the availability of the services of Fóir Teoranta. We are forever encouraging firms not to leave it until it is too late before seeking the assistance of Fóir Teoranta. In many cases if adequate warning had been given the saving mechanisms could have been put into operation at less cost and more successfully. It is not open to Fóir to be an inspector of industries, or to ascertain what firms might benefit from Fóir's intervention and assistance. Under the aegies of my colleague, the Minister for Industry and Commerce, there is an early warning committee in operation, with representatives from the various State bodies. They alert one another as to where they see possible weaknesses and difficulties developing, and so far as it can be done without breaches of confidentiality or without imposing interference where it would not be welcome, this early warning committee and the agencies with which they work endeavour to help concerns. They have been successful in several cases in bringing to the attention of the people concerned the availability of the services of Fóir Teoranta.

The staff of Fóir Teoranta are mainly seconded from the Industrial Credit Company. Their decisions have been coloured and improved by their association and experience with the Industrial Credit Company in relation to proper commercial practices. The code which they observe is the code which is written into the 1972 Act. From time to time I have had occasion to make inquiries, which is the only function which a Minister for Finance can have in relation to the operations of Fóir Teoranta. The statute confers the decision making power and the management power on the board of Fóir Teoranta. I think that is right. It would be undesirable that a political person should be making decisions in areas where business-like decisions need to be made.

Fóir Teoranta are obliged by their statutory obligations to have regard to the social consequences of closures of industries, and particularly to have regard to the social consequences in the immediate area of an operation. I am satisfied those criteria have been properly applied. Indeed, the application of those criteria has been relaxed over the past year or so, and very properly relaxed. Unemployment rose because of cyclical difficulties and, if the code had been applied as tightly as it had been applied in 1972, 1973 and 1974, it is possible that a number of industries which were helped last year, and which are being helped this year, would not have been helped. Nobody would quarrel with the desirability, in a time of very high unemployment, and at a time of prolonged recession—the worst recession the world has experienced in 50 years —of relaxing some of the rules which might be more appropriate in easier economic circumstances.

The management services provided and the staff in those units are recruited independently of the ICC. They have been very useful. They have provided not merely direct control and management for a period while readjustment has taken place in firms, but they have also carried out specific operations for companies which the companies themselves were unable to undertake. The team is comparatively small considering the very large number of firms Fóir have already assisted. It may be necessary to expand the team in the future. For reasons I mentioned in my opening statement, it is not all that easy to recruit and retain management in sufficient numbers and quality. Fóir like to recruit good management on behalf of firms in difficulties and to located that management in the firms assisted on a permanent basis rather than merely operating temporarily. The management team of Fóir must be free to move around from one place to another and therefore cannot remain in permanent management of particular firms. The Irish Productivity Committee and Fóir Teoranta work together to recruit management for firms assisted by Fóir.

I meant to mention two reasons— I think I only mentioned one—as to why demands for Fóir's services is less this year than last year. I mentioned the recession which had shaken out quite a number of weak firms. Now that demand, trade and the economy are picking up again, the weak ones are no longer a burden. Quite a number of firms are not making demands for loan capital. The ordinary banking system knows that. It is a recurring theme in statements from bank managers about being in a position to advance money but customers being reluctant to take it, particularly customers in the manufacturing industry.

This is attributable to the fact that, because of the recession and the fall in demand both at home and abroad, quite a number of firms built up stocks and, even as of now, as the economy is picking up, and world trade is picking up, and as demand both at home and abroad is improving, firms still have quite an amount of stock on their hands and do not require loan capital to restructure their activities or to have working capital. As demand picks up and stocks begin to run down, we could have a very significant shift in the situation and just as things may be comparatively quite at present, they could pick up suddenly and demand for loan capital could be quite considerable.

As of now Fóir Teoranta have £1.5 million committed. This stretches their present capital to its limit and it is necessary therefore to extend that limit so that they can advance the money which will undoubtedly be required as demand picks up. I should like to exhort industrial firms to consider that the time to expand, the time to get under way, the time to prepare for the growth which is coming, is now. I would urge them to start the process of modernisation and expansion now, rather than leaving it until the pressure comes on from all quarters. We could easily miss the bus because we delayed too long in moving out. Now is the time to start the process of expansion. Now is the time to avail of the credit which is certainly there both in Fóir Teoranta and in the ordinary banking system to get the manufacturing industry and all the activities which can be aided by the financial concerns under way again. I trust this answers the queries Deputy Colley raised.

Mr. Colley

There was one point in regard to the level at which sanction came from the Minister for Industry and Commerce.

Mr. R. Ryan

Yes. The level remains the same. It is £¼ million. The number of such sanctions which were necessary was 14 or about three-and-a-half a year.

Mr. Colley

In what period? In a year?

Mr. R. Ryan

It is 14 altogether to date. That is an average of about three-and-a-half a year. As is known from the annual reports of Fóir Teoranta, most of the concerns helped were of modest dimensions. The need to get sanction has not arisen often and, where it has arisen, it has been in relation to very substantial firms. For instance, one has received over £2 million. Any money which has been advanced was worth while advancing. The record of Fóir Teoranta is not, as it is often imagined by the public, one of failure. It is one of very significant success. There is a feeling in some quarters that receiving aid from Fóir is something like being in receivership, that it is, if not the death knell, at least a warning that things are very serious. Difficult they may be, but not serious. It would be quite wrong for people to get the impression that, merely because Fóir are associated with an activity, that activity is not viable. Quite the contrary.

Mr. Colley

It has to be deemed viable.

Mr. R. Ryan

It has to be viable. It has to have a prospect of success. It has to satisfy the criteria which are very clear. Fóir are absolutely prohibited from advancing money for any activity which is not going to be a success. There is no question of Fóir advancing money to a concern which otherwise might be in a state of collapse and gone beyond recovery. Association with Fóir is proof of the viability of a firm and trade in general and the public also, should recognise that and see it is a system which ensures a mechanism whereby firms which can be successful are helped over temporary difficulties in order to meet the challenge and the opportunities of the future.

Mr. Colley

Could I ask the Minister one question? In his reply he referred to the fact that during the past year the application of the criteria had been relaxed. Can he give any further information as to the extent and the manner in which that relaxation has been taking place?

Mr. R. Ryan

I have not immediately available the exact information but I can give an illustration. At one time if an industry, say, in a poor rural area was threatened with closure and had a work force of 30 people, it could be regarded as being of substantial social importance to the area. If an industry of that kind was threatened in the same way in a large urban area such as Dublin, for the reason that it would not be regarded as having an immense social impact because of the prospect of alternative employment being available, that would not be considered. The movements in urban areas have now been adjusted so that even though the amount of employment is comparatively small, because of the growth of unemployment it is considered that even small pockets of unemployment would not be justified and therefore a firm which would not have received assistance would now receive help.

There are other areas of change in the criteria. As the Deputy is aware, Fóir are under an obligation to have a look at the owners' capital investment in a particular firm. Again, because of the current difficulties, the amount of owners' capital which would be normally required has been relaxed because it might be difficult for an individual to finance an operation and Fóir have made larger contributions than in normal circumstances.

Question put and agreed to.

Agreed to take remaining Stages today.

Bill put through Committee, received for final consideration and passed.