The level of activity in Fóir Teoranta had tapered off considerably in recent years, reflecting the improved outlook for industry, from a peak of about £23 million in disbursements in 1983 to about £7 million in 1988. The number of applications received, cases approved and the average size of cases approved has also substantially reduced.
In line with the fall off in demand for their services and the virtual disappearance of large cases, together with buoyant own resources, Fóir Teoranta's requirement for Exchequer funding also declined in recent years. The last occasion on which the company needed to call on the Exchequer was in 1987. Since then, they have financed their operations from on-going income from their investments by way of interest and capital repayments including a considerable element of pre-payments, and share realisations. In fact, during the winding down phase, Fóir Teoranta have repaid a total of £8.2 million of Exchequer advances — £4 million in 1989 and £4.2 million so far this year. The company have been closed for new business since 23 February 1989.
Since Fóir Teoranta were a lender of last resort, it is not all that surprising that a high degree of failure took place among their client firms. However, the failure rate experienced by Fóir Teoranta involved very considerable cost to the Exchequer. The failure rate may be measured by the fact that some £75 million of the Exchequer advances of £87.5 million currently outstanding, in effect, has already been written-off by the company as irrecoverable.
The level of write-off in Fóir Teoranta reflects the fact that many firms assisted failed, despite the assistance given by Fóir Teoranta. Many of those firms left it far too late to go to Fóir Teoranta for assistance in the first instance. Nevertheless, where assistance was given in such cases, the damage had already been done and the firms eventually went to the wall anyway. While there may be economic benefit in keeping jobs in existence longer rather than being lost at the outset, the prospect for long-term sustainable employment may be better if firms are transferred to new owners quickly in the receivership/liquidation process than if they are kept in existence, with Fóir Teoranta assistance, but with existing high levels of indebtedness and generally poor management, as well as other weaknesses.
The recent takeover of the Irish companies in the Sunbeam group is an example of the fact that companies can survive and jobs can be saved, without the need for a State rescue agency such as Fóir Teoranta. I would like to pay tribute to the role played by the industrial development agencies — the IDA and SFADCo — in bringing this takeover about. I also look to the examiner provisions of the Companies (No. 2) Bill, 1987 to play a very important and positive role in the area of company reconstructions in the future.
This is the background against which the Government considered the future of Fóir Teoranta. Their decision that Fóir Teoranta should be wound up, as indicated in the announcement I made on 22 February 1989, was based on the following: the low level of demand for Fóir Teoranta's services over the recent past; the very much changed industrial environment, as a result of the firm action taken by this Government and the previous one, as compared with when Fóir Teoranta were established; the provision in the current Companies Bill allowing for the appointment by the Courts of an Examiner in order to prevent a potentially viable company from going into immediate liquidation and the need to prepare Irish industry to be ready to meet the challenges of the more competitive regime which will apply when the Internal Market is in place after 1992.
The decline in demand for Fóir Teoranta's services was due to a number of factors — the new climate of confidence in the economy and the favourable environment for industry were obviously major influencing factors. Another important consideration was the fact that finance for industry is now available on a much wider scale than ever before from private sector individual and institutional sources. Individual investors have the powerful advantage of State-backed tax schemes such as the business expansion scheme. The BES now has funds of over £100 million invested. Clearly it has been a substantial source of equity funding for Irish business which in the past has been too heavily dependent on debt finance.
Venture capital funds also exist on a significant scale, with an important role in this regard being played by public sector agencies such as NADCorp and the investment arm of the Industrial Credit Corporation. Given these developments, it was inevitable that — leaving aside the improvements in the economy generally — demand for Fóir Teoranta services would be considerably lessened and the need for such an organisation diminished.
The provision in the current Companies Bill allowing for the appointment by the courts of an examiner to companies in financial difficulty is modelled on the similar Chapter II process in the
United States. The aim is to prevent a potentially viable company from going into immediate liquidation. This approach is one which was advocated by Fóir Teoranta for some time. It allows for a stay on the rights of creditors while the examiner attempts a reconstruction of the company's finances.
One of my objectives in preparing the Bill was to provide a new procedure which would help to obviate the need for a separate State company to deal with industrial rescue. There will be ample scope under the new procedures for genuinely viable firms to stave off closure if they are threatened by merely short term financial difficulties. The Bill is at present before a Special Committee of the House and, while progress in its enactment has been slow due to its complexity and importance, I would hope that it will be enacted before the end of the year.
The industrial environment now is very much changed from that which existed when Fóir Teoranta were established 18 years ago and during their main periods of business. Business confidence has never been greater. I believe that State intervention such as that provided by Fóir Teoranta has no place in this environment. Despite recent increases, interest rates and inflation are at lower rates than those that exist in many of our competitor economies. The Confederation of Irish Industry is on record as stating that industry in Ireland would "prefer to have a competitive cost environment than seek to compensate for deficiencies in the environment through cash grants" etc., from the State. Clearly, we are living in an environment much more conducive to getting industry back on its feet and achieving increased long-term industrial employment. The best action which the Government can take in relation to the survival of firms is to contribute as much as possible to lowering the input costs of industry, rather than giving them hand outs when it is probably too late anyway to save them.
To sum up, the Government took their decision in relation to Fóir Teoranta in the light of prevailing circumstances. The Government's view is that with the other sources of finance available for investment in industry and with the economy in good condition, there should be little if any adverse impact on employment as a result of the closure of Fóir Teoranta. As regards the view that a need may arise in the future for the State to be actively involved in industrial rescue should economic conditions deteriorate, it has to be made clear that the days of feather-bedding Irish industry are over. Irish industry must be able to compete in the marketplace and, in an intensive effort to ensure that this will be the case in the post-1992 situation, the Government are already devoting greater resources to industry in the context of the EC Structural Funds over the next few years. Expenditure supported by the Structural Funds will be over £1 billion over the five-year period to 1993. There is, therefore, no lessening in the level of resources being devoted to industry. It is the purpose for which those resources are used which is important and we will be ensuring that the funds involved are put to best effect in order to secure good solid progress in attaining the employment targets set out in the Programme for National Recovery.
There will be an orderly winding down over time of Fóir Teoranta's portfolio of loans and investments which, under the terms of the legislation now before the House, will be assigned to the Industrial Credit Corporation to administer. The Exchequer's investment in the client firms concerned will be looked after by the ICC in accordance with the contractual arrangements entered into by those firms with Fóir Teoranta. It is not possible to say how long the winding down process will take. However, I would expect it will probably take of the order of five to seven years, but it could be longer in particular instances.
In relation to the ICC, my recent public statement that I am proposing to employ consultants to advise me on the options available in relation to the future development and capital requirements of the company has no direct effect on the arrangements being established under this Bill. Whatever the outcome of the consultants' report in due course, and the Government's decisions in relation to it, I envisage that the ICC will continue to administer the Fóir Teoranta portfolio on the basis now being established. Deputies will be aware that a Bill has been circulated to allow an increase in the State guaranteed borrowing limit of the ICC. That Bill is a normal ongoing adjustment in its borrowing limit and has nothing to do with this Bill. The increased borrowing limit is necessary to enable the ICC's on-going activities to proceed without interruption.
As regards the staff of Fóir Teoranta, I am pleased to report that most of the staff have now either been redeployed to other parts of the public service, or have taken early retirement on terms similar to those available under the general public service early retirement scheme. Efforts are continuing to redeploy the small number of staff who are left who have opted for redeployment. Some temporary staff have been taken on so as to ensure that the winding down process proceeds smoothly and the the Exchequer investment is protected.
Before dealing with the specific provisions of the Bill, I would like once again to express publicly my appreciation — and that of the Government — of the work done by Fóir Teoranta since their establishment. I wish to pay tribute to the hard work, commitment and dedication of the staff, management and directors of the company over the years.
I will now deal with the individual sections of the Bill. First of all, I should point out that the provisions of the Bill will come into effect on a day to be appointed by ministerial order. Section 1 is a definitional section. Section 2 dissolves Fóir Teoranta. Section 3 transfers all of the assets and liabilities of Fóir Teoranta to the Industrial Credit Corporation save for a sum of £75 million of Exchequer advances which is being written off. This amount has already been written off in the books of Fóir Teoranta as being irrecoverable. It is important to emphasise that, apart from about £10 million written off in 1983, this £75 million represents losses incurred by Fóir Teoranta over the full 18 years of their existence. The balance of the outstanding Exchequer advances, which is about £12.5 million, will be transferred to the ICC.
Money received by the ICC in respect of the assets of Fóir Teoranta, mainly their portfolio of loans and equity investments will, under subsection (4) of this section, be paid to the Exchequer.
Subsection (5) allows the Minister to pay to the ICC a fee in respect of their management of the assets and liabilities transferred to them. Section 4 provides for the preservation of existing contracts of Fóir Teoranta and their transfer to the ICC. Section 5 provides that the ICC will be substituted for Fóir Teoranta where the latter are a party to legal proceedings immediately before the commencement of the Act. Section 6 exempts the transfers involved under these provisions from the imposition of stamp duty. Section 7 deals with the final accounts of Fóir Teoranta which will be prepared by the ICC and submitted to the Minister who will present them to both Houses of the Oireachtas. The section also requires the corporation to keep all proper and usual accounts in relation to the assets and liabilities transferred to them and to present them to the Minister who will submit them to both Houses of the Oireachtas. Section 8 provides that the ICC shall present a report of their activities in relation to the assets and liabilities transferred to them to the Minister who will present it to both Houses of the Oireachtas.
In regard to section 9, subsection (1) provides that the Minister may make advances not exceeding £2 million to the corporation in respect of liabilities of Fóir Teoranta, arising from the exercise of their statutory functions, which had not been discharged by Fóir Teoranta on the transfer date. These liabilities arise from some outstanding commitments to client firms and to receivers of client firms where in certain circumstances moneys paid to Fóir Teoranta by receivers may have to be returned to the receivers together with interest thereon. The remaining subsections contain standard provisions in relation to Exchequer advances. Section 10 provides for the repeal of existing Fóir Teoranta legislation. Section 11 provides that the expenses incurred in the administration of the Act be paid from moneys provided by the Oireachtas. Section 12 deals with the short title and the commencement. date. As I mentioned already, the Act will come into operation on such day as the Minister may appoint by order. I commend the Bill to the House.
