I move:
That a supplementary sum not exceeding £1,000 be granted to defray the charge which will come in course of payment during the year ending on the 31st day of December, 1988, for the salaries and expenses of the Office of the Minister for Industry and Commerce, including certain services administered by that Office, and for payment of certain loans, subsidies, grants and grants-in-aid.
On 26 May I announced that Kilkenny Design Workshops will be making arrangements for the sale of their shops in Dublin and Kilkenny as going concerns and that their remaining activities would be rationalised. The factor giving rise to this Supplementary Estimate is the need to provide funds to Kilkenny Design Workshops to enable trading to continue until the shops are sold and other rationalisation measures implemented.
Kilkenny Design Workshops were established by CTT in 1963 to provide a design resource for the improvement of industrial design in Ireland but in 1974 the direct link with CTT was ended and Kilkenny Design Workshops came under the direct control of the Minister for Industry and Commerce.
During the seventies Kilkenny Design Workshops were largely dependent on State assistance by way of annual grant in aid to support their activities but in the early eighties the move to achieve full commerciality by the early nineties began.
To facilitate this Kilkenny Design Workshops were provided with a proper capital structure in 1982. The Kilkenny Design Workships Act passed by the Oireachtas in December 1982, set the authorised share capital of the company at £1 million of which £500,000 was put into the company before the end of that year.
The company then achieved surpluses on its overall activities in 1983 and 1984 with profits from its retail shops amounting to £11,000 in 1984. At the same time income from design services was meeting 50 per cent to 60 per cent of expenditure in that area compared with 32 per cent in 1979. In fact, in 1985 income from design services made up 88 per cent of the expenditure incurred in that activity. In mid-1985 the board of Kilkenny Design Workshops presented a commercialisation programme to the Minister which was agreed at that time.
This programme envisaged that in the period 1984 to 1987 the design practice would be developed and become self-supporting while growing profits from the design shops would facilitate new product developments and the provision of market information to manufacturers. The grant-aid would be concentrated in fulfilling Kilkenny Design Workshops primary responsibility for design promotion.
In the period 1988 to 1990 the programme envisaged that Kilkenny Design Workshops would move towards total commerciality when profits on design and retail activities would be sufficient to replace grant-in-aid. In line with that plan further capital of £262,000 was put into the company at the end of 1985.
For some time past Kilkenny Design Workshops had been considering opening a Kilkenny shop in London and after detailed research including a consultancy study which indicated good commercial prospects the decision by the board of Kilkenny Design Workshops to open the shop at London was taken in mid-1985. Arrangements were finalised in May 1986 and the shop commenced business in November 1986.
In March 1987 a further capital injection of £225,000 was provided to the company, bringing to £987,000 the total capital injection since December 1982. This was in addition to the annual grant-in-aid payable each year which amounted to a a total of over £3 million in the four years 1983 to 1986.
In January 1987 the then Government had approved the phasing out of Exchequer grant-in-aid to Kilkenny Design Workshops over three years commencing in 1988. In autumn 1987 when deciding the Estimates for 1988 the Government decided to implement this in three stages and the allocation for 1988 was fixed at £536,000, a reduction of £178,000 over the £714,000 which had been allocated in 1987.
This decision reflected the realities of the budgetary situation facing the Government and the options available to them. There was simply no justification for continuing high levels of State support for Commercial activities and services which were becoming increasingly available from the private sector at no cost to the State.
It is now clear that the Kilkenny Design Workshops commercialisation plan has failed. In 1986, despite the provision of grant-in-aid of £740,000, the company had a deficit of £376,000 largely due to losses on retail trading in Ireland. The final deficit for 1987 is expected to be even larger than this due primarily to losses incurred in the London retail operation. In addition, start-up expenses incurred in London will have to be written off following the closure of the shop at Ireland House in London.
The deterioration in the financial situation of Kilkenny Design Workshops which was becoming evident towards the end of 1987 was a matter of great concern to me. Kilkenny Design Workshops is a properly constituted company with its own share capital and responsibility for its operations and commercial decisions rest with its board.
During 1987 Kilkenny Design Workshops had implemented some 29 redundancies and there was some optimism that the cost savings arising from these redundancies which was estimated at £270,000 yearly together with greater operational efficiencies could lead to an upturn.
The grant-in-aid allocation for the whole of 1988 was £536,000 and this had to be paid to the company over the first three months of that year to enable settlement of pressing creditor claims. By April 1988 it was clear that the company's financial situation was such that more radical measures were necessary and the Government asked the board of Kilkenny Design Workshops to present its rationalisation proposals. The Government have accepted the following proposals: the closure of the London shop which has now been completed; the sale of the shops at Dublin and Kilkenny as going concerns; the sale and disposal of other assets, including properties in Kilkenny.
Arising from the losses incurred over the past two years Kilkenny Design Workshops has accumulated substantial trading and other debts as well as very substantial liabilities in respect of bank borrowings. None of these debts are guaranteed by the State and it would not be normal practice for any shareholder to give guarantees for trading debts incurred by a properly constituted company.
Kilkenny Design Workshops also has substantial assets both in property and business, including trading assets and stocks. It is not the policy of the Government to provide continuing support for loss-making commercial enterprises and Kilkenny Design Workshops must follow the only commercial way open to companies in its situation which is the disposal of assets to pay its creditors.
The Government are very conscious of the very many small companies and craft enterprises which are owed moneys by Kilkenny Design Workshops and are anxious to safeguard their position as far as they can. If Kilkenny Design Workshops were to be forced into liquidation, which might involve premature disposal of assets, its losses could be quite large. It is, therefore, essential that Kilkenny Design Workshops be afforded sufficient leeway to dispose of its assets in an orderly way so as to maximise realisations and come to satisfactory arrangements with its creditors.
The Government, with this in mind, have agreed to make Exchequer funding to the extent of £250,000 available to enable Kilkenny Design Workshops to continue trading pending sale of its assets provided that its creditors permit it to do so. The Government recognise the importance of the Kilkenny shops as outlets for high quality, well designed craft goods. These shops are understood to be trading profitably and the Government are anxious that they can, under new management, continue to provide profitable outlets for such goods.
Mr. Michael McNulty of Ernst and Whinney, Chartered Accountants, has been appointed as acting chief executive to assist the board of the company in carrying through its rationalisation measures. In these circumstances, the question of arrangements with creditors as to the timing of payment of outstanding debts will continue to be a matter for the management of Kilkenny Design Workshops.
Currently there are 85 persons employed by Kilkenny Design Workshops of which 56 are engaged in retail activities and 13 in design. The board and management of Kilkenny Design Workshops will have to look at the question of staff levels in the light of the prospective sale of the shops. I have taken up with the Minister for Finance the question of whether compensation will be available under the Government redundancy scheme for any redundancies arising.
As I indicated in my statement on 26 May 1988, the Government have decided that the design function, particularly the promotion of good design in crafts and industry, should continue and that the craft centre in Kilkenny city should be retained. The optimum structure for this will need some further examination and suitable arrangements for this will be made in the course of the restructuring of Kilkenny Design Workshops.
The effect of the Supplementary Estimates will be to increase the Kilkenny Design Workshops allocation for 1988 from £536,000 to £786,000. While the additional amount now required for Kilkenny Design Workshops is £250,000 this has been offset by a projected increase of £249,000 in appropriations-in-aid.
