To use a medical analogy, these provisions are intended to be of use to companies that are temporarily "sick"— I would not normally expect to see them being used by healthy companies or indeed in the final analysis by companies that are terminally ill.
The central feature of what is being proposed is the appointment to a company by the High Court of an expert, called an examiner in the Bill, and the placing of the company concerned under the protection of the court for a limited period.
Essentially, in order to qualify for protection, the company concerned must, under section 2 of the Bill, be unable to pay their debts, or be likely to be unable to pay their debts. At the same time, that section gives guidance to the court as to whether the company should get protection, in other words, it may take a view as to whether the company have a chance of survival as a going concern.
The petition for the appointment of an examiner can, under the Bill, be sought by creditors or shareholders of the company, by the company or by their directors. In the case of shareholders, section 3 provides a standard cut-off point whereby they must hold at least 10 per cent of the share capital in order to apply to the court.
While the normal run of creditors can also apply to the court, a special safeguard is inserted in the case of contingent and prospective creditors. In order to discourage precipitous or vexatious requests from such categories of creditor, section 3 (5) requires that they give security for costs to the court at the time of the application.
From the date the court becomes involved, the debts of the company will effectively be frozen since, under section 5, no enforcement action can then be taken by creditors. Neither can proceedings for a winding-up of the company be commenced nor a receiver appointed. The purpose of this stay is to preserve thestatus quo, to enable the company to be stabilised and to enable the process of rehabilitation to be put in place.
I should emphasise, however, that the temporary suspension of these normal remedies or procedures is only being allowed within the specific parameters set out in the Bill, under the supervision of the High Court and with the aim of achieving the restoration to health of companies in financial difficulty. Granting this breathing space is designed to allow the company's difficulties to be resolved in an orderly way and in a less threatened environment. The aim would be to achieve a result that is much more desirable than the result of any rash action to close the company.
Many companies, of course, operate within a group of companies and, accordingly, section 4 provides for the making of orders in relation to related companies.
I should perhaps mention at this stage that, in the normal run of cases, the examiner might be expected to be just that — an examiner, analyst, diagnostician or whatever. However, it must be accepted that there will be many cases where the examiner will have to take action himself, in terms of asset disposal, trading policies and so on which the existing management is either unwilling or incapable of doing.
For example, there may be an asset which is a drain on the company's resources but which in the normal course of events could not be sold because it is subject to a charge. Subject to provisions recognising the interest of the security holder, section 11 will allow the court to authorise the disposal of such an asset by the examiner.
Similarly, the assets might need to be protected if there was a danger that action might be taken in relation to those assets by the directors or management which might prejudice the interests of the company or their creditors. In such circumstances, section 9 will allow the court to order that all or any of the powers of the directors can only be exercised by the examiner.
While the main role of the examiner is, of course, not to run the company, the court may nevertheless feel that giving the examiner control of certain functions would be in the best interests of the company or their creditors.
Once the examiner is in place, he will carry out an initial assessment of the company's affairs and, if he considers from this initial assessment that the company, or part of it, can be saved, he will proceed to draw up a rescue plan.
The examiner will, of course, have a vital need for a full flow of management information, and sections 8 and 9 will give him some important powers in this respect. As well as requiring anyone with relevant information to give it to the examiner, it is essential, particularly within the tight timescale under which the examiner has to operate, that there are no delays in obtaining information.
As a start, he must be given details of the company's assets and liabilities, and information relating to creditors, within seven days of his appointment. In addition he will be able to attend all meetings of the directors, as well as general meetings of the company.
In cases where a provisional liquidator or a receiver have already been appointed to a company it is important that the court can ensure, in subsequently appointing an examiner that the actions of either the receiver or the provisional liquidator do not frustrate the rescue process, so I am therefore proposing to allow the court to make certain types of orders in relation to both.
Having conducted his initial assessment of the company the examiner will report back to the court within three weeks of his appointment, and section 16 sets out what that report must contain. While obviously containing financial information, it must also give the examiner's view as to whether the company and the whole or part of their undertaking, would be capable of survival as a going concern, what conditions are essential to ensure such survival, and whether "compromise proposals" might be more advantageous to shareholders and creditors than the winding-up of the company.
The examiner must also give his own recommendations as to what course should be taken including, if warranted, actual draft compromise proposals.
If, on the other hand, the examiner's initial assessment is that the company would not be capable of survival, then the court must hold a hearing, at which all affected shareholders are entitled to be heard. Following the hearing the court may make an order as to what should happen the company, for example whether it should remain in the protection of the court, should it be wound up, or whether some other course of action would be appropriate.
Assuming, however, that the examiner's initial response is favourable, he would, as I mentioned earlier, proceed to the next phase without a court hearing. This would obviously involve rounds of discussions with classes of creditors and shareholders, meetings of various kinds and so on, in an effort to work out an acceptable rescue package or, in the terms of the Bill, compromise proposals.
These proposals must contain certain specific information and must meet certain criteria. They must, for example, provide equal treatment for each claim or interest of a particular class of creditors or shareholders. They must also show how the different classes would be affected, and provide for mechanisms as to how the overall plan is to be implemented. One particularly useful piece of information to be included is an effective comparison between the effect of the proposals as against the probable financial outcome of a winding up for the various parties involved.
I do not think any of us could underestimate the difficulty of doing this, and it will really take a major effort, even in the smallest of companies, to make the whole thing work. However, assuming there is sufficient agreement to his proposals the examiner can then seek to have them confirmed by the court. For its part, the court must be satisfied that the proposals meet certain tests — for example that they are fair and equitable to any class of members or creditors that has not accepted them and whose claims or interests would be impaired.
If the court confirms the plan, it will be binding on everyone concerned, the examiner's appointment will be at an end, and the company will cease to be under the protection of the court.
The Bill recognises the value of consultation with the creditors of the company and allows the court to direct that a committee of creditors be appointed to assist the examiner. I would like here to point out that the need to keep all interested parties informed is catered for throughout the Bill. For example, notification of the presentation of a petition in the first place must be delivered to the registrar of companies straightaway; when the examiner is appointed notifications must be published; the examiner must give the committee of creditors, if there is one, a copy of the proposals, and there are provisions for consultations with members and creditors on the proposals.
The system will operate within a fairly tight timescale. I strongly believe that this is the only way of ensuring that the mechanism can be successful and used to the full. In fact, one of the main criticisms of similar systems operating elsewhere, for example the "Chapter 11" system in the United States, is that they can be too long-drawn-out and, therefore, obviously too costly.
It is important that all those affected by the use of the provisions of this Bill should be reassured by the certainty that the system being introduced is to operate within a tightly-defined timescale. Thus, the court protection period is restricted to three months, with an additional 30 days if needed to facilitate the examiner in the preparation of his final report. There are also tight time limits within which the examiner must furnish his reports — the one giving his initial assessment within three weeks of his appointment, and the second one containing his actual proposals within a further three weeks. Again, I know these limits are very tight, but there are so many interests to be balanced in this whole process that, quite literally, time is of the essence.
While it is not the practice to discuss in this House the financial affairs of individual companies, I think it would be unrealistic of me in the present circumstances not to refer to the affairs of Goodman International, about whose position there has been substantial speculation and comment. I have been authorised by IBI Corporate Finance Limited, on behalf of Goodman International and Goodman Holdings, to disclose the following information in relation to Goodman International and other relevant companies. This information, which was provided to me by IBI Corporate Finance Limited from whose letter to me, dated 27 August, I am quoting, is as follows:
As at 17th August, 1990, Goodman International and its subsidiaries (other than Food Industries plc) owed banks approximately IR£460 million which had been available on an unsecured short term basis. In addition, banks had guaranteed obligations in respect of the performance of Goodman International and its subsidiaries (other than Food Industries plc) under beef supply contracts in an amount of approximately IR£200 million.
Goodman International and its subsidiaries (other than Food Industries plc) are owed IR£180 million by Iraqi entities, this figure includes £11 million of interest due.
Goodman International and its subsidiaries (other than Food Industries plc) are owed IR£203 million by other companies owned by Goodman Holdings of which it is estimated that not more than IR£90 million will be recovered.
Shareholders' funds of Goodman International as shown by the consolidated accounts to 31st December, 1989 were IR£191 million and the net worth of Goodman Holdings as at that date was IR£273 million. These did not take into account any major provisions in relation to the Iraqi debt or amounts owing by other subsidiaries of Goodman Holdings which now stand at the amount stated above.
The trading operations of Goodman International continue to be substantially profitable before interest which mainly arises from the failure to receive payment for beef shipments to Iraq and the inability of other subsidiaries of Goodman Holdings to repay the debt outstanding.
Food Industries plc is a separate listed company with its own independent board of directors and management. It continues to trade profitably and arranges its own finance independently. It has virtually no trading links with Goodman International. There is no inter-dependence of borrowings between Food Industries plc and other subsidiaries of Goodman Holdings and/or Goodman International. The links between Food Industries plc and Goodman International are the ownership of 68 per cent and some common directors.
I repeat that this information was provided to me by IBI Corporate Finance Limited.
At this stage I should like to comment on the beef industry, its achievements and present problems. The pre-eminent position of the cattle and beef industry in the Irish economy is best illustrated by the fact that it contributes some 10 per cent to gross domestic product. Output of cattle and calves for 1989 was valued at £1,211 million or 36 per cent of gross agricultural output, while cattle and beef exports amounted to £760 million and represented 32 per cent of total agricultural exports and 5.2 per cent of total exports. If export refunds are included, export earnings from the beef sector increase to £1,010 million and their contribution to agricultural exports and total exports increases to 43 per cent and 7 per cent, respectively.
Output in the cattle and beef sector is of crucial importance to the beef industry. The output of cattle and calves depends primarily on the size of the national breeding herd. Over the ten years 1976 to 1986, total cow numbers remained unchanged at around two million head but in 1987 and 1988 the numbers dropped by 3 per cent largely as a consequence of the earlier imposition of the milk quota régime. Numbers have now increased again. This increase is accounted for almost exclusively by an increase in the beef breeding herd. This is a welcome sign that there will be an improvement in the quality of our beef cattle with the move to more specialist beef breeds.
The beef sector has achieved very significant progress over the past 20 years in terms of moving away from live exports and increasing value added exports. This situation is evident from the fact that our live cattle exports represented 46 per cent of the total destined for export in 1969 and less than 11 per cent by 1989. Indeed, the level of live exports to destinations outside of the island of Ireland in 1989 was down to less than 3 per cent.
Over the same 20 year period the industry progressed from producing cattle for export and subsequent slaughter in other countries to one which now exports 75 per cent of our cattle output as beef to destinations throughout the world. It has progressed from then exporting 87 per cent of our beef in the bone-in state and only 13 per cent boneless to now exporting 58 per cent boneless and 42 per cent bone-in.
It must also be acknowledged that an increasingly significant, if yet small, proportion of this takes the form of high quality chilled boneless cuts. A major beneficial consequence of this progress to the Irish economy is that some 5,000 people are now employed directly in the meat processing industry. In addition there are some 100,000 farmers involved in the production of cattle, the raw material of the industry. The industry is also of major benefit to the services sector particularly in the area of transport.
There is no doubt that our membership of the EC and the access to the various support schemes have contributed more to the increased production of the beef industry over the last 20 years than has our access to the large EC market of consumers. We have manifestly failed to penetrate this sophisticated and increasingly valuable continental EC market to any significant degree, a market where we sell only 40 per cent of steer production. As a consequence we have relied on volatile Middle Eastern markets as outlets for much of our beef exports.
Approximately 1.5 million head of cattle are slaughtered in Ireland each year. Disposal of the beef from these slaughterings, in cattle equivalent is approximately as follows: 200,000 head — mainly heifers — for the home market; 500,000 head — mainly steers — for export to third countries; 360,000 head — steers, cows and heifers — to the United Kingdom; 210,000 head — steers — for intervention and 150,000 head — steers, cows and heifers — for the European mainland. In addition, some 150,000 cattle are exported live to North African countries and the United Kingdom.
As our cattle production is grass-based a high proportion of slaughterings and thus of purchases of slaughter cattle from farmers, takes place from September on. In 1989, the final quarter accounted for 47 per cent of cattle slaughterings. For the second six months of 1990 about 950,000 head of cattle will be ready to offer to our factories for slaughter, some 800,000 head in the September-December period. Most of the beef produced — about 265,000 tonnes in bone-in terms — will have to be exported to the United Kingdom, the East or our minor third country markets in the Caribbean, Mexico, Yugoslavia, Japan and West Africa.
Serious problems have arisen recently in our principal markets abroad. For example, we stand to lose a major outlet for our beef due to the embargo on trade with Iraq. This embargo prevents all exports of beef to a destination which took 51,000 tonnes of Irish beef in 1989 and which could reasonably have been expected, in the absence of the embargo, to take between 30,000 and 40,000 tonnes in the remainder of this year, an export quantity which we now stand to lose; there is a widespread threat to our third country exports in general due to the BSE scare. Iran and Egypt are of most serious concern. Iran, which is the most important of the third countries with which we have BSE problems, took 61,000 tonnes of Irish beef in 1989; the demand for beef in the UK and the Continent is down by at least 10 per cent and there is little prospect of a significant improvement in the short term; and the outlets for our live cattle have also been affected, particularly in Libya, by concern about BSE. Our competitors are in a position to provide sizeable alternative beef supplies to our third country customers.
Overall, if the present situation continues unchanged, the prospect is that over the September-December period the only realistic outlet for quite a proportion of our beef will be the intervention system. Under existing arrangements for intervention the safety-net mechanism which gives guaranteed access to intervention for certain categories of steers is operating and we anticipate that this will continue for the rest of the year.
However, this will not take all of the steers, and heifers and cows do not qualify for intervention under existing EC rules. While this safety-net is of real assistance to our industry it is an expensive system for the Community. There may be some difficulties when the system comes up for review again at the end of 1990.
Coming back to the provisions of the Bill we are addressing today, I said earlier that the substance of the measures proposed had already been welcomed by a special committee of this House. In fact, it was dealt with in some considerable detail by that committee. I would like to take this opportunity to record my gratitude and admiration to the Chairman and members of the committee for the constructive and efficient manner in which they conducted their business.
The possibility of difficulties arising for companies generally because of the Middle East crisis has accentuated the desirability of having these provisions put in place as soon as possible. As legislators, we are sometimes criticised for the length of time it takes to introduce new laws. In recalling both Houses of the Oireachtas we are showing that we can respond, when necessary, to rapidly changing circumstances.
I am confident that this legislation can work. I see it as an encouragement to firms experiencing difficulties to tackle, in a new way, their problems at an early stage and initiate action that can ensure their continued existence.
I look forward to a constructive debate and to the enactment of this valuable piece of legislation.