Seanad Éireann debate -
Wednesday, 21 Jun 1933

Vol. 16 No. 27

Public Business. - Trade Loans (Guarantee) (Amendment) Bill, 1933—Committee Stage.

Sections 1, 2 and 3 ordered to stand part of the Bill.

SECTION 4.

Section 1 of the Act of 1924 is hereby amended as follows, that is to say:—

(a) different advisory committees may be appointed for the purposes of the said section in respect of different matters or for different occasions;

(b) sub-section (1) of the said section shall have effect as if after the word "unincorporate" there were inserted the words "or by any individuals or individual";

(c) in the application of the said section to loans raised in connection with or for the purposes of a manufacturing undertaking, the said section shall have effect as if the word "capital," where it occurs in the expression "capital undertaking," were omitted;

(d) sub-section (4) of the said section shall not apply to any guarantee given in respect of a loan raised in connection with or for the purposes of a manufacturing undertaking.

Sir John Keane

I move amendment 1:—

Section 4. To delete in line 45 the word "may" and to substitute therefor the word "shall".

The effect of this amendment will be to ensure that every application will be referred to the Advisory Committee. The amendment may not be necessary and the Minister may say that it is already provided for in the Bill. This Bill being largely legislation by reference I am not at all clear on the point. If the Minister will give me an assurance that every application will be vetted by some form of advisory committee I shall be satisfied.

Minister for Education (Mr. Derrig) (for Minister for Industry and Commerce)

I can give the Senator the assurance that all applications under this Act will be carefully investigated by a committee, but I cannot say that, in order to meet the object of the amendment, the Minister would definitely bind himself to appoint a different committee in respect of each individual matter or question.

Sir John Keane

I am quite satisfied with the Minister's assurance.

Amendment, by leave, withdrawn.

Sir John Keane

I move amendment 2:—

Section 4. To delete paragraph (d).

The effect of this amendment will be to restore the position under the Principal Act whereby no trade loan guarantee could be given for the purposes of working capital. I consider that was a very wise precaution. The Minister, on the Second Reading, justified this new proposal whereby working capital will be eligible for the guarantee on the argument that a person might, in the first instance, invest his own capital in buildings and then have none left for the purposes of working capital. Surely that position could be met under the old Act, because if he merely advances his own capital for the purpose of buildings of a fixed character it will be quite possible to regard that in the nature of an advance and let the Government advance take the place of that, setting free the money given under the guarantee for working capital. What I fear will happen under this new proposal is that a person with little or no resources, the possessor of buildings which he has inherited or which he has been in possession of for a considerable time, buildings on which no expenditure has been made for many years and which, perhaps, are not up-to-date in any way, will come along and say that he wants capital merely for the purposes of working capital. A guarantee in such a case would, I consider, be very undesirable. It was the object of the original measure to avoid circumstances of that kind, and I do not see that it should be departed from now.

Mr. Douglas

While I sympathise to a considerable extent with some of the arguments used by Senator Sir John Keane, I do not agree that this amendment would be a wise one to accept or that it would help the position. I think I am correct in stating that what he said in regard to the old Act was not the case. It was definitely ruled that it was not possible to obtain a further loan under the conditions to which the Senator referred. That is not my principal reason for opposing the amendment. There are two classes of concerns that, to my mind, are properly eligible for a Government guarantee. One is a perfectly new concern in which a substantial amount of private capital has been introduced. Personally, although it is not in the Act, I think the Government will have to introduce for their own safeguarding some kind of general rule as to the percentage of private capital which they will insist on having introduced into a concern. I do not think it matters very much as to whether that private capital is technically used for working capital or whether it is used for buildings. It is the proportion of the total amount of money that is being put into a concern, as represented by assets, which really matters. The other class of company that I have in mind is one that is already in existence, one in which a substantial proportion of money has already been invested. For the sake of argument, if you have a company with a capital of £200,000, which wishes to make another article or extend its present works, and wants a loan of £30,000 or £40,000, then part of that will be essential for working capital, because if you extend machinery or extend your business you require an increased amount of working capital. A loan of £40,000 to a company already in existence, with £200,000 invested in it, is a far safer loan for the State than a loan of money that is going to be put into brand new buildings which a few days after they are built will be worth only a half or a quarter of the money advanced if the company wound up. Therefore, I think the arbitrary provision with regard to working capital was a mistake. It made it more difficult for money to be advanced to existing concerns. In fact, existing concerns were ruled out completely under the old Act. I admit there is difficulty in saying what the percentage ought to be, but I believe the Government will find it desirable to insist on a general percentage for working capital fixed in relation to the amount of private capital invested in a concern. I do not believe the amendment would achieve what Senator Sir John Keane requires. It would prevent, I think, the guaranteeing of loans of a most desirable character to firms already in existence; firms which have been reasonably successful and wish to extend.

Mr. Crosbie

I am rather inclined to agree with the views put forward by Senator Sir John Keane. I think it would be very wrong to provide working capital out of Government funds for any business. In the case of a firm, such as Senator Douglas spoke of, requiring a loan of £30,000 it ought to be in a position to give a mortgage on its premises and machinery that would enable the Government to take the place of a bank. A bank might require more liquid security than the Government, but under this Act I certainly think it would be very short-sighted on the part of the Government to give a guarantee for a loan required merely for the purposes of working capital.

Mr. Douglas

Arising out of what Senator Crosbie has said, if a company even borrows £10,000 or £15,000 to purchase machinery for extensions, that becomes a first charge and therefore, will definitely limit the further borrowing powers of that firm from a bank.

Mr. Derrig

I do not know whether Senator Douglas's suggestion would be feasible because while the Advisory Committee up to the present, I think, have insisted in practically all cases on applicants putting up 50 per cent. of the capital required there may be special cases where, for reasons of Government policy, we consider that additional assistance might be given on general national grounds—for the development say of particular areas or because an industry is definitely experimental and is in the nature of scientific research. We have these special cases, but I do not know whether a percentage arrangement would be feasible. I can promise the Senator that I will look into the matter with the Advisory Committee.

As regards the amendment itself I fear that if we accepted it we would be negativing the whole principle of the Bill. The position which we found ourselves in was that we had certain industries in respect of which the situation was as Senator Sir John Keane himself referred to the applicant had expended his money on buildings, plant, or premises. The money having been expended in that way it was not possible, under the old Act, to recommend the application for an advance. It was definitely excluded and a loan could not be guaranteed upon it. We had some cases of that kind. Then, again, we have to depend largely on the Advisory Committee. It is composed of an independent body of businessmen who have had a good deal of experience of this work. They are absolutely free in making their recommendations. If their recommendation is in favour of the rejection of an application the Minister, I think, invariably accepts it. If they recommend the guaranteeing of a loan the Minister, I think, also accepts their recommendation. The members of the Advisory Committee are quite free and independent. Senator Sir John Keane wants to amend the Bill in the drastic way he proposes, but we have to assume that the members of the Advisory Committee will act as reasonable men and will not put up any proposition that they cannot stand over. After all, it is quite usual for business people to go to the banks and get overdrafts for the purposes of working capital. It would be a very serious position if industries had to close down because of a mere technicality although the Department of Industry and Commerce, the Advisory Committee and the Department of Finance were satisfied that there was a good case for a guarantee. It would be a very serious thing if the application should be rejected and perhaps an industry closed down because of this technical defect in the law.

The whole object of the Minister in this Bill is to deal with that kind of situation. It is not anticipated that this Bill will be permanently necessary. A Bill was introduced in the Dáil to-day to deal in a different way with the question of industrial credits. I think the Senator might withdraw his amendment in view of the fact that he has the Department of Finance and the Advisory Committee to safeguard the position, and further, that it has been the practice up to the present for the Committee to insist on 50 per cent. of the money being put up. The Committee will have to satisfy themselves that it is impossible to raise money from the banks or in any other way, and that the applicant has made the best effort possible to raise the money by his own private endeavours before they will recommend the application. If the Committee are not satisfied on all these points, the chances are that they will reject the application. The Senator will recognise that the Committee are not blind to the fact that manufacturers have every opportunity under the present tariff system of making good. They have got quite exceptional opportunities, and, therefore, I can assure the Senator, that it is only in very exceptional circumstances, where we felt that an industry was definitely in danger, that we would be anxious to implement this new amendment of the Trade Loans Act. I fear, therefore, that I cannot accept the amendment. It would be at variance with the whole principle of the Bill.

Sir John Keane

I do not like the sort of picture that the Minister has shown us of these trade loan guarantees coming to the rescue of an industry in danger. Surely that is not the purpose of the Bill. The purpose of the Bill is to create fresh employment, to enable retail prices to be reduced, and not to save concerns in general. I am alarmed because I can see the Government stepping in to enable concerns to pay off their creditors. Banks very seldom do that. Banks, with all the precautions they take and all the security they get, make, unfortunately, quite a large amount of bad debts. Here—the Minister will correct me if I am wrong—I see a position where the fixed assets of a concern have been fully pledged already and where further capital is required. That capital, if used for working capital, will be unsecured. If it is used to pay off the prior creditors who have a lien on the fixed property, it will no longer be required for working capital. It is because the previous experience of these trade loan guarantees has been so unfortunate that I feel the House would be wise to insist on certain specific precautions. If it decides in its wisdom not to insist on any statutory precautions and, as the Minister says, leave it to the Advisory Committee, well and good, but previous experience does not show that the money will be very safe by that method.

Amendment put and declared defeated.

Section 4 ordered to stand part of the Bill.

Sir John Keane

I move amendment No. 3 :—

New section. Before Section 5 to insert a new section as follows:—

Section 6 of the Act of 1924 is hereby amended as follows, that is to say, by the addition at the end thereof of the words "and (a) the amount of capital repayment outstanding, and (b) the amount of interest in arrear."

At present under the Principal Act the Minister has to lay before each House within one month after 31st March in each year an account up to that date of the total sums, if any, which have been issued out of the Central Fund under this Act, and the total sums, if any, which have been paid into the Exchequer in repayment of sums so issued. This new section, if it is passed, will require him to give this further information annually, that is to say the amount of capital repayment outstanding and the amount of interest in arrear. Heretofore a considerable time has elapsed before the House has been aware of the large losses under this Trade Loan Guarantee Act. It does seem only right and proper that the House in placing the resources of the State at the disposal of private enterprise should know from time to time, as an ordinary business precaution, how the loan is faring. If an advance is made under certain conditions of capital repayment, and if these capital repayments are not made, it is surely reasonable that this House and the Dáil should know that. In the same way if the interest is not punctually paid Parliament should know. That will be the effect of the new section. It seems to me entirely reasonable that, when we are practically becoming partners or shareholders in a business, we should be informed of the progress of that business and, that if it is not going well, we should be informed of that fact at least once a year.

Mr. Douglas

Would the effect of this amendment be that individual defaults should be made known to the Dáil and Seanad? If that were so I think it might be very serious.

Sir John Keane

The effect of the amendment would be to show the capital repayments in the aggregate. The return would not particularise; it would not specify the actual firms or the actual business in default.

Mr. Johnson

It seems to me that in that case the amendment is of no value. What is the purpose of the amendment? Say there are 20 firms who have obtained loans, that 19 of them are paying up, but one, a very large one, is not. You publish the deficits of the one, but that gives no information. The purpose of the amendment surely would be to find out if particular firms are in default. If that is the purpose, surely it is not very wise to make a comparison between banks and the publication of any information regarding cash transactions with their customers. It seems to me that is the analogy. If you ask the Minister to publish the position of every individual firm for the information not merely of the members of the Dáil and the Seanad, but for the information of the world, you are not doing what banks would do. Further, I would point out that the directors of the financial undertaking are well aware of the position, that is to say, the Minister for Finance and the Comptroller and Auditor-General are made aware each year of the facts of the matter, and if there is anything to be reported it will be brought to light in the report of the Comptroller and Auditor-General. I thing the suggestion to publish individual cases would be disastrous if adopted, and to publish the total would be useless.

Mr. Comyn

I think Senator Sir John Keane used an argument which really does not apply. He says that a sum of money has been lost in the early stages of the application of this policy. We admit that some money was lost, but in things like that, when they are in an experimental stage, it is usual to sustain some loss. Therefore, I think what happened under the former Administration is really no strong argument at the present time. What is the object of publishing these two things—the amount of money outstanding and the amount of interest in arrear? Senator Sir John Keane says he does not want it in the case of individual firms. In that he is very reasonable. He does not want it in the case of individual firms; he only wants the aggregate. What does he want the aggregate for? Is it for the purpose of having here each year a debate as to the wisdom of this policy of supporting industries? It would take a considerable amount of capital in arrear and a great amount of interest in arrear to deflect me, for one, from the policy of favouring industries in parts of the country where capitalists as a rule are not inclined to invest money and where employment is most needed. I think Senator Sir John Keane having stated his position and shown his knowledge of the earlier Act and of this Act, should allow the Bill to go as it has been drafted without amendment.

Mr. Derrig

The procedure which has been in operation up to the present has been in operation since 1924. While I must agree with Senator Sir John Keane that we have had unfortunate occurrences in the operation of the Act, I think that far from this proposal being reasonable it is most unreasonable, coming from a Senator who knows how extraordinarily careful commercial concerns must be about having their financial position made known to the world. The Advisory Committee is what we have ultimately to depend upon, and while we have had these unfortunate occurrences, as a result of which the State has lost money and lost heavily, we have to assume, and I assume, that this Committee, while anxious to encourage industry, will on the whole be just as careful of the taxpayers' money as bank directors are of a bank's money. Nobody could suggest to a bank that they should give the slightest information as to the financial position of the firms with whom they are doing business.

It is suggested here that we should publish to the world in the initial stages the difficulties of industries which are depending on our aid. The fact that you publish the aggregate only does not mean anything. It may be that one company would be involved, but, in any case, every company that is getting a loan is going to be adversely affected. Its credit is going to be very badly affected in the eyes of the public if any particulars regarding arrears are published. I think the amendment is altogether unreasonable and would be most unfair. We are out either to help firms, or we are not. If we accepted the amendment, I do not think that business people would take us seriously, because obviously we would not be taking even the ordinary precautions to keep their affairs private. If it happens that something goes wrong with the affairs of a firm which has obtained a loan and that that is published, the position would only be worsened. The Senator knows, too, that the Department will have a full knowledge of any case where default is likely to arise, or actually arises, and the question is likely to be dealt with in the reports of the Comptroller and Auditor-General. I think the amendment would be altogether unfair and unjust in operation.

Sir John Keane

Notwithstanding the criticism which has been made of the amendment, I do not think it is at all unfair. The information will be given in the aggregate. There will be no more revealed to the public than is generally common knowledge, because word is passed round quickly in commercial circles when people are in difficulties. Through enquiries of various kinds and from various sources, business people have a very shrewd idea when other concerns are in difficulties. Senators who have spoken against the amendment do not seem to be seized of our duty in this matter. We are allowing State resources to be used to start enterprises and we are quite satisfied, apparently, to let the position drift until after two or three years we may be faced with the fact that two-thirds of the capital has been lost. It is our duty to know from time to time, not how individuals are faring, but how the total liabilities of our debtors are in the aggregate being discharged. I do not for a moment accept the view that this amendment is in any way unreasonable. On the other hand, I consider it is our plain and bounden duty to have these things published if we are to have regard to our responsibilities to the taxpayer. As for Senator Comyn's comments, we do not appear to talk in the same language. Senator Comyn is prepared to hand out public moneys right and left to anybody who wants it—that is my interpretation of his statement— for the purpose of relieving unemployment. I consider that if that attitude were adopted we should shortly find ourselves bankrupt.

Mr. Comyn

Senator Sir John Keane with his usual eloquence has tremendously overstated what I intended to convey. I intended to be quite reasonable, and not to throw away public money right and left. I am merely considering the fact that there are certain areas in this country where unemployment is great, where employment is very much needed, and where somebody must take the risk which an ordinary investor would not be in a position to take. Let me show how unreasonable Senator Sir John Keane is. Let us suppose that Senator Sir John Keane and myself are two successful applicants for a trade loan, that Sir John Keane pays up his principal and interest, and that I do not pay up either principal or interest. We are both bracketed together. There is shown in the annual return that there is so much money outstanding for principal and interest unpaid. Certain ill-disposed people might then say: "There is Sir John Keane; he got an advance of money and he has not paid either principal or interest." His plan of aggregating the good and the bad is very unfair to the good. The only fair amendment would be to provide for the publication of the names of the firms which are in default, and the amounts which they are in default, both in regard to principal and to interest. That would be fair, but everybody admits it would be very bad business.

Mr. Douglas

It would not be fair, unless you gave the reasons.

Mr. Comyn

It would not be fair in any case. I was yielding too much to Senator Sir John Keane.

Sir John Keane

In some quarters that is done. The banks give information in the form of aggregation. The census follows the same method. It is a common method of giving information without revealing individual identity, and I still adhere to the argument that I put forward.

Mr. Derrig

The Senator has not referred to a single good or useful purpose which this amendment would serve, save the mere publicity. Publicity, of itself, is valueless in respect of this matter.

Sir John Keane

It is the duty of this House to discharge its responsibilities to the taxpayer. The taxpayer should know how these advances are being secured, and he should be given information which would enable him to decide whether or not his money is being properly protected.

Amendment put and declared lost.

Sections 5 and 6 ordered to stand part of the Bill.

Question proposed: "That Section 7 stand part of the Bill."

Sir John Keane

On this section, may I ask for information? Under the Principal Act, a return is published of the total amount of advances made during the previous quarter and the amount of interest arising thereon. In the last return, two advances are set out and the figure given for interest liability is 2½ per cent. I think the Minister will agree when I suggest that that is not the rate of interest paid by the borrower. That return has caused considerable misunderstanding in business circles, suggesting, as it does, that a person secured under the Trade Loans Act can go and borrow money at the rate stated. Will the Minister be good enough to clarify the position?

Mr. Derrig

The statement is a statement of guarantees and the rate of interest shown thereon is the rate guaranteed by the Minister under the Trade Loans (Guarantee) Acts. The interest actually charged is greater and, in such cases as are financed by a bank, the interest depends upon the current bank rate and is therefore a fluctuating amount. In case of default, the charge upon public funds is limited to the rate of 2½ per cent. I am having arrangements made to have a note added to the statement which will make the position quite clear on the face of the document.

Question put and agreed to.

Section 8 and Title agreed to.

The Seanad went out of Committee.

Bill reported to the House.