The Government have been informed of the decision of Irish Shipping Limited to petition the High Court today to appoint a liquidator to the company on the grounds that they are unable to pay their debts, including both contingent and prospective liabilities.
In late September I received a report from the Chairman and Board of Irish Shipping Limited on the financial positon of the company. That report, which was given detailed consideration by the Government, showed that there has been a grave deterioration in the company's position since the enactment of the Irish Shipping Limited (Amendment) Bill, 1984. I explained to the House on 11 April the background to Irish Shipping's very difficult financial problems and stated that the Government had decided to accede to the board's request for limited financial support by way of Exchequer guarantees of borrowings.
I indicated at the time that the company required an Exchequer guarantee of $12.5 million towards the cost of purchasing two vessels, the Slaney Venture and the Celtic Venture as part of an arrangement with foreign shipowners to reduce to tolerable levels their extremely onerous financial commitments in respect of chartered-in vessels. That guarantee has been given since by the Minister for Finance.
In addition, the company was informed in February 1984, that the Minister for Finance would be prepared to guarantee additional borrowings of £12.253 million to meet the company's projected total cash deficit of £4.063 million in 1984 and £8.190 million in 1985. The Minister for Finance has since provided the necessary guarantees for the borrowing by the company of £4.063 million for 1984.
The latest report from Irish Shipping Limited indicated that the company would now require £20.675 million to keep it going until the end of 1985, which with the sum of £4.063 million already guaranteed by the Minister for Finance brought the company's total projected cash requirements for the years 1984 and 1985 up to £24.738 million. The position, therefore, was that the company required £12.485 million more than its original forecast. This was mainly due to the continuing recession in the deep-sea freight market, compounded by the decline in the punt vis-à-vis the US dollar during the current year and the increase in US interest rates which occurred over the past six months.
The report also showed that, on the basis of advice from reputable international shipbrokers obtained by the chairman, on the likely trend of freight rates over the period, Irish Shipping would require almost £108 million in order to keep going until the end of 1989. Taking account of current interest rates, a further £36.5 million approximately would be required to service ISL's funding needs for the period. Thus the total cost of keeping the company going for the next five years would amount to £144.5 million. Furthermore, even if the Exchequer met this enormous bill, the company would still have debts of £59 million at the end of 1989, and there is, at present, little reason to think that they would be in a position to service them from their own resources. This is in stark contrast with the earlier expectation of the board of Irish Shipping Limited that the deep-sea freight market would have recovered sufficiently by 1986 to enable the company to resume viable operations.
The present financial position of Irish Shipping Limited is such that the company are unable to service any more borrowings. They are in fact insolvent without further financial support. Consequently, the entire sum of £144.5 million which would be required in order to keep the company in operation in the period up to the end of 1989 would have had to be met by the Exchequer.
What are the reasons for the appalling financial situation of ISL? First, there has been a dramatic collapse of the world deep-sea tramp shipping market. The tramp market has always been subject to cyclical slumps, but the extent of the market decline during the past three years has been catastrophic and unprecedented, due primarily to the world economic recession and to the growing excess of shipping supply over demand. The market situation since 1982 has been one of worldwide losses by shipowners, resulting in bankruptcies in many cases.
Second, and even more important, the problems of Irish Shipping Limited were aggravated by the fact that during the period September 1979 to July 1981 the company entered into nine long term speculative charter agreements with companies in Hong Kong and Japan for foreign owned, foreign flagged and foreign crewed vessels amounting to 393,000 tons deadweight, a decision which I have already described as disastrous. Even if the activities of the company had been confined to the operation of its wholly-owned fleet of deep-sea vessels, then numbering four, the collapse of the freight market would have posed serious problems for Irish Shipping Limited. With the limited exposure involved in the smaller fleet, however, the company would have been in a position to ride out the recession without insurmountable losses as it had done on many other occasions in the past. As a result of the agreements entered into in respect of these additional ships, Irish Shipping Limited were left, when the market collapsed, with nine chartered-in vessels, foreign flagged, foreign crewed, and foreign owned, earning only a fraction of the cost to the company under the charter agreements.
The financial problems of Irish Shipping Limited have been compounded by the fact that their partners in a trading consortium, Celtic Bulk Carriers, Cardiff shipowners Reardon Smith Line Ltd., had themselves run into financial difficulties and were not in a position to meet their share of the joint commitments entered into with Irish Shipping Limited under the Celtic Bulk Carriers pooling agreement.
I want to repeat what I said in Dáil Éireann last April — the charter agreements were entered into on behalf of Irish Shipping Limited without the knowledge or consent of either the then Minister for Transport or the then Minister for Finance and have led to the destruction of what was, up to then, a viable and successful State enterprise with a very proud record of financial success in an industry that has always been marked by sharp fluctuations in trading conditions.
Earlier this year when Irish Shipping Limited were optimistic about an upturn in the world freight markets, the Government decided that the company should get the limited support then sought to keep it in operation. But on the basis of the company's own projections the financial commitment that would now be required from the Government and from the Exchequer to maintain it in operation is enormous and unsustainable. There are no grounds on which the Government could justify spending £144.5 million on Irish Shipping and still leaving debts of £59 million over the next five years with no guarantee that the company could operate on a viable basis thereafter.
The nation faces, as this House is aware, very serious financial and economic problems. The Government's determination to overcome these problems and the way we intend to do it are made clear in the national plan Building on Reality.
Any agreement by the Government to make the sums I have quoted available to Irish Shipping to enable it to meet liabilities entered into without the knowledge or approval of the Government would be a complete abdication of expenditure control.
The Government have therefore decided that they cannot go further than the decision of February 1984. The Government will, of course, discharge the State's responsibilities in respect of those of the company's liabilities which are guaranteed by the Minister for Finance. These liabilities can be met while respecting the levels of public expenditure envisaged in the national plan Building on Reality.
According to the latest estimate from Irish Shipping Ltd., based on a statement of affairs at 31 August 1984, there may be assets of approximately £23 million available to meet the estimated total liabilities of £117 million, of which £39.5 million are guaranteed. It will be a matter for the liquidator to dispose of the assets of the company to best advantage and to settle with unsecured creditors. The position in relation to the Irish Spruce requires separate consideration.
The Government have considered the position of Irish Continental Line. The position is that ICL is owned by Oceanbank Developments Limited in which Irish Shipping Ltd., hold a 75 per cent shareholding — the balance is held by AIB. While the disposal of the Irish Shipping Limited shareholding in Oceanbank is a matter for the liquidator, I see no reason why Irish Continental Line, which has traded profitably in the past, should not do so in the future.
The Government have given careful consideration to the question of a strategic fleet. This concept was last reviewed in 1963 when the strategic tonnage requirements were fixed at 155,000 tons deadweight. There are now substantially more vessels on the Irish register and, of course, we now also have the State-owned B&I Company. The Government are satisfied that the winding-up of Irish Shipping is not a cause for concern in terms of our current strategic needs.
The Government particularly regret the loss of jobs which the employees of Irish Shipping will now suffer. Over the years those employees have served Irish Shipping well and they and their families are the victims of these developments. This is one of the most unfortunate and tragic aspects of the liquidation of Irish Shipping.
The Government have given very detailed consideration to the financial problems of Irish Shipping Ltd. I am sorry that we could not find justification for the massive expenditure which would now be required to keep the company in operation.