This is a standard provision and is self-explanatory.
Insurance (Miscellaneous Provisions) Bill, 1985: Committee and Final Stages.
Question proposed: "That section 1 stand part of the Bill".
Question put and agreed to.
Sections 2 to 7, inclusive, agreed to.
SECTION 8.
Question proposed: "That section 8 stand part of the Bill".
I take it these are normal provisions?
Yes.
Question put and agreed to.
SECTION 9.
Question proposed: "That section 9 stand part of the Bill".
The Minister understands my position on the matter.
Question put and agreed to.
SECTION 10.
I move amendment No. 1:
In page 5, lines 6 and 7, to delete subsection (2), and substitute the following:—
"(2) Not more than three directors of the Company shall be appointed by the Minister after consultation with the Minister for Finance. Two directors shall be elected by the employees of the Company."
The speed with which this Bill is being dealt with is amazing. All the problems seem to have been resolved and the great controversy seems to be at an end. We have gone through nine sections in one and a half minutes.
I am aware that the Minister will probably say that this is just a holding company and that my amendment would not be relevant because basically the purpose of the amendment is to have worker directors on the board of management of ICI. We think this is essential in all areas and should be a feature of the new company legislation whenever that is brought in. In the case of a company with such serious problems as ICI in the management area some watchdog is necessary. There is no better watchdog than those elected by the staff to represent their interests on the board, check what is happening and ensure that nothing is done which would put the jobs of the 700 people involved at risk.
There is a great deal of confusion about the effects of this Bill. We had a strange pact between Fianna Fáil and Fine Gael yesterday afternoon with regard to the Central Bank intervention. It does not really make any difference because the Central Bank will simply retain the money which they would otherwise be giving to the Exchequer. If they gave £134 million to the Exchequer last year and they are to give £120 million this year to the ICI that will be £120 million which will not be coming in to the Minister for Finance and he will have to come back to the taxpayer to make it up.
The name of the company will be Sealúchais Árachais Teoranta. That will be the holding company with control over ICI.
That is section 1.
We are not clear what that holding company will do with regard to administration. This amendment provides that two directors shall be elected by the employees of ICI on to pany. Under the section the company is empowered to appoint five directors to Sealúchais Árachais Teoranta. We are asking the Minister to restrict his appointments to allow two directors to be elected by the employees of ICI onto the holding company. We presume the holding company being established here will have investigative powers in relation to ICI and will be able to know what is going on in ICI. Therefore it is vitally important for the employees to know what is happening to ICI.
The Minister may say that under the section he does not have to appoint five directors. He may appoint only one director because the section says "not exceeding five". No minimum number is given. He may appoint one, two, three, four or five directors. He may say that, if he is appointing three directors, it would be unbalanced to have two of them appointed by the staff. Fair enough. We could not go into the details of how that would be worked out. I would imagine that one out of three would be sufficient. The impact of the amendment is to ask the Minister to ensure that in the company the interests of the employees will be protected by allowing them to elect their own representatives to the board.
As the Deputy has recognised, the notion of employee representation on the board does not really apply in this case in the sense that Sealúchais Árachais Teoranta has no employees. It is a holding company. Nor has it influence over the management of the company in administration. Having employees of the company in administration on the holding company board would not make any difference either because the company in administration is managed by the administrator who has set aside the board of the company in administration and is acting in accordance with the law and the directions of the court. I am afraid it would make no difference whatever if this were to be done. Therefore the amendment is pointless.
There will not be any employees.
That is the point I am making.
What controlling powers or investigative powers will the company we are establishing have over the operations of ICI or the administrator?
It will not have any. It is essentially a legal vehicle which is created in order to transfer the shares of ICI from Allied Irish Banks so that Allied Irish Banks will not be intermixed with a company which was in administration because of insolvency. That was a necessary step to take in order to create a sanitary cordon between the banking system and this problem as it exists in the insurance industry. The control of the way in which the company will operate, that is, the company in administration, will be by means of legislation under which provision is made for administration and which was passed in 1983 and, under that legislation, the directions which the administrator is required to receive from the court in respect of particular matters.
This amendment, which technically we are discussing, does not arise. However, it gives me an opportunity to say that, while I was in the Chamber within one minute of the beginning of Committee Stage of this Bill, having been in it several times earlier this morning, I discovered that we are on section 10. That is very unsatisfactory because, in so far as there are any sections of any import in this Bill, we have passed them. They are the sections which establish the company as a holding company and presumably therefore establish the principle that there should be a State or semi-State insurance company. I refer back to the references I made in the debate here on 16 December 1981 when there was pretty general agreement in the House about the undesirability of having a State-owned vehicle in general insurance that would have thrust upon it the duty, as it would be seen, to take up all forms of general insurance which nobody else wanted.
I am sorry I have to interrupt the Deputy. I sincerely regret that you were not here at the commencement of Committee Stage. I accept that many sections went through fairly rapidly. We are dealing now primarily with section 10, that is, the make-up of the directorship of the board of the new body. There is an amendment to that section in the name of Deputy Mac Giolla. I must confine you to that debate. The debate is restricted to the amendment to section 10.
The Minister referred to the powers and other matters.
I was explaining why the Deputy's amendment was miscast.
A Leas-Cheann Comhairle, you described the first nine sections as going through fairly fast. The record will show that they went through in the fastest possible way because I do not think there was any discussion on any of them.
The Chair has no control over that.
I appreciate that. For something that raised so many passions in this House in the past two days, and which raised so many passions throughout the country in the past two weeks, more than half of this Bill has now been passed through Committee Stage without any discussion whatever.
Nine sections have been agreed on and we are now dealing with section 10.
We are, unfortunately.
The Deputy was not here.
On the question of the directors of this holding company, it seems to me that there is little point in having any elected because, as it has been made clear, there is nobody to elect them. Presumbly, the company are not going to have any employees. I wonder, at the same time, whether the directors have no say in the matter. If they have, one wonders why it is necessary to go to the trouble of making the provision here in a Bill for their appointment. Apparently, they are going to be directors of an insurance holding company. The ICI are going to be one of their subsidiaries and the ICI may not be their only subsidiary. Could the Minister tell us, for example, whether it is intended to have other subsidiaries or what other powers the directors of Sealúchais Árachais Teoranta who will be appointed under section 10 are expected to exercise? If, as the Minister seems to suggest or imply, they have no powers at all, what is the point of this provision establishing them as directors or setting out the circumstances in which they would be appointed as directors? Why provide specifically for the appointment of directors when this is a private company which is being taken off the shelf? Why not use the ordinary powers under the Companies' Act of 1963 to enable the shareholders of a company to appoint directors? Why make a specific provision for the appointment of directors here?
I have answered all Deputy O'Malley's points already, in response to Deputy Mac Giolla, but I shall do so again. The reason that this company are established is to take up the shares in ICI from AIB. If that had not been done AIB, and the banking system through it, would have been involved directly in the ownership of shares in a company which was in administration because it was insolvent. That would have certain consequences for the banking system under various agreements into which banks have entered. So, it was necessary to divide off the shares. One could not, under the existing legislation, get the administrator to buy the shares from the bank. One had to get a company owned by the Minister to buy the shares. That was done and, that being done, the company were put into administration under the 1983 Act.
The next question is why it was necessary for the Minister to take powers under this legislation to have a board of directors under statute. It was necessary because, under the existing powers of the Minister, although they are manifold, there is not included the power to set up a company without statutory authorisation. Although the setting up of the company was necessary merely for a technical purpose, to facilitate the creation of administration, it was, nonetheless, necessary for that important technical purpose, and the power to fulfil that technical requirement did not rest in the Minister other than by law. This law validates the powers of the Minister to do what he did.
How does the Minister reconcile the statement which he has just now made with the establishment, to my recollection, in 1979 of——
The Irish National Petroleum Corporation.
——the Irish National Petroleum Corporation which is a private company set up by the Minister for Industry and Commerce on advice from the Attorney General at the time that the Minister, or indeed any Minister, has ample residual powers to promote a company for any purpose that is compatible with the duties of his office. There has not been since 1979, to my recollection, any legislation introduced or passed here validating — to use the Minister's word — what was done. I would suggest that there is no need for it, nor is there any need for it in this instance. The Minister can form companies for any purpose or acquire companies for any purpose he wants that is compatible with the duties of his office. This Bill probably originally was a very much longer Bill and at the last minute various bits and pieces were taken out of it. What was left were really superfluous matters. They were only put in to pad out a Bill that was, in fact, necessary, and what is left is not necessary. Why should a holding company that, according to the Minister, will have no powers at all, have legislation when a trading company that has a turnover of perhaps £300 million a year — perhaps a little more now — like the INPC can operate quite freely for six years in a trading situation as a private company without any legislation?
I do not know what advice the Deputy got from his Attorney General when he was a member of Government in 1979 and established that company, but I do know what advice I got from the present Attorney General.
He is only a child.
Now, now. That remark ill becomes the Deputy.
I mean that legally he is only a child.
In any sense, it ill becomes the Deputy to make remarks of that kind. I can tell the House that the Attorney General advised the Government that, in his view, such a power did not rest in the Minister and that it was necessary to validate it. That is the situation. That is the advice upon which I acted. I think it was necessary in a matter of this kind as quickly as possible to act to make sure that the legal basis for the actions taken was absolutely beyond doubt. Of course, the advice of any Attorney General is open to dispute, but there is one thing that we cannot afford in a matter of this kind and that is to have actions that it was necessary to take speedily in the national interest challenged subsequently in the courts on the ground of doubts being cast on their validity. It is very necessary, in my view, to underpin this operation at the earliest stage by statutory authority where any doubt existed and such doubts were, as I indicated, raised by the Attorney General. That is why we have acted.
I recognise that my amendment in the context of this company, Sealúchais Árachais Teoranta the pronunciation of which I might say, using the Irish version, is not SAT but SHAT and that is what the whole Bill is about — bullshat — however, I recognise that my amendment is probably not in order in the context of this Bill since the Minister says that this is only a cash dispensing machine that we are setting up.
It is not.
That it has no powers whatsoever except to dispense cash.
I have to correct the Deputy again. That is not the case.
The Minister did not give us any other indication why it took over. He said as a holding company to dispense cash but that it has no powers over either the ICI, the administrator or anything else.
It does not dispense cash.
Everybody is still talking about this being a semi-State insurance company. Where are the powers to engage in insurance in the Bill and is it a semi-State company in the insurance business? If it is, what control or powers, or even investigative powers, has it in connection with ICI? The Minister says that it has none whatever. Therefore, a director of this company will not have any power over or know anything about what ICI or the administrator are doing. There is no need whatsoever to have a director on this board representing the interests of the workers since he will not know anything about what they are doing and will be of no use whatsoever to the workers. I cannot see, therefore, the purpose of the Bill at all, except to dispense money. If the Minister sees some other power in it, would he please let us know?
Can the Minister give the House some assurance that he will be more circumspect in appointing directors to this SAT company than Ministers have been in appointing directors to the Central Bank? One of the directors of the Central Bank, Joe McGlynn, is a director of AIB, another is a deputy governor of the Bank of Ireland, R. I. Morrison, another Vincent Ferguson, is a director of Lombard and Ulster Bank as well as being a director of Dublin Gas, Fitzwilton, Atlantic Resources, Independent Newspapers, Gouldings and so on. Can we have an assurance that in this case the Minister will not appoint directors from the commercial banks to this holding company, or have directors from the private insurance area involved in this holding company who would be very anxious to have their fingers in this pie?
Can the Minister clearly explain to me, an ignorant layman in all these matters of company law and legislation, on all this question of insurance, large finance houses and so on——
The Deputy should not be like that.
I see the Deputy has a few behind him all the same.
Would he please explain to me what power this company and these directors will have over ICI and its operations other than handing out money to it, and what will be his criteria for the appointment of such directors?
I am sorry to have to explain the function of this board for the third time but I will do it just the same. This board will not be a cash dispensing machine. It is an instrument set up to take the shares in the company but the company is in administration. The cash will be dispensed, such as it is, when necessary, direct from the compensation fund to the company in administration without going through this vehicle. As to the directors and their qualifications, I have no proposals to appoint any further directors. I have appointed two directors already. They are officials of my Department; two people, that is it. Therefore the Deputy need not worry about my appointing any of the people he mentioned. By the way I understand that his list of Central Bank directors is out of date.
The Minister will be appointing them to something more lucrative than this.
I never appointed any of them to anything.
Does the Minister not think it was a little indecorous that in this morning's newspapers it should be announced that the current chief executive and general manager of the Central Bank, after his retirement, which I understand is imminent, is to become a deputy governor of the second largest clearing bank, perhaps it is now the largest; I am not sure.
The Deputy is not dealing with section 10 there.
Well, we are on directors.
The Deputy is on the directors of this company the name of which has been mispronounced here. Perhaps the Deputy would confine his remarks to section 10.
I called it SAT yesterday, which I think got over all difficulties; it was only when a native speaker got at it that——
That is the most unusual Irish word I have heard for some time.
Would the Minister care to comment on this announcement which appears in all the newspapers this morning?
The announcement in the media has no relevance whatever to section 10.
On the question of directors of the Central Bank, holding companies etc.——
We are dealing with SAT. Perhaps the Deputy would then resume his seat and allow the Minister to respond.
Let us get on.
The Minister is in charge of reform.
Is Deputy Mac Giolla withdrawing the amendment?
Yes.
Amendment, by leave, withdrawn.
Section 10 agreed to.
Sections 11 to 12, inclusive, agreed to.
SECTION 13.
Amendment No. 2 in the names of Deputy Mac Giolla and Deputy De Rossa.
I move amendment No. 2:
In page 5, before section 13, to insert the following new section:—
"13.—The Company shall not sell or otherwise dispose of any of its shares, or any subsidiary company, or any shares it holds in any other company, other than with the approval of both Houses of the Oireachtas."
Probably the Minister will tell me that it is crass ignorance to put down this amendment, and I must say that we are quite ignorant in regard to these affairs. We have been most concerned from day one of this happening that the administrator sold off Credit Finance Bank to AIB. We believe this constituted a major error, that it created fear and trembling among the staff, that their morale was affected, they being on a sort of a cliff edge at present wondering what will happen, what is the whole purpose of this legislation and so on. If they see another subsidiary sold off — like the Insurance Corporation Life end of the business — then their perception will be that it will be chop, chop, chop, with a non-viable piece remaining which all of these holding companies will keep in operation for about five years until everybody is able to re-insure elsewhere and then wind up.
In section 12 we had been dealing with the death of members of the company, shares held by them and so on. Therefore we propose a new section with regard to the disposal of shares or subsidiary companies, or any shares the company holds in any other company without the approval of the Houses of the Oireachtas.
Of course the Minister will contend that all of these things are beyond the confidence of SAT, that the administrator is the person responsible for all of this, that if he wishes he can sell these in the morning. According to the directors of Insurance Corporation Life — in particular Mr. Adrian Daly — a management group are in negotiation with the administrator to buy out Insurance Corporation Life and he is favourably disposed to such negotiations.
We are endeavouring to insert a section which will protect the viability — if there is any left — of the ICI company. To that end it is essential that the Insurance Corporation Life end be maintained and the Guernsey operation which apparently was profitable also. If anything is to be cut loose it should be any association with or responsibility for the London office operations.
Perhaps the Minister would comment on how he feels about the possibility of the administrator selling off some of the profitable subsidiary sections of ICI and, if he does not feel good about it, say how he can control or prevent it. Has he any control over the administrator? Thirdly he might say what powers this company would have to prevent the sell-off of profitable areas if they are only a holding company with such little powers as the Minister said earlier. Can the Minister explain to us what they can do to prevent such sales?
As the Deputy has acknowledged, this amendment is not directed correctly at what he has in mind. The position is that the only subsidiary that SAT has is the company in administration which was ICI. The administration of the company is governed by the Insurance (No. 2) Act of 1983 under the provisions of which the administrator has the following functions: to take over the management of the business of the insurer and carry out that business as a going concern with a view to placing it on a sound commercial and financial footing. In relation to the insurer, the administrator shall have all such powers as may be necessary for, and incidental to, his functions in relation to the insurer, including sole authority over the direction of all officers and employees of the company. The question of the sale of this company in administration will not arise until the company has been placed by the administrator on a sound footing and that is some time away.
Would the administrator have to consult anyone before selling the Credit Finance Bank?
The position is that the administrator acts in these matters under the direction of the court and he takes whatever steps he thinks necessary in the interest of the commercial success of the company and the achievement of his mandate which is to restore the company to a sound footing. He requires the consent of the court for the disposal of assets. In respect of the Credit Finance Bank, having presented evidence to show that it was in the best interests of the purposes of administration, he got consent from the court to the sale of the Credit Finance Bank. If any other sale of assets were to take place, it would have to be on the basis that the administrator and the court were satisfied that it was in the best commercial interests of the company and of its ultimate restoration to solvency. It is very important that, in the first case, the commercial judgment of the administrator and, in the second place, the judicial judgment of the court should be applied and there should not be any interference with the exercise of that commercial judgment so that the best decisions may be taken promptly and efficiently.
Could ICI be considered a subsidiary of Sealúchais Árachais Teoranta?
In the sense that Sealúchais Árachais Teoranta is the holding company that holds the shares in ICI in administration. Sealúchais Árachais Teoranta is in loco AIB and the company in administration is in loco ICI.
Will the Minister agree that while the administrator is the person charged with the responsibility under the High Court order setting out his business, in so far as the disposal of any assets are concerned the principle should be that they should be set off against any liabilities that may have accrued under ICI? Will the Minister agree that it might be proper for him at some stage to suggest to the administrator that if it is ever found necessary to dispose of ICI Life the proper way to do it would be by public tender to obtain the maximum realisation of the assets?
If the administrator is disposing of assets he has to satisfy the court it is being done in the best interests of the overall purpose of the administration and the court would have to be satisfied that he was doing it in a way that would obtain the best possible price. While it is not a matter for me to say he would do it by open public tender, it is almost certain he would because that is almost the best way of getting the price he is obliged to obtain by law. The Deputy can be assured of that.
He would not be in a position to dispose of it without first clearing the matter with the High Court?
That is absolutely true. That is the great protection that exists under the legislation.
Amendment, by leave, withdrawn.
Section 13 agreed to.
SECTION 14.
I move amendment No. 3:
In page 6, between lines 24 and 25, to insert the following:—
"(3) No such moneys shall be paid on foot of any guarantee or guarantees under this section, until such time as Allied Irish Banks Ltd. has transferred to the Minister for Finance a number of its shares equal in value to the amount of money to be paid.".
The purpose of the amendment is to ensure that for whatever moneys the Exchequer or the Minister put into guarantees or the actual funding of ICI they would get a stake in AIB in return for that funding. The cosy arrangement made yesterday afternoon somewhat alters this in a direct way but this morning I gave some reasons to show that indirectly the situation has not changed. The Central Bank pay substantial profits directly into the Exchequer and, as a result of the arrangement yesterday, their profits will be cut by the amount they put into this operation. If they have to put the minimum amount stated, £65 million, that will be £65 million less going to the Exchequer this year. If the amount is £120 million over a few years——
If the Deputy is referring to the Central Bank he is not correct.
A figure of £50 million has been given. In the past few weeks we have talked of figures from £15 million to £600 million and I do not think we need worry too much about the difference between £50 million, £65 million or £120 million. What we are talking about in any case are millions of pounds. Whatever amount the Central Bank put into the operation they will put a correspondingly smaller amount into the Exchequer this year and therefore, the Exchequer will be at a loss which will have to be made up by further taxation or cutbacks. My amendment was in connection with direct money transfers on foot of a guarantee as indicated in the Bill, plus any other moneys the Exchequer might have to put into operation of ICI.
My amendment seeks to give the Minister for Finance a stake in the AIB and it states that no moneys shall be paid on foot of any guarantee until the AIB have transferred to the Minister for Finance a number of shares equal in value to the amount paid. Now that we will have a Central Bank and a commercial bank operation my amendment will probably be said by the Minister to be invalid and not relevant.
Will the Minister acknowledge that there will be a loss to the Exchequer because of the Central Bank subsidies, guarantees, or whatever? Could the Minister also say in which way the Minister can ensure that AIB's responsibility is recognised? Does the Minister intend to take a stake in AIB in return for bailing them out?
I dealt with the burden of the Deputy's amendment in my reply to the debate last night. Unfortunately, the Deputy was not here at the time, although his colleague was here. I pointed out that the approach suggested by the Deputy, looking for shares in AIB as a means of achieving a contribution towards the cost, was considered by the Government but found to be an inappropriate approach. Any allocation of shares by AIB would have required an extraordinary general meeting which would have required notice and attendant publicity. It was necessary for the rescue to be effected quickly. It could not have been done prior to agreement reached with AIB on the taking over of shares. If the taking of shares were to be a condition subsequent to the making of the agreement that would also have required an extraordinary general meeting and there would have been some uncertainty in that the shareholders might not agree to the bank's recommendations. People might say that if the bank saw what was facing them at the extraordinary general meeting they would go along with the recommendations of their directors. But, that would have thrown the whole thing into the public arena in an atmosphere of uncertainty, and we could not contemplate that. Arrangements were made at the time on the lines indicated.
In relation to the contribution of Allied Irish Banks, it was the contribution recommended to the Government by the Central Bank as being the maximum appropriate contribution consistent with safeguarding the bank in a difficult few weeks during which doubt would be cast on them as a result of the events that would have been disclosed. The Government felt it prudent, in a matter of this kind, while looking for the maximum contribution, not to go beyond the advice of the Central Bank as to the limit on what could be prudently obtained.
If shares were transferred to the Minister as the amendment suggests, that would dilute the value of other ordinary shareholdings in the bank. There is not a direct cause and relationship between the ability of a bank to continue functioning, and the value of its shares. Its ability to function as a lending institution depends on the value of its deposits but if there were a rapid fall in the share values of the bank that would cause a lack of confidence in the bank and people with money on deposit would begin to withdraw their deposits. That would have a substantial confidence diminishing effect on the bank.
That was something which had to be avoided at all costs to preserve the banking system in a sound condition. We wanted to have a situation in which AIB would make a substantial contribution without creating uncertainty in the minds of depositors so that there would be a fast and effective change of ownership without continuing uncertainty hanging over the bank. The essential objection to Deputy Mac Giolla's suggestion was that it would not have met that criteria. There are other arguments in favour of Deputy Mac Giolla's suggestion but the overriding objection was the one just given, that we could not envisage a situation in which uncertainty existed as to the nature of the arrangements and obligations of the bank.
Section 14 is one of the two sections in this Bill which have any importance. The only two matters which justify bringing this legislation before us is this provision with regard to the guarantee which is now being taken up by the Government in respect of London underwriting, and the provision in regard to the insurance compensation fund. I agree with Deputy Mac Giolla and others that this is a piece of nonsense and hardly called for in the circumstances. It has served one purpose and that is that it gave us an opportunity to debate this dramatic development. Apart from that it does not really serve any other purpose. I am not surprised to be told that it was introduced on the advice of the Attorney General. We made our view clear about the appointment of this Attorney General. I am led to believe that in another situation for which he is responsible, which caused emergency legislation to be brought in here, there may be very considerable doubt about the advice tendered on that occasion also. So far as there is any substance in this legislation it is in sections 14 and 16 of the Bill. On the very important point to which Deputy Mac Giolla has referred, the contribution which will be made by the Central Bank and the effect that might have on the surplus which the Central Bank normally hands over to the Exchequer, we are leaving discussion on that, and the teasing out of that until we come to our amendment because it is in connection with the amendment we put down that that matter properly arises.
I want to make a point in case when we come to our amendment the Chair will say that we have already discussed that very important aspect. It is one aspect of this whole matter that we have to go into very carefully. We have to question the Government very carefully on it. It is all very well to talk about a contribution from the Central Bank; but if that contribution interferes in any way with the surplus — real, present or prospective — that the Central Bank hands over to the Exchequer, then that is a matter of crucial importance to the public finances and to the taxpayer. We propose to deal with that matter when our amendment, which is directed to that whole area, comes up for discussion.
On section 14——
We are on the amendment now. We will come to the section later when we have disposed of the amendment.
The Chair has a great capacity for keeping me in order. We have been wasting a lot of time talking about nonsensicalities up to now and I wanted to air one of the few substantial aspects of this matter.
The Deputy should not get so irritable. I must make it clear that the Deputy was addressing himself to the section and I merely told him that we had not yet come to the section, which is correct.
I will confine myself to the amendment. I would have thought on the question of good order that the Chair might have taken all these amendments together, but that is his way of dealing with things.
On the question of shares, I do not think Deputy Mac Giolla should press this very strongly. We thought of this also. We thought very carefully of a proposal whereby Allied Irish Banks would in part of all this settlement be compelled to give shares to the Government in response for all the Government are doing for Allied Irish Banks but there are many aspects of that that are not as satisfactory as might appear at first glance, apart from those mentioned by the Minister. They are only technicalities and could be got over if the Minister really wanted to get shares in Allied Irish Banks. The important consideration is that the shares in Allied Irish Banks now, and probably for a long time in the foreseeable future, will be a fairly fluctuating asset. The Government may take over a certain number of shares or have a certain number of shares allocated to them on the basis of a certain valuation which would be subject to very considerable market fluctuations later on. While one has a great deal of sympathy with the idea from the point of view of giving value to the Exchequer and the taxpayer, it is not something that would necessarily commend itself, certainly in the first instance.
What is happening here is different. Instead of shares Allied Irish Banks, we are told, are putting up cash. As far as this particular restricted aspect of the matter is concerned that is infinitely more desirable. Apparently, what is happening is that the Government are issuing responsibility for a guarantee which Allied Irish Banks have to London underwriters and, in return for the Government assuming that responsibility for that £20 million, Allied Irish Banks are going to deposit £20 million free of interest either in the Central Bank or somewhere else where it will be at the disposal of the Government. That seems to be all right in so far as it goes.
It also appears that, if there is any call on the Government arising out of the guarantee on the basis of which the Government have to pay up money, that amount of money will be taken from the £20 million on deposit and the Government, therefore, will not be at any loss.
As far as we can ascertain at this stage, the theory of the thing is that the Government will take over this £20 million guarantee and, side by side with that, £20 million will be lodged somewhere at the Government's disposal. It will be available there to meet pari passu any liabilities which the Government will have to undertake. So far so good but, as I pointed out in my opening remarks, the Bill specifically spells out the fact that the Government are going to take over this guarantee but there is not anything in it about the other side of the coin, namely, the contribution by Allied Irish Banks of the £20 million. At this stage we only have the Minister's word for it.
One thing we want to raise in this connection is about the documentation covering this £20 million and the contribution of this £20 million by Allied Irish Banks. Arising out of that, we think that the Minister should tell us something about all the documentation on this matter. Apparently, on Friday 15 March, or some day about that date, a fairly complicated arrangement was entered into between the Government, Allied Irish Banks, the Insurance Corporation of Ireland and, maybe, the Central Bank. The House is entitled to copies of that documentation. Copies of all those papers should be laid on the Table of the House. If there is some reason why they cannot be laid on the Table of the House, we should be told. After all, they are very significant documents and are of very far reaching implication. On the one hand they cover a £50 million soft loan and on the other hand cover this £20 million free of interest, which is not dealt with in the legislation. Apparently those things were agreed at the outset of this affair. We want to know what documentation there is to cover these matters and whether it can be put on the Table of the House so that we can all have a look at it.
The Minister must also make it clear — he has not done so so far — that the pari passu I mentioned is what will happen. If there is any specific cash loss to the Government arising out of the assumption of this guarantee under section 14 that will be exactly and to the same amount made good out of the £20 million free of interest loan being given by Allied Irish Banks. There is an odd thing about what the Minister said with regard to the contribution of Allied Irish Banks to this matter and it is something he should clear up in connection with the amendment. We all gathered from his opening statement that the Central Bank had made it clear that the arrangement he had entered into was the limit that Allied Irish Banks should be called upon to meet. The Central Bank, apparently, had given advice that, if Allied Irish Banks were not to be damaged in their credit and in their operations the amount being asked from them at that stage — the Minister mentioned the seven things asked from them, the principal ones being the £50 million soft loan and the £20 million free of interest loan — was the limit of the contribution that Allied Irish Banks should be called upon to make. However, in the statement from the Central Bank read out yesterday by the Minister for Finance it appears that the Central Bank are to review the contribution Allied Irish Banks are to make. It is implicit in the wording the Minister for Finance read out in the House yesterday that the Central Bank are going to enter into discussions with Allied Irish Banks, and other banks, with a view to deciding the form, the level and so on, of their contribution and its apportionment.
The Minister for Industry, Trade, Commerce and Tourism must make the position clear. Are the seven things which he read out in his opening statement the limit as far as Allied Irish Banks are concerned or is the Central Bank going to review the whole situation and seek more from Allied Irish Banks in some shape or form? That is a key, crucial question and there is certainly the semblance of a contradiction between the statements of the two Ministers to this House. I have already referred to this and the Minister should clarify it.
Section 14 is one of considerable significance and we are all entitled to have the fullest information about it. Deputy Mac Giolla's amendment is directed to one aspect of it, but the Minister must give us the fullest possible information. If, as I gather from what he said, he is rejecting the suggestion about the shares given by Allied Irish Banks, he must tell us exactly the way in which this £20 million interest free deposit by Allied Irish Banks will operate in relation to the guarantee which is being undertaken by the Government.
We are also entitled to more information about this guarantee. Most of us at this stage know only that there was a note on Allied Irish Banks' last balance sheet to the effect that this £20 million was guaranteed to a group of London underwriters. Are these underwriters likely to be in for more than £20 million or less? Will this be an ongoing situation? As far as one can gather, the provision in section 14 is to the effect that the £20 million will keep rolling on, that there may be extractions from it and replacements to it, but that it will never exceed £20 million. We want the Minister to give us the exact situation in that regard. Is the sum of £20 million the full extent of the amount guaranteed to this group of London underwriters? We have all heard these apocalyptic figures of £500 million, £600 million and so on mentioned and this gives the Minister an opportunity to deal authoritatively in that area. Apparently, there is a guarantee of £20 million to this group of underwriters. Are they likely to be the main source of demand in London or are other firms in London involved? Is there any truth in the nefarious rumours regarding the sums of £500 million or £600 million?
Is there any truth in the suggestion that every policy written by the London office carried an Allied Irish Banks guarantee? I find that difficult to believe but the Minister should make the situation clear. He will also have to give us information regarding all the back-up documentation that exists in regard to this guarantee, the £20 million deposit and the transaction as a whole.
I am surprised that Deputy Haughey engaged in personal reflection on the Attorney General.
Only on his legal capacity.
It is still personal to his legal capacity. Of course, the Deputy is perfectly entitled to criticise any legal advice which the Attorney General gives, that is fair comment. However, he should not attack the general competence of the Attorney General, in whom I have the height of confidence. Having worked with him since he was appointed, he is a very distinguished lawyer——
Time will tell. I merely commented on his legal capacity which I am perfectly entitled to do and, indeed, to comment on the legal capacity of any office holder.
I am equally perfectly entitled to comment on whether your comment is appropriate. I do not think it is, but I will not pursue the matter.
Deputy Haughey seemed to see some inconsistency between the fact that Allied Irish Banks will be contributing towards the cost of the arrangements to be set in train by virtue of the decision taken by the board of the Central Bank the day before yesterday and the advice given by the Central Bank originally as to what Allied Irish Banks should contribute. There is no inconsistency. The Central Bank said — and I said this in my speech yesterday — that that was the limit of what Allied Irish Banks could contribute at this time. Those words appear in my statement.
In practical terms, it was also envisaged from the outset in all the statements which the Government made about the matter that, if there was to be a bank levy, Allied Irish Banks would not be exempt and that they would be making a further contribution through the bank levy, and indeed would make the biggest contribution since they are the biggest bank. The Central Bank have taken over the arrangements, which will make a similar call on Allied Irish Bank's resources as would have been made if a bank levy were to have been imposed instead. If the Deputy is looking for a copy of my speech, I will supply it to him. Does he want it?
Just your statement.
As the Deputy said, the arrangements in regard to the guarantee should more appropriately be dealt with on the section and that is what I propose to do. I have replied to the matters relevant to Deputy Mac Giolla's amendment except for one matter. Deputy Haughey said that he thought the shares in Allied Irish Banks would be very unstable in future, or did he say that he feared they might be very unstable?
I was very careful of the words I used. I said they are a variable asset and that they may go up or down.
In the same way as any shares are variable assets?
Exactly.
Was the Deputy saying that the shares of Allied Irish Banks were particularly variable?
No, and the Minister knows I have no wish to upset the market. However, they have fallen since Friday, 15 March. They may go up again, but they are a fluctuating asset. My point is that the £20 million free loan of cash is far more important.
I know that the Deputy would not want to influence the stock market in any way by any comments he might make.
The Minister said there was a difference between the value of the shares and the lending capacity of the bank and that the lending capacity of the bank depended on deposits in the bank.
Let me intervene here. We are now dealing with amendment No. 3. If and when we dispose of the amendments to section 14 the question will then be that section 14 stand part of the Bill and there will be a full opportunity for teasing out the section. If what the Deputy intends to say now relates to the amendment as it affects the section that is quite all right.
It does, and one other element the Minister did not mention in so far as the lending capacity of the bank is concerned is the bank's credit lines internationally. I put it to the Minister that a two week delay in bringing forward a solution to the ICI crisis has caused some little disturbance in the credit lines attached to the bank and there is no doubt in the world that that Government delay has damaged the credibility of the bank and the institutions generally in that area.
Concerning the £20 million to be made available by the bank and presumably to be lodged with the Central Bank, I take it that interest will accrue to this £20 million. I take it also that the interest that will attach to that £20 million which is to be deposited with the Central Bank will be to the benefit of the State also. The Minister might confirm that and he might also give an indication of what interest rate might apply to that £20 million. Will the interest from that £20 million deposit be available to the Exchequer and will it be sufficient to meet any demand that might be incurred on the foot of the guarantees to the Institute of London Underwriters? If that is so at what stage will the £20 million——
I missed a few points.
That could be more appropriately dealt with when we are discussing the section. Amendment No. 3 deals with the transfer of AIB shares.
If the Ceann Comhairle wishes, by all means.
I think it would be more appropriate.
Will I get an opportunity under the section?
Certainly.
I will wait till then.
Arising out of this amendment, I want to confirm what I said across the House to the Minister when I was dealing with arguments put forward by Deputy Mac Giolla. I was speaking strictly in terms of shares, whether bank shares or anything else, qua shares. In no way would I give any value judgment whatever about any share on the Irish market. It is no function of ours in this House to say things that can either inflate or deflate the value of shares. That is for others. I hope I will not be at all misinterpreted in what I was saying, and if I said anything that might give any other impression I want to withdraw it and make it quite clear that I was talking really only in terms of the value of the cash deposit as cash against the value of shares as shares.
In regard to the limit to which AIB will be called upon to contribute, I must ask the Minister to consider again what he said in his opening speech which was:
The Central Bank, whose job it is to assure the soundness of our banking system, was involved in the discussions leading to the decision to rescue ICI. Their strong view, as a regulator of the banking industry, was that the contribution by the bank that I have already outlined was the limit of what AIB could prudently be expected to make at this time.
He said that that was the limit that they could prudently be expected to make at that time. He continued:
The Central Bank were also most anxious that there should be certainty about AIB's liabilities, as uncertainty would be damaging to the bank and to the financial system generally.
I submit that any reasonable person reading those words would take it that it was the clear advice of the Central Bank that what was proposed was the limit, that there should be no uncertainty about it and that that was the end of the matter. I am quite clear that that was the proposal put to us by the Minister, and the advice of the Central Bank was that the matter should be decided because uncertainty would be damaging, it should be decided clearly and that was the limit.
All I am putting to the Minister is that now the Minister for Finance has told us that that situation is to be changed and to be reviewed by the Central Bank and the amount that AIB will be called upon to contribute in one way or another is at least up for further examination and apportionment.
I must repeat that there is no inconsistency whatever of the kind the Deputy is trying to create. It was clear from the very beginning that AIB would have to contribute to any bank levy that might have to be raised to deal with this situation. If they are able to contribute to a bank levy they are able to contribute to any arrangements that the Central Bank might put in place with an equivalent purpose in mind. The certainty sought by all of us and the Central Bank in particular as to AIB's liabilities related to any special burdens that might be imposed on them that would not be imposed on the banking sector generally, and that was at that time. The arrangements that are being made by the Central Bank in regard to this matter will be made with the utmost prudence to the forefront and they will also be made not at this time but at a subsequent time, as indicated in the statement of the Minister for Finance, when the liabilities are more clearly known. I think that that distinction is quite clear.
It is also clear that from the outset there was a prospect of further contributions by AIB but that these would be in the context of a bank levy involving the entire sector, as any arrangements made by the Central Bank would involve the entire sector on a consistent basis, and certainly done by the Central Bank with the stability of the banking system very much in the forefront of their minds. The Central Bank were anxious to avoid a situation where some agreement would be made at the point when speculation would be at its maximum — which was just immediately after the transfer of ICI to different ownership — which would be open-ended or uncertain as to the effect on the bank especially as distinct from other banks. That was avoided in this case and that is the meaning of the reference which I made which Deputy Haughey quoted about the bank being concerned that there be certainty as to the bank's liabilities.
I was taken aback by yesterday's developments and I said that the Central Bank's involvement altered the situation, but it does not because the Minister is not altering the Bill in any way. Therefore we must still talk in terms of the Minister and the Exchequer. The section says: "The Minister may, with the consent of the Minister for Finance, guarantee, in such form..."
Allied Irish Banks have given an interest free loan of £20 million, unlike the so-called soft loan for which the Minister was very reluctant to admit what the interest rate would be. He used the technical term of 4 per cent under the gilt rate, or 9 per cent on the £50 million but no interest on the £20 million. Nevertheless, this is only a loan. AIB are not handing the Minister £20 million; they are giving a loan which must be repaid, but we are not told when. Will it be in one year, two years or ten years? The Exchequer will have to repay this £20 million and therefore the Minister is still the person responsible. Our amendment is therefore still relevant. If the underwriters need a £20 million guarantee and if it is paid, it will be paid by the Minister through the £20 million loan he must get from the bank, but eventually he will have to pay that back to the bank. Subsection (4) says whatever money is paid over, the Minister will look for it from ICI within two years. The following subsection shows that the Minister realises that this is ridiculous and that it will not be possible because he says if all or part of the money is not repaid by ICI within two years, then the amount so remaining to be repaid to the Central Fund shall be provided by the Oireachtas. That is us. It is hardly out of our own pockets. I doubt very much if we will subscribe to make up this £20 million and therefore the money must be coming from the taxpayers.
What is going to happen is obvious from reading this Bill, irrespective of the Central Bank, the Allied Irish Banks or anybody else. The Minister, the Oireachtas, the Central Fund and the Exchequer will have to pay the bill. We are asking that the Government seek a stake in Allied Irish Banks when we are repaying this loan. This way we will get something for our money. Even if we do not make a profit on our shares, we will have a stake in AIB and on the board of directors of management of AIB, which is one of the most important factors for the Minister since he has the ultimate responsibility for all insurance companies and must protect the interests of policyholders and so on. I am putting forward this amendment in the hope that the Minister for Finance will gain some stake as a result of putting up this guarantee.
The position is as Deputy Haughey outlined to the extent that this guarantee will have to be used, although we do not expect it will be. It is expected that the administrator will meet all liabilities as they arise. The history of this kind of guarantee has been that under the Institute of London Underwriters arrangements, they have not been called upon and we do not expect this guarantee will be called upon either. Even if it is called upon, it will be met out of the fund and the amount to be repaid will be less by the amount that is called on it. There will be no problem repaying this loan because the money will be there, it will not have been used, but the advantage is that we will have the use of the interest on the money for the duration of the business.
That is the point.
We will have the interest available by whatever mechanism is used. Initially it will be in the Central Bank.
For what period?
Until claims are made and the business runs out. The full amount of money will be available for that period. This is a very substantial benefit, worth about £3 million a year.
What is the final date for claims?
It depends on the individual treaties entered into under the Institute of London Underwriters, when claims are settled, which might take place quickly depending on the disputes, and the amount of settlement which might arise between the company and the administrator and the person to whom payment is to be made. The loan is of an indefinite term.
Will new business be covered by the guarantee?
No. ICI is no longer a member of the Institute of London Underwriters and is not therefore in a position to take on new business. That happened on 15 March. To remain a member the owner of the company would have to offer an unlimited guarantee to ensure payments would be made. Allied Irish Banks had offered that but it was our decision that we should not get involved in unlimited guarantees, even though this business is very profitable. It was felt that it was not the function of a government to give unlimited guarantees in respect of a business of that kind. As a result of that decision the company was withdrawn from membership of the institute.
Amendment declared lost.
I move amendment No. 4:
In page 6, subsection (4), line 38, after "appoints" to insert "with the consent of the Minister for Finance".
Section 14 (4) provides that moneys paid by the Minister under a guarantee shall be repaid with interest within two years from the date of the advance out of the Central Fund. Subsection (7) provides that any money so paid shall be disposed of for the benefit of the Exchequer as the Minister for Finance thinks fit. As the payments and receipts relate to the Central Fund and the Exchequer they fall within the purview of the Minister for Finance. In accordance with the usual practice in such matters any terms attached to the payment, such as the rate of interest provided for in subsection (4), should require the consent of the Minister. The amendment makes the necessary provision for this purpose. As I am sure Deputy Flynn will be aware, the Department of Finance are most anxious to have their finger in all matters of this kind——
Unless they have altered in the last few years.
——and, with their customary careful afterthought, they insisted on this amendment being made which puts this on all fours with general practice.
They never failed to insist on having that one inserted.
That is what is called re-insurance.
Amendment agreed to.
I move amendment No. 5:
In page 7, between lines 4 and 5, to insert the following:
"(8) For the purposes of calculating the amount of the moneys guaranteed by the Minister under this section by reference to the limit on moneys in subsection (2) of this section, the equivalent in the currency of the State shall be calculated at the exchange rate prevailing at the time of the giving of the guarantee.".
This provision is standard in legislation dealing with ministerial guarantees. It relates to the limit of £20 million in subsection (2) in respect of guarantees of money in a currency other than the currency of the State to the equivalent of Irish currency at the exchange rate prevailing at the time of the giving of the guarantee. The amendment does not affect the exchange rate at which payments might be made, but if at some future date a foreign currency payment had to be made on foot of the guarantee the applicable exchange rate would be that ruling on the date of payment.
Do I understand that the guarantee we are giving in the Bill to meet any claim that might come, whether or not it is years from now, is being established in the currency at this time; but, if a claim comes in in five years' time and the £20 million has to be utilised to meet that claim, the value of the claim will have to be established then at the interest rate that applies on that day? In other words, is it on the day the claim is notified to the Minister, or is it the date the claim is paid that the currency exchange rate will apply?
Payments will be made in accordance with the ruling exchange rate on the date of payment. The guarantee that is given as to whether those payments will be made will be based on the exchange rate ruling at the time of the giving of the guarantee.
There could be a difference?
Yes. The guarantee has to be certain at the time it is given. One cannot have a guarantee of unlimited movement up and down, otherwise we would not know what we were doing. At the time of the giving of the guarantee we are taking the ruling exchange rate. If subsequently the exchange rate in the other currency moves in such a way that what has to be paid out is more than what was guaranteed, only the part that was guaranteed originally is guaranteed.
You are only committed to that?
Yes. The rest is not guaranteed but would be paid.
It is from the interest that will accrue to the money that is on deposit that these payments will be made initially. A practice which occurred in the past — while we cannot establish that it happened in ICI, I have my doubts — is that claims were not booked when they came in but were allowed to build up in drawers.
That does not matter because it is the date of payment.
It is the date of payment and not the date of notification or the date the claim was originally made.
That is right.
Amendment agreed to.
Question proposed: "That section 14, as amended, stand part of the Bill".
As regards the interest free loan that AIB will make available to the Central Bank, it may be that I do not understand the position and perhaps the Minister would clarify it for me. The money will be lodged with the Central Bank and they will put it on deposit at an interest rate. Where will it be on deposit? Could it be that the Central Bank could deposit it back with the AIB and, if they can do so, what interest rate would apply? In other words, the AIB could have the benefit of the money towards their lending capacity during the period. I am not saying I am averse to that.
It would be at the same rate of interest as they would have to pay elsewhere.
It could be a vehicle the Central Bank could use to keep the lending capacity of the bank up to its original level. If it is not done that way, where will the money be deposited and at what interest rate? This is a very important aspect of the whole package. The Minister said that it could have to be made available for a number of years until all the guarantees fell due or the business dropped off to where it was not necessary. Would the AIB be in a position to seek back part of the £20 million loan given if it can be established that the possible claims that would have to be met under the guarantee were diminishing, or has the bank to leave the full £20 million on deposit for the full period despite the fact that there is diminishing demand?
Yes.
It could be on deposit for a number of years, considering the length of time that elapses between claims notified and claims settled. I am surprised that the AIB did not seek to have some kind of sliding timescale in the circumstances.
There you are.
The situation which has existed with regard to the guarantees under the London Institute of Underwriters is that there has been very little claim, if any, on these guarantees. I understand most of it is in the marine and aviation sections.
It is confined to that. This guarantee and guarantees from AIB are confined to LIU business. Deputy Haughey asked whether there were guarantees applying to other business, but there are not.
This has been a lucrative business.
It is.
In effect, the AIB are putting up the money to the Central Bank on deposit but they will not lose it in the final analysis. It will be restored. If there is no draw down on the guarantee from this money, has the Exchequer the complete and full interest that will accrue to the loan over whatever length of time it takes? That is a very important question, because if a certain amount of interest is attached to that loan if it comes into the Exchequer general funding and if a situation evolved whereby a claim was allowed to elasticate for ten or 15 years, you could end up with accumulated interest on a compound interest system and enormous sums of money could come in from the loan interest.
We will say the interest was £2 million in the first year. That £2 million would be reinvested and would accumulate in a compound way and, over a number of years, you would end up with more interest in the fund than the original loan. Why then would AIB not be entitled to say: "You have had our money on deposit for eight years, or whatever the sliding scale was. Give us back our £20 million. You already have £20 million from us in accrued interest." In the time lapse between claims made and claims notified and claims paid you would have quite a number of years.
Not a bad deal.
Not a bad deal at all. What I am worried about is that, in the review that the Central Bank will undertake now —because, whatever the Minister may say I believe a great deal of his speech died yesterday and it might not apply——
No.
It will not?
It will apply.
In every respect?
I do not know what the Deputy is driving at. All morning the Deputy's party have been trying to create inconsistencies.
We are not trying to create inconsistencies. We are trying to establish——
The facts.
——the facts. The Minister cannot just wave his hand and say the Central Bank intervention was a minor matter which did not alter the substance of his Second Stage speech.
I did not say that.
It makes an extraordinary difference to the whole package funding. I am trying to establish whether a circumstance could arise whereby a loan could in some way not be kept on deposit for the full period it takes to clear all the guarantees. Who computed the question about the £20 million? Why was that £20 million sought to cover a guarantee which the Minister now says might not and more than likely will not every be called upon?
To cover the guarantee.
To cover the possible total?
Exactly. The possible total is estimated at about £18.5 million. The loan available for meeting claims, which will not occur anyway, is in excess of the maximum possible claims which could conceivably arise.
One of the extraordinary things about this section is that the Minister can be so positive about the £18.5 million computed on foot of the guarantees under the ILU. Nobody was in a position to be quite so positive about the other liabilities which might accrue for the whole London branch office operation.
Could I explain that? The position is that this business was written by the Institute of London Underwriters and the records of that organisation, unlike those, regrettably, of the ICI branch in London, are very good and it was quite easy to make the calculation.
Over the past few years, particularly since 1982, can the Minister indicate what was the profit and loss on that side of the business undertaken in the London office on the aviation side?
It was £2 million over the past two years.
That was the loss or the total claims?
The profit. This is profitable business, as the Deputy knows.
There could be a loss.
There have been profits for the past two years.
There would be no need for £20 million to be put on deposit if there was not the possibility of a loss.
It is a theoretical possibility which arises from the fact that, in respect of this business, the Institute of London Underwriters ask for a guarantee from the owner in addition to an assurance from the company itself that it will meet claims. In all cases under this institute—and the institute have been in being for 100 years—that guarantee has never been called upon from any of the owners. It has always been the case that claims have been met by the company itself. That will be the practice in this instance. Because of the existence of the theoretical possibility, and in order to enable AIB to divest themselves of their guarantee, in return for divesting themselves of their guarantee they gave us the money which is available to be used to meet any claim arising under the guarantee.
We will not labour that any further. It is all theoretical.
Yes.
I can assure the Minister that on the question of marine or aviation cover a theoretical position could easily arise where £20 million would not go anywhere near the cost of meeting a claim. I take it that it is reinsured.
It is spread very thinly.
That raises a point. I am trying to do this in sequence to get to the bottom of it. I know it is spread out, but that very spreading out in the re-insurance area caused the downfall of ICI. If there are repudiations and if the re-insurance package fails, then under the law the insurer has to take up the full cover. The re-insurer does not carry the risk. For that reason there is a theoretical possibility that, if some of the re-insur-ance fell through, the total demand would fall back on ICI and £20 million would be very small potatoes.
This is very sound business. There is no risk of repudiation of re-insurance in this area.
Will the Minister confirm or deny that a risk undertaken four or five years ago resulting in a claim in seven figures—and that could be anything between £1 million and £10 million— sparked off the whole sequence of events we are now trying to rectify? For that reason I am concerned about repudiations that might or might not arise.
Is the Deputy talking about marine business? This is not marine business.
This is not marine business so it did not fall under the guarantee. It is very important to establish that because, had it fallen under the guarantee, the Minister's guarantee might not be sufficiently funded.
It is a different business.
I understand that is what we are trying to tease out here. It is a different business, but the Minister is not denying that it is such a thing that sparked off the whole debacle.
The Deputy is talking about a court case. This is a different business.
Agreed. Have the binding authorities that are really the cause of the crash been terminated, or have negotiations been entered into with a view to terminating the binding authorities, or are we still in a position on the London branch of underwriting risks that were falsely based in the first instance? That is a very important question.
I have expressed some concern about the Central Bank allowing the Minister to make an announcement in the House here because I feel that has somehow undermined their indpendence of the House. The Minister for Finance went to some pains yesterday evening to talk about the independent status of the Central Bank. Is there some new arrangement whereby the Central Bank independent statements can be subordinated to the Minister for Finance, following on his intervention here yesterday evening?
As far as the binding authorities are concerned, they do not arise in respect of this class of business.
I accept that.
Therefore, they do not arise on this section. I understand that the binding authorities have all been revoked, except one which steps are being taken to remove. On the point of the independence of the Central Bank, I can only say what I said yesterday, that the Central Bank made the decision that it made entirely independently. It was their decision, in their assessment of the situation. The announcement that was made here in the House by the Minister for Finance was made with the consent of the Central Bank. That was the way they wished the matter to be done and that was the way it was done. In no way does the fact that the Minister announced their decision impugn their independence. I can assure the Deputy quite categorically on that point. The Central Bank are and remain entirely independent of the Government in the exercise of their statutory functions.
Would the Minister like to comment on remarks that I made a little while ago concerning the lending capacity of AIB or any financial institution when it depends upon their deposits? Would he care to agree with me that it also depends on their international credit lines? Its fundamental solvency depends on these to a great extent when one considers that half of the earnings of AIB today would be from foreign based transactions and that delays such as we have experienced here for the past two weeks could put quite some pressure internationally on these credit lines? Could the Minister satisfy us that the credit lines have not been in any way damaged by the tardiness in introducing legislation?
Of course, the Deputy is correct that AIB's credit lines internationally are extremely important for their continued operation and profitability. There was no delay in the presentation of this legislation. As I explained to the Deputy yesterday, the first date we thought we might get it in was Thursday of the week following the Friday of the announcement. This proved just impossible to do because the Deputy will remember that the Monday of that week was a bank holiday, which left only two working days to prepare and present the legislation. The legislation required not just to contain the admittedly relatively large number of pro forma sections in regard to the establishment of a company, but also sections that we are now dealing with concerning the London Institute of Underwriters and the guarantees which were quite complicated matters. Although we knew that there was no particular problem, we had to express the legislation very correctly. Most of the time was taken, in the relatively short number of working days in the last ten days, with two weekends including a bank holiday weekend, in matters arising in regard to this section.
There was no delay in any way, as far as credit lines were concerned. What is important is that the Government took the original decisions quickly. That was done and the legislation was introduced at the earliest possible time afterwards. I know that the Deputy has an interest in suggesting that the Department delayed, but I can assure him that there was no unreasonable delay at all and that everybody worked very hard at the matter. Some comments were made, for instance, about the speech coming in here with two pages at the back of it yesterday. The fact was that there was so much work to be done, particularly on these sections, right up to and including last Tuesday, that the preparation of the speech could not go ahead until the work on the sections was completed.
I want to take this opportunity of assuring the Deputy that the officials involved in this work performed, I think far beyond the call of duty. I should like to pay tribute to the work they have done and we can be very proud that we have a public service with the degree of dedication which the officials dealing with this matter showed in all of their work. I know that applies in all other segments of the public service as well. It is no harm to put that on record. I am sure that Deputy Flynn will agree with me, knowing many of the people as well as he does.
I think this is beginning to develop into a Second Stage debate.
But the Minister is entitled to have that flexibility in the way he deals with the matter. Indeed, that was the reason why I allowed the first number of sections to be moved so quickly. It was in deference to trying to get some little bit of reform into this House to prevent people on Committee Stage from making Second Stage speeches again.
That is at present being done, to some extent.
I am putting that on the record. It seems an awful waste of time to spend hours trying to get in other points which failed or missed on the previous occasion. I believe in getting down to the amendments as submitted because they usually form the substance of the debate. For that reason, I believe in giving the time to sections 14 and 16 and not providing opportunities for others who have failed to make their mark on previous occasions.
I agree with the Minister. I am sure that the public servants put in trojan work over the past couple of weeks on this. What we all wonder is how much of the trojan work was put into the wastepaper basket as Ministers and then Cabinets changed their minds and they had to start off on something else. We are quite aware that they did trojan work, but how much of it was really necessary in the final analysis, with the changes that were made? Certainly on this Bill, there is no indication of all that trojan work.
On this section, could the Minister explain his responsibility under subsection (5) where, let us say, the Minister is right in his predictions and most of this guarantee will not have to be used at all. Let us talk in small, understandable figures like £5 million, that have to be used for this guarantee fund. Say they ask the Insurance Corporation of Ireland to repay this £5 million within two years and within that time all they were able to repay was £1 million, then one is left with £4 million outstanding. Then section 5 comes into play, which states:
(5) Where the whole or any part of the moneys required by subsection (4) of this section to be repaid to the Minister has not been paid in accordance with that subsection, the amount so remaining outstanding shall be repaid to the Central Fund out of moneys provided by the Oireachtas.
At that stage there will be £4 million and the Minister comes back under section 14 (5) to the Oireachtas. Can the Minister explain precisely what he will be asking the Oireachtas to do to find these £4 million which have not been repaid?
This is a technical requirement. Apparently, before the claim is made, it has to pass through the Central Fund but it will come out of the £20 million. It will not come out of anywhere else, and the limit of what can be paid is set by the £20 million.
The limit of what will be paid?
I presume initially on the interest.
I think Deputy Haughey explained it himself—he ran ahead of us all, as sometimes he does.
He is a very talented man.
Indeed, yes.
(Interruptions.)
Anyway, the position, as explained by Deputy Haughey to the House, is that, to the extent that any payments have to be made the amount to be repaid is reduced by the extent that any payments have to be made under the guarantee. Therefore, if there are no claims made under the guarantee, when all the business is extinguished AIB get £20 million back. If £5 million in claims have arisen under the business which the administrator could not meet, and he allowed to be met under the guarantee, AIB get back £15 million. But the ultimate upper limit of the business is £18.5 million. Therefore there is no question of the £20 million ever being extinguished. In the most extreme situation AIB will be getting £1,500,000 back eventually when the whole thing is finished.
However, if the guarantee is called on —and we do not expect it will be—I understand that the money will be paid out by the central fund but the central fund will be replenished from the money that is available under the £20 million facility.
It is not clear. Twenty million pounds goes on deposit. Let us say that £2 million interest is added the first year. I want to know if the interest will go into the central Exchequer funds, year by year, or will the interest remain in the account of the deposit of the £20 million? If that continues for a few years—we will say £10 million has accrued—and claims come in of £10 million, will the £10 million interest that has already accumulated wipe out the guarantee leaving the £20 million there to be repaid to AIB, or will the £10 million claim——
The interest will not be set off against it.
In other words, whatever sum of money has to be met on foot of the guarantee will come from the £20 million and reduce the repayment to AIB, that whatever length of time it continues the interest that accrues from the deposit will, year by year, be transferred into the Central Fund, presumably to be utilised——
The Deputy is wrong in the last bit there.
Would the Minister please explain it to me.
The interest will actually accrue, not to the Central Fund but to whoever has the money at the time. Initially it will be the Central Bank, subsequently it will be the insurance compensation fund and subsequent to that it will be the administrator. The money will be passed on through those vehicles, through the administrator, as and when he needs it.
Wait now, that is a different thing.
In fact it amounts to the same thing but the fund and the administrator will have the use of the money and will be able to get the interest on it. It will not be on deposit a lot of the time, possibly it will be used as a means of reducing what might otherwise be borrowing because it will be cash that will be available to be used to that amount, and the administrator will not be borrowing money.
Therefore, it is not confined to the guarantee; it can be used for anything?
Yes, it can be used for anything.
This presupposes some of the comments we will be making on section 16. The Minister has now widened the scope, contending that all of this somehow or other is being channelled into the compensation fund from which the administrator will be able to seek moneys. That raises a fundamental principle which I agree will be challenged on section 16. It leaves an open-ended situation in so far as the taxpayer might eventually have to meet something from the compensation fund. However I shall be arguing that on section 16.
I want to be absolutely clear that the interest will not be used to meet demands on foot of the guarantee, that any such demands will be met from the £20 million with a consequent reduction to the AIB on repayment date.
Yes, that is correct.
Question put and agreed to.
Section 15 agreed to.
SECTION 16.
I move amendment No. 6:
In page 8, between lines 7 and 8, to insert the following:—
"(2) Section 3 (2B) of the Insurance Act, 1964, (inserted by section 9 of the Insurance (No. 2) Act, 1983) shall not apply in the case of the Administrator of the Insurance Corporation of Ireland.".
We are endeavouring to establish that in no circumstances whatsoever will the Exchequer be involved in meeting any liability that might arise under the ICI collapse. We do not want circumstances to arise in which the administrator will be able to seek money from the compensation fund to meet any of the liabilities of the AIB. In a nutshell what we are endeavouring to establish is the position as outlined by the Minister for Finance when he said yesterday, and I quote:
Yesterday's decision by the board of the Central Bank means that the Exchequer will not now be involved in funding the administration of ICI.
We want to be satisfied beyond all doubt that there will not arise any circumstances whatsoever in which the administrator might be in a position to go to the High Court to seek an order from the accountant of the fund to make moneys available to it. We are all familiar with the history of this. The fund was established in 1964 following the collapse of Equitable. It had a ceiling of £1 million which was removed in 1983 under the Insurance Act of that year, as we understood the position at the time, to deal specifically with the PMPA difficulty. It would appear now that that fund can be utilised for other funding or other collapses. We do not want a situation to arise in which any insurance company, other than the PMPA, can have their liabilities met from the compensation fund. It was with that in mind that we put down our amendment. We do not want to give the administrator any access to the insurance compensation fund because we are satisfied that the Minister for Finance can make funds available under the existing legislation. Under the 1964 legislation the Minister is empowered to make funds available to the compensation fund.
Yesterday we were told by the Minister for Fiance that the amount of money being catered for by this new Central Bank arrangement will be confined to an estimated £120 million maximum. If the rumours are correct—we hope they are not—and if it transpires that the repudiations get out of hand and that difficulties arise following the six weeks assessment, it could happen, having regard to the amount of cover granted by the new Central Bank arrangement, that sufficient money would not be available and it appears to me that the only recourse would be to the compensation fund. However, the compensation fund does not have any real income in that its income is confined to £10 million per annum for 2 per cent levy on premiums and, as a result of drawing on it last December to deal with the initial payment of £30 million to the PMPA, that fund is already stretched for cash and it might not be possible for it even to deal with the PMPA crisis. Should it be that it did not have enough money and that the liabilities of ICI after the actuarial examination is finished are found to be in excess of £120 million, the Minister, under the powers available to him under the 1964 Act, would have to pump money into the compensation fund and the only place he could get that money would be by way of some budgetary arrangement or financial structuring. Consequently, the compensation fund would be funded to meet the liabilities of ICI by ministerial action.
By making that money available the Minister for Finance would make it available to the administrator, but of course it would have to be funded by the taxpayers. It was to establish finally that there is no possibility in any way that the administrator can get to the compensation fund that we tabled our amendment. We want it clearly understood that that is our understanding of the intervention of the Minister for Finance yesterday. If that is the case, the Minister will have no difficulty in accepting our amendment and my argument. I should like him to confirm that now.
The position is that the only power available under existing legislation whereby the administrator could be put in funds is through the insurance compensation fund. If Deputy Flynn's amendment were passed that would be impossible and the entire basis of the administration would be removed. Therefore, it is essential that this amendment should not be passed because of the effect it would have.
The amendment in the section relates to two concerns that were expressed. One was concerning a bank that lent money to the fund some time ago when its main concern was with PMPA. They demanded guarantees concerning the repayment of this money and after negotiations in order to meet their requirements the amendments are being made in this Bill. In the context of those negotiations, we were advised by the Attorney General that in the light of the priorities to be created on the fund, which caused the President of the High Court some concern that the involuntary insolvency of the fund could be brought about, it was desirable to provide amending legislation to allow the High Court, before approving any payments out of the fund, to have regard to the state of solvency of the fund as advised by the President of the High Court acting through the accountant.
To sum up, section 16 (1) (a) amends section 2 of the Insurance Act, 1964, by allowing the accountant, for the purposes. of giving security with respect to borrowings for the fund, to charge the fund and payments into it. Subsection (b) of section 16(1)(a)(3A) will allow the creation of priorities against the fund in accordance with the wishes of the bank and any other prospective lenders. Subsection (c) of (3A) of the same section allows the accountant to determine the order in which payments out of specified future income of the fund shall be made. Subsection (1)(b) amends section 3 of the 1964 Act by allowing discretion to the President of the High Court to satisfy himself as regards the solvency of the fund before allowing any payments to be made therefrom. Subsection (2) rectifies a minor omission from section 2(8) of the Insurance (No. 2) Act, 1983, and the amendment will be deemed to have had effect from the passage of the Act. When amended the section will read as follows:
In any proceedings upon a petition presented under this Act, evidence that the matters set out in subsection (2)(a) of this section pertained in relation to an insurer at the close of the period to which the latest returns of such insurer to the Minister under the Insurance Acts, 1909 to 1983, or under the Regulations of the European Communities (Non-Life Insurance Accounts) Regulations, 1977, relate or upon any subsequent date shall be evidence unless the contrary is proved that such matters pertain in relation to the insurer at the time of the hearing of any such proceedings.
This section was not mentioned either in the PMPA or the ICI petitions for administration. The parliamentary draftsman is of the view that a court could construe the section as though the words were included. However, it is considered preferable that the omission be rectified.
Essentially what we are talking about are minor tidying up arrangements regarding the operation of the compensation fund. It has been envisaged all along that the money to finance this administration, which will come from advances from AIB and also from the arrangements to be made by the Central Bank which will include provision for the repayment of advances made by AIB, will be made through the compensation fund. If the amendment tabled by Deputy Flynn were to be passed that would be impossible.
Of course this money will be kept separate from the money relevant to the PMPA administration. Although it will pass through the same fund they will be separate accounts within that fund, one for dealing with the PMPA and another for dealing with SAT.
The Minister did not answer the question and he is not giving any guarantee in the situation where the compensation fund might be proposed to be used by the administrator to fund the losses of ICI. The Minister for Finance in his speech yesterday evening said that it was not yet possible to quantify the additional losses. From Minister Bruton's speech and from the Minister for Finance's speech it is obvious that it is not possible to quantify the losses. Take that in conjunction with the Minister for Finance's statement that the Central Bank would provide sufficient funding in conjunction with the banking system within the dimensions of the problems as indicated by Deputy Bruton.
Deputy Bruton indicated that the outer limit for the ultimate losses might be £120 million but that it would be more likely to be £65 million. Should it arise that the total losses are in excess of £120 million is it proposed that the administrator would go to the High Court to get the accountant of the fund to allow him to get access to the compensation fund? At that stage there would be no money in it, and the only way that extra cash could be put in to satisfy the demand would be through direct ministerial intervention. The Minister for Finance has the authority to intervene. We do not want that to be the position. We are not satisfied with that unless the Minister can give us a categorical assurance that the administrator cannot get access to the fund. Otherwise this document of the Minister for Finance does not stand up.
The Deputy does not understand the situation.
When I finish the Minister will get an opportunity to make it easier for me to understand. We understood yesterday that because of the Central Bank intervention in this matter they were bringing about a situation whereby there would never be any demand on the taxpayer and the Exchequer would not have to be brought in to redeem any losses accumulated under the ICI loss. The Minister for Finance stated yesterday that the Exchequer would not be involved in funding the administration of ICI. If that is the case there is no reason why the Minister would not agree to accept our amendment. The Central Bank, together with the other banking institutions, have many sources from which to provide extra money that might be needed should the outer limit of £120 million be surpassed. This must be clearly established. If the Minister cannot give this categorical assurance, the taxpayer will have to come to the rescue of ICI and the House is being misled. We must press this amendment home. Will the Minister explain how the Exchequer will not be asked to accommodate any demand because of the ICI crisis?
All the payments to finance the administration of the ICI, including the advances from the AIB and the facilities made available by the Central Bank, will come through the fund.
Why?
Because that is the only statutory basis on which the administration can be funded. If Deputy Flynn's amendment were passed the channel through which this administration is to be funded would be cut. It would not be possible to fund it at all and the money being made available from AIB and the Central Bank would not be able to get to the administrator. I know Deputy Flynn would not like this to happen, knowing the consequences, but Deputy Flynn's amendment would stop this administration in its tracks immediately because it would not have access to the necessary funds.
I am afraid the Minister is not addressing himself to the realities.
I am addressing myself to the amendment.
What is involved in Deputy Flynn's amendment has been made quite clear. We have been assured that the administrator has a cash flow to deal with the immediate requirements of administering ICI. What we are concerned with is the major sums of money needed to meet unknown losses. Originally there was every justification for the course the Minister proposed. The original Government proposal was to deal with ICI as an insurance matter. Yesterday it became a banking matter. From that point of view alone there is every argument for taking it away from the insurance compensation fund. It will not be dealt with by the insurance industry but by the Central Bank, the Allied Irish Banks and other banks. That is what the Minister for Finance said yesterday. The losses will be made good from the banking system, so it is now formally in the banking arena. If the Minister does not understand that, he does not understand what the Minister for Finance said yesterday.
I was talking about Deputy Flynn's amendment.
(Dublin North-West): It is a technical Bill about dealing with claims. The moneys coming into the fund are what you are talking about.
The Minister made it clear yesterday that from now on this matter would be in the banking area. The situation will be met by banking funds from the Central Bank and other financial institutions. That makes it totally justifiable to take this matter away from the insurance compensation fund. That is only an argument of principle. The reality is that the funds will now be provided. The Minister intends that those funds will be put into the insurance compensation fund and that from there they will be available to the administrator. The Minister is saying to us that if that does not happen the administrator will not be able to administer. That is absurd.
Dún Laoghaire): We have to get the money.
The Central Bank and Allied Irish Banks and everybody else are going to provide funds. They can be placed at the disposal of the administrator in any way the bank——
(Interruptions.)
Will the Deputy please stop interrupting me?
(Dún Laoghaire): I do not intend to be rude.
The funds are being made available from the banking system. They can be made available to the administrator in any way that the providers of those funds wish.
(Dún Laoghaire): They have not the power——
Of course, they can be provided. We are not silly: we are not children. The Central Bank will put together approximately £120 million in funds from their own resources and the banking system. That money will be available to meet the losses of the ICI. There is no difficulty in the Central Bank or the Minister setting up any fund into which those moneys are paid and from which they can be made available to the administrator. I find this very difficult.
The important thing is the provision of the funds. Once the funds are provided from the Central Bank, and the banking system, it is only a question of setting up a particular mechanism of giving them to the administrator for his purposes. The difference between us is that the Minister is arguing that they can only be given to the administrator if they are put into the compensation fund. That does not necessarily follow at all. The Central Bank could open an account to which the administrator could have access. Allied Irish Banks could open an account in Allied Irish Banks to which the administrator could have access. There are plenty of ways in which these funds once they are provided can be made available to the administrator to carry out his duty without necessarily putting them into the insurance compensation fund.
That demolishes the Minister's argument that if our amendment is accepted the administration would have to stop. It would not. What the administrator needs and requires for his purposes are the funds. It does not matter where they come from or what vehicle or account is used to put those funds at his disposal. We do not want the funds to go into the insurance compensation fund. We do not want the administrator to have access to the insurance compensation fund.
It has been done all along.
The Minister should listen to common sense. We do not want that to happen because the insurance compensation fund can raise money from the Minister for Finance, from the Exchequer, at the cost of the taxpayer. That is the key to this. The insurance compensation fund will not be confined to moneys raised from the Central Bank. It is open to the administrator to go to the compensation fund and get money from it which would be provided by the Minister for Finance. Technically, that is possible. We want to cut off that technical avenue from the administrator because it is an avenue open to him whereby he can go to the compensation fund and, through that fund, to the taxpayer. That is our concern.
The administrator will have access to these new funds that will be provided otherwise than through the insurance compensation fund because if he has access to that fund he has indirect access to the Exchequer and the taxpayer. Nothing could be simpler or more clearcut than that. As Deputy Flynn has pointed out we do not know the extent of the losses. The Central Bank said that they are going to provide £120 million. If more than £120 million is required we have no guarantee that the Central Bank, and the banking institutions, are going to provide the extra amount. In those circumstances we would have a situation where the £120 million is used up and the administrator has access to the insurance compensation fund. What is more logical or straightforward for him to do than to get the Exchequer to put money into the insurance compensation fund and draw on it. The Minister must admit and accept that that is a possibility. I am not saying it is going to happen but we want to cut off the possibility.
We are perfectly entitled to say to the Minister, find another account, another vehicle or another mechanism whereby the funds which are now going to be raised by the Central Bank will be placed at the disposal of the administrator without going through the insurance compensation fund. If the Minister cannot see that, I cannot understand him. It could not be simpler or more clear. I will leave my argument on that for the moment because I want to deal with the question of how the Central Bank will make up their contribution. That is an important key issue where the interests may, possibly, be accepted. If the Minister for Finance was right in telling us yesterday that there is now going to be no recourse to the taxpayer, and we accept that, then he cannot leave an avenue open whereby the administrator will have access to the insurance compensation fund and from the insurance compensation fund to the Exchequer and the taxpayer. We want to cut that off and the Minister is not entitled to say to us that if we cut that off we deprive the administrator of the funds he needs to administer this. We do not. The Central Bank can make those funds available to him under 20 other guises or mechanisms which are at its disposal and which the Minister would have no difficulty in providing. Have I made the position clear?
It is perfectly clear to us.
Has Deputy Haughey a copy of the Insurance Act, 1983?
Yes, we have provided ourselves with all the paraphernalia of the legislative process.
The position is that the administrator has been appointed by the court under that Act. The funding of an administratior under that Act is dealt with in section 9(c) (2B). That is the authority upon which the administrator may be funded. That provision states:
(2B) Subject to the provisions of this section, there may, with the approval of the High Court, be paid out of the Fund to the administrator of an insurer such amounts as are, in the opinion of the High Court, required to enable the administrator to carry on the business of the insurer and to perform his other functions under this Act in relation to the insurer.
This administrator was appointed under that Act and that is the only means whereby, as an administrator appointed under the Act, he may be refunded with the approval of the High Court through the compensation fund.
No. He has money coming in every day as an ongoing business.
Yes, in respect of existing business but for any new advances of money other than cash in hands which is being dealt with in the normal way he must receive additional sums of money. The way he can receive additional sums of money under the legislation under which authority he is established in the first place is through the fund, with the approval of the High Court. If, as Deputy Flynn's amendment seeks to do, the fund could not be used there would not be any money available to the administrator.
I should like to remind Deputy Haughey that the entire operation of the appointment of the administrator is based on the 1983 Act. The only way it can be funded is through that Act, not by any informal arrangements of the type he may have in mind. All of this must be done under law with the approval of the High Court and through the fund. That is what the law says.
I should like to put one simple question to the Minister. The Minister is endeavouring to suggest that that is the only way that can be done. We now have a new situation which was not dealt with at all in that legislation — Allied Irish Banks and the Central Bank providing funds. That was not touched in the 1983 legislation at all and, according to the interpretation the Minister has given us, that money cannot go into the insurance compensation fund. We all know that the administrator can have access to any funds he wishes.
Section 9 of the 1983 Act only gives the administrator specific power to go to the insurance compensation fund. It does not prevent him going anywhere else. It does not prevent him getting money in the normal course of business. We say that it does not prevent him getting money from the Central Bank, Allied Irish Banks or anywhere else because, as it happens, this new idea of money coming from the Central Bank, Allied Irish Banks and everybody else is not dealt with at all in section 9 of the 1983 Act. Even on the Minister's own case we have to go outside section 9 of the 1983 Act because we have to get money from the Central Bank and Allied Irish Banks. We have to get money from new sources which are not dealt with at all in the 1983 legislation. In any event the Minister will have to get that money from the Central Bank, Allied Irish Banks and the other banking institutions and give it to the administrator in some shape or form. We submit that channelling them to the insurance compensation fund is not necessary and is not even the most efficient way of doing it and it leaves it open to the administrator to go through the compensation fund, to the taxpayer.
I am sorry to have to say that it is necessary because the administrator is appointed under the 1983 Act and the only source from which an administrator may obtain money is from the fund with the approval of the High Court.
Quote me that. Where is the statutory basis for that?
I have already quoted it. The base upon which an administration may be funded is set out on page 11 of the 1983 Act.
That is not the only basis.
It is the only basis upon which it can be done.
He gets money every day from insurance policy holders.
That is ordinary money coming to him in the course of business and is different from advances made to him for the purposes of meeting claims which he would not be able to meet in the ordinary course of business. Of course he can continue to administer the company using, in so far as he can, ordinary money, but any additional money which is necessary over and above what comes to him by way of ordinary business has to be provided to him under law and the law in question is set out in the 1983 Act.
That does not make sense.
Each person should be allowed to make his or her contribution.
Deputy Haughey raised the question of AIB money and Central Bank money——
Stick to the other matter.
It is the same thing. The basis on which that money will come into the fund is under section 2 (6) of the 1964 Insurance Act which sets out a variety of means whereby money can be paid into the fund.
The Minister's argument does not hold up on one very essential point in law. The administrator is appointed under the 1983 legislation but the money in the compensation fund is provided from the 1964 legislation and there is no basis in law for the Central Bank money to be put into the compensation fund.
Exactly.
As far as we are concerned, the Central Bank have a certain amount of money which they can lodge in the High Court and let the judge, on application, pay it out to them. They can lodge it in any institution they like and allow the administrator to go to the High Court and get an order to attach the moneys wherever lodged. However, the compensation fund was set up in 1964 and the various ways in which it can get its money does not include a contribution from the Central Bank.
That was not even contemplated.
Not at all. How then can the Minister say that he is creating a new subsection to the 1964 Act to take on board moneys provided by an outside body, the Central Bank? That does not make sense. That is our critical point, as long as we keep the administrator out of that fund, we are satisfied that the Central Bank will have to keep coming back and keep raising the support irrespective of what the demands might be now or in the future. Consequently, the Minister will have no say in providing funds to the compensation fund because the Minister has crystallised our greatest fears that having allowed the administrator access to the fund, if there is a shortage, you cannot then go back to the Central Bank. You must ask the Minister for Finance to make up the loss which he does under the 1964 Act, under any of the proceedings here, especially the provision to borrow for the fund. It is a distinct matter entirely from the section which the Minister has in the Bill regarding the question of giving security to those who might lend money to the fund. We are not interested in that, we do not want the accountant of the fund to borrow any money to accommodate any administrator's claim on behalf of losses suffered by ICI. If this Bill goes through, the Minister is forcing us into a situation where the fund becomes the vehicle which will be used by the administrator and the only way that money can be put into that is through the intervention of the Minister for Finance. We must stop that. The Central Bank arrangement is a separate identity, a new arrangement, which had no bearing on the 1964 or 1983 legislation. It is money which has been accumulated from banking sources and it can be made available by direct cash grant or whatever other arrangements the Minister might like to apply to it. It might require legislation but that is the Minister's problem and he should have foreseen it.
Yesterday, the Minister for Finance gave a commitment that the Exchequer will in no way be involved and I take it that the Exchequer means the Minister for Finance and, ultimately, the taxpayer. The only way he can give any guarantee on that commitment is to allow the Central Bank arrangement to stand separately from the compensation fund.
As I said already, under section 2 (6) of the 1964 Act, one of the ways in which the fund may be financed is by moneys borrowed for the fund. In this instance, the moneys in question will be borrowed for the fund from Allied Irish Banks——
No.
——and from the Central Bank on terms agreed by those lenders, by the accountant of the High Court and paid into the fund and, in due course, paid from the fund directly to the administrator to enable him to carry on the business. We are using existing legislation, therefore, to achieve the purpose we want to achieve, using the 1983 Act and this section of the 1964 Act to fund the administration. There is no other statutory basis for the funding of an administration, and the suggestions made by Deputy Haughey are not provided for in law. We wanted to use existing law to the maximum extent and there is a means whereby we can do so, using section 2(6) of the 1964 Act and section 9 of the 1983 Act. It is important that we should use this route.
The Minister is changing his ground.
Let me choose words that will not get me into difficulties with the Deputy. It is the only legal mechanism——
It is not.
——available to us under existing law and it is right that that legal mechanism should be used for other reasons which I will now elaborate. By using the only available legal mechanism for funding the administration, the consent of the High Court is necessary for payment of money over to the administrator. In my view that is a necessary and valid check on the progress of the administrator by an independent judicial authority. Any arrangements such as those Deputy Haughey is suggesting for which there is no statutory basis at present, in addition to being statutorily impossible, would not have the valid and valuable check of being subject to the discretion and decision of the High Court.
It was not Deputy Haughey who suggested these matters. It is the Government's suggestion and that of the two Ministers. It is the Ministers who are suggesting funds from the Central Bank and AIB. These are new funds which were never contemplated at the time of the 1964 or 1983 Acts and there is absolutely no reason why they should come within the ambit of those Acts. They are a total de novo situation, starting afresh. The Minister is talking about statutory basis for what the Central Bank and AIB are going to do. Therefore we cannot use the statutory basis argument. There is no statutory basis in either the 1964 or 1983 Acts for what the Central Bank are now about to do. This is a totally new situation. The Central Bank are going to provide a fresh new fund — nothing to do with the insurance world — for the losses of ICI and there is no more reason why it should go into the insurance compensation fund than anywhere else. The very fact that the Minister has to put a section into this Bill sorting out the priorities between the two administrators is another argument in favour of what we are doing because now we have two administrators claiming from the same insurance compensation fund which is going to be inadequate. The Minister is trying to put in this little pernickety section to try to make out what will happen when the two administrators come to look for funds from this compensation fund.
They are separate accounts.
Separate accounts? It is the same fund. The very fact that the Minister had to put this in is an argument in favour of what we are proposing, that the administrator of ICI with totally different types of fund provided from the banking system should not have to go to the insurance compensation fund for those new, different types of moneys. They can be made available to him in any other way the Minister chooses.
The Minister is quoting section 9 of the 1983 Act. That section only gives the administrator power to go to the insurance compensation fund. It does not prevent him going anywhere else he likes. As a matter of fact, as an administrator he is trading, in business, receiving money every day in the normal course of events and paying it out, and there is absolutely no reason why this Central Bank-generated money should not be available to him in any other way the Minister wishes. That is as clear as a bell, and there is nothing in the 1964 and 1983 Acts that the Minister can quote that denies that simple, straightforward proposition.
All the 1983 Act does is make this insurance compensation fund available to a new type of animal which it created the administrator. It is not exclusive. It gives him power to go to the insurance compensation fund but it does not prevent him going anywhere else he wishes. That is why the Minister on advice had to change his argument and say that it is important that the administrator should have to go to the insurance compensation fund, that it was desirable and so on. Maybe so, but it is not mandatory and what we are suggesting is perfectly valid from the point of view of the administrator and the 1964 and 1983 Acts, that these funds which are new and different type of funds can be given to the administrator to help him to pay the debts of ICI.
We have the other consideration as to why we want the administrator kept away from the insurance compensation fund and we must repeat it ad nauseum. The insurance compensation fund has access to the Exchequer and if the £120 million runs out and no other money is available to that already dried up insurance compensation fund, what then will happen? Of course the administrator will go to the Government and the Minister for Finance of the day and ask them to put the insurance compensation fund in funds from the Exchequer, and we want to stop that happening. If the Minister is as good as his word and as good as the word of the Minister for Finance who told us solemnly yesterday that this new arrangement with the Central Bank would ensure that there would never be any recourse to the Exchequer, if he is prepared to follow through on that promise, then he must accept what we are saying. If he does not do so the administrator of the ICI will have access to the insurance compensation fund and at some time will have the possibility of going to the Exchequer. Our amendment has no disadvantages from the Minister's point of view. It does not, as the Minister tried to suggest earlier although he seems to be departing from that, mean that the administrator has no access to any funds, therefore the administration would have to stop. Plenty of ways can be devised to give him the Central Bank-generated funds and at the same time our amendment will ensure that he cannot at some future date go to the Exchequer. The thing is crystal clear. I ask the Minister to have another look at it and he will see the irrefutable logic of what we are saying.
(Dún Laoghaire): Under the present Act the Minister for Finance has power to put money into the insurance compensation fund, therefore he does not need to be cut off from having that power. He has it already. He can raise money at the moment——
In our amendment it is the Minister we are cutting off.
(Dún Laoghaire): The Minister for Finance under the present Act has the power to raise money and put it into the fund, so the Deputy's fears do not add up.
Is the Deputy asking me a question?
The Deputy will get an opportunity of answering.
(Dún Laoghaire): The fears that the Deputy has and that we all have are that a Minister of the day would raise money to put into this fund. He has the power to do it at the moment. We are concerned about where he is to get the money from and who is to pay it back. I do not see the logic.
Deputy Barrett is an intelligent man and he knows that we are not concerned that the Minister for Finance is putting money into the insurance compensation fund for the PMPA or any other insurance company. That is his entitlement at any moment and unfortunately he may have to do that. We are concerned with putting money into the insurance compensation fund for the ICI and we want to stop that happening but not by coming between the Minister for Finance and the fund as Deputy Barrett is suggesting. We want to come between the administrator and the fund so that the administrator will not be able to go to the fund and look for money which will then have to be put in by the Minister for Finance. Surely that is crystal clear.
(Dún Laoghaire): I know what the Deputy is trying to achieve.
Deputy Barrett has raised with me the question that the Minister for Finance already has power to put money into the insurance compensation fund. Of course he has and that is our worry. We are not worried about him putting it in for any other purpose but we are worried that he may put it in for this purpose and because the administrator has access to the insurance compensation fund for ICI purposes he therefore has access to the Minister for Finance, and that is what we want to stop. It is as simple as A B C.
Deputy Haughey at the beginning of his intervention asked if there was any statutory basis for AIB or the Central Bank lending money to the fund.
Not lending, providing. That is a different matter.
Each Deputy should make his contribution without interruption.
AIB do not need any statutory authority for anything they do in that area and it is agreed that the Central Bank has the authority to lend money. Equally the accountant of the High Court has the power to borrow money and the fund has the power to receive money borrowed for the fund under section 2(6) of the Insurance Act, 1964. That is the mechanism that will be used. Of course, the Central Bank can in lending money make such conditions as they wish including perhaps conditions which do not involve envisioning necessarily repayment of the money on any lending that it engaged in. I understand that that is the way in which the Central Bank proposes to make the money available on this occasion.
The problem I would have with Deputy Flynn's suggestion is that as it stands at the moment the administrator would not have access to the fund. If he did not have access to the fund there is no other statutory basis upon which money can be made available to him under the legislation under which he was appointed. He would have no money other than the ordinary money he is receiving in the course of business, a business which we know is insolvent. That gap has to be made up, maybe not this year because he may be able to continue trading with existing money, because in the insurance business you can have cash in hands while still being in severe financial difficulties. Looking to the future he does not have enough money in the course of normal business and he has to get it somewhere else. It must be remembered that this administrator has been appointed by the High Court under a particular law and we cannot say that he will be funded in a way other than that provided by the High Court in agreeing to this appointment. Deputy Haughey has invented some mechanism of paying money directly to the administrator other than through the funds not provided for.
It is not provided against.
The basis of the consent given by the High Court to my petition for the appointment to an administrator was that he would be funded in the way provided by law. If we were to change that, we would not be acting in accordance with the basis of the decision given by the High Court last Friday week to the appointment of an administrator and we would undermine the entire administration. I am sure that is not what Deputy Flynn wants but it is the effect that will inevitably flow from the amendment as he has drafted it.
Rubbish.
It is not something we can accept because it would jeopardise the rescue of ICI and that is not what we want to happen.
The Minister is slightly confused about what we are trying to achieve. We are not talking about borrowed moneys. The existing funding of the compensation fund is accommodated by borrowings, because it was accommodated that way in section 2(5)(d) of the 1964 Act which says that moneys can be borrowed by the fund. We do not want the fund to borrow any money to accommodate ICI. If the fund has to borrow money to accommodate PMPA or any other collapse or administration let it do so, but we are not talking about borrowed moneys. We are talking about moneys being provided by a Central Bank arrangement announced yesterday by the Minister for Finance. We say that money can be lodged anywhere and it can be made available to the administrator. Let us not forget that the legislation we are talking about was devised to accommodate an entirely different settlement to the one announced yesterday. Maybe it was relevant to the original settlement of the Minister, Deputy Bruton, in that the fund was the only vehicle that could be made available or provide for the payment of the debts. It was absolutely essential under that settlement that the fund could borrow money, otherwise how could it meet the debts of ICI? But then we had the dramatic turnabout where it is not borrowed moneys which will be made available to rescue ICI but cash put up by the Central Bank in collaboration with the institutions. That money is not the same as that normally provided in the 1964 Act to help the compensation fund; it is a sum of money which the Central Bank will have to give to the administrator. Of course the administrator has access to funds even at this time. He has his day-to-day funds and if he has surplus funds from his premia, he can have an investment income which he can lodge any place he likes. The Central Bank could utilise that arrangement to flow funds into the administrator to meet the liabilities as they come up. Why is the Minister of State, Deputy Barrett, talking about separate funds or separate accounts? We are not talking about that.
(Dún Laoghaire): Under the Deputy's scenario he may never have to borrow funds.
We hope the administrator will never have to call on the Central Bank fund but let us not talk poppycock. The Minister has said there are losses of at least £65 million. The excuse put forward by the Minister, Deputy Bruton, that the High Court check was an alternative to a good statutory basis makes no sense. We are not interested in the High Court check; we are interested in the Central Bank arrangement as announced here yesterday in providing a certain amount of money to meet the losses. Now that the Central Bank are getting in, we want them to stay there and if the £120 million they collect from the institutions to meet the demand is not enough, and if the figure reaches £250 million, £500 million or £1 billion, we want the Central Bank to be liable right down the line. If we do not get our way and the £120 million is surpassed, the Minister for Finance's commitment dies and the administrator will have to revert to the compensation fund. Then the Minister will have to allow borrowings which will have to be underwritten by the taxpayer. That means the taxpayer will be called on to fund ICI losses.
In order to guarantee the commitment given here yesterday, we are asking the Minister to allow the Central Bank fund to be channelled in to the administrator to meet his demands because there is no statutory base for the Central Bank to put funds into the compensation fund unless we allow the compensation fund to borrow. We are not talking about borrowed cash, we are talking about liquid cash being put forward by the Central Bank.
The position is very clear. The Central Bank are acting under section 47 of the Central Bank Act, 1971, which reads:
It shall be lawful for the bank, for the purposes of or through the general fund, to exercise and carry out, in addition to those functions specifically assigned to it by the Currency and Central Bank Acts, 1927 to 1971, powers and functions of a kind which, in accordance with normal banking practice, may be exercised and carried out by banks or bankers.
Essentially the Central Bank are lending money to the accountant of the High Court who is providing it, with the consent of the High Court, to the fund under section 2(6)(d) of the Insurance Act, 1964. The Central Bank are acting as banker in this instance. They are lending money on particularly advantageous terms in the sense that they are not, and will not, expect repayment of this money in the foreseeable future and will lend it on a virtually non-repayable basis.
Not a loan, but a grant.
That is a matter for the Central Bank. If the action by the Central Bank needs to be validated and if the 1971 Act needs to be amended in any way to provide statutory underpinning for what the Central Bank are doing, that will of course be done. There is no doubt in my mind that on the face of the legislation it is possible for the fund to receive money from the accountant of the High Court, which money the accountant has borrowed from whatever source he wishes, whether it be Allied Irish Banks or the Central Bank.
We are not arguing about that.
That is the mechanism being used in this instance. The consequence of the Fianna Fáil amendment in this case would be to prevent the administrator having any access to the fund which would cut the administrator off from the ankles up.
No, not cut him off from the fund.
The only source of funds available to the administrator by law under the terms of his appointment are set out in section 9 of the Insurance Act, 1983, which confines him to borrowing money from the fund. The money has to come through the fund under the terms of the legislation under which the administrator was appointed. Let me remind Deputies that this administrator was not appointed under an ad hoc arrangement. He was appointed under specific legislation, the Insurance Act, 1983. He must act within the terms of that legislation. As far as the funds are concerned they are not funds received in the normal course of business but are necessary to make good deficiencies which exist in the business. That money must come from the fund with the approval of the High Court. I am sure the Deputies opposite would not, on reflection, wish it to be otherwise. It is right that the administrator should only have access to funds in a controlled way. The control in this instance is as envisaged in the original legislation, which was passed without any difficulty in the House, the control of the High Court.
If one was to amend the legislation in the way Deputies Haughey and Flynn want and allow him to have access to funds borrowed in some other way the control of the High Court, which is an important guarantee that this administration will be carried out properly, would not exist in the way it is provided for under section 9 of the 1983 Act. As it is, there is no other way of borrowing money; but if we were to make the amendment it would have the undesirable consequence that it would not be subject to the control of the High Court as is envisaged in the legislation and as was envisaged by the High Court when they made their decision last Friday week. If we were to change the rules under which the administrator operates we would be changing the ground rules upon which the administrator was appointed by the High Court. It is not possible to do that without jeopardising the original appointment because we could be changing the rules upon which the judge made his decision originally.
The Central Bank did not come into the picture then.
What the Central Bank are doing as far as the fund is concerned, and as far as the judge is concerned, is providing money through the mechanism of section 2(6) (d) of the Insurance Act, 1964, of which the High Court judge was fully cognisant when he made his decision last Friday week.
No one knew until yesterday.
If we decided to provide the money by some other mechanism which would require new legislation to take account of Deputy Haughey's suggestion than we would be changing the ground rules upon which the administrator was appointed last week.
The Minister changed them.
No, we did not change them.
The Minister has basically changed them.
Not as far as the law is concerned. The legal mechanism being used to fund this administration are the same as those that existed at the time the decision was made. If we now introduce a method of funding this administration other than through the fund and in accordance with section 9 (3) of the Act, then we would be changing the basis upon which the judge made the decision regarding the appointment of the administrator and we would jeopardise the entire administration. I know Deputy Haughey has not the slightest wish to do that. Throughout this matter he has been as anxious as we have to see it dealt with smoothly. He may have had his arguments with us about various matters on this question but he wants it dealt with smoothly. The proposal he is now making by way of an implied substitute for the deficiencies in Deputy Flynn's amendment would undermine the administration and that is not something the House could conceive of doing, given all we have gone through to get this far to get it right.
To take the last point first, we are absolutely clear on what is involved in the amendment. The Minister has changed the ground rules since Friday, 15 March. When he went to the High Court he was stating to the High Court, and he stated in this House, that as a last resort there would be recourse to the Exchequer. It was on that basis he went to the High Court. He specifically stated yesterday that there would be no recourse to the Exchequer. In that regard — it is an important one — there has been a change in the ground rules by the Minister since he went to the High Court. He went to the High Court on a certain set of assumptions that various people would contribute to the rescue of ICI, including the possibility as a last resort of recourse to the Exchequer. That is fact.
Yesterday the Minister for Finance ruled out any recourse to the Exchequer. That significant change has been made in the basis on which the Minister went to the High Court.
The Minister refers to section 9 (3) of the 1983 Act and keeps talking about borrowing. That section deals with borrowing and the Minister's argument is that because these new arrangements deal with borrowing they come within the terms of section 9 of that Act, but we are not talking about borrowing now. The Minister for Finance in his statement made it clear yesterday that we are not talking about borrowing but the provision of free funds to pay the debts of ICI, not borrowed funds but free funds.
The Minister said that the Central Bank would indicate its willingness to provide sufficient funding. That is not loans or borrowings. The Central Bank, AIB and others will give money to the administrator of ICI to enable him to do his job as well as borrowed money. If it was only borrowed money it would be a totally different ball game. There would be no need for the Central Bank to go to its reserves, as we have been told, to meet this obligation. The money that is being provided now is grant money, funding money as indicted by the Minister for Finance yesterday, and it does not come within the borrowing terms the Minister is relying on so heavily. As they are new type of funds provided specifically for the purpose of meeting these losses by the banking system, they do not come within the terms of the 1983 Act and the Minister is entitled to set up any mechanism he likes to deal with them. The Minister went to great trouble to tell us how independent the Central Bank was in its operations. As it is the Central Bank which is providing these funds surely it can provide them to the administrator on any basis it likes.
There is another flaw in the Minister's argument when he talks about the supervision of the funds by the High Court. It is basically the administrator that the High Court supervises and what he does. It is not the control of funds that is important but the actions of the administrator. That will not be changed. We have proved conclusively, without any shadow of doubt, that what we are proposing is perfectly feasible. The Central Bank can make these new funds available to the administrator, apart altogether from the operation of the 1964 or the 1963 Acts or the insurance compensation fund. There is nothing to prevent them from doing so.
They are devising these funds afresh. They are not under any statutory provision. They are not under any insurance levy. They are a voluntary contribution by the Central Bank and the banking institutions to rescue this situation. There is no statutory basis for what they are doing. They are coming in in the interests of the financial community and the economy to provide funds free for a rescue operation. They are not in any way bound by the 1964 or the 1983 Acts. They have no obligation under those Acts. They are doing this out of their own compass and their own powers. They are free to give those funds in any way they wish.
We believe and have proved that they can give them to the administrator in a number of different ways which are all equally effective from his point of view. What he wants are the funds to pay the debts, and not where they come from or how he gets them. That being so, if we can prove that the Central Bank can give these funds to the administrator in different ways, legally and validly, and that would achieve their purposes and the Minister refuses to accept that, we can only come to the conclusion that he is not sincere in ruling out recourse to the Exchequer.
The Minister is bringing into doubt his sincerity in ruling out recourse to the Exchequer. If, without being compelled to do so, he leaves a situation that the administrator will have access to the insurance compensation fund, then he leaves the possibility of recourse by that administrator, through the insurance compensation fund, to the Exchequer. The very fact that he will not accept our amendment and cut the administrator off from the insurance compensation fund, and therefore from the Exchequer, means that he is still prepared to accept that the Exchequer will come in, to use his own words, "as a last resort" and become liable for the debts of ICI. If he is sincere he will accept our amendment.
We have proved to any reasonable person that there is absolutely no reason why this administrator has to receive these Central Bank funds indirectly through the insurance compensation fund. They can go straight to him. It seems to us that the only reason the Minister is insisting on keeping the whole thing within the confines of the insurance compensation fund is that he envisages ultimately down the line a recourse through that fund to the Exchequer. He does not want to cut that off, and that is why he will not accept our amendment cutting the administrator away altogether from the insurance compensation fund and making him operate entirely from the funds provided by the Central Bank. My case rests.
The case was very well put, even though it is not a good one. I want to give Deputy Haughey this assurance and he can accept it or not. He seemed to indicate that he would not. I will give it to him.
I will not say anything about buying a second hand motor car.
I have two at home, one of which I could sell.
Are they insured?
Yes. I assure Deputy Haughey that the reason I am taking this course of action is not the one he fears. I am not using this mechanism as a means of leaving the door open to Exchequer funding of this administration. That is not the reason why this is being done. This course is being followed because it is the only available, legal, adequately controlled course available for funding the administration. We are using the existing legislative machinery which is provided for in section 9 of the 1983 Act for funding an administration. Let us be quite clear. This legislation was drafted before any decision was made by the Central Bank. It was drafted with a view to making the money paid into the administrator subject to the proper controls which are contained in the 1983 Act which involve the High Court.
If I may say so, in a sense Deputy Flynn was using this amendment as a device to raise another point. While that other point is a genuine one, and one which he is right to be concerned about, the fact is (a) given the assurance that we are not doing it this way for the purpose of providing access to the Exchequer and (b) a consequence completed unintended I know of Deputy Flynn's amendment would, as I see it under existing legislation, be that the administration would not have available to it the funds it needs from the two sources from which that funding is to be provided. Take the AIB money. That is borrowed money. It must be repaid. The only basis upon which the fund can accept borrowed money is with the approval of the High Court. Therefore, these controls here are necessary.
Earlier the Minister said the Central Bank would lend money to the High Court——
To the accountant of the High Court.
——to the accountant of the High Court which will pass on to the fund. It is almost incredible that the Minister might even suggest that. In effect what he is saying is directly contradictory to what the Minister for Finance said yesterday.
No.
The Minister for Finance said nothing at all about the Central Bank lending money to the High Court. He put it in as blunt terms as he could. He said that under an arrangement with the banking and financial institutions he was provided sufficient funding. That means he was providing moneys which had been accumulated through an arrangement with the institutions, that they were giving it, not lending it. How can the Minister say the Central Bank are lending money? That does not stand up.
What would be the result if our amendment were carried? The administrator could not go to the compensation fund for any money whatsoever now or in the future. He would have to depend on moneys from another source. If he had to depend on money from another source other than for his ordinary day to day running expenses which he is getting from his premiums he would have to get it on the promise made by the Minister for Finance. The Minister for Finance told us that the Central Bank would provide the funding. What problem has the Minister about the lack of capacity of the administrator to get any cash he may need? Did the Central Bank not say they would give it to him? I have to interpret what the Minister is saying as some lack of faith in the Central Bank to honour their commitment to the House. If the Minister does not give us this amendment, I have to interpret that to mean that he expects the Central Bank to jib, and that if the £120 million is reached the Central Bank are not going to provide any more? If you take our point and refuse the administrator any cash from the fund, you throw him back on the commitment of the Central Bank and commit the Central Bank to honouring their agreement. If you do not, the wise thing for the Central Bank to do is, if they have to put up more than £120 million, to forget about it after that and say that they have honoured their commitment. Then the administrator comes back into a borrowing situation from the fund.
The Minister for Finance will then have to put up that money by way of borrowed funds. That means the taxpayer — the one person that we all agree should not be in any way liable to meet the losses of ICI — will be, unfortunately, back in. It is our guarantee that the commitment given in the Minister for Finance's speech yesterday will be honoured. It is also — and perhaps more importantly — our guarantee that the Central Bank will honour their commitment to provide complete funding to cater for any losses that might take place. We say that you have no statutory base to get this money from the Central Bank in the way that you have said. The Central Bank have their own funds and their own accounts and it is not true to say that they will be lending to the High Court. That is not the way it is intended and that is not the way it was referred to by the Minister for Finance.
In actual fact, what was proper and right the Minister did under his original assessment of the situation and his original solution, but it was obvious at that stage that in some shape or form the Exchequer and the taxpayer would have to come as a final resolve to meet the deficit. However, the situation has changed dramatically. The Central Bank are now providing the funding. We say, without any difficulty whatsoever, that any mechanism the Minister likes he can bring in. I say, on behalf of the leader of my party, that we will accommodate readily any mechanism that he likes for the direct payments to be made from the Central Fund to the administrator. We are not going to hold the Government up in that regard. All we are asking is that the Minister accept the bona fides of our argument that once you allow access from the administrator to the fund, then you leave an open door that must eventually and inevitably lead to a breakdown of the guarantee given here yesterday. We must press this point with the Minister. I believe the Minister recognises that what he was doing originally was necessary to accommodate his own solution, but I know that he feels in his heart there is no need to doubt the good faith of the Central Bank to meet their commitments. If that is so, then leave the administrator without any funding from the compensation fund.
You could not do that.
He does not have to have it. The Minister for Finance says that he will not want to do it, so why give him an authority that the Minister for Finance said yesterday will not be necessary? It will not be necessary for him to have that money because the Central Bank will be providing it for him, not by way of borrowed funds — which is the only way of accommodating under the 1964 Act — but by way of direct funding by the Central Bank. We must ask the Minister to concede the point to us.
Just one point. The Minister is refusing to accept our argument and is saying that the administrator must go the insurance compensation fund. Will he at least admit this if nothing else: if the administrator has the right to go to the insurance compensation fund, that does open the possibility of access to the Exchequer and the taxpayer? Leaving aside all the arguments that he is making, with which we disagree, that the administrator must go to the insurance compensation fund, is he prepared to admit that that does open the possibility — whether it is ever availed of or not — that the administrator can go to the Exchequer for funds? Will he at least have the honesty to admit that it does leave that door open? If it does so, will he give this House an assurance that the administrator will never avail of that door through the fund to the Exchequer?
The position is that, as the Deputy knows, under section 5 of the Insurance Act 1964, it is open to the Exchequer to make advances to the insurance compensation fund.
Will the Minister give me the assurance now?
Will the Deputy let me put it in my own way? It is not the intention that this administration should have any need or occasion to avail of funds provided under section 5. We have already set in place, through the advances made by Allied Irish Banks and more recently as a result of a decision of the Central Bank, to make available money arrangements which will cover the situation adequately, if — as we expect it is — it is within the dimensions which I outlined in my speech, which is a range of losses of between £50 million and £120 million.
Deputy Flynn asked another question. He questioned whether it was statutorily possible for what we are doing to be done. The position is that the money coming in from the Central Bank is technically coming in as borrowing because the Central Bank are a bank and banks technically may only lend money. They do not have authority to give it away.
They do give it away, for sporting prizes and sponsorships.
Well, they do give it away in the end part of the time, but the relevant mechanism that is being used is that it is technically borrowing, but it is borrowing that it is not envisaged by the lender — in this case the Central Bank — will fall to be repaid.
Would there by an agreement to that effect?
For the purposes of compliance with the terms of section 2(6)(d) it will come to the fund via the accountant as borrowing, but in practical terms it is not the intention that this borrowing be repaid.
So the Minister has to maintain the fiction, even to support his own case.
That essentially is a matter for the Central Bank. It is for the Central Bank to decide the terms, if any, upon which they want the loan which they are giving to be repaid. It is a matter for them, having made this decision. What we have in place is one mechanism, and one mechanism only, for the receipt of funds of this kind into the administration and that is via the fund with the approval of the High Court, subject to section 9 of the 1983 Act and section 2 of the 1964 Act. We are not doing anything sinister. We are using the existing legal mechanisms that have been there since 1983 and for part of the case since 1964 to fund this administration.
To do what Deputies Haughey and Flynn would want us to do would require, in my view, the setting up of a whole new set of mechanisms without any of the controls that prudently have been provided by this and a previous Dáil on the receipt of money by an administrator. Deputy Haughey, if I may say so, is trying to import an ex post facto sinister motive into the provisions of a Bill that were drafted before the Central Bank made their decision, to imply that somehow the Government are not accepting the terms of the decision of the Central Bank. Of course, we are accepting those terms, but we are using the existing mechanisms to avail of the money that the Central Bank have decided to make available.
And leaving the Exchequer door open.
Essentially it is a reasonable course of action. To do what Deputy Haughey wants would require a new provision because all administrations at present must be conducted under the 1983 Act, which is subject to the 1964 Act and which, as Deputy Haughey rightly says, ultimately gives this technical possibility of access to advances from the Minister. I have told Deputy Haughey in response to one of his earlier interventions that it was not the intention of the Government that recourse to the Exchequer would be availed of in this case. It will not be necessary because it is out confident belief that the funding mechanisms already put in place will be more than adequate to deal with the problem without any access to the Exchequer. I would have to say that Deputy Haughey is engaging in a form of casuistry almost——
I do not understand that word; it is too big. If it means I am talking sense, I agree with the Minister.
It means that the Deputy is being Jesuitical in his approach to the problem, which I know would be most uncharacteristic.
I am a Christian Brother's boy.
Deputy Haughey is importing needless suspicions. I devoted my entire Second Stage reply yesterday to dealing with Deputy Flynn's excellent speech and I have no intention of ignoring him on this occasion either.
The assurance I have given should be sufficient for Deputy Haughey because we have the mechanisms in place to deal with the problem. There is no need to avail of the Exchequer in this case, although technically the possibility does exist under the funding mechanism. It is not the intention that it should be used because we have more than adequate funding mechanisms available without any recourse to the Exchequer to deal with this problem. They are the provisions by the AIB of a loan and the provision of funds by the Central Bank. Those two funding mechanisms are more than adequate—if the problem is within the parameters, as we expect and as I described in my speech — to deal with it without any recourse to the Exchequer. Deputies Haughey and Flynn are raising needless alarms about a situation where no such alarm is called for.
I might put to the Minister something he said about an hour and a half ago when I questioned him about the £20 million being made available by AIB and which would be deposited with the Central Bank. I was establishing how the money would be used, how much would be repaid and when, and the question of interest and the possibility of that interest escalating to the stage where it would be in excess of the £20 million itself. The Minister told me that the money that might have to be met to meet any guarantee would come from the £20 million and that that would reduce the repayment to AIB. The Minister said that the interest would go into the compensation fund. I put down a marker at that time and now I want to take the Minister up on it. The interest from the money that will be lodged, in whatever bank, will, the Minister says, go to the compensation fund——
Wherever the money is at the time.
——and that that will not be borrowed money. If the Minister has found a vehicle to channel the interest so that the £20 million loan on deposit with the Central Bank will go into the compensation fund why does the Minister not use the same vehicle to put in the Central Bank money?
Did the Minister say the £20 million was going into the Central Bank or into——
He said it was going to be lodged.
The Central Bank first, then the compensation fund.
He did not say whether that money might subsequently be redeposited with the AIB.
Is the £20 million going into the compensation fund?
It will go through the compensation fund to the administrator.
The Minister did not say that earlier.
I did.
The Minister said that the £20 million would be deposited with the Central Bank——
Initially.
——and that they could deposit it any place they liked at best preferential rates to make as much interest as it could——
That tears the whole case.
That interest would be brought into the compensation fund by what mechanism I do not know. But I want the same mechanism applied to allow the Central Bank money to be put in to feed the administrator whatever he needs. It does not have to go to the compensation fund; it can go direct.
It would appear from the Financial Times of Wednesday, since these new arrangements are now being talked about, that the money being talked about according to some very credible estimators, could be — and I stress “could be”— an awful lot higher than the £120 million stated by the Minister on Wednesday last. It would appear now that re-insurers are already taking steps to have contracts cancelled. Is this not the kernel of the problem, that if some of these contracts of the re-insurers are cancelled then there will be repudiations, with total risk reverting to the insurer, namely, ICI? If that is the case then there is the direct and distinct possibility of the £120 million figure mentioned by the Minister being surpassed. If that is the case, then the Central Bank also has the option of saying: “We have reached the limit of our commitment. It is now up to the compensation fund to take up the slack”, and the only way the compensation fund can take up the slack is by Exchequer funding, when our fears will have been realised. That is why we are asking the Minister to guarantee the commitment of his colleague, to guarantee the ongoing commitment of the Central Bank, and to please find another formula.
Deputy Flynn raised an interesting point. If the £20 million in question is in the hands of the administrator there is no problem, he gets the interest on it, and we expect that it will be passed quite quickly into the hands of the administrator.
The Minister is taking too different stances on this. A moment ago the Minister said everything had to go into the compensation fund.
It has to go through the compensation fund.
The Minister said "into".
"Into" with a view to going out of — it goes through the compensation fund on its way to the administrator. The bulk of any interest that will be earned on this £20 million will be earned while in the hands of the administrator so that there is no problem, that money will be available. In the case of any interest earned on this £20 million while in the fund, that interest will be in the fund but of course it will be available to the administrator to apply for it from the fund. When he is applying for the borrowed funds he can also apply for any interest that may have accrued on them.
It will be on deposit with the Central Bank, that is what the speech says.
While the fund has it in its possession. Prior to that it will be on deposit with the Central Bank, on its way to the fund, on its way to the administrator. That is the way it works under the law.
The Minister does not have to once it is on deposit.
That is the way it will work. It will go through those three stages on its way to the administrator. In the case of the Central Bank, if they have it on deposit for a while presumably they can invest it and they are in a position to keep the interest they receive on the £20 million, or they can pass it on through the other mechanism that they have now established directly to the administrator via the fund.
Therefore there is no difficulty at all in administering the situation under existing legislation. There is no need for any novel provisions such as Deputies Haughey and Flynn might like to create in this instance. The existing provisions are perfectly adequate to fund the administration in accordance with the law, with the terms envisaged for the control of the administration at the time that the High Court appointed the administrator. Any attempt to create novel methods of funding the administration that do not go through the legal channels envisaged by the High Court at the time of the appointment of the administrator in my view would jeopardise the administration. It could be argued it was changing the terms of the decision of the High Court by creating new funding mechanisms of which the judge had no cognisance when he took his original decision. I do not think we should do that in this House.
Neither do I think we should accept Deputy Flynn's amendment. As I pointed out, that amendment would cut the administration off at the ankles by preventing it having access to funds by the method envisaged whereby it would receive this money by statute under the 1983 Act. I know that is not what Deputy Flynn, Deputy Haughey or any of their colleagues over there would wish.
(Interruptions.)
I think the financial expert behind the Minister wishes to say something.
I think Deputy Haughey would make a grave error if he underestimated Deputy Carey. He won a seat for our party in a constituency where it was extremely difficult to win it and he is a man with a great future. He deprived Deputy Haughey and his party of a seat they had been warming for somebody else for quite some time and, unlike the administrator, they will not have access to it for a long time in the future.
Deputy Madeleine Taylor does not think that.
In view of the long discussion we have had this afternoon, does the Minister not think that the contributions of Deputy Haughey and Deputy Flynn have been alarmist and totally political in content? Is he aware that this amendment would in the long run force the taxpayers to pay for any shortfall they are calculating?
Amendment put and declared lost.
Question proposed: "That section 16 stand part of the Bill."
We have already referred to one important aspect and I wish to raise it again on the section. I refer to the question of the funds that will be provided by the Central Bank and the question as to whether these funds and their provision will have any effect on the annual surplus of the Central Bank and, therefore, the amount the Exchequer receives annually from the Central Bank. As yet we have had very little information about the way in which the Central Bank propose to implement the decision announced by the Minister for Finance on their behalf.
I give credit to the Minister here for his honesty in admitting that the arrangements he is proposing in the Bill, and which he refused to amend at our request, leave open the possibility, although he said it was not the intention that it should be availed of, of the administrator of the ICI having access to Exchequer funds. The Minister had the good grace to admit that that possibility is there, that technically it is now possible for the administrator to go to the insurance compensation fund and from there to the Exchequer and get funds at the expense of the taxpayers.
I wish to know if as a result of this decision by the Central Bank there will be some further loss to the taxpayers? Each year the Exchequer gets the surplus made by the Central Bank on their operations. In effect it is handed over to the Exchequer for the benefit of the taxpayers. Will this new arrangement in any way affect the future size of that surplus? Will it diminish it in any way? If it is diminished in any way, indirectly the taxpayers will be contributing to the solution of the ICI affair.
The Minister will agree this is a very important matter. I should be grateful if he would explain to the House the exact implications from the point of view of the Central Bank, apart from the other institutions involved, in regard to the surplus and the effect on that surplus of the decision announced yesterday.
We discussed that with the Central Bank when their people came to see us and tell us about the decision taken. We were informed by them that this would not affect the normal payment of their surplus by the Central Bank to the Exchequer because they are not drawing from the fund from which the surplus is paid. They are drawing from what they describe as their reserve. This is available for purposes other than normal operations, essentially for the protection of the currency.
It is important to point that this draw on the reserve of the Central Bank is not the only mechanism to be used. In fact, it may not necessarily be used because, as the Minister for Finance said in his statement, "The Central Bank will be discussing with Allied Irish Banks and the other licensed banks the appropriate form and apportionment of this funding". It is possible, or even probable, that they may get the money they need from the banks without having recourse to their reserves. However, the combination of sources from which the money will be provided will be the special reserve of the Central Bank and the licensed banks but they will not be drawing from the normal surplus on their ongoing operations out of which the surplus is paid to the Government.
I thank the Minister for that explanation which is reasonably satisfactory as far as it goes. This is a very sensitive area and, being prudent people, we do not want to delve too deeply into the mysteries of the recesses of the Central Bank and their reserves. The whole financial structure of the State is involved there. Nevertheless, I am taking it from what the Minister has said that the surplus available from the Central Bank to the Exchequer in the normal way will not be affected by any contribution they make to the rescue operation of the ICI. While I appreciate the Minister may not wish to answer, the question I ask is if there was any limit placed on the contribution that the Central Bank might make ultimately? We are talking in terms of £120 million but other figures have been bandied around. We do not know the exact position. Did the Central Bank indicate any limit on the amount it will make available? Is that limit at £120 million or is a further amount envisaged should that be necessary? I am prepared to accept it and not to press the Minister on it if these discussions are confidential, but it would be helpful to everybody if we knew the exact limits on the contribution by the Central Bank. That could be given separately, or alternatively we could be told of the likely total contribution to be made by the Central Bank and the other banking institutions.
I am putting the question.
I have just one further question. I asked the Minister earlier about making documentation available to the House and he did not deal with that at all.
The Minister may add a few sentences, but then I must put the question.
The Deputy can look at what the Minister for Finance said about the provision of funds by the Central Bank which were within the dimension of the problem indicated by me in my speech, which is £50 million to £120 million. As to the documents concerned, I understand that those documents are considered to be of a confidential nature. I understand that the Deputy made the request privately which he has now made publicly. I will pursue the request further to see if the documentation can be made available. It is not within my power to give the assurance as the correspondence did not concern my Department in the first instance. I will pursue the matter further and, if it is possible or prudent, the information will be made available to the Deputy.
I have a question. Who owns the reserves?
In accordance with an order of the House made this morning——
Is it not the taxpayer?
(Interruptions.)
In accordance with an order of the House made this morning I am going to put the question, that the Bill, as amended, is hereby agreed to in Committee and, as amended, is reported to the House and Fourth Stage is hereby completed, and the Bill is hereby passed.
Question put and declared carried.
As this is the last sitting day before the Easter recess, I wish Deputies a pleasant, peaceful and happy Easter and hope that they will come back refreshed and, above all, in good humour.
The Dáil adjourned at 4.05 p.m. until 2.30 p.m. on Tuesday, 23 April 1985.