Senators will remember that we agreed to confine ourselves, as far as possible, to the financial clauses of this Bill. The question is that the Bill be now read a Second Time.
Public Business. - Railways Bill, 1933.
Question proposed: "That the Bill be read a Second Time."
Cathaoirleach
I said, in discussing the previous Bill, that the financial clauses of the Railways Bill are, of course, part and parcel of the whole scheme. I want to repeat that now, because it is important that nobody should get a false impression merely because we have divided it into two. These clauses are an essential part of the scheme, and the scheme stands or falls with them. I made it very clear in discussions with the railway companies that if the State proposed to introduce legislation of this kind, imposing restrictions and the possibility of loss upon a very large number of people, and possibly resulting in burdens being placed on trade and industry here, and certainly creating a number of additional powers of control for the benefit of the railway companies, the Government would consider it essential that, side by side with the passage of that legislation, the railway company should carry out a scheme of capital reorganisation. I may say that I found the directors of the Great Southern Railways Company agreed with that view, even though they may have had differences with me as to the extent to which the reorganisation was required or as to the manner in which it should be achieved. The necessity for it, however, was admitted.
The total capital liability of the Great Southern Railways Company, including debenture liability, at the present time is, roughly speaking, £26,000,000. I think it will not be denied that a very large part of the assets represented by that capital liability is no longer capable of earning a revenue. The standard revenue fixed by the Railway Tribunal in 1925 has never been earned since 1925 by the railway company; and the Railway Tribunal itself has issued a certificate to the effect that no system of charging which it can devise would be capable of earning the standard revenue for the railway company. If we were merely trying to do something that would improve the railway position, I still would be of opinion that we should require from the railway company this reduction of capital liability and the other changes proposed here. But I would ask Senators to remember that we are doing more than that. We are proposing to give to the Great Southern Railways Board effective control of all forms of transport over the greater part of the Saorstát. If that were to be used for the purpose of getting an excess of receipts over expenditure sufficient to pay some return on the £26,000,000 capital, the whole scheme would be jeopardised. It is the natural thing, of course, for a Board of Directors to try to pay some return on ordinary stock, and the Board that did not try to do that would not deserve to be in such an undertaking. An attempt to get from the services of the Great Southern Railways Company, whether run by rail or by road or both, receipts in future which would pay a return upon £26,000,000, would impose not merely hardship upon the country but also would wreck the prospects of this scheme of reorganisation succeeding. In any event, we had the view that, so far as a very large part of the assets created by the expenditure of that capital have ceased to be capable of producing a revenue, the dead capital should be written off and the total liability in that respect reduced to a figure which would have some relation to actuality and some relation to the present earning capacity of the assets and to the future prospects of the whole undertaking.
I agree with those who say that it would be infinitely preferable that this capital reconstruction should be effected voluntarily by the parties concerned. I expressed that point of view to the directors of the railway company many months ago. Without being too precise upon the point, I think I can say that I first expressed that view to them at least 12 months ago. We had many discussions upon the question, as well as upon other questions relating to the impending legislation. Some time towards the latter part of last year, there was produced to me a tentative scheme of capital reorganisation, prepared for the Great Southern Railways Board by an eminent firm of accountants. These proposals related to the four major stocks of the undertaking. I examined them and expressed the opinion that they met my ideas in a large measure. I discussed at that time, with representatives of the railway company, the steps to be taken to get these proposals adopted. We considered matters relating to the dates upon which the circulars to the stockholders should go out, and the period within which all the work of securing agreement might be completed. There is no necessity to go over the whole history of what happened, but in the beginning of February it became fairly clear to me that we were in the position that, if we were going to get this reconstruction of the company's finances carried out voluntarily by those concerned, we were going to have to wait for a considerable period. In view of our determination that the rest of the scheme would have to stand upon that, that the other provisions would not be given the force of law until a reconstruction had taken place, it seemed to us we were likely to have to delay the legislation considerably.
Senators will remember that the railway position at that time was very critical. There was a stoppage upon all the lines except the Great Southern, and on the Great Southern stoppage was averted by reason of special measures taken in consequence of the acceptance of the assertion that the introduction of these measures was likely to improve the railway position and the sooner they were given the force of law the better. We decided not to wait but to embody in the Bill the proposals of the railway company which appeared to us to be as fair as any proposals were likely to be. I am prepared to admit that any proposals for financial reorganisation are likely to be based in a large measure on guesswork. Nobody can pretend to foresee with any degree of accuracy the earnings of the Great Southern Company for a number of years ahead, and one would require to have that knowledge in order to enable one to work on any other basis except the basis of guesswork. Having regard to the past earnings of the company and to what the future seems to hold in all the circumstances; having regard to the market values of the different classes of stock and having particular regard to the general provisions which we propose to incorporate in these two Bills, it seemed to us that the reductions in values set out in the Schedule are as suitable as any that could be proposed, with a possible exception to which I will refer later. We, therefore, proceeded upon these lines.
Objection has been taken to a government proposing by legislation to reduce the debenture stock without the consent of the debenture holders. I think most people agree that a reconstruction of the finances of the Great Southern Company is desirable and necessary. I think most people will also agree that the changes suggested in relation to the guaranteed preference and ordinary stock are not unreasonable, having regard to all the circumstances. The main objection voiced in the Dáil, and which appears to be voiced elsewhere, is that the reduction by legislation of the debenture stock constitutes a new and an undesirable precedent. I am prepared to accept the contention that it is new and that if the railways are regarded merely as an undertaking started by private individuals for their own profit, it could also be held to be undesirable. We do not regard the railways as such; I do not think anybody can pretend to regard them as such. The railways have a function to perform other than the earning of profits for their owners. If the owners were to exercise the power associated with ownership in a manner that would make the running of the railways beneficial to themselves and detrimental to the people of the country, no one would question the introduction of legislation with the object of interfering on behalf of the people of the country. The State has to intervene for the purpose of creating conditions which will enable the railway to carry on and which will help to preserve the value of the assets on which the debenture stock is secured.
Several suggestions have been made. It has been suggested that a meeting of debenture holders might be held. I do not know if the board of directors of the Great Southern Company would have power to call a meeting of the debenture holders. At any rate, it is clear that a meeting of the debenture holders would not have the power to approve, or give effect to its approval, of a proposal to reduce the nominal value of the stock by 15 per cent., such as we now propose. If there were unanimity, if every debenture holder was prepared to agree, they might have power, but even then it would be doubtful. There would require to be legislation and it is not unreasonable to assume that unanimity would not exist. Likely enough there would be a minority. So far as the minority is concerned, the case that can be made against the proposal in the Bill on the ground that rights and property are being interfered with could also be made if we merely introduced a section here providing that agreement by a majority would suffice to effect the reduction against the wishes of the minority. I do not see that there would be any vital difference in principle between what is in the Bill and the alternative provisions.
Another suggestion was made to the effect that the railway company should be given a period of time in which to reconsider the reorganisation scheme and, if they did not produce a satisfactory scheme in a given time, that the Railway Tribunal should be called in. I see no difference between that and the proposal in the Bill. In each case you are proposing to reduce the rights of some of the debenture holders against their will. Should we do that or should we not do it? Debenture holders are in a special position. They have no share in the control of the company, no part in its management. They can interfere only in the control of the company if the interest upon their stock falls into arrears. If it falls into arrears they have a right to appoint a receiver. That receiver cannot dispose of the assets; he can, however, carry on the undertaking, subject to certain statutory requirements until the arrears on interest have been paid. He would be subject to statutory requirements which are not imposed upon a board of directors. He would be required to make adequate provision for depreciation and maintenance. If full depreciation and maintenance costs were to be taken out of the railway receipts at the present time it would be a long number of years before the interest on debenture stock could be paid. Most Senators will admit that it would not be practical politics for debenture holders to act in that manner. Even if they had the power to dispose of the assets, I do not think they would be likely to do so. The only precedent we have is the case of the Larteigue Railway, otherwise known as the Listowel and Ballybunion Railway. There a receiver disposed of the assets and succeeded in getting £1,500 against debentures amounting to more than ten times that sum.
Despite the unusualness of the procedure we are adopting, and even though it might be misunderstood and taken as a precedent which could conceivably be followed in relation to industrial undertakings of another kind in the future, I still think we were right in proposing that the reorganisation of the Great Southern Company's finances should be carried out in this manner. I do not accept the point of view that we are creating a precedent that might be applied in other cases. The railways are in a very special position, not merely because of the nature of the services they render, but because of the very special measures which have to be undertaken by the State in order to preserve their value. If we were to withdraw our supporting hand and carry out rigidly in relation to the railways certain statutory obligations which we have, if we were to direct our policy in a particular manner, we would force the railway companies into the position where the debenture holders would appoint a receiver who would have to come to the Government and make the best terms he could on behalf of the people he represented. In these circumstances we might be able to achieve our aims with much less difficulty, even though it might impose much more hardship on the people who are holders of railway stock. We acted in this matter believing that the circumstances were unique, and that no precedent would be established which could be applied in other cases, and we acted in the conviction that the step was essential if the main transport scheme which is embodied in these two Bills was to have any prospect of achieving the aims intended.
The argument will be advanced that the reduction in the guaranteed preference and ordinary stock achieves no real purpose at all; that it does not give anything to the railway company and that, in fact, it is a purely notional thing. That is correct from one point of view and it is not correct from another point of view. Apart from the effect on national credit of the existence of these stocks at their inflated values on which no dividends are paid, there is also the effect on the mentality of those responsible for the management of railway affairs. If the guranteed preference and ordinary stocks were to be maintained at their present inflated value the prospect of a payment of a return on those stocks would be very slight indeed, unless a policy were followed which would be ruinous to the railways.
I recommend the Seanad to adopt this provision. They need not be afraid of establishing a precedent that could be quoted in other cases. It cannot possibly apply in other cases. The railways are standing in a unique position, and we are proposing under these measures to put them in a still more unique position. At the present time they are the backbone of our transport organisation. They have been maintained up to the present as a result of many Acts of Parliament, all of which in one form or another imposed burdens on other people. The Great Southern Company is the product of an Act of Parliament. Its capital was organised in 1924, when the amalgamation took place. We are proposing to put it in the position of a monopoly. In the case of other monopolies we would insist on certain conditions—that maximum prices would be charged, that certain standards of quality would be observed in the production of goods for sale. In the case of the railway company we are proposing to give it a monopoly on this condition, that the reorganisation of finance takes place, and that the shareholders and debenture holders shall make their contribution just as the State is proposing to make its contribution by cancelling entirely the money due to it.
I think these are the main considerations that might be advanced. I will ask the Senators not to be unduly impressed by the fact that this thing is now being done for the first time. It is not necessarily bad on that account; it might be good on that account. If Senators come to the consideration of this problem as a problem, without regard to general theories or practices, thinking only the best course to follow in relation to the transport situation of the present day, they will realise the reasons why this section and this Schedule is embodied in the Bill, why it should be retained in the Bill and why—I repeat it again—it is an essential part of the whole scheme.
I wish I could agree with the Minister in his ideas. I fully recognise the great problem he is trying to solve, and the difficulties of it, but when we come to deal with the matter that he has just closed with—the question of how to handle the rights of the debenture stockholders in this Bill—we are dealing with a totally different question from anything else in it. The devaluation of the shares or the debentures is quite another matter. If the railway company do not earn the money to pay the dividends they do not pay them, and the shares fall in value according to the amount of the earnings of the company. I see in the Schedule, the 4 per cent. stock is written down as if it was an amount of existing capital stock. It is described in the Bill as capital stock. That is quite misleading. The stocks of the company are those that come after the debenture stock. A debenture is an ordinary debt for money lent to a company on certain conditions. The Minister has told us what the rights of the debenture holders are. In ordinary business, if you lend money and you get a mortgage or a bond or a debenture debt, you have the right under the terms of that debt to take up your security if you do not get your interest. What is asked of us here is to say that Parliament should step in and say "No" to the creditors, "this is a case that makes it necessary in the public interest for the State to say you are not going to get back the money you lent. You are only to get 85 per cent. because of some act of the State."
The real point the Seanad should keep in mind is that once we allow this Bill through there is not a single loan for industry in the whole State to which this could not be applied at once. I have not the slightest doubt that some Minister would come and prove beyond yea or nay, that it is in the interests of the State that money lent by private individuals, banks and private corporations, and by all sorts of people, should have the interest on these loans cut down.
There are a number of people engaged in economics in this country all their lives who believe that if this passes through the Oireachtas there never will be another debenture stock issued in the Free State, because there is nothing to prevent such a security being declared to be worth a great deal less than the money he had given for it. That is the real thing for the Seanad to consider. I do not like to impute motives, but I think that this £50,000 which is going to the railways is being handed over to the board after having been taken from the debenture holders. That is the only thing, as far as solid cash goes. I believe it is a great mistake for the State, in trying to settle as big a problem as the railway problem, to do that by calmly taking away the rights of others not only without compensation but without consultation with the owners of the property they are confiscating. These are the facts as they appear to an ordinary business man. I am not going to deal, at any length, with the subject now because I believe we will pass the Second Reading of this Bill. But I believe it is a blunder of the first magnitude not to get this matter settled upon a common understanding, and after consulting the debenture holders and trying to get a scheme that would be acceptable. We should try to show the debenture holders that their prospects are going to be improved, that the State is doing really something for the railway company and that the reduction in the holdings would be only temporary. The debenture holders should know that in the final test of time they are going to get back the rights on which they lent their money.
That something should be done to save the name of this State before we pass this Act, I am positively certain. No effort has been made. It is said the debenture holders have not moved and have not protested. We know the class of people who own these debentures—trustees, great corporations, banks, charitable commissioners. Many of these funds are invested under orders of the courts. How do you expect those people, in the time we have had this Bill before us, to prepare a case, to get up meetings and everything else against this measure. I think if I had been in the position of the chairman of the company, or of the Minister in charge of this Bill, I would have tried to get debenture holders together, and to be in a position to say that I had consulted the debenture holders. There is no such statement made. I do not want to make these points now. They are not really before us now. The real issue is: will we have it said that the Free State has destroyed the rights of the debenture holders in the Free State railways without compensation or without consultation? If such a measure was brought into the British Parliament to-morrow, there would be a perfect revolution in England. Every banker and every owner of securities and everyone of that kind would rise up against it. Because we are only dealing with people who own £7,000,000 or £8,000,000 worth of stock we think we can do this thing with impunity and we think we can do a thing here that the economic policies of the world would condemn.
What will be the position when we try in the interests of the State to get money for industry and try to get financial support for our industries? For that reason, we should examine this matter very carefully. We should not try to take £50,000 a year from the debenture holders without negotiation even in the interests of a Traffic Bill. I shall deal later, in Committee, with the value of this or that concession. I do not say that we should not pass the Second Reading of this Bill on the strength of my statement. In the interval between the Second Reading and Committee Stage—and I certainly ask that we should not go on with these Bills for at least two weeks—in that time there should be negotiations to see what business proposals the Government might bring before us, and to see if we could not agree to a scheme that would keep the name of this State out of the Bankruptcy Court.
Senator Jameson always speaks moderately and cautiously on subjects such as that now before us, and puts his views in a very proper way, but the Senator forgets that not only the Dáil but the British Parliament have embarked effectively upon as serious things as the present proposals of the Government. The land has always been held to be the best security in the world—quite as good theoretically as any of the railway debentures of which the Senator spoke. The British Parliament brought in measure after measure, reducing forcibly, and without the consent of the landholders, the rent they drew from the land, just the same as the Minister is now proposing to reduce the debenture-holders' interest in the railways. What is the difference between reducing the interest of the debenture holders and taking the land away from the landowners who for generations owned it and offering it to other people at a very small remuneration, perhaps the half or one-fourth what it was before? When Senator Jameson proclaims the view that we will be in bankruptcy, and disgrace before the world, for doing a similar thing to what the British Parliament has done, and what the Dáil has done, I think he exaggerates the matter very much. No doubt what the Minister is doing is a serious thing. Everyone admits, and the Minister admits, that to interfere with the debenture holders is a serious thing, but would they be any better off if left alone? If the Minister stands aside the debenture holders will lose every penny they have. They have a theoretical right to these things, but we must look to the practical side; and it is to the advantage of the debenture holders that this scheme was started and is being carried out.
But the Minister has not asked their opinion about it.
Senator Jameson wants to know why the advice of the debenture holders was not asked. The landowners were not asked for their advice by the British Parliament; the land was taken from them. It was as good security as the debenture holders had, and it was less likely to be lowered on account of the general fall in prices. Senator Jameson is surely making too serious a case against this Bill. I am not a Communist and do not want to take anything from anyone unfairly, but there are times when the State must interfere even with debenture holders as well as with landowners.
Senator Moore has put his finger on the spot with regard to the points raised by Senator Jameson when he asked what would be the position of the debenture holders if the railways closed down. Everyone knows the position of the railways for a number of years past. Everyone knows that their traffic and their receipts were dwindling year after year. If they continued in that condition for a few years more they would have to close down completely. Consequently, I presume the same as any other business they would have to be sold up. Who would buy them?
What claim would the debenture holders have then? How much would they get out of the sums they have invested? I think that is the actual position. That inevitably would happen, judging by the record that the railways have shown for the last couple of years. In actual fact by the Minister's proposals they have been safeguarded from complete loss or almost complete loss. I say that because under the Minister's proposals they are getting what is tantamount to a monopoly of transport in this country. Surely if that is the case the stocks of the debenture holders are definitely on the increase and far higher than they would be if such proposals were never brought into being, or if the legislation now introduced were never given effect to. Against that view Senator Jameson says that the issue is that the Free State has destroyed capital without consultation.
I think what is at the back of Senator Jameson's mind is that this legislation is creating a precedent. It is certainly a precedent in reducing the value of the shareholders' capital. He said that this precedent is likely to be used in every other aspect of commercial life in the country. Now, if that were the case, I would consider that it would be a dreadful state of affairs, but I do not believe that it will be the case, for the simple reason why such a precedent has been created in connection with the railways is because the railways are there and cover the whole country, that they are national assets, that this country cannot get on without the railways, and that the failure of the railways would mean the failure of the country. It is because of that reason that the Government, in my opinion, have interfered. In their interference, as I have already shown, they have given an enhanced value to this capital, or they will have given a more enhanced value to the capital of the railways when this Bill has been put into operation. The railways will then be in a better position than before the legislation was brought in. That is the position as far as I see it.
Senator Jameson with his great skill and his great knowledge of finance has made a technical point when he says that debentures are not stock. That is true. A debenture is simply a mortgage given by a company in respect of money lent to the company. I concede that point to the Senator, but I would call his attention to the fact that the amount of debentures in the case of this railway company is £8,323,000, almost equal to one third of the value of the entire company during its best days and certainly more than the depreciated value of the Great Southern capital at the present time——
Double.
Yes, double.
Then you put the whole value at £4,000,000?
I am told it is not worth much more than £4,000,000. It is certainly not worth £8,000,000.
These are statements of your own.
Yes.
What is it at its face value?
I am only calling attention to the facts. We have it here from the Minister that his First Schedule represents the proposals made by the company themselves. Take that Schedule and take the amount of the reduced capital and you will find that the value of the debentures greatly exceeds the value of the other capital of the company.
I do not agree with that at all.
While admitting that Senator Jameson is right in saying that a debenture is security for money lent, admitting that he is technically right in that point I want to call attention to the fact that practically speaking the holders of these debentures have absolutely no chance whatever of getting back the big amount which they lent to the company unless the State comes in and helps these railways to get on. In this matter I wonder whether Senator Jameson is speaking for the debenture holders——
No.
——or whether he is speaking on general principles?
On general principles.
If the Senator were speaking for the debenture holders I would say he is wrong for they are making a very good bargain under the provisions of this Bill. What do they get from the State? They get, in the first place, under Section 2 of the Bill, £185,900 a year towards the expenses of this railway.
£185,900 per year! Surely Senator Comyn does not mean that.
I beg your pardon; that is the capital sum. Senator Jameson says the debenture holders will lose £50,000 a year. Say they will; is it not better than losing everything? If the State did not arrange under this Bill for the monopoly of the traffic in the rural districts which the railways will get it is doubtful whether the railways would be able to carry on. If the railways were not able to carry on what chance would the debenture holders have of getting interest on their debentures or mortgages? If a receiver were put in I wonder whether Senator Jameson considers that the value of the rails, the old engines and the other railway plant is worth as scrap £8,000,000? There must be reason in matters of this kind. I can quite understand the object which Senator Jameson had in view when he made that skilful and, for him, rather impassioned speech.
Several Senator
Oh!
It is certainly legislating so as to alter the contract, to alter the mortgage. That is perfectly plain and perfectly clear. There is an obligation by way of debenture, which is a mortgage, to pay £100 and that sum is now reduced to £85. I am making him a further present of this point, that the security is a trustee security. But we have to deal with the special circumstances of this railway. We have to remember that a new system of traffic has come into the world. The railways now are somewhat in the position of the old stage coach say 50 years ago.
Surely not.
Well, perhaps, not quite so bad. But if the railways are to become extinguished, the debenture holders will get nothing and the widows and orphans who are paraded so often here will get nothing at all. This Bill provides that they will get £85 or the interest on the £85, so that I do not think that this is a Bill upon which Senator Jameson should raise the important question of principle which he raises. He frankly admits that he is not speaking for the debenture holders. I would be surprised if he were speaking for them because in this bargain they are coming out very well. I would be very much surprised if there was any organised opposition from the debenture holders towards the provisions of these measures.
I have listened to what, for Senator Comyn, was an extremely unimpassioned speech and one that was very definitely mournful. I am glad to note, taking into consideration also Senator MacEllin's speech, that there is no real difference of opinion on either side of the House as to the matter of principle. The only question is as to whether it is right in a Bill of this kind to raise a question of principle without considering whether a better way could not be found. I am not capable of making an impassioned speech on this subject and I am not at all inclined to do what Senator MacEllin suggested, making a great deal out of a small matter. First of all I would like to say that, personally, if I were a debenture holder and if I were consulted I would agree to the proposals. I am not quite sure that I would not voluntarily have agreed to much more drastic proposals than those in the Bill. What I say now is not questioning that it is proper to ask the debenture holders to make a reasonable contribution when the State is taking action which may eventually work out in favour of their interests. I do not, however, take the view of Senator Comyn that we are bolstering up something which is analogous to the old stage coach. I believe that the railways have still an important part to play in the commercial life and in the development of the country. I do not believe that the railways have yet been superseded. If I took the mournful view that the Senator takes I would not be in favour of either of the two Bills.
It seems to me that the debenture holders are part of the creditors, and all the creditors, before the State intervenes to reduce the creditors' capital, should at any rate have an opportunity of being called together so as to agree on a scheme. For my part I have no doubt that such an agreement could have been obtained—I may be wrong in that—but I believe such an agreement could be obtained on very satisfactory lines from the point of view of the Minister. Then he need not have adopted the very undesirable principle embodied in this Bill. Senator Comyn admits that the debentures are not part of the capital stock. That no doubt is a technical blunder in the Bill. It is a technical blunder which ought to be put right and it can easily be put right. If that opportunity were availed of the Minister would not have created a new principle. The creditors who lent the money should have been given an opportunity to see whether they would have come to an agreement and see what could be done.
Instead of that the Minister comes along and says: "This is the way to do it and this is the way in which it must be done." It is not yet too late and I wonder whether the Minister would consider whether they might not yet be consulted to see whether they would agree to a scheme. He is quite right in stating that the debenture holders have not got in law the power to agree, but if some scheme were agreed on, the debenture holders could very easily be brought together, and if it were left open to a majority of the debenture holders to reach an agreement, then the Oireachtas would not feel they were doing wrong in passing this Bill. I do not want to go back to the Transport Bill except as far as it affects this Bill, but I cannot help thinking as to where the railway company is to raise the money for acquiring the great many new concerns which it is going to acquire under the Transport Bill. It seems to me that it is quite possible that the company may find it necessary to issue new debentures in order to find money to acquire these new concerns.
For that reason I do think that it may quite seriously handicap them if this principle is adopted. I do not want to be taken as making any extreme prophecy as to what the total effect will be. I do not know but it is never wise to adopt a new principle which will create any kind of uneasiness until you have tried to do it some other way. I agree with the Minister that as far as the ordinary shares are concerned it was a matter for the company to propose a new scheme. He says they failed to do that but in the case of the debenture holders it was not a matter for the company. That is a matter upon which the State might have called the debenture holders together and endeavoured to get them to agree to a scheme. There is no great difference between us as to what is desirable, judging by the Minister's speech and by the two speeches on the other side. I think it is all a question of whether the debenture holders should not have been consulted as to what was desirable and of an effort being made to reach an agreement. I had to leave the House for a few minutes and I am not sure whether the Minister kept his promise to make a statement as to what he proposed to do in regard to certain minor stocks. If he did, it was when I was absent. I wished to call attention to the position of certain debenture stockholders of the City of Dublin Junction Railways and I should like to hear from the Minister whether he proposes to make any changes in regard to them on the Committee Stage.
I am in agreement with Senator Jameson's contention. I think it would be most desirable that the debenture holders should be consulted, but if I were Minister, when consulting the debenture holders, I would ask them to be satisfied not merely with a reduction of 15 per cent., but I would ask them to accept half of the nominal value of the debentures to-day. After all, the debentures to-day are quoted about £35 for £100 worth of stock. It seems to me absolutely impossible for the railway company to continue to pay interest on the debentures as the business is shrinking in such an alarming way. I think it would be much safer if the debenture holders agreed to accept two per cent. instead of four per cent. They would be pretty certain to get two per cent. in the future, but if they hold on to their claim for four per cent. on the £8,000,000 debentures that have been raised on the Great Southern Railways Company, it seems to me very likely that in a short time they will not be able to get any interest at all. I suggest that the Minister take Senator Jameson's advice, but that instead of asking the debenture holders to take £85 worth of stock for £100 worth he should ask them to accept £50 worth, that is £15 more than the present market price of their stock.
I must protest against such misrepresentation of my remarks or to the Senator putting words in my mouth which I did not use. If I objected to a 15 per cent. reduction, surely to goodness I cannot be taken as recommending a 50 per cent. reduction.
I merely said that I agreed with Senator Jameson's proposal that the Minister should bring the matter before the debenture holders and try to get their agreement. Otherwise, I am in favour of a more drastic reduction in the nominal value of the stock.
I am astonished at Senator Crosbie's suggestion unless there is implied in it a guarantee. How can you expect people who are now going to get £85 for £100 stock— a 15 per cent. reduction—voluntarily to accept a 50 per cent. reduction without a guarantee that their 50 per cent. will be secured by the State or some equally solvent authority? I never heard of such a proposal. The Minister dealt, I think, very adroitly with the whole question, but I cannot help feeling that he shirked the issue. He pointed out difficulties with regard to calling together the debenture holders, but if he really had the matter at heart and wished to carry out the principle of consultation, there would be no practical difficulty in calling the debenture holders together. There would be no practical difficulty in bringing legislative proposals which would validate their consent either by a bare majority or by a certain majority. I was astonished to hear Senator Moore stand up as an advocate of landlords.
He opposed the Land Act of 1923.
I was astonished also that he saw any analogy between the case of debenture holders and the case of landlords.
Rents were never a trustee stock.
There was the individual aspect of the case, there was the national aspect of the case, there was the political aspect of the case and there was also the fact that the tenant claimed to be a partner in the land who had invested a large amount of money in the development of his holding. There was further machinery whereby—I admit it was forced on the landlord by the legislature—there was a tribunal established where the landlord could go and make his case and have the subtle advocacy of Senator Comyn's profession and if things had appreciably improved——
That was a later innovation. There was nobody before that to value it except the landlord. It was an innovation of the British Parliament who put him out of court and said: "You shall not decide that."
I do not think we need go into a discussion on that. I merely point that there is no comparison between the two cases and I feel that this is a dangerous principle in spite of what the Minister has said. Senator MacEllin said that this is in the national interest and that in the national interest the debenture holders should come to the rescue of the State. I can see that argument extend to cover debts due to certain institutions; institutions to whom the public owe large sums of money. It might equally be urged that there should be a writing down of these liabilities. There would be nothing but panic if that principle were once accepted. Every day, it is true, these capital reconstructions are taking place. Various classes of stockholders quite realise the position of their securities and that they have to make a sacrifice. There is, however, a very big difference between the State stepping in arbitrarily and imposing these sacrifices and the ordinary position whereby stockholders are consulted and in their good sense agree to make sacrifices when they realise it is necessary to do so. I do feel that the Minister ought to recollect and to have regard to what he already knows and to what is implicit in his Trade Loans (Guarantee) Bill, the difficulty of getting capital from the public. What we require is to stimulate the interest of the public in investment in home industries. I believe this writing down of the debenture capital will further scare and further discourage public investors from doing their duty with regard to capital enterprise in the State.
On a point of explanation, I think Senator Douglas misunderstood my parallel with regard to the stage coach. I did not mean to say that the railways must not be preserved. It is my opinion that the railways are absolutely essential to this country and must be kept running at all costs.
While I recognise the difficulty of the problem facing the Minister and while I largely approve of his method in dealing with it, I, nevertheless, feel the validity of what Senator Jameson has said with regard to the writing down of this debenture capital and, so as to preserve the principle, I think it would be worth while in some way to consult the interests concerned. In cases in which the directors of companies require a decision on certain proposals such as whether a preference share should be cumulative or whether the shareholders should waive the right to the share being cumulative, the holders of these shares are circulated and asked for their assent. I would suggest to the Minister, as a method of consulting the debenture holders, that he should ask the directors of the Great Southern Railways to circulate the holders of the debentures and ask for their assent to his proposal. I am almost certain that, as Senator Douglas has said, he will secure a majority of the holders, which will give some validity and prevent any breach of the principle of the right of debenture holders. If it be carried through as the Minister has it in his Bill, it will deter people from investing in debenture stocks, however laudable the purposes of these stocks be.
If the suggestion of Senator Dowdall is adopted, I am afraid it will be quite a long time before the Bill reaches the Statute Book. Senator Jameson has indicated the type of people who own these debentures.
It could be done in a fortnight.
In many cases they are not individuals, but corporations, commissioners and so on, and one could not possibly hope, in those circumstances, to get in a fortnight or any period like that, a definite reply one way or the other. I never knew that debentures were such a sacred institution until this Bill came to be discussed in the other House. The net result of this proposal is to reduce by 12/- the interest or dividend which each debenture holder gets in respect of each £100 of debentures. The net result of it, simply, is to reduce the interest from £4 per cent. to £3 8/- per cent. The writing down of the nominal value is of no consequence at all. They are quoted on the Stock Exchange at present at 36/-. They are only written down to 85/-, and if, as a result of the legislation before the House, the position of the railways improves, each debenture holder will make infinitely more, in the appreciative value of his holdings, even under the written down conditions, than he will lose in interest, so that in effect, it means nothing except a reduction in the interest.
Certain sacred principles are being referred to. A principle that has no regard to the everyday facts of life is not worth talking about. What was a principle that you would defend with your life ceases to be a principle in the face of inexorable facts, and the facts to-day are that the railways are fast drifting towards bankruptcy, and, unless this legislation is passed, there will be no interest even for the debenture holders. That being the case, are we going to wait until such time as a majority or the whole of the debenture holders agree to this reduction? What happens if, in spite of facts, a majority of the debenture holders withhold their assent, as they very well might, again, on a question of principle, or because they fail to recognise facts? Is it suggested that, in view of such a refusal to assent, the Minister is then to go on with this proposal, and, if not, what is he to do? Five thousand railwaymen on the Great Southern Railways Company have been thrown out of employment, although it is a principle that each man should have the right to work to support himself and his dependents. Railwaymen with 35/- a week have had to give up ten per cent., although it should be a first principle that a man should get such a wage as will keep himself and his family in reasonable Christian comfort.
All these principles have had to go by the board because of the grim necessities of the situation. All other holders of stock of the Great Southern Company have had to waive principles, and their stocks are being written down because of the grim realities of the situation. Are we going to say that all the pillars of credit, the good name of this country, and so on, are going to collapse because, in face of the terrible realities of the situation, the Government is compelled to introduce emergency legislation which has got to get to the Statute Book quickly to save the institution for all concerned and that, because they have, in view of that, to act on a report made out at the request of the company itself by an independent firm of skilled auditors, they are thereby damaging the credit of the community, or discouraging investment of capital for the future. I agree that it is absolutely essential that the credit of the country should not be damaged in any way, and I subscribe, to a considerable extent, to the principles that Senator Jameson has enunciated, provided that one has regard to the facts of the moment. We all have principles which we hold very dear and we have to waive them because they are impossible of realisation at the moment and, surely, hard-headed business men will not refuse to recognise facts. They are refusing to recognise them and closing their eyes deliberately to them here and trying to create a furore about some alleged violation of what they term a sacred principle. The main principle on which I think we should work at the moment is to save the Great Southern Railways from extinction, and, unless the debenture holders are required, whether they like it or not, to make their contribution towards that, the railways cannot be saved.
I should like to follow up what Senator O'Farrell has said. The way this case appears to me, not being very well versed in the intricacies of finance, is that this is practically a bankrupt concern. It has borrowed money, and borrowed money on the assurance that it would give pound for every pound lent and interest at the rate of four per cent. but the company that borrowed money is not in a position, and is less and less likely to be in a position, to pay its debts unless the State comes to its aid. The debenture holders, the lenders of the money, are in the very fortunate position of being secured or at least, probably secured, by the passing of this Bill in a property which within a very few years would be useless to them if the Bill were not passed. I am inclined to agree with Senator Jameson that there is a principle involved in it and that the fact that the legislature is coming along and saying, as between debtor and creditor "the charge you, the creditor, are making on the debtor is too high for the public interest and you must reduce it" is a principle of very great importance. But I am amused at the audacity, shall I say, of people, who are representing moneyed interests and banking interests, raising this point as a matter of high principle when, day by day, those very interests are raising and lowering the values of the properties that other people hold without any public discussion, without any discussion in Parliament, without any agitation in the matter at all. They are the people who make this great talk about the high principle of safeguarding the present property rights of certain people in the community. It seems to me that whoever else raises this as a matter of principle, they should not.
Notwithstanding what Senator O'Farrell and Senator Johnson have said, there is in the minds of the people a great deal of alarm about the violation of this principle. It is regarded as confiscation. I do not think that that should be overlooked. It is a dangerous thing. I do not see why some means cannot be found of consulting people before their property is confiscated, because this is a confiscation measure.
I think that the description in the Bill of debenture as capital stock is correct. We could have a long technical argument as to whether it is right to describe debentures as capital stocks. I think it is and I am backed by the fact that there is adequate precedent for it. I quote merely the fact that the railway amalgamation scheme under which the Great Southern Railways Company is now constituted refers to debenture stock as capital stock. In the first schedule dealing with the original capital of the Great Southern Railways Company, the first item set down is debenture stock. That is a matter of no importance, however. What is of importance is the nature of the stock and the rights attaching to it. It is not altogether correct to describe these stocks as representing money loaned to the Great Southern Railways Company and leave it at that. Senator Jameson talked about a person lending £100 and being entitled to get £100 back. The debenture holder is not entitled to get anything back. It should be remembered that these stocks are irredeemable. If the man who has invested £100 wants to get his capital back, he can only go to the stock market and get somebody to buy it. There he will not get £85 but £36.
He gets his four per cent.
Up to the present he has succeeded in getting his four per cent. The prospect of that four per cent. continuing for any length of time must be considered in relation to the value placed upon the stock by the commercial community of the Free State. There is not the slightest doubt that, if there was any reasonable prospect of that four per cent. continuing indefinitely, debenture stock of the Great Southern Railways Company, having regard to the money rates obtaining at present, would be quoted at par or above par. It is not quoted at anything like half the value. That is a sure indication that the commercial community— the people whose business it is to estimate probabilities in matters of this kind—have written down considerably the prospects of the Great Southern Railways Company continuing to pay debenture interest for any length of time to come.
That brings us to the wrongs that, it is said, we are inflicting on debenture holders—to the "confiscation" that Senator Miss Browne spoke of. In fact, we have had no protest from the debenture holders themselves. I want to state, as one of the most outstanding features of the discussions that have taken place on these Bills, that I have in my offices letters of protest from ordinary stockholders and preference stockholders—letters in which the word "confiscation" is used—and, in relation to the Road Transport Bill, I have got letters of protest against the provisions for the compulsory acquisition of road transport licences, but I have not got a single letter of protest on behalf of the debenture holders or from any debenture holder. I attribute that to this fact—that the debenture holders realise that they are getting off fairly well. If we had a meeting of debenture shareholders we might quite reasonably put up the proposition to them, referred to by Senator Crosbie, to accept not a 15 per cent. reduction, but a much larger reduction, having regard to the fact that, by doing so, the value of the assets which was their security was going to be enhanced and their prospects of getting revenue in the future were going to be strengthened. I should have preferred if we could, in some way, have put behind this Bill an indication of agreement on the part of debenture holders. It would be obviously desirable, having regard to the rights that did attach to these debentures, that we should, in some way, get a formal consent from the debenture holders. That would be infinitely preferable. But there is no way of doing that. The railways company could not call the debenture holders together. Without legislation of some kind, we could not do it. There is nothing to prevent our sending a circular letter to everybody registered as a holder of debenture stock and asking him or her to meet us in Dublin. But if one debenture holder stays away, the meeting is of no particular value. Even if they all came and passed resolutions, these resolutions would have a moral effect, but they would have no legal significance. In the last resort, we would have to introduce an Act of Parliament containing, in the first place, a clause giving some legal significance to the meeting, no matter who called it, and, secondly, taking away the rights of debenture holders to a certain extent, because we would have to provide that the majority of them would be authorised to agree to a reduction either in the interest payable or the nominal value of their holding. Once you have done that you have interfered with the contract. I think we are quite right in interfering with the contract. Having regard to all the circumstances and to the peculiar position of the railways, I think we are entitled to come in and interfere in the contract. It is a matter of how we do it. We can do it in this way or in the other way suggested. It seems to me that, in the circumstances, we are probably as wise in doing it this way as we would be in doing it any other way. I think that the absence of protest is an indication that the debenture holders realise they are getting off remarkably well.
One criticism which has been made against the proposals in this Bill carries, I think, very great weight. That is that, having regard to the total capital liabilities of the Great Southern Railways Company, we are not reducing the debentures sufficiently. The position is, at the moment, that the debenture liability of the company is 33 per cent. of its total capital liabilities. If there were earnings justifying the payment of four per cent. all round, 33 per cent. of the total would go to the debenture holders. In future, 60 per cent. will go to the debenture holders. Whereas out of a total capital liability of £25,700,000 the debentures represented £8,300,000, they are going to represent in future £7,000,000 out of a total of £11,000,000 odd. In fact, the finances of the company are going to be top heavy in so far as the debentures will more than exceed the sum total of the nominal value of all the other classes of stock. As to the suggestion that a meeting of debenture holders might yet be held, I would have no hope now of being able to persuade debenture holders to accept a reduction of 50 per cent. or anything greater than what is in the Bill. I think that would be entirely impossible to achieve, the Bill having been introduced. We would probably formally get consent without difficulty but, having regard to the very awkward and difficult situation that would be created, if, because of any misunderstanding of the position, or inability on my part to put the case, a majority refused to agree, the subsequent position would be much worse than the previous one. Of course then we would have to consider the policy of dropping this legislation and allowing the Railway Company to find its own way to bankruptcy. However, it is something to be considered. It seems to me that the difficulties are very great. Personally, I cannot feel that the passage of this section in the Bill is going to prevent anyone investing in debentures in future. Senator Jameson talked about panic being created. I have seen no evidence of it. In fact, having regard to the fact that the Bill has been a very long time in print, and was debated at great length in the Dáil, then assed the Dáil and came to the Seanad, the absence of even mild excitement in reference to the proposals affecting debenture holders, much less panic, is a sure indication that the situation has not been as described. It is true also that the debenture holders have no doubt taken the various matters mentioned by Senator O'Farrell and by Senator Johnson into consideration. They are of first-class importance. Senator O'Farrell pointed out that debenture holders are asked to accept a 15 per cent. reduction, and that instead of getting £4 per £100 they are only getting £3/8/0. It is not as bad as that, having regard to the fact that income tax is 5/- in the £. They are only losing 9/- instead of 12/-, as less tax has to be paid. It is not 12/- but 9/- less per £100.
It depends on the income.
I am assuming that debenture holders pay the full tax. It must be taken into account that the railway workers have had to suffer a substantial diminution in their earnings, that a number of them have lost their employment entirely, and that the value of the assets has been depreciated in order to take the amount necessary to pay the interest on the debentures out of the annual earnings, which might go to improve the system, to increase the prospect of earning the revenue. Having regard to all considerations I think it can be said that the proposals in the Bill deal generously with the debenture holders in all the circumstances, and that the debenture holders themselves realise that, and that that is why, on the merits of these proposals, as such, nothing has been said.
The only question raised, and undoubtedly it should be raised, was that of the principle to which Senator Jameson referred. It is undoubted that something new is being done. I submit that the entire situation is unique. The position of these railways is unique as are the steps that have had to be taken to preserve them. Abnormal measures have been adopted in relation to the competitors of the railways. The abnormality of the circumstances including the abnormality of proposals in relation to debenture stock makes it quite clear that this cannot be a precedent for industrial organisations, which cannot at any time have the same significance for the State as the railways. No doubt we will have an opportunity of considering the matter again on the Committee Stage. I would like to ask the Seanad to consider the proposals, having regard to the position of the railways, and the steps that must be taken to deal with them, rather than on the grounds of general policy or general principle, because the general principles which emerged out of an entirely different situation, and out of different circumstances that existed in the past, have no relation to the abnormal conditions now present. It is much wiser to have regard to practical considerations than to considerations of theory in determining what is the best course to follow.
The Minister rather misunderstood me. I said that panic would be created if this measure was passed by the British Parliament. The Minister's answer was that no panic is being created in Ireland. He has in fact made the statement that if this measure was brought to the British Parliament a very great panic would be created in Great Britain.
Question?
Question put and agreed to.
Cathaoirleach
Will the Committee Stage be taken next Wednesday?
There are very big questions to be considered and, as we have had a short time to consider the Bill, we will want longer time.
I would be prepared to agree to the Committee Stage being postponed until Wednesday week, if the Report Stage is taken then. I have more or less induced people to take certain action upon the assumption that this legislation would be disposed of by the beginning of June. I was allowing from the beginning of February to the beginning of June to get the Bill through both Houses, which seemed a reasonable allowance, but it took longer than I anticipated in the Dáil. Although I want to give reasonable facilities, I would like to try to have the Bill disposed of as early as possible in June, so that people would not think I misled them. As Senators are aware, I am referring to the railway situation.
Cathaoirleach
We could have the Committee Stage on 24th May and the Report and Final Stages on 31st May.
It is better to have time now than later on.
Cathaoirleach
We will take the Committee Stage this day fortnight.
I was going to ask Senator Jameson through you, sir, if he thought any great advantage would accrue to the interests he represents by postponing the Committee Stage for a fortnight. I am admitting that I am rather selfishly concerned, because some people who are deeply interested in the Bill cannot be here this day fortnight owing to circumstances over which they have no control. If the Report Stage went through that day they would be cut out completely.
Cathaoirleach
We will have a further week for dealing with the Report Stage.
I trust Senators will not press to have the Report Stage taken on the same day as the Committee Stage.
Cathaoirleach
The Report Stage will be taken on 31st May.
The Seanad adjourned at 7.30 p.m. until 3 p.m. on Thursday, May 11th.