Senators will recollect that the original Trade Loans Act was passed in 1924. It had a life of one year only. Each year since a Bill has been introduced at this period to continue it for another year. I think I can say that on each occasion the continuing measure was introduced the Minister then responsible announced that it was the last time he was going to continue it, but at the end of the year he changed his mind and proceeded to introduce a continuing measure.
The Act has been continued from 1924 to date. The question arose for consideration whether it should be continued for another year or whether it should be allowed to drop at this stage. When, last year, I had the responsibility for the first time to move the adoption of the continuing Act I indicated that we had under consideration the question of the future of the Act. We had been examining the operations carried out under this legislation in the past, and the relationship of that legislation to the present position. I announced during the course of the year our intentions concerning this Act for the future. We established a committee consisting of officers of the different State Departments who had practical experience in the administration of these Acts since 1924. To a large extent the Bill now before the Seanad is based on the committee's recommendations, recommendations with which, of course, the Government is in full concurrence. We came to the conclusion that these Acts are still of very definite value, but that they should be amended so as to widen their scope somewhat; also that certain changes in the manner of administration should be effected—changes which do not require legislation, but which have an important bearing on the position.
The principal changes effected by this Act are, first, that the Act is to be continued for a period of five years. It will cease to operate at the end of that time if not renewed. Secondly, it is proposed to enable loans to be given for other than capital undertakings. There was a section in the original Act which had a limited scope in this way: that a guarantee could only be given for loans, the purpose of which was to acquire or erect fixed assets of one kind or another. If any portion of the loan to be raised by the applicant was to be devoted to working capital purposes a guarantee could not be given. Cases of this kind came before me on two or three occasions last year: certain people proposed to engage in industry, or, perhaps, to extend their industrial activities, and proceeded to acquire buildings, purchase and instal machinery. Frequently they took advantage of a particularly favourable opportunity to buy machinery at a very low price. When they had done that they came seeking the facilities available under these Acts for the purpose of enabling them to get the balance of the capital required so that they might go ahead with the undertaking. On each occasion we had to tell them that if they had come to us before they erected the buildings and purchased the machinery, we could have given them a guarantee for the loan, but that as they had spent all the money they had in that particular manner we could not give them any assistance. It is proposed, therefore, to delete the section from the original Act so that in future loans for working capital purposes will be available.
The purpose to which the loan is to be devoted is of much less importance than the security behind the loan. It would, of course, be very serious maladministration if we were to guarantee a loan without having what would seem to us to be fairly reasonable security behind it. If the assets of an undertaking were already seriously encumbered and the loan was required merely to solve a difficult financial position, without increasing employment or otherwise improving the industrial position here, then in my opinion it should certainly not be given.
Therefore we are retaining the requirement in the original Act that the loan must be calculated to increase employment in the Saorstát. The fact that some existing concern would be eased of its difficulties and enabled to carry on will not qualify it to get assistance in this way unless it can be shown that the operation of the loan is going to increase employment here. It was advanced in the Dáil that there were certain dangers in amending the Act in this manner. Personally, I was not convinced by the arguments put up in support of that and for two reasons: The first is, that in the past the limitation imposed by the original Act was found very irksome and various devices, more or less simple, were found for getting around it so that, in fact, the limitation imposed by the original Act was more apparent than real. The second reason is that the real safeguard which the State has is the nature of the enterprise itself. The particular purpose to which the money secured by the guaranteed loan is put is of very minor importance if those associated with the application for the guarantee are themselves interested to a large extent, have their own money substantially invested in the undertaking and there are behind the loan assets of reasonable value which might be regarded as security for the loan.
We have worked on this principle: that the amount to be secured or guaranteed by the loan should not exceed the amount put up by the other parties to the enterprise. I do not say that that principle has been insisted upon to the last penny, but, as a general principle, it has been applied in all cases. Where the amount to be secured upon a guaranteed loan was substantially in excess of the amount which the applicant himself was putting into the enterprise, we have generally refused the application or postponed it until the applicant made another effort to get new capital subscribed for the enterprise.
In fact I may say that is the principal change which we are effecting under this Bill. We are making other changes. One of these is very largely an administrative one. The other is really only a notional change. Under the original Act there was an advisory committee consisting of business men who acted without remuneration. That committee examined all applications and made recommendations on them to the Minister for Industry and Commerce. In the majority of cases the recommendation of the advisory committee was not accepted by the Minister for Industry and Commerce. In every case where the committee rejected an application then the application went no further. The position, therefore, was that if the committee rejected an application it stopped there, but if they recommended it it did not necessarily go on. We have found that the work under these Acts has increased considerably. The time required from the business men who are members of the committee has been so considerable that they have, in fact, on occasions asked to be relieved from it, because they have discovered that it has been taking up a greater part of their available time than they are prepared to give. It is intended to amend the Act by inserting words that different committees may be appointed for the purposes of the said section in respect of the different matters, or for different occasions. In other words, it is proposed of the said section in respect of the different matters, or for different occasions. In other words, it is proposed to have not one committee, but perhaps two or three committees. The intention is to appoint a permanent chairman who shall be a civil servant. His work will be to prepare everything relating to the application and have it ready for consideration by the committee when it meets. It is proposed to associate with the chairman a panel of business men from which committees will be drawn to consider applications when made, so that conceivably we could have two or three applications under consideration at the same time.
One of the main complaints, I think, made concerning these Acts in the past is the long time an application took before it could get through. I think it is quite true to say that in certain cases firms have gone out of existence before their applications were decided on. We are trying to reduce the period of delay, while at the same time not diminishing the safeguards which delay undoubtedly created or the opportunities for the careful examination which it is very desirable should take place. The provision in the Bill is the method proposed to achieve that, namely, the constitution of this panel and the appointment of a permanent chairman. It is also proposed to permit of loans in certain cases to be given to individuals.
Under the existing Act loans can only be given to companies. Ordinarily, when this Bill goes through it will be the practice of the Department, in every case possible, to get applicants to constitute themselves into companies and make their applications on behalf of companies rather than as individuals, because there are certain obvious advantages in that. A company continues in existence but an individual may die. A company can give a charge over its book debts; an individual cannot.
In certain cases where very special considerations would exist, we found that it was undesirable that we should not have power to give loans to individuals where the assets of the individual were obviously good security for the loans and where there was a difficulty in carrying the proposal of the Department that the business should be handed over to the company instead of being continued in the ownership of the private individual. It is desired to amend the Act in that respect, even though as I have said the practice will be to require applicants to make their applications on behalf of companies rather than on behalf of themselves individually. These are all the alterations which are made here. One other alteration it is intended to make which does not require legislation, that is, to make the loan on the security of a debenture deed instead of a trustee deed, as at present. The present procedure is very slow, involves legal difficulties and is highly costly. We are quite satisfied to accept debentures in an industrial concern as good security for a loan we guarantee.
Section 5 requires a little explanation. At the present time there is an arrangement in existence by which trade loans guaranteed by the State under these Acts are taken up by one or other of the joint stock banks on terms which are considered satisfactory. Up to recently the banks did not take up trade loans, but there was another organisation, the Industrial Company of Ireland, which financed them. That organisation is not now functioning. There was for a short period a difficulty arising out of the fact that a person might get a State guarantee for a loan which he required to raise and that still he might not be able actually to negotiate that loan. That was a most unsatisfactory position, but it was ended by the arrangement which is now operating, an arrangement which I think will continue. It was felt also that there was a weakness in the working of the original scheme in so far as the State could only guarantee and could not make loans. There is not, of course, any difference in the State's liability in making or in guaranteeing loans. It was recommended and we agreed that a section should be inserted which gives the Minister for Industry and Commerce power in any case where he could guarantee a loan to make a loan instead if the occasion seemed to necessitate it. We do not anticipate that that occasion is likely to arise in any circumstances that we can foresee at the moment.
The other sections of the Bill are of no particular importance. They merely carry over into the new Act provisions regarding the publication of quarterly and annual returns and the like. I do not know whether it is desirable that I should attempt to give any review of the working of the Act. As most Senators are aware, the history of the Act has not been altogether satisfactory. It was operated until 1931 to the extent that some 16 or 18 applicants got State guarantees. The total amount which was guaranteed was £340,000. Of that a very considerable portion was lost in the sense that the companies concerned were unable to make good and the State had to make payments on foot of its guarantee in respect of interest or principal. There were six firms concerned in these losses. All that amount had been lost in 1931 and for the whole of that year, and in fact for the year previous no new guarantees were given.
The Act in fact did not come into operation again until after the change of Government last year. Some four or five guarantees have been given since and there are at the present time under consideration a number of other cases, some of which are likely to go through and some of which are likely to be rejected. None of them have any direct bearing upon the Bill before us. The total amount guaranteed under the Act since 1924 was £340,000 and the total amount issued out of the Central Fund in respect of the guarantees was £215,000. However I feel that these cases cannot be taken into account in determining one's attitude towards these Acts. These losses might have occurred under any circumstances. In each case some definite cause could be assigned but it has no particular bearing on the Bill before us because none of the changes it is proposed to make in the law under the Bill, has any relation to these cases nor would it have made any difference if the law had been originally introduced in the form in which it is now proposed to make it.
I said in the Dáil that the Act could be administered well or badly. If it is administered well the possibility of loss is minimised. It is administered badly losses are almost bound to occur, but I do not think that the losses could have been avoided in some cases. I mentioned that in one of the cases the circumstances which produced a loss could not possibly have been foreseen when the loan was guaranteed. There was a very considerable fall in the price of the commodity. The bottom fell out of the market entirely and the industry had to close down and the loss had to be met. In other cases, the circumstances might have been different but it is not necessary that we should go into details concerning them. In these cases the safeguards that were considered desirable in 1924 were evaded or did not prove of any avail. The removal of provisions which did not prove any safeguards but merely restrictions are desirable if the Act is to be any use in the future in facilitating industrial development here.
