Vol. 29 No. 6
I move amendment No. 1:—
In page 12, to delete lines 21-22 (paragraph (b) of Section 17, sub-section (2)).
This amendment of mine really hangs together with another amendment that I propose to Section 22. If the House is agreeable, I will make a brief statement with reference to this particular amendment and, at a later stage, talk at greater length with reference to the two combined.
I take it that the House is agreeable to that course.
I urge that there should be no final decision taken with reference to the first amendment until the House decides the point raised on the more important amendment which goes with it.
I am afraid that would scarcely be in order. We must dispose of each amendment separately, seeing that they are not necessarily interdependent.
I would not like to have any decision taken on this amendment by itself, but would prefer a decision taken on the two. I would not have put down amendment No. 1 except as contingent and part and parcel of the policy in amendment No. 3.
The amendments can be discussed together and a question can be put on the subsequent amendment.
That is a matter for you, Sir, and for the House. There are one or two points I would like to make in connection with the first amendment. As the Bill now stands, there is an obligation on the company to redeem substituted debenture stock in the year 1960 and the amount of that substituted debenture stock is, I believe, a total of about £10,000,000. It will be a considerable burden on the company and, perhaps, on other interests as well, if in the meantime adequate provision is to be made for this compulsory redemption of so large an amount of capital in 15 years' time. The burden must be divided in some unpredictable proportion between the users of transport-adding to the cost of transport services —and, possibly, the taxpayer, while there may be some repercussions on the incomes of stockholders and railway workers. In view of the much more efficient organisation of railway workers than of stockholders, it is quite likely that the main burden in that connection will fall on stockholders rather than on railway workers.
The obligation to redeem so large an amount of the capital of the company may turn out to be quite unnecessary. I think the Minister has admitted that no one can really state precisely the present real value of the capital assets, fixed and otherwise, which are to be taken over and absorbed in the new transport company, but there is underlying the existing provision in the Bill an assumption that the present capital assets of the Great Southern Railways and the Dublin United Transport Company are worth very much less than the figure at which they stand in the aggregate of the common stock and debenture holding account. The Minister is of the opinion that the assets of the railway company especially are so deteriorated and so obsolescent that the valuation of about £12,000,000 —which is the present valuation— exaggerates the real value of those capital assets. I submit that that is only an opinion, which may be completely falsified by the events of the next ten or 15 years. With the great development and prosperity of the company that the Minister hopes will follow from his industrial policy, it may turn out that the assets associated with the transport company, so far from being obsolete, may have a new lease of life. The various branch lines now threatened with abandonment may suddenly come to most vigorous life again and, so far from obsolescence, there may be a recrudescence of the value of those fixed assets, especially of those associated with the railway company.
The point, at any rate, is that we have no right, and the Minister has no right, to pre-judge now what will be the value of those assets in 15 years time. I do accept the view that we should make it part of our transport policy that the capital account should be kept at par with the real value of the capital assets of the transport undertaking from the point of view of their physical efficiency and their earning capacity. The earning capacity of capital assets is something which it is rather difficult to analyse and somewhat dangerous to prophesy about. That earning capacity bears not only on the physical efficiency of the actual capital instruments themselves, but also on the prices that must be paid for the services of such factors as labour and management. In particular it depends on the efficiency of the management. With the kind of management which we hope and believe the transport company will enjoy over the next few years, it is quite likely that the earning capacity of those existing assets will increase rather than diminish. Therefore, there will be no reason whatever for reducing the capital account in 15 years' time.
Another factor on which the earning capacity of the capital assets obviously depends is, of course, changes in the demand for the specific services of the various capital instruments that are associated with transport. Well, of course, we cannot predict what that will be, but at the same time, we must make provision for the possibility of such changes. That is where the depreciation fund, which I am subsequently going to recommend, will come in, as well as providing for the physical deterioration of existing assets. I think we should not pre-judge now what will be the real value of the capital assets of the transport company in 15 years' time. Therefore, we should not bind ourselves to repay so large an amount as £10,000,000 of debentures in 1960 or, indeed, to repay any given sum of debentures in 15 years' time at all. In the next place, I think that this provision compelling the company, and indirectly the State, for the two are closely associated, to repay £10,000,000 capital, in respect of which only 3 per cent. is being paid to debenture holders, seems to me to be very bad finance.
At the moment the State is able to borrow at long term, and organisations having a State guarantee behind them, can borrow at long term at about 3 per cent. That rate is abnormally and artificially low. The low level at that rate is the result of circumstances created by the financial policy especially of Great Britain and the United States of America from which we, over here, automatically are able to profit. Now, there is no guarantee that those nations, powerful and all as they are, will be able to maintain that artificially low rate of gilt-edged borrowing for more than a very few years after the end of the present European war. I know that they will do their utmost to maintain that rate as long as they can, but I think it is quite possible, and even probable, that they will fail to hold down the rate of interest for gilt-edged borrowing as low as 3 per cent., and that in the course of a few years they will probably have to admit a rate of 4 per cent. for the purposes of borrowing by the State in first-class credit. That being so, I think it highly probable that by 1960 the State will have to pay 4 per cent. for any new money it may require. A situation may quite well exist in which the company, which is bound to refund £10,000,000 on which it is only paying 3 per cent., will, at least, have to go to the capital market and borrow the best part of the £10,000,000 in order to redeem that amount of debentures. I want to relieve the State of the necessity of making such an unprofitable transfer in 15 years' time. In fact, I would go further and say that now that the rate of borrowing at long-term is so attractively low a State, constituted as we are, should borrow all it can at 3 per cent., provided it can find some productive outlet for the use of these funds. It certainly should not go out of its way to bind itself to repay money, on which it is only paying 3 per cent., in any future that we can foresee.
I accept the view that debentures should be redeemed from time to time if it turns out to be necessary to do so in order to bring the capital account into parity with the real value of the capital assets of the company. This view is embodied in the other amendment which I hope to have the privilege of arguing presently. But, in general, I would say that my effort in this amendment is to improve the Bill, even from the point of view of the Minister. In both amendments I have accepted what I regard as common ground with the Minister with regard to what should be the principle governing the capital value of the company in the future, and the relation between the capital value of its assets and the total amount of its debentures and stock-holding account. I hope that other Senators will give the House the benefit of their views on this amendment and not leave the argument on it between the Minister and myself.
If the Chair thinks that it would be better to have my amendment, No. 2, discussed with amendment No. 1, I am prepared to move it.
I think that would be the better course.
Provided, of course, that if there is any question of a decision on both amendments there will be separate decisions taken on them.
The Senator can have a separate decision on his amendment if he wishes.
In that case I move amendment No. 2:—
In page 12, Section 17, sub-section (2) (b), after the words "in cash" in line 22 to insert the words:—
"or at the option of the company by the substitution of such other debenture stock as may be created and issued in pursuance of any provisions contained in any subsequent enactment of the Oireachtas".
On this amendment I want to put my views briefly to the House and to the Minister. The Minister's point of view is that he believes that the assets of the company, represented by the substituted stock, are such that the capital liability for them should be wiped off by 1960. I believe that he can achieve that aim in a more satisfactory way by the instructions that he will give to the chairman of the company than by making redemption mandatory in the Bill. If it had not been for the fact, on the other hand, that I was impressed by the Minister's point in Committee, which was that the State must put some definite limit to the time during which its guarantee is to run, I would be in favour of Senator Johnston's amendment. If neither amendment is passed it would appear to me that the position in 1960, should the transport company not be as profitable as the Minister believes it will be, will be this: that the amount must be raised in cash if there is any amount then outstanding. If it is not raised in cash, and if the stockholders are asked to take anything less than cash, then it would be a breach of faith. I want to protect the situation so that if the Government of the day in 1960 finds that Córas Iompair Eireann has not been able to accumulate funds to pay off its debentures it will be free to make alternative conversion arrangements without anybody being able to accuse it of a breach of faith.
I do not think that there is much use at this stage in arguing this point further. My principal object in rising is to say that I consider that, possibly, the worst feature of the Bill, from the point of view of the public generally, is the provision that there must be redemption of the debentures by 1960. I honestly believe that the Government are making a mistake in placing that obligation on the company. It is quite impossible for the Minister or his Department, with all the information they have—it is much greater than any of us could possibly have—to forecast the future. The Minister has himself on more than one occasion pointed out the difficulty of even making plans owing to the lack of data. In that I agree with him. It seems to me that the Government are placing an obligation on the company without the possibility of knowledge and are assuming that the company should be able to repay the debentures in 1960. If they are not, when that time is reached, either the State must raise the money and repay in cash or face what would be an extremely unsatisfactory position. I do not think we have the right to give a guarantee which means that, in 1960, which is not so very far off, the Minister for Finance may be obliged to find that money. Nor do I think it is wise or sensible to place the company in a position in which, as an implied duty, it must set aside sufficient funds to meet that repayment in 1960, even though, in so doing, it may have either to reduce the value of its assets or increase its charges to the public.
I should like to support, in principle, what the previous speakers have said. It would help the House if the Minister would give some information as to what he has in mind regarding the redemption of those debentures. Does he think that the company will be able to create an adequate redemption fund? If he has that in mind, I think we should view this Bill with great apprehension, because I do not see how that fund could possibly be built up—it will, of course, all be a question of how the company succeeds—out of profits, without serious detriment to the common stockholders and the users of the railway. I shall deal with that matter on a later section. If the fund be not adequate for repayment in 1960, I take it the Minister has in mind that the company will make a further issue of debentures to raise the cash necessary to meet the shortage of cash in the redemption fund. Will it be possible to issue those further debentures under this Bill or will amending legislation be necessary? I take it that the £6,000,000 of unissued debentures under this Bill will be required for new capital development and that, if further cash is wanted for redemption of debentures, it will have to form part of a separate issue and further legislation will be necessary. I wish the Minister would deal specifically with those points—does he contemplate that there will be sufficient cash in the redemption fund to redeem those debentures in 1960; if not, where is the additional cash to come from; will there be a further issue of debentures for that purpose, and, if so, will further legislation be required?
The answers to the questions put by Senator Sir John Keane are: We anticipate that the company will have effected the redemption of the substituted debenture stock by 1960, either on a voluntary basis—by the purchase of the stock as it becomes available on the market—up to 1955 or compulsorily after 1955. If they have not succeeded in effecting the redemption of the whole of the substituted debenture stock by 1960, they may issue any of the balance of the new debenture stock not previously issued, up to the limit fixed in the Bill. If they have fully availed of their power of issuing new debenture stock and, consequently, have no means of raising money from that source, the Minister for Finance will make good his guarantee. If the Minister for Finance makes good his guarantee, then, presumably, the position of the company will require to be considered anew by the Government. The amount advanced by the Minister will be a charge upon the company, repayable to the Exchequer, and, probably, the formal expression of that charge will require the issue of new debenture stock, but that will be a matter for consideration at the time.
The objection to an amendment of the kind suggested by Senator Sweetman is that we cannot, in this Bill, provide what form future legislation may take. I understand that he has in mind the idea that, if we do not insert some such words as he suggests, we shall be debarred from arranging for the redemption of the substituted debenture stock by the issue to the stockholders of new debentures instead of cash. I think that we should be debarred from doing so. The obligation we accept in relation to those debenture holders should be clear and specific. That obligation should be to redeem their holdings in cash, by whatever methods the cash may be obtained. It would be undesirable, from many points of view, to leave the position indeterminate, so that the company could, of its own initiative, without reference to anybody else, effect the redemption at any time either by payment in cash or by the issue of new debenture stock.
My amendment does not suggest that the company should be able to do that of its own initiative. The Oireachtas would have to be consulted.
The form of the amendment arises there——
That is a drafting matter.
——because the provisions of any subsequent enactment of the Oireachtas will have to be decided at the time and would not be influenced by any provision in this Bill.
I agree.
Senator Sweetman did draw attention to an important point which was not referred to by Senator Johnston. The State is accepting a contingent liability in respect of the substituted debenture stock. It is regarded as sound financial practice to limit that contingent liability both in amount and in time and any proposal which would leave indefinite the duration of the State's guarantee or the amount that it might be called upon to meet under its guarantee would be undesirable. The provision in the Bill limits the duration of the State's guarantee in respect of the substituted debenture stock to 1960 and the State is not accepting any further liability in respect of the stock after that year. However, the main issue that arises——
Does the State not, by implication, accept liability to redeem those debentures if the company cannot do it?
Certainly. The State guarantees the debentures both in respect of principal and interest, and therefore will be obliged to provide the cash for the redemption of capital in 1960, if the company cannot provide it. However, the main question here is whether it will be possible for the company to appropriate out of revenue sufficient moneys to enable that redemption to take place in 1960, or whether the putting of the obligation on the company to undertake that will impose too heavy a burden upon the company, upon the users of transport, upon the stockholders, upon the workers employed by the company, or other persons who may be affected by the use or distribution of the company's revenue. In that connection, I think we must not leave out of account, first of all, that we are reducing the interest charge, which will arise in respect of the Great Southern Railways Company's debentures, by 25 per cent. We are giving to this new company, furthermore, the benefit of a substantial revenue that will accrue to it by reason of the amalgamation of the Dublin United Transport Company with the Great Southern Railways Company. There will be certain additional revenue which will also follow from the readjustment of taxation, in consequence of the amalgamation. The new company, therefore, will start off in a much stronger financial position than the Great Southern Railways Company now enjoys, or could possibly enjoy, if this legislation were not enacted. That new revenue, while, perhaps, not in itself sufficient to effect the redemption of the whole of the substituted debenture stock, will, nevertheless, be substantial in dimensions and would, if not availed of for these purposes, be used for reduction in charges, improvement in wages, payment of dividends to common stockholders, or in some such manner.
We think it is desirable and necessary to require the company to appropriate that additional revenue to this purpose of the redemption of its debenture stock, and to appropriate, for that purpose also, any new revenue that may be secured as a result of better management made possible by the amalgamation, over and above the amounts required to meet the new obligations which are also placed on the company, including the obligation to provide for the superannuation scheme. It is, of course, impossible to prove mathematically that by better management, by the amalgamation of the two existing transport organisations, by the overhaul of the company's methods of working, and the provision of new and more efficient equipment than it has previously possessed, the net revenue can be expanded by any given amount. We believe that it can. We believe that that expansion of net revenue need not necessarily represent any burden upon the users of transport. I admit at once the desirability of providing transport services at the lowest economic cost: the desirability of effecting a reduction in transport charges.
Perhaps I might be permitted to intervene for a moment. The Minister said "any burden". I take it that he had in mind any increased burden on the users of transport?
Certainly. I really meant, any undue burden. What would represent a fair price for transport services after the war is difficult to determine. There are a number of considerations that would arise there, as well as this obligation to provide for a redemption fund. In fact, it is not unlikely that increased costs of fuel, the operation of the superannuation scheme for workers, and similar developments, may impose upon the revenue of the company a bigger charge than will be necessary to provide an adequate redemption fund. However, I suppose that the answer to that argument is that the provision for the redemption fund has to be over and above any other charges that may arise for any purpose.
I stated in the Dáil that transport is sold at prices determined upon the principle of what the traffic will bear. That statement, I think, was misunderstood as indicating an intention to impose the highest possible scale of charges. In fact, however, transport cannot be sold on any other basis, and the amount of revenue which the company will be able to get by the sale of transport services will be determined by a variety of circumstances, not under the control of the company. The state of trade, the level of prices of agricultural goods and other commodities which are carried in bulk by the railway company, and a multitude of considerations which are not within the control of the railway management, will determine what the railway's revenue is going to be; and revenue, no doubt, may fluctuate from time to time by reason of changes in economic conditions. The function of any efficient management is to ensure that the cost of providing services is kept in such relation to the total revenue that can be earned that a net revenue will result, and the larger that net revenue is, the better the company will be able to provide for services, which might not be fully justified on economic grounds but which might be necessary for social or other reasons, such as an improvement in the conditions of employment of the workers concerned and also to provide for this redemption fund.
I said also that we must face a possibility—and I put it as no greater than a possibility—that, at some stage in the future, railways, as such, will cease to be the predominant part of the transport system. If that possibility exists, then we must contemplate the company being obliged to undertake substantial capital expenditure for the provision of transport facilities of different kinds, and we surely would not regard it as a good arrangement that these new transport facilities, provided out of new capital expenditure, should be required to earn revenue, not merely sufficient to meet the interest upon capital charges resulting from that expenditure, but also to remunerate the capital represented by railway lines, railway stations and railway engines no longer in service. Even if there were no other reason, it would be a wise course, I think, to require the company to effect this reduction in its debenture capital liability within a reasonable time. I mentioned, however, that on the assumption that railways will continue to be an important part of the total transport system of the country, we must face the need for a considerable reorganisation of these railways. Not merely will a great part of the existing rolling-stock have to be replaced by rolling-stock of a more efficient type and modern design, but many of the railway stations will require to be reconstructed to serve modern transport needs and the additional facilities which we think transport companies should be required to make available.
If there is to be capital expenditure of any magnitude upon a reconstruction of the company's system, then the old capital liabilities arising out of the original construction of that system must simultaneously disappear. Any other course would appear to involve a method of finance which would be fundamentally unsound. It is true that railway debentures were not compulsorily redeemable in the past, but the mere fact that they were not so redeemable does not of itself prove that that was a good arrangement. I think it could not be regarded as a good arrangement and, if changes had not occurred, we would have to contemplate the capital liability attaching to the transport system of the country continuously increasing. Prior to 1924, under independent railway companies, the total amount of capital which had been invested in these railways was £31,000,000. Since then there has been a substantial amount invested in road transport services, nothing like a comparable amount because, of course, road transport services do not require a permanent way and the elaborate equipment of buildings and the like which railways must have. Of that £31,000,000 there has been a substantial reduction compulsorily enforced by legislation from time to time. The first reduction under the 1924 Act was a comparatively small reduction, and the new Great Southern Railways Company which emerged had total capital liabilities somewhat in excess of £26,000,000. These were reduced to practically one-half by the Act of 1933.
In 1933 we could have proceeded in the manner suggested in this Bill. We could have said to the Great Southern Railways management at that stage, instead of compulsorily wiping out capital liabilities by writing down the nominal value of the shares, that an arrangement such as is being provided now should be accepted, an arrangement which would put an obligation on the company to effect a redemption of shares for cash out of revenue within a comparatively short space of time. The objection to that course in 1933 would have been that the company could not do it, nor did we see any possibility that the company could effect that redemption of its capital liabilities in that manner in any space of time, or at all. Having regard, however, to the extent to which the nominal values of the company's capital stocks were reduced then, we think it is not unreasonable to proceed in this way.
I do not mind confessing, because the House is already aware of it owing to the inquiry that took place, that when this legislation was being originally framed, we did consider very fully the desirability of a further compression of the capital liabilities of the Great Southern Railways Company, a further reduction in the value of the stocks, not in the precise manner adopted in 1933 but in another manner that would have, so far as the stockholders were concerned, a similar effect. We decided against that because on an examination of the situation it appeared to us possible to retain the nominal value of these stocks. But to effect a reduction in the total capital liability which we thought desirable, by this process of appropriating from revenue from time to time sums of money for a redemption fund and creating the situation which we regarded as desirable in a reasonable period ahead, certainly not less than 1960, I doubt if it could be properly argued that this reduction in the substituted debenture liability of the company is unnecessary. No matter how we regard the future, whether we think it possible that railways will disappear and be replaced by other forms of transport, or if we believe that the railways can be so reequipped and reorganised that their continued existence for a long time is certain, the wiping out of this substituted debenture liability appears to be a necessary step if the company is ever to be put on a sound basis.
Senator Johnston said that nobody could say what the value of the capital assets of the Great Southern Railways Company is. I do not think that is altogether correct. I think one could get a reliable estimate of the value provided one knew the basis of valuation and various alternative methods of valuing could be compared. The House is aware that a scrap merchant placed a definite estimate on the value of the assets of the company on the assumption that he was buying them for scrap. If we had to consider what would be the cost of replacing these assets, assuming that by some means they disappeared, then undoubtedly a different figure would result. I think we can have regard to the revenue which these assets are capable of earning. If one were attempting any valuation such as was suggested by Senator Johnston at any time in future, I think it could only be on the basis of the revenue-earning value and if we were to proceed on that basis then his suggestion would be completely impracticable because in so far as the value of the capital assets was considered to have been reduced by reason of the reduction in revenue, then we could not at that stage put on the company the obligation of effecting a redemption of some of the stock outstanding while on the other hand if they were valued on the basis of an improvement in revenue, it would be unnecessary to issue new stock in the manner proposed by him.
I do not think that Senator Johnston fully appreciates the situation when he said that we cannot decide now that these capital assets will not be restored in value. We must make up our mind now that the type of equipment which exists at the moment is unsuitable. I think we can take it that that decision is made, that neither the rolling-stock nor the station facilities in respect of the railway undertaking of the company are suitable to our requirements. They will have to be reorganised or be replaced by new assets and there is no possibility that these assets will revive in value. The illustration given by Senator Johnston, that branch lines which are now closed may become busy traffic arteries in future and be capable of earning revenue, is beside the point because, in so far as the railway system of the company is concerned, no decision has yet been taken to close any of the lines which were open before the war. It may be that in the reorganisation of the company's services some of these branch lines will be closed, but that is not decided, nor is it possible to state now which, if any, of these branch lines will be closed, but even assuming that none of them will be closed and that all will be used to the maximum extent possible, nevertheless many of the capital assets of the undertaking must be regarded as unsuitable—not necessarily unsuitable for the purposes of earning revenue but unsuitable for the purpose of providing in this country the facilities which we think should be there. It is true that those assets, unsuitable as they are, are earning substantial revenue at the present time, but present times are abnormal, and I doubt very much if they would be capable of earning anything like the current revenue in circumstances in which private individuals and private traders could, if necessary, equip themselves with transport facilities, and avoid the use of the public service altogether.
I must admit the force of the contention that it appears bad policy to provide for the redemption of stock, upon which the interest liability is 3 per cent. at a fixed date in the future at which we may be able to borrow money only at a higher rate of interest, but that argument is valid only if we take it for granted that the company will not in fact be able to effect the redemption of the whole of this substituted debenture stock at that period. In so far as the company issues new debentures for the purpose of acquiring new finance capital to undertake new developments of various kinds, then, of course, it will have to pay the current market rate of interest, and there is no alternative to that, but, while we have to recognise the possibility that the State in 1960 would have to pay more than 3 per cent. in order to get money wherewith to fulfil its guarantee if the company failed to provide a redemption fund for that purpose, I do not think we should assume failure, nor do I think there is any alternative to the course I have outlined unless we are prepared to contemplate those substituted debenture stocks becoming again irredeemable stocks, and the State's guarantee——
Or converting them. You could convert them into another stock.
I do not see any difference in that, if the Senator means converting them into other stock at the same rate of interest?
Yes.
That means that in 1960 we would give the people less than £100 for £100 worth of stock. That is precisely what it means. If in 1960 the market value of gilt-edged capital is above 3 per cent., then the debenture holders will gladly accept redemption, but if we give them a new 3 per cent. stock it means we are giving them less than £100.
If the Minister will allow me to interrupt, the basis of his argument, the basis of fixing 1960 as a redemption time, from the stockholders' point of view—I am leaving out the national point of view—is that the company is going to be able to pay by that time. If the company is in fact unable to pay by 1960, then in my opinion the debenture holder is not entitled to the full £100 if the rate of interest has gone down.
What is the stock worth to the holder? It is worth what people are prepared to pay for it. The substituted debenture stock of this company will always be worth in or about its par value on the market——
If you are going to redeem it.
——irrespective of the changes in interest, because it will be redeemed for par in 1960. But if we have an arrangement which contemplates the possibility that the stockholder will not get cash at par in 1960, then the value of the stock on the market will of course be much more influenced by the current market rate, and conceivably in 1960 if we were to give a substituted 3 per cent. security in exchange for this debenture stock it would have a market value substantially below £100 if the current rate of interest was substantially above 3 per cent.
And why not, if the company has proved a comparative failure?
The Senator must not take me as agreeing with the pessimistic assumption he has made.
I am only regarding a possibility. I am not trying to argue that it is going to be a failure or a success. I am looking at a possibility only.
And in 1960, if that situation has arisen, I say that the Government at that time must take the position under review and decide what is going to be done. The position at that stage would be this, that the company will have its common stock and whatever new debenture stock had been issued in the meantime, and also a debt to the State representing the total amount of money advanced by the State for the redemption of the substituted debenture stock which it was not itself able to redeem. What the Government would do in respect of that debt would have to be decided then. If the circumstances were such that the company could not possibly earn revenue to enable it to repay it, then the Government of the day would have to decide to what extent it had a good debt, or to what extent the public interest demanded that it should proceed on some other basis.
With regard to the suggestion that the debentures should be redeemed from time to time, I want the House to appreciate that there may be a difficulty in that. The circumstances at the moment are such that it would probably be difficult to purchase Great Southern Railways debentures or the substituted debenture stock of this new company when constituted. If there is a substantial change in interest rates, those circumstances may change, but it would, I think, be entirely false to assume that it would be possible for the company in normal circumstances to effect a complete redemption of its substituted debenture stock or any substantial diminution in the value of those stocks by voluntary purchase on the exchange. In fact, it may be that the company will not be able to effect any substantial redemption until it has the power to do so compulsorily in 1955.
I do not contemplate that it would be possible for the Government to carry out its policy in this matter by giving instructions to the chairman appointed by it, rather than by making provisions in a Bill. Apart altogether from the possibility of changes of Government and of different policies operating from time to time, it would I think be an invidious position in which to put the chairman. Having regard to the possibilities of changes of Government, and to the fact that we are now determining on a long-term plan, I think we should set out that plan clearly in the legislation and let the company's management know what is required of them, that there is a legal obligation on them, and not have them hoping that they will at some time escape that obligation by reason of a change in Government policy or a change in the Government itself. I think it would be an entirely wrong procedure to impose an obligation of this importance upon the company by means of instructions given to the chairman of the company, instead of by a provision in the legislation.
I do not think there is any other point to which I want to refer. I stated in the Dáil, and I must repeat here, that this provision in the Bill is regarded by the Government as one of its main provisions. We could not agree to accept an amendment which would involve an alteration in this respect without feeling obliged to take the whole Bill and examine it again, because the scheme for transport of which this Bill is a part envisages this wiping out of old capital liabilities represented by assets which are no longer worth what they cost originally, and many of which will in any event have to be replaced if we are going to have proper transport facilities. That, as I have said, is part of the scheme, and its deletion from the scheme would involve re-examination of the whole matter.
I take it that the Minister's reply concerns only the first two amendments and that I still have an opportunity of moving amendment No. 3.
I have been speaking on amendments Nos. 1, 2 and 3, but I am not limiting the Senator's rights.
In that case the Minister had the advantage of me, because I had not really argued the point from the point of view of amendments Nos. 2 and 3. I merely made a preliminary statement with reference to amendment No. 1 and I hope to have some opportunity of speaking to amendment No. 3 and of hearing the Minister at greater length answering me.
What a dreadful prospect.
There are one or two things I should like to say in answer to the Minister about amendment No. 1.
Is the Senator concluding on the amendment?
I am concluding in reference to amendment No. 1. I am willing to admit that there is a solitary advantage in having this compulsory redemption date of debenture stock and that is that it does keep the stock exchange value of these debentures at or near par over the course of the next 15 years and may possibly affect favourably the rate at which the company will be able to borrow new debentures for further developments, especially if these new debentures themselves contemplate a fixed date of redemption at par. But that advantage, such as it is, is one for which the company and the country are being asked to pay too dearly. The fact remains that in order to redeem debentures amounting to about £10,000,000, a sum of money of the order of about £700,000 a year, allowing for compound interest, will have to be set aside from year to year. That is a tall order. The Minister has shown an economy in the expenditure of the company by reason of the reduction of interest on debentures, which economy amounts to £100,000 a year, and he has mentioned various other matters which may lead to certain economies, the total of which might conceivably be another £100,000 a year. So that there is £200,000 a year available to meet the obligatory setting aside from year to year of money amounting to £700,000, but there is a very big gap between that £200,000 and £700,000 and that gap is going to be a costly business for somebody.
The remark by the Minister about the State seeking to limit its liability in respect of its guarantee in point of duration is to me quite unconvincing. In actual fact the State has become morally, if not legally, the owner of this transport company. We have in the whole principle of this Bill the substance of nationalisation without the form and the State cannot at any foreseeable time in the future divest itself of moral and financial responsibility for the welfare of this transport undertaking. Therefore, all this business of saying they must put a limit of a term of years to its liability for the debenture interest of the transport company is pure eye-wash. There can be no limit either morally or in respect of time. All that the Minister's redemption fund is capable of doing with reference to keeping the capital account of the company in a healthy condition will, as I hope soon to show, be done in a much more flexible and efficient manner by the depreciation fund which I hope to advocate in connection with my next amendment. That is all I wish to say by way of reply to the arguments we have so far heard but I hope the Minister will still keep an open mind in the matter and consider the whole principle of my two amendments together in connection with amendment No. 3.
I wish to withdraw amendment No. 2, but at the same time I want to make it quite clear on the records of this House that I think that if both the Minister and I live until 1960, he will feel sorry or the Government of the day will feel sorry that they have not got a freer hand then.
If we are not alive, we will never know.
I move amendment No. 3:-
In page 14, to delete Section 22, lines 11 to 25, inclusive, and substitute therefor the following section:—
22.—(1) A depreciation fund shall be set aside from year to year of such an amount as will be adequate to offset any diminution in the value of capital assets through physical deterioration or obsolescence.
(2) In the year 1955 and in every tenth year thereafter an impartial expert authority shall be constituted by the Minister with the function of examining all the fixed assets and other capital equipment of the company from the point of view of their physical efficiency and earning capacity.
(3) If it appears from the report of such authority that the capital assets in question are worth less than the nominal value of the combined total of common stock and outstanding debentures, it shall be obligatory on the company to redeem an amount of debenture stock equivalent to the difference between these amounts. Such redemption shall be effected in the course of the next following five years, and shall be made from the proceeds of the depreciation fund provided for in sub-section (1) of this section.
(4) If, however, it should appear from the report of the authority provided for in the foregoing sub-section of this section that the capital assets in question are worth more than the nominal value of the combined total of common stock and outstanding debentures, then in such a case, the nominal value of the common stock shall be written up by an appropriate amount.
(5) The action prescribed in the foregoing sub-section shall be repeated in every successive tenth year beginning in the year 1955.
The object of amendment No. 3, read in conjunction with amendment No. 1, is to provide, as I think, in a more scientific and desirable manner for the objects which are provided for by the redemption fund in Section 22. I accept the principle which the Minister is so emphatic about, that the capital account of the company should be adjusted from time to time by redemption of debentures, for example, in such a way as to maintain the capital account of the company at par with the real value of its capital assets, having in mind especially the earning capacity of those assets. I propose to provide for that desirable object by making it necessary for the management of the company to set aside from year to year a depreciation fund, giving the management of the company a certain discretion during the first ten years with regard to the amount of that fund which they should aim to set aside. It will have to be of a somewhat hit or miss kind during those ten years when the whole transition period is in progress and when it is difficult to assign any real permanent value to the existing capital assets of the company. Nevertheless, they should set aside a fund of, say, at least £100,000 a year to go towards a depreciation fund and then at the end of ten years there should be an impartial examination of the capital assets of the company from the point of view of their physical efficiency and their earning capacity and, in the light of the report of that impartial expert body, the company should then decide to make whatever adjustments are necessary in the amount of its annual setting aside to depreciation account and, if necessary, make that account so big that they can redeem whatever amount of debentures is necessary.
To my mind, the proper function of a depreciation fund is to maintain that desirable parity between the value of the company's stocks and shares and the real value of its capital equipment from the point of view of its earning capacity. The first charge, of course, on the working of a company must be the adequate maintenance and repair of all its equipment. That has a higher priority even than the provision of a depreciation fund, but, as everyone knows, there are certain causes of physical deterioration which cannot be guarded against, no matter how adequately any instrument is maintained and kept in repair. We ourselves suffer from that kind of physical deterioration and in course of time it becomes a question of finding somebody to take our places. As every owner of a motor car knows, he must set aside, or should set aside, a certain amount for depreciation year after year because he cannot possibly maintain the full value of his car no matter how well he cares it and keeps it in repair.
There are two principal objects with reference to which a depreciation fund should be set aside. One is to provide against the gradual loss of capital resulting from wear and tear and physical deterioration. The other is to provide against the loss of earning power that may come about through the obsolescence of existing capital equipment. Obsolescence is a different kind of thing from physical deterioration. It takes place owing to changes in the demand for different kinds of transport, for example, or owing to new inventions or methods of transport which render former methods of transport more or less obsolete. It is difficult to foresee and provide in any precise manner for depreciation of capital assets through obsolesence, but nevertheless it is a part of wise finance to make such provision as far as possible and from time to time to take stock, so to speak, to see that adequate provision has, in fact, been made, or to make adequate provision if it has not been made. A depreciation fund, then, is necessary, both to provide for physical deterioration of capital assets and to provide for the possibility of their obsolescence.
In this connection, may I illustrate from a simple example the way in which that depreciation fund should be used? We will suppose that the transport company issues £1,000,000 worth of new debentures, and uses that £1,000,000 to acquire 1,000 Diesel engine trains costing £1,000 each; we will assume that these Diesel engine trains are the last word in up-to-dateness for modern transport requirements of a certain category, and that the life of these trains is ten years; that during those ten years they are absolutely useful, but at the end of the tenth year are absolutely useless. In other words, they are going to be worthless in ten years. In that case it would be the duty of the company— ignoring compound interest in this connection—to set aside in a depreciation fund £100,000 every year, which, at the end of ten years, would amount to £1,000,000. That £1,000,000 in the depreciation fund could be used to buy 1,000 new Diesel trains if they are still the last word in modern transport methods. In that case there is no earthly reason why there should be any reduction of debentures or capital account, as the fund would be used to restore the value of the assets and parity would be retained. On the other hand, suppose that in ten years' time Diesel engine trains had become obsolete and that jet-propelled planes are the last word for transport services, formerly performed by Diesel engine trains. We will suppose that it would be possible to acquire for £500,000, 1,000 jet-propelled planes to do such work. The company could buy 1,000 jet-propelled planes with £500,000 from the depreciation fund and at the same time take another £500,000 out of the depreciation fund to redeem £500,000 worth of debenture stock.
My depreciation fund makes provision for uncertainty in the future in both directions. It provides for the redemption of debenture liabilities or continuous renewal of the capital stock of the company if such continuous renewal is right. In any case, it leaves to the management complete discretion in the circumstances of the time. That seems to me to be the right way to go about the solution of the problem which Section 22 seeks to solve. I submit that my method is preferable in every way to what is outlined in the Bill. It does not commit the company beforehand to anything which would be onerous or stereotyped and in every way it should be recommended in preference to what is in the Bill.
On the question of the value of the company's assets I confess I am completely confused by the Minister's attitude. At one time he stated: "We cannot have contingent liabilities of indefinite duration." That I can understand. The next time the Minister says: "We must have a redemption fund built up to get rid of the company's wasting assets." I draw attention to these words—the company's wasting assets. The Minister told us that before legislation began in 1934 the company had a capital of £31,000,000. That capital will be written down, when the new company is formed—having absorbed the tramways company—to the region of £13,000,000. Does the Minister suggest that that £13,000,000 is not represented by assets and value? I do not know. But I should imagine that they would be. All the company's permanent way, bridges, railway stations and sidings represent a very considerable value to the railway as a going concern, whereas in the way the Minister puts it, he is inclined to focus attention merely on rolling stock and engines as assets. When we examine the assets of the company, we must take the assets as a whole, and not particular assets, distinguishing between rolling stock and other more fixed forms of property, such as land and roads. I venture to say, considering that there was no watering of the company's capital at its inception — although I have not seen the valuation—that the assets are there as a going concern and not scrap. As a going concern the company's assets are full value for the new capital yet, without any close examination of that fact, the Minister says:
"Our policy is that you should build up out of profits a fund for dealing with substituted debentures in ten years."
Where that fund comes from in relation to the profits we must surmise.
Surely this is a simple business proposition. Why complicate it with all these conditions? I admit that there should be a limit to the contingent liability of the State guarantee. Can that not be done by giving the company power to create fresh capital? Why attach a condition that that money for redemption should come out of profits? If it is in a sound condition the railway company should be able to issue fresh preference stock or to create fresh common stock or new debenture stock. There is no danger whatever in allowing that to be done, provided capital is created to redeem the present substituted debenture stock. Instead of that, there seems to be a hope, almost a direction, that the money required, amounting to something about £600,000, should be taken out of profits to redeem capital which is of a fixed character and, in all probability, is represented by valuable assets. In other businesses the method of dealing with assets depreciation in value is by a fund created in the ordinary course to deal with the obsolescence of wasting assets. Here by some method which I have never seen before—I do not think the Minister can show that it was done anywhere—two-thirds or more of the capital of the company, about £10,000,000 out of the £13,000,000, has got to be redeemed out of profits, irrespective of the value of the assets.
It is a ridiculous proposal. The Minister says it is Government policy, and there is an end of it, but I should like to know what is the Government policy. Is it Government policy to get their guarantee extinguished? That can be done perfectly well through the ordinary methods of company management. So far as I can see, the thing has not been thought out and certainly—I bear in mind the castigation I got on a previous occasion from Senator Kyle—the reactions on Labour, the reactions on common stock and the reactions on the users are made completely subordinate to an indefensible proposal for dealing with this substituted debenture stock.
With regard to Senator Johnston's proposal, I must confess that I had, and still have, difficulty in understanding it. That may be due to the use by him of terms which convey to him different meanings from those which they convey to me. I could not contemplate a depreciation fund being used for the redemption of capital in any circumstances. A depreciation fund is created for the purpose of replacing the assets at the end of their useful life. Senator Johnston supported his argument by an illustration which contemplated the replacement of assets at the end of their useful life by assets of another character costing less. Suppose they cost more?
Issue fresh debentures in that case.
On the contrary. If I understand the Senator's suggestion properly, if they cost more, if money has been borrowed for the purpose of supplementing the depreciation fund and providing assets, and there is then a periodical valuation of assets when it is found that they are worth more, you increase the nominal value of the common stock. Whatever novelty there may be in the suggestion in the Bill, the novelty of Senator Johnston's proposal far exceeds it.
The company starts off with certain assets. It will have a depreciation fund to which, from revenue, appropriations will be made sufficient in the judgment of the company, and, I presume, of the Revenue Commissioners, to replace these assets at the end of their useful life. The company is not necessarily obliged to replace them with assets of a similar kind, and it may be that the fund will be used for their replacement on obsolescence as well as for their replacement on their wearing out, but that is what that fund is for. Depreciation is a working cost. If a machine makes boots, then the cost of the boots is represented by the price of the materials, the price of labour and the extent to which the machine is worn out in the process of making each pair, and you charge in the price of boots, in the price of every pair of boots, some sum which will represent the extent to which the machine was worn out in the process of making it, so that the machine can be replaced when it has made the full number of boots it is capable of making. The same applies to railway assets. They war out also and have to be replaced at the end of their useful life. They may also have to be replaced on obsolescence, but, leaving that aspect aside for the moment, the purpose of a depreciation fund is to provide for the recovery of that element in the working costs of a company which is represented by the continuous wearing out of the company's assets. Senator Johnston proposes that the company should take that fund and, in certain circumstances, use it for the redemption of capital.
The circumstances I have in mind in which it could be used for the redemption of capital would be if the total value of the new assets with which the company propose to work were less than the total value of the former assets.
I can see the Senator's point. He visualises a possibility—one which we must, I think, regard as somewhat remote—that, when the assets have to be replaced, they will at that time also be obsolete and the company will replace them by other assets which will cost less. In pure theory that circumstance must be considered, but in practice, of course, that process of replacement is going on from day to day, from week to week and from month to month, and the funds of the company are being used to finance it. Decisions upon the utilisation of a new form of equipment are of a major kind and would, no doubt, necessitate the issue of new debenture stock in any event, because the expenditure of capital upon the purchase or construction of the new equipment would be taking place while the old assets were still being used and still earning revenue. But even if we assume that circumstances may arise in which the depreciation fund is more than sufficient for the purpose of providing for the renewal of the assets, is not that a situation in which it is necessary for the company merely to make a smaller appropriation to depreciation in the future? The taking of money from that fund for the redemption of capital would be a practice which, I am sure, would commend itself to very few.
I have no objection to the Minister calling it a depreciation and redemption fund, provided he gives discretion to the management to use it in whatever way seems most appropriate from time to time.
I thought we were in conflict with regard to terms as well as everything else. I cannot at all understand the provision that if, as a result of an appreciation in values generally, it is decided that there has been an increase in the value of the capital assets of the company, the common stockholders should immediately benefit from that appreciation in values by the writing up of the nominal value of their stock. Values fluctuate from time to time. I think most theorists say there are cyclical waves every five or six years, and there is no provision for writing down the nominal value of the stock the next time it is found that assets which were worth a certain amount some years ago are now worth so much less.
May I point out that the stock exchange values of that common stock will automatically write it down from time to time? There is no guarantee attached to that and no certainly of any dividend at all.
The Senator does not think that the stock exchange has anything to do with the real value?
It may be that there is a method of operation here which is defensible in theory, but I would prefer Senator Johnston to persuade somebody else to try it out before asking us to adopt it in the case of this company.
With regard to Senator Sir John Keane's point as to whether the assets which this company will take over on establishment will be fully equal to its capital liabilities, I could not express a firm opinion. I should say not. I do not know what value would be attached to the fixed assets of the Great Southern Railways. There would be the difficulty of determining the basis of valuation, but take the case of the Dublin United Transport Company. Córas Iompair Éireann will take over the Dublin United Transport Company, and will, at the same time, acquire new capital liabilities to the amount of roughly £1,800,000, that is, £1,200,000, increased by 45 per cent., but it will get from the Dublin United Transport Company fixed assets worth £300,000 or £400,000. It will get what the Dublin United Transport Company describe as goodwill, which they value at something like £600,000 or £800,000. I am sorry; that is not quite correct. Their total capital liability at the present time is £1,260,000. That will be increased by 45 per cent. on the transfer of the company to Córas Iompair Éireann, because we are providing for £145 of 3 per cent. debentures for every £100 of stock. There are certain loan charges which will also be transferred. The total assets of the company are valued at £2,164,000, of which £1,649,000 represents goodwill. It is quite clear that in fixed assets this company will not have from the Dublin United Transport Company anything corresponding in value to the capital liability which it will acquire. That the circumstances of the Great Southern Railways Company are similar cannot be denied, but no one can give precise figures. Therefore, I think it can be said that the company will not acquire fixed assets corresponding to its capital liability.
I want, however, to repeat that the value of the assets of a transport undertaking is what they will earn. There is no doubt that the Dublin United Transport Company is in a better financial position than it was at any time, even when the balance sheet had no goodwill item, and when the total value of its fixed assets was equal to its capital liability. It can earn more revenue now, even though the fixed assets required for the purpose of earning that revenue are far less than the fixed assets previously employed. In the case of Córas Iompair Éireann, we believe that it will be capable of earning revenue sufficient to remunerate the capital liabilities that we are giving it. But as to whether it will have fixed assets equal in value to its capital liabilities, I cannot attempt to offer an opinion.
I wonder how far the dispute between the Minister and some of us is a question of names or a question of facts. I suspect that there is really a great deal of common ground if only we could get the Minister to see it as we see it. I am quite aware that in giving my highly theoretical account of the nature of a depreciation fund I was using certain very simplified assumptions and, therefore, the illustration may have sounded somewhat unreal to those who are practical business men accustomed to the procedure of company finance. I am quite aware that from day to day and year to year there is a continuous process of depreciation and renewal going on in the capital assets of most companies. Yet it is a well-known fact that it is not always possible to make good depreciation pari passu with the rate at which depreciation is taking place. Sometimes one has to allow a period of time to elapse before the old machine is worn out and before it becomes economic to replace that by a new and, possibly, better machine. One function of a depreciation fund is to have the money to employ to buy that new machine when it becomes a sound thing to do.
Now, the problem of providing against depreciation, which is due to mere physical deterioration, is comparatively simple, and the Minister seems to appreciate that kind of deterioration quite well. But the other kind of deterioration, which is due to obsolescence, is a more difficult thing to provide against adequately. I think a depreciation fund is in order with reference to that source of depreciation, too. Now, having a depreciation fund set aside to provide for the contingency of obsolescence, it would, in my view, be sound finance to use part of that depreciation fund to redeem capital liabilities of the nature of debenture stock, if it was proposed to reduce the total real value of the capital equipment with which the company was working. In other words, if it were found that it could provide simpler machines and total equipment having a smaller total capital value than before, then it would be quite in order to take from the depreciation fund such an amount of money as would redeem the surplus debentures that had been formerly used. Equally, I think there is much to be said for giving the management of the company discretion to proceed by the method of using, perhaps, fresh common stock or fresh preference stock in order to acquire the money to redeem the debentures, if that seems a sound thing to do.
What we protest against is the cast-iron method by which, by hook or by crook, the company must redeem £10,000,000 worth of debentures in 1960, no matter where the money is coming from, and this absence of any flexibility and any possibility of the management using its discretion to do the right thing in the light of the circumstances that will exist in 1960, which no one, not even the Minister, can now foresee. I wish to press the amendment.
Amendment put and declared negatived.
I claim a division.
Will those Senators who are in favour of a division please rise?
Senators Keane and Johnston rose.
The names of the two Senators will be recorded as dissenting.
I move amendment No. 4:—
In page 14, Section 22, sub-section (1), line 12, after the word "obligations" to insert the words "including dividend on common stock."
I do not think there is much purpose to be gained by pursuing this rather academic doctrine of the relation between capital and assets. I only wish to say that it is an absurd notion that capital has got to be balanced with assets. I do not suppose you will find a single company in existence which fulfils that condition. In most cases, as we know, the capital is in the nature of ordinary and preference which cannot be altered except by access to the court and reconstruction of the capital. Very frequently you find companies perfectly solvent and paying dividends whose assets as a going concern are rightly represented by their earning power, but which on liquidation bear no value whatever to what they cost.
Let us leave that for the moment and come down to the very practical and, to my mind, dangerous and unjust proposals that are embodied in this section. When I say "unjust", others may say, what are they? The Minister has never been clear as to what they really mean. Let me refer to the reason of this section. Not being familiar with the basis of railway legislation and statutory company legislation, I was puzzled as to the necessity for any provision to enable the company's directors in the course of management to build up a redemption fund. In ordinary commercial practice, I am told, there is no such statutory requirement. But I am told that it is so in the case of statutory companies whose profits are limited by statute, but it does not enable the company to build up that fund for the redemption of any debenture capital. That being so, there must surely be no difficulty whatever. The Minister when I pressed him on this point, said:
"Yes. We are advised by our law advisers that this power to set up a redemption fund is necessary."
I accept that, but I am sure he is not advised by the law officers that it is necessary to attach to the redemption fund a statutory condition that the fund should be built up in such a manner as to enable £10,000,000 to be accumulated in 15 years, or to give some vague priorities, or unspecified priorities, to the claim by that redemption fund on profits which could have been perfectly well left for other purposes. I am altogether puzzled. I do not know the whole story, and I feel there is something behind all this— nothing sinister, but I am sure there is some hidden purpose behind this provision which I can only conjecture. It is not a fair and frank provision. It could be left to the management to do what it thinks best, or it could be put in the Bill that that is the exact position of this redemption fund. But neither of these things is done; the whole thing is quite vague. It is left vague in this form and my amendment seeks to change the form and make the position clear. This is how the section reads:
"After providing for the payment of interest on debenture stock"
—and then it goes on in this extraordinarily vague language—
"and for other fixed charges and obligations"
Could anything be more vague than that?
"the company shall from time to time set aside such sums as it considers proper for the purpose of forming a fund for the redemption of any of its debenture stock...."
I think the House has a right, if it is going to interfere with the discretion of the company at all by statute, to go further and definitely make some attempt to specify what these obligations are, or at least the priority of these obligations. Here we have a position where it is quite possible for the company to do certain things. Who are the company? You would imagine that the company, in some way, were the ordinary shareholders. They provided the concern; they have nine-tenths of their capital written off by the State, and surely in all equity and morality they have a high claim on the profits available? But not a bit of it.
The Minister did not convince me that the common stockholders have any effective say in securing a dividend out of the profits. You pay your debenture interest and your fixed charges—whatever they may be. I take it there will be depreciation. Even when there is a surplus left, after the fixed charges are paid, the shareholders have no say, although they built the railway and lost nine-tenths of their capital in the railway. They are to be left to the tender mercies of directors—really, to the Minister when it comes to a decision. I suggest that is the position, but I am prepared to accept the Minister's denial. Is he in a position to prove otherwise? My claim is this, that this is not a fair charge, this charge for the redemption of these debentures which, in their origin, were fixed capital. It is not a fair charge on the profits of the company to secure funds to liquidate these debentures.
I do not say that if the railway company had ample funds they should not redeem some of the debentures— whatever represents obsolete stock or assets that had to be written off. We know that certain things were provided for and that certain things were written off. I suggest that the common stockholders have a right to know where they stand in relation to these profits. They have no claim in relation to debenture interest and no claim to priority over the depreciation fund, but they have a definite claim in equity and morality to priority over the redemption fund.
The Minister talks of certain obligations and in the next sentence he emphasises the redemption fund. Where the Minister does not quite like to meet the argument, he says it is a question of management. It is always a question of management where it is embarrassing, or a statutory obligation when he wants to force a definite position. We are not being treated fairly, and my object in the amendment is to pin down the management to this simple position, that, after providing for the debenture interest and fixed charges, the next claim in all morality and fairness on the company should be—I do not say how much of a dividend—some dividend on the common stock.
There is no vagueness about that language. All these financial provisions are clothed in vague phrases and I am endeavouring to make the position clear. I am trying to bring about some priority in the distribution of the profits. The common stockholders have a definite claim in this matter in equity—I was going to say in law.
The effect of providing for the payment of a dividend upon the common stock in priority to the provision of funds for the redemption of the debentures that are guaranteed by the Government would be to have the interest on the common stock guaranteed by the Government. The change the Senator proposes would mean that the Government was guaranteeing the common stockholders to pay them dividends. We are not proposing to do that. The company's revenue should be used after the payment of interest on the debentures, and certain fixed charges for the provision of a redemption fund, so that the Government may be released from its guarantee. If, in preference to providing for the redemption fund, they provide the dividend for common stockholders, then in fact the Government is guaranteeing the common stockholders, because if the result of the payment of dividends to common stockholders means that the redemption fund is not provided, the Government's guarantee must come into effect.
The Minister said it was not his intention to have the debentures met by a redemption fund, but by the sale of assets not required.
The intention is to have a redemption fund—to deal with the debenture stock by means of the creation of a redemption fund. Senator Sweetman may possibly have misunderstood what I said. I said that the company is not obliged to make a fixed appropriation towards the fund every year. We are not putting the company under any fixed obligation. We are making it an obligation to maintain the redemption fund and appropriate revenue to that redemption fund as in the discretion of the management it appears wise to do so, but at least in sufficient amount to ensure that the full issue of substitute debenture stock will be redeemed by 1960.
I could not agree to Senator Sir John Keane's amendment. I think it is sound practice, apart from the other objections to which I have referred, to require the company to provide for the repayment of loan capital in priority to the repayment of interest upon common stock.
The other fixed charges and obligations referred to in the section are those that will arise for the company, in respect of the debenture stock redeemable in 1947 of the Great Southern Railways, and similar stock redeemable in 1947 of the Dublin United Transport Company, which will be transferred as liabilities to Córas Iompair Éireann. There is also the rent and interest which the company is obliged to pay in respect of the Fishguard and Rosslare Railways and Rosslare Harbour. There are some other fixed charges which the company was required to meet, but most of them have been redeemed in the present year by the management of the Great Southern Railways. These fixed charges will still remain. Those in respect of the debenture stocks I have mentioned will, of course, disappear in 1947, but those in respect of the Fishguard and Rosslare Railway will continue, although at some future stage there may be a new arrangement in regard to them, as a result of which they would disappear also.
The Minister has been explicit with regard to fixed charges. Could he be equally explicit in regard to what is involved in the word "obligations"?
Do I understand that, in the Minister's opinion, the company ought not pay any dividend to the ordinary stockholders until there is sufficient paid into this fund to provide for proportionate redemption, that is, assuming the period is 14 years, to provide for two-fourteenths or three-fourteenths?
No.
If the Minister does not mean that, it seems to me to be provided here that the company has discretion, and in that discretion they may decide to put aside only a penny a year. Of course, that would be absurd and no one is suggesting it, but the Bill gives complete discretion as to the amount and under it they could pay dividend on the ordinary stock even though they had not made provision for redemption.
That is quite correct. We are giving the company complete discretion as to the amount to be appropriated to this fund and the company, on the advice of the board, can decide to pay a dividend even though no appropriation has been made to the fund. What Senator Keane is endeavouring to effect is that the company cannot make an appropriation to the fund until they have paid a dividend on the ordinary stock.
My reading is that they would not have an obligation, but his amendment would not say that they could not do so.
I think that is what he intends by it.
In fact, his amendment has been put in only for the purpose of discussion, as one could not describe interest on the common stock as a fixed charge.
I suggest that there is no conflict between Senator Keane and the Minister in regard to this amendment. They are both doing the same thing.
Well, he is for it and I am against it.
Both are proposing the same thing. Senator Keane is endeavouring to secure that the shareholders, who are the successors to those who built the railway, will slip into a land of milk and honey. The Minister is making sure that that will happen, but he is not saying so. Assuming that the debentures are redeemed, as they will be, in 15 years' time and that nothing changes in the meantime, the common stockholders will have property worth £13,500,000. The nominal value of the stock will be £3,500,000, but they will also have become heirs and possessors of the £13,500,000.
With a limit of 6 per cent. to their dividends.
And provided that they cannot dispose of the property.
Senator Johnston wants to write up the nominal value, which I assume will go up to £13,500,000.
Paper millions.
At any rate, there is nothing in the amendment to change the paper aspect of that. The Bill, as it stands, provides that the common stockholders will be the owners of the undertaking in 1960, whatever the value of that may be, unless new debentures have been created. If new debentures are created, the interest and redemption in regard to them will be a liability on the stockholders, but assuming that there are no new debentures and assuming that the undertaking is a complete success, in that the company is able to meet all its obligations out of revenue, then it is quite clear that the stockholders owning £3,500,000 of common stock will be in possession of property worth £13,500,000. I do not know where the grievance of Senator Keane comes in: the thing is done as well as he could do it himself.
I did not answer one of the questions put by Senator Keane. The Great Southern Railways had obligations which were not fixed obligations. I mentioned that osme of those have been redeemed. One that occurs to my mind immediately is that which was undertaken in connection with the North Wall extension line where the obligation was to pay a fixed propertion of the earnings of the line every year to the London, Midland and Scottish Railway Company. That was not a fixed charge, but was a definite obligation which had to be met in priority to other railway charges.
The words "fixed charges and obligations" occur here. I think the word "other" should be put in before "obligations", as the word "fixed" now seems to cover both.
By a painful process, I have been trying to get more light on this matter, but the light is not very satisfying or illuminating. I really rubbed my eyes when I heard Senator Duffy's argument. He says that in 15 years' time—if no further debentures are created or, perhaps, even only up to £6,000,000 in debentures is created—the common stockholders will inherit the position arising out of the extinction of £10,000,000 in debentures in front of them and, therefore, they should be satisfied. Would he be satisfied, if he were a shareholder, to go for 15 years without any dividend, or any sure dividend, in the hope that, at the end of the 15 years, the nominal value of his stock may be higher, while he is limited to a 6 per cent. interest?
They have not got any interest whatever for the past 15 years.
They are going to own the railways or have a very high priority in the capital structure of the railway company, they are limited to 6 per cent dividend, and then they are to be satisfied; and we are to meet the equities of the case by letting them stay without dividend for 15 years.
Thirty years.
If that is the idea of fair treatment, the Senator and I differ very substantially.
But they are paying £69 for those shares now which were quoted at £9 eighteen months ago.
Let me deal with the equities of the case. They are people who had their capital written down by 90 per cent. by the action of the State.
Might I ask Senator Keane why it was written down?
I do not think I am called upon to answer those questions. It was written down because the Government saw fit to do so. It might just as well have been left there on paper. It would mean a top-heavy capital structure, I grant you, but there was no reason to write it down. However, do not let us go back on the 1934 Act. We are dealing now with priorities on the profits. I could not appreciate the Minister's argument when he said that, if you are giving the common stockholders priority to the redemption fund, you are guaranteeing—and that is the extraordinary thing—the dividend of the common stockholders. Surely the correlative of that is that the redemption fund has priority to the common stock dividend? That is a most unjust and unfair proposition to ask this House to accept.
There is a fund, call it what you like, of X pounds. There are two claimants on the residual profits of that fund. One is the redemption fund and the other is the dividend. I say that, in all equity, the payment of the dividend should come first. I deliberately abstained from stating what the amount should be. If the management wanted to give the common stockholders a raw deal they might give them, say, 1 per cent., even though there were ample profits. I want to have a statutory definite obligation which will give the common stockholders a priority on the redemption fund.
Amendment put and declared negatived—Senator Sir John Keane and Senator Joseph Johnston to be recorded as dissenting.
I move amendment No. 5:—
In page 14, Section 22, sub-section (1), line 13, to delete the word "shall" and insert instead the word "may".
I still think that the principle of discretion is also involved here. Apparently, under the Bill, there is an obligation on the company to make an allocation out of profits to the redemption fund. Surely, that should be left to the discretion of the company.
Does the Senator understand that the debentures here need not necessarily be substituted debentures? They may be new debentures.
Quite so.
Conceivably, it might be one of the terms of issue of the new debentures that the company would make a fixed appropriation to the redemption fund.
I do not want that to be possible. I suggest that the interest payable should be a fixed charge, but I urge that the redemption should be left to the discretion of the company. I feel that it is unfair to the management to make it a statutory obligation to have this appropriation to the redemption fund. I think the appropriation should be permissive.
When this section was in Committee I understood the Minister to say, in consequence of the word "shall" being used, that any sum set aside would be taken as against the income of the company, for income-tax purposes. In other words, that there would be an allowance off for income-tax. Senator Sweetman and Senator Kingsmill Moore disagreed with that view.
That is not correct. This fund will be liable to tax.
Would the Minister consider bringing in a section that would absolve the undertaking from income-tax?
That would have to be done under a Finance Act. In so far as the State is guaranteeing, on behalf of the taxpayer, that the principal sum secured in these debentures will be repaid when due, I think we must make it obligatory on the company to make the necessary provision for the creation of a redemption fund.
I move amendment No. 6:—
In page 15 to add to Section 27 the following new sub-section:—
( ) The Minister shall lay before each House of the Oireachtas an annual report of his transactions under this Act and shall, with every such report, lay before each such House such statistics, returns and accounts furnished to him by the company as may be necessary for the proper understanding of the report aforesaid.
This is the last occasion on which I will have an opportunity of endeavouring to get for the Houses of the Oireachtas a report in regard to the operations of the company to be established under this Bill. It will be recalled that, on Committee Stage, I moved an amendment that was somewhat different from this one. The proposal which I am submitting now is very limited in character. It is that the Minister shall lay before each House of the Oireachtas an annual report of his transactions, accompanied by the accounts furnished to him by the company, as well as such other documents as may be necessary to make the report understandable. I gathered on the last occasion that the Minister will be furnished with returns by the company which will not be available to the public.
Those returns are published. They are published periodically in regard to all railway companies, and appear in the statistical abstract every year.
I understood that the Minister mentioned that all the information in abstract form, tables and so on, that will be furnished to him, need not necessarily be published.
They are published, and I think must be published under the 1911 Act.
I tried to draw this proposal as near as circumstances permitted to the provision in the Electricity Supply Act of 1927. Under that Act, the Minister furnishes to both Houses of the Oireachtas an annual report regarding the operations of the Electricity Supply Board. I observe that in the Bill dealing with mental hospitals, circulated last week, the Minister for Local Government and Public Health is inserting a somewhat similar provision in regard to the reports which may be made to him about mental hospitals. Actually, there is no departure in my amendment from what is at present a statutory obligation in regard to the Electricity Supply Board.
These are provisions in two new Acts.
The Electricity Supply Board is not a new Act. It was passed in 1927. The other is a Bill which was circulated last week.
What the Senator proposed on the Committee Stage was that I should furnish a report of all my transactions under Part IV of the Bill. In this amendment he is asking for a report of what he describes as my "transactions" in regard to all parts of the Bill. That is the only difference between the amendment that he is proposing now and the amendment that he proposed in Committee. This amendment means that the report would deal with everything the Minister might do in regard to the appointment of the advisory committee and the Orders based on the recommendations of the committee concerning abandonment Orders relating to railway lines, the granting of licences to exempt area hauliers and in regard to all other matters, in any section of the Bill, which bring the Minister into the picture. I told the Senator before that all these acts of the Minister will become public knowledge by reason of the fact that the various Orders under which these things are done will be published.
But the preparation of a report dealing with all the transactions of the Minister under the Bill would be a very elaborate task and of so little interest that it would be a waste of time and money. It may be possible to require the Minister to report upon specific matters, but the various minor items of administration which could arise would be of very little public concern, while the preparation of a report concerning them would involve the keeping of records and other steps which would otherwise be entirely unnecessary. What are the matters referred to? I am not now dealing with the important things, such as the sanction of new issues of debentures or matters of that kind. These things will be dealt with in the reports for which the Bill provides. But take the question of requisitioning the Chief Justice to appoint an arbitrator in certain circumstances. What form would my report take upon that? That I sent a letter bearing a 2½d. stamp, or by messenger, to the clerk of the courts requesting the Chief Justice to appoint an arbitrator.
What was mainly in my mind was that, in the next ten or 15 years, changes are likely to take place in the character of the whole railway system and that it would be helpful to members of both Houses and to the public if the Minister were, in an annual report, to indicate what those developments were and what his prognostications were regarding them.
That would not be a Ministerial responsibility nor would it be due to any transactions by the Minister. We are setting up a company and we are giving it certain powers, facilities and resources. We are saying to the company that it will be its job to plan the development of our transport services. The Minister will have no responsibility at all for decisions upon technical matters.
I move amendment No. 7:—
In page 17, Section 37, sub-section (3), to insert in line 4 after the word "board" the following proviso: "Provided that three clear days' notice of such meeting shall have been given to each of the directors".
This amendment is intended to meet a point made on the last stage regarding the holding of a meeting at which the chairman of the company will, by himself, constitute a quorum. What it is sought to do by this amendment is to ensure that the meeting will be called in a regular manner. If there is this "sit-down" on the part of fellow-directors, which the Minister feared on the last occasion, I do not propose to interfere with the proposal in the Bill but I am endeavouring to secure that proper notice of the meeting will be given to each director who is entitled to be present. If, following upon that notice, nobody attends except the chairman, then he will constitute a quorum, as provided in the Bill.
The company will be governed in this matter by the Companies Clauses Act, 1845, which provides that board meetings shall be held at such times as the directors shall appoint for the purpose, and that they may meet and adjourn from time to time and from place to place as they think fit. It is quite obvious that the board will decide when the board meetings will be held—upon a particular day each week or a particular day each month.
The board which decides in this case may be the chairman.
No. The chairman could not annul the standing orders of the board. He can, no doubt, make his point of view effective when the standing orders are being prepared but, once the standing orders are agreed to, he cannot annul them. His power is one of veto only. The law provides that the board shall decide when the meetings are to be held and where they are to be held. There is a further provision that any two directors can require the secretary to convene a special meeting.
This point was raised in the course of the discussion in Committee by Senator Sweetman, and I agreed that the section was incomplete without a provision which would require the Minister to remove the chairman if he failed to comply with the provisions of sub-section (9). This amendment places upon the Minister the obligation to remove the chairman if he fails to conform with the provisions of that sub-section, which relate to the disposal of stock of which he may come into possession.
I move amendment No. 9:—
In page 18, Section 40, sub-section (1), after the word "time" where it occurs the second time to insert the words "after consultation with the Minister".
This amendment arises out of a discussion in Committee regarding the appointment of the managing director. The proposal in the amendment is that the appointment be made "after consultation with the Minister". This post is one of considerable importance because the person appointed will, as director, have special functions allocated to him and certain remuneration will be provided for his services. As the Bill was first drawn, and as it was read a second time in the Dáil, it contained a rather peculiar provision for the payment of commission to the managing director. That provision was subsequently taken out. I think that this is a case in which the Minister should be consulted regarding the terms of the appointment and the suitability, or otherwise, of the person concerned to hold the office of managing director. It will be a very important position. Almost certainly, the holder of the office will have conferred upon him very great authority— authority which will not be reviewable.
Under the Bill, the conduct of the chairman can be brought under review by the Minister. He is appointed by the Minister and is, in fact, answerable to him. He can be removed if the Minister is not satisfied with the manner in which he is discharging his functions. No such authority is exercisable in the case of the managing director. In an amendment which I moved in Committee, provision was made for seeking the sanction of the Minister before the appointment was made. The Minister was then good enough to point out that this was an appointment by the board, and that he did not propose to interfere in the domestic affairs of the company. I have endeavoured to modify the provision as it appears in the Bill by providing merely that the Minister be consulted before the appointment is made. I think that the Minister should accept the amendment.
I do not know why the Senator desires to bring the Minister into this matter at all. If the Minister is to be in it, he should be in it completely and, if he is to have any functions in relation to the managing director, he should have the right to appoint him. If you give him such power, you will make difficulties for him and no useful purpose will be served. I strongly suggest that this matter should be left to the board and that there should not be put upon the Minister any responsibility, direct or implied, in relation to the managing director. If it is considered desirable that the powers of the board to appoint a managing director be subject to Ministerial survey of any kind, then I think it would be much better to go the whole hog and give the Minister power to appoint the managing director. I think it is undesirable, however, that the Minister could or should be held to be responsible in any sense for the appointment of the managing director, or for the individual appointed, once the appointment is decided upon.
Amendments Nos. 10 and 11 go together: amendment No. 10 governing amendment No. 11.
Amendment No. 11 will not be moved.
The House will remember that we had protracted discussion on the provision of Section 43, which deals with the compensation of officers of the dissolved companies who may lose their employment because of the contemplated amalgamation. That discussion centred largely around the provisions of paragraph (d) of sub-section (1) of the section—a paragraph which was intended to make clear the circumstances in which the company would not be liable to pay compensation to officers who, subsequent to the amalgamation, became disemployed. It was pointed out here during the course of the discussion by Senator Ryan and, I think, another Senator, that paragraph (d) did, in fact, achieve very little, and bearing in mind the general tenor of the discussion here, and the discussion which had taken place on the same section in the Dáil, when the Bill was being considered by the Committee of that House, I felt that there was something in the contention that paragraph (d) achieved nothing, and that its retention might be a source of difficulty to an arbitrator, because he would have to assume that it was inserted in the Bill for some reason.
The intention of the Government was to provide that a person who lost his employment by reason of the abolition of his office, directly and solely in consequence of the amalgamation, should be compensated in accordance with the provisions of the Fifth Schedule. I think we can achieve the purpose of the Government by providing for that, and no more. Perhaps I should say that it is necessary to go a step further, because justice would appear to require that in any dispute that might arise, between the company and any of its officers who became disemployed, as to whether or not the abolition of the office leading to the disemployment of the worker was due to amalgamation, the onus of proof should be on the company, because it is only the company that could, in fact, adduce proof in a matter of that kind. It would be an impossible obligation to put upon the individual to prove that the abolition of his office was due to amalgamation, and if the company want to contend that it was not, then they must prove that it was not. Therefore, I am proposing this amendment the purpose of which is to delete the original sub-section (1) of Section 13, and to substitute a sub-section which provides that any person fulfilling the conditions in paragraph (a), (b) and (c) whose office or situation is abolished directly or solely in anticipation of, or in consequence of, the amalgamation, will be paid compensation, and that in any dispute or difference between the company and a person claiming compensation, as to whether that person's office or situation was or was not abolished directly and solely in consequence of the amalgamation, it shall be presumed by the arbitrator who will decide the case, until the contrary is shown by the company, that the office or situation was abolished in consequence of amalgamation. This change in sub-paragraph (1) of the section gets rid of a number of matters of controversy, including one matter which caused a great deal of discussion in both Houses: namely, the correct interpretation of the phrase, "other economic cause", while at the same time it achieves the full purpose of the Government. I may say that I was easier in my mind in deciding upon this amendment as against the original provision in the Bill, which was copied from the Railways Amalgamation Act of 1924, by reason of the fact that the unemployment of officers in consequence of the amalgamation, likely to arise on this occasion, will be very limited.
I move amendment No. 12:—
In page 20, Section 43, sub-section (2) after the word "reasonable" in line 7, to insert the words "or if over 50 years of age may relinquish his office or situation, in which event he shall be paid compensation calculated in the manner provided in the Fifth Schedule to this Act".
I want to say at the outset that in amendment No. 10 the Minister made a decision which, I think, will be of very great value, and also got rid of one of the really contentious clauses in the Bill, so far as it relates to conditions of employment which will follow the enactment of this measure. There is, however, one point, and I would say that it is the only substantial point that arises for consideration now in relation to people who will be rendered redundant when the Bill comes into operation. The Minister has just referred to the employees who are, or who will be, entitled to claim a pension: that is to say, an annual payment, because of their redundancy. The next sub-section of Section 43 deals with people whose positions are worsened in the service of the company, but who will still continue in the employment of the company.
On the last occasion I cited the case of a person down in Killeshandra whose position was altered, much to his detriment, mainly because of his age. That situation, of course, does not arise under the Bill, but it is the kind of thing that could arise under the Bill: where a person had been doing a particular kind of work over a long period of years is taken away from that work because of the amalgamation, and sent to do some other kind of work which is quite different from what he has been accustomed to, and which, if he is an oldish man, may be beyond his capacity. In a case of that kind, what will really happen is that the man will be forced to resign. He will not be able to continue doing the work—the substitute work, if I might so describe it—and will therefore be obliged to relinquish his position, but he will have no claim under the Bill. He will have resigned for reasons entirely outside the scope of the Bill, and will have no claim to pension, compensation, or anything else. I endeavoured, on the last occasion, to secure that a provision would be made, in such a case as I have mentioned, to permit anybody affected to resign his position and take the pension provided for under sub-section (1), with which the Minister has just been dealing.
The Minister stressed the point of view that if a man were transferred to other work—I think he mentioned employees of the Dublin Transport Company—he should not be permitted to resign from his position but should continue in the service of the company to perform whatever work was alloted to him. I am dealing in this amendment only with employees of 50 years and over who are likely to be affected in the manner I have described. I think it true to say that the number likely to be concerned is small but I suggest that we are not entitled to inflict hardships by legislation enacted in this House even on a small number. As this is the only substantial amendment relating to the compensation clauses of the Bill with which we will be concerned, I would suggest that he might accept the suggestion that if a person whose position is worsened under the Bill is 50 years of age or over he might be permitted at least to resign his position and to accept the pension provided for in sub-section (1).
I think Senator Duffy misunderstands the whole situation. A person transferred from a dissolved company to Córas Iompair Eireann, who was employed by the dissolved company as an accountant or clerk, cannot just be offered employment as an engine driver or porter by Córas Iompair Éireann. He can only be offered employment analogous to that which he had performed with the dissolved company. If his office is abolished he is entitled to be compensated by the company and the company does not escape that liability by offering him employment of a different character. What we provide here is that even though he is doing work of the same kind as he had performed with the dissolved company and even though his office has not been abolished, if there has been such an alteration in his conditions of service, his remuneration or his prospects that he should be compensated, that compensation should take the form of a lump sum. I cannot agree to this amendment, because even though there was a provision of this kind in the 1924 Act, that provision was deliberately inserted in the Act for the express purpose of inducing a large number of employees to retire as it was anticipated that a very large number of officers would become redundant when the Act was put into operation.
No contingency of that kind is likely to arise under this Bill. Even though an employee may be continued in employment, if there is any change in his conditions of service by reason of amalgamation he is entitled to be compensated by the payment of a lump sum. There is, therefore, no possibility of the company's escaping the obligation to pay full compensation on the abolition of somebody's office by offering work of an entirely different kind, completely unsuited to his qualifications or physique.
I desire to support this amendment. Sub-section (2) of Section 43 is based on the provisions of the Third Schedule to the Railways Act of 1924 as amended by the Railways (Existing Officers and Servants) Act of 1926, and in that Third Schedule as so amended, it is provided that in case any existing officer or servant is required to perform duties which are not analogous or which are an unreasonable addition to those which as officer or servant of the company from which he was transferred he was required to perform, may relinquish his office or situation. Under that former Act he was entitled to relinquish his office if he was asked to perform duties which were not analogous or which were an unreasonable addition to his former duties. The opportunity of relinquishing his position is denied to him by this Bill. Instead he is entitled to get what is called lump sum compensation. Supposing a porter is asked to carry a greater load on his back than he was asked to carry before, it is no good giving him extra compensation. He will not be able to carry the load and then he will get his money for nothing. The Minister has spoken about the abolition of an office or situation. Personally I feel that sub-section (1) of Section 43 of this Bill will achieve very little because there is a great difference between the abolition of an office or situation and the dismissal of a person from an office or situation. In other words, you have so many grades of employees. You have the porter or the signalman; he is dismissed from his situation as porter or signalman but his situation is not abolished. In other words, you cannot abolish the situation of porter or signalman and apply that sub-section to any particular individual unless you abolish all signalmen and all porters.
In this case an employee who is required by the company to perform additional duties is only entitled to be paid compensation. I cannot understand how that will work out. If a man is over 50 years of age and he is unable to carry out duties which the Bill says are an unreasonable addition to his former duties, he has to be paid compensation for it and at the same time he has to be paid his wages. I think the sensible thing would be to allow a man of 50 years and upwards an opportunity of relinquishing his position and claiming compensation. In that event he will get a retiring allowance and he cannot, of course, get his wages. As the section stands at present it would appear that the man would continue to be employed by the company and get a lump sum compensation. The company are giving him a lump sum compensation merely for performing duties which are not analogous to his former duties or are an unreasonable addition to his former duties. I think myself that if a man is required to perform duties which are an unreasonable addition to his former duties, he is no longer of any use to the company and, therefore, I cannot understand how the company can pay him compensation and retain him in their employment at the same time. I think it would ease the situation considerably if this amendment were considered favourably by the Minister.
I have nothing to add to my previous remarks. It must be appreciated that the purpose of the sub-section is to deter the company from doing any of the things contemplated here by putting on them the obligation to pay compensation. I think this sub-section is far more likely to act as a deterrent to the company than as a source of revenue to transferred workers.
I should like to point out that we are dealing in this sub-section with people who were in the employment of the dissolved company on the 1st July, 1944 and who subsequent to the enactment of this legislation are transferred to the new company. They are in two categories for the purposes of the sub-section. Firstly, paragraph (c) deals with a person who "by reason of such transfer or without his consent suffers any direct pecuniary loss or is in any worse position in respect of the conditions of his service as a whole (including tenure of office, remuneration, gratuities, superannuation, sick fund or any benefits or allowances of that dissolved company...) as compared with the conditions of service formerly obtaining with respect to him". There are two classes there—those who suffered direct pecuniary loss, and those whose position is worsened. It is quite easy to understand that a person who suffers direct pecuniary loss can be compensated for that loss. No measure of compensation is provided in the Bill, but it is not difficult to measure compensation where there is direct pecuniary loss. It is a totally different matter when it comes to a case in which a person's position as a whole has been worsened. There is no measure of compensation. He would be entitled to get a lump sum that is reasonable. It may be a very small sum; in fact it would probably be considered that the fact that he has a job at all should militate against his getting anything like substantial compensation.
There is another class dealt with, the class to whom Senator Ryan has just referred: that is, persons who are required by the company to perform duties which are not analogous to or are an unreasonable addition to those which, as officers or servants of that dissolved company, they were liable to perform. Again, difficulties will arise as to what is or is not analogous. Assume, for instance, that the railway line from Dublin to Dún Laoghaire is closed down. The stationmaster at Blackrock or Booterstown becomes redundant, and there is no opportunity of providing him with employment as a stationmaster. If he is made an inspector, let us say, over the buses in the City of Dublin, is that analogous work? An argument will arise as to whether it is or is not, but it is certainly very different work, and will be performed under entirely different conditions from those under which he has been working as station master.
I am suggesting those instances to the Minister because the amendment which is submitted is very limited in scope. There is no suggestion on our part that men should be freely encouraged to resign their positions for a frivolous reason, and take compensation. We would prefer that they would remain with the company, but we think there is likely to be hardship in the case of the older men. Obviously, the stationmaster at Booterstown or Blackrock and other stations on the coast would belong to that class, and we are simply providing here that, in such cases, if the position is worsened or the remuneration lessened as a result of amalgamation, the men concerned will come under the section as it stands, but that they should have the option of taking their pension and going out of the service if they are over 50 years of age. I think the Minister ought to reconsider his attitude towards that point. It is quite a small one, but it may have very deleterious effects in respect of a number of the older servants of the company.
I move amendment No. 14:—
In page 23, Section 47, lines 35-36, to delete sub-section (2).
I know that anybody who has not a good national record is viewed with suspicion when it comes to matters dealing with the Irish language, but in this case I hope I am prejudged, not on my record, or from any suspicious point of view, but on the plain facts of the case. I should remark that the proposal or statutory obligation in a competitive examination, where Irish is a compulsory subject, is confined to the clerical grades. There is no definition of clerical grades, and I can quite see that the matter may find its way into the courts, as to whether in a given case an examination was one for the clerical grades or not. Assuming there is general understanding about the clerical grades, you reach this position, that a certain class of entrant to the railways by competitive examination suffers under what I described on the Committee Stage as both a penalty and a preference. The penalty applies in the case of those with whom Irish is not their vernacular, but who have to learn Irish in preference to a subject that might be of better value in their career and general education; and secondly, you give a preference to those who happen to have Irish as their mother tongue. It is a preference in one case and a penalty on others. Surely it is unfair to create by law a position which has that limited application. The Minister stated several times on this Bill that some things were a question of management, but for some reason he does not trust this to the management, or does not wish to give the management discretion in the matter. Surely this should be a case for leaving it to the discretion of the management. I can quite conceive the railway company wanting to have other examinations. At present it may be said there are no other examinations except for the clerical grades, but the time may come, and must come, when there will be examinations for apprentices—mechanical apprentices or artisan apprentices.
If that is so, you are bound to apply the same language conditions to them as to the clerical grades. In the same way the railway might want to have a class of cadets, men with better education or with university education— not a large number—that the company might wish to take in to fill the higher administrative posts. In that event they should be subject to the same conditions—I was going to say outlandish conditions—as the clerical grades. All I suggest is that this sub-section should be taken out of the Bill and that the question of the Irish language was one to be left at the discretion of the management. In future developments that would give a much freer hand and be fairer all round.
I should say that the reason this provision is limited to clerical grades is that they are the only class of employees recruited by competitive examination. I have sympathy with the point of view that this is a matter of management which should not be covered by a provision in the Act, but, as I pointed out during the Committee discussion, the legislation under which the Great Southern Railways now operate contains a precisely similar provision, and I felt that it would be misunderstood, and possibly misinterpreted, if that provision were now deleted and not made applicable to the new company. It might be assumed to indicate a change of policy, or to represent the conclusion that the arrangement under existing legislation was unsatisfactory. I therefore think it more desirable to leave this provision in the Bill. It is precisely the same as that which applied under the original Act, and I do not think it imposes any hardship. I ask that we do not have a debate at this stage of this Bill on the desirability of making Irish a compulsory subject at examinations. If Senator Sir John Keane wants to raise that, I would prefer him to raise it as a direct issue, so that the members of the Government directly responsible for policy in that regard could be present to reply.
I am not raising this as a question of policy, but as a question of fairness. The Minister rather looks at the position as it stands to-day and assumes that it will be the position in ten years' time. It is quite conceivable that the railway company might wish to have examinations for entrants other than those to the clerical grades, and a position may arise in which the clerical grades are under a statutory obligation to take Irish as a subject while other grades are left to the discretion of the management. I think it is illogical, and I do not think it fair. I can see no good, however, in pressing my amendment, and I leave it at that.
It will be remembered that Senator Sweetman raised a question as to the original form of this sub-section. On examination, I agreed that some change in the wording was desirable. This amendment provides that the examination will be confined to persons who are ordinarily resident within the national territory, which is the phrase used in the Constitution, or who are Irish citizens or the children of Irish citizens.
What is the national territory within the meaning of this sub-section?
Within the meaning of the Constitution.
Is it Thirty-Two Counties or Twenty-Six Counties?
Thirty-Two Counties.
I mentioned during the discussion on Committee Stage that it was necessary to consider some changing of the wording of the section to ensure that the right to use level-crossings was more effectively preserved than it appeared to be in the section as originally framed. This sub-section is being inserted for that purpose.
I am not quite clear as to what the phrase "accommodation works" means. Is it defined in the 1845 Act?
No, in the special Acts under which the companies operated. They are works which were provided when the lines were being built for the accommodation of persons whose lands adjoined the lines.
This is to effect a drafting change.
A question was raised by Senator Sweetman and others as to the wording of this sub-section, which relates to the disposal of lands by the company on the abandonment of a line. While I want to make it clear that the power given to the company to dispose of the land by private treaty applies only to the person who owns land on both sides of the line, it is considered desirable to add these words to make it clear that such person, as well as others, can acquire the land by public auction.
It will be recollected that, when this matter was raised here and in the Dáil, I intimated that I had experienced considerable difficulty in devising a formula which I thought would be adequate to cover the cases of persons dismissed by reason of their national sympathies in the past. The amendment, as originally introduced, applied only to persons who were suspended. I decided to have the draftsman make another shot at devising a sub-section which would cover persons who were dismissed also. This sub-section, I think, meets the point. It puts on the Minister not merely the obligation of certifying that the individual lost his employment by reason of his national sympathies but also of determining for what period he should be held to be out of his employment by reason of his national sympathies.
Amendments Nos. 21 and 22 may be taken together.
As the section originally stood, the period taken for the purpose of calculating pensionable service was the number of completed years of service. That might work adversely in the case of persons who had worked a substantial part of a year but had not completed a whole year. I therefore propose this amendment, which is taken from other legislation, and permits of a fairer determination of the service.
A couple of points were raised on Committee which the Minister promised to look into, and I think this is the appropriate time to raise them. One was the difficulty which Senator Douglas and I had as to how the seal of Córas Iompair Eireann was to be incorporated, which was dealt with on Section 8. The second is the difficulty which several Senators had in deciding whether Section 60 of the Companies Clauses Act, which the Minister mentioned and which dealt with the augmentation of capital, covered the increasing of the issue of capital from £3,500,000 to £4,000,000. It was dealt with on Section 19 at column 205 of the last Official Debates. The third point was, I understand, dealt with by Senator O'Dea while I was out, in connection with the provision of a depreciation fund. I think the Minister now agrees that setting aside a sum for depreciation does not in any way affect the company's liability for income-tax.
A fund for the redemption of debentures.
I am sorry; a fund for the redemption of debentures does not in any way affect its income-tax liability.
The third point that was in my mind was the difference that there was between Section 135 of the Company Clauses Act and Section 61 of this Bill. The Minister may recollect also that I raised that on Section 61. Section 61 re-enacts in a slightly different form Section 135 of the old Act, but Section 135 of the old Act is not repealed. It appeared to me that there was a possible conflict there and that it might be better, from the point of view of verbal drafting, at least, to call attention to it.
With reference to what Senator Sweetman said, I think that perhaps the Minister ought to reserve power to make regulations for the carrying out of the work of the company in accordance with the Bill. It may be necessary to make several regulations that the Minister will find necessary. There is the question of putting on the seal and other matters, and I think that if a short section were put in giving the Minister power to make regulations for the working of the company, everybody would agree with it.
With regard to the seal, I am advised that it is the function of the board of directors who are responsible for the management of the company to adopt a seal and, if they think fit, to prescribe the manner in which it is to be used. I am advised that it is not necessary to provide by statute for proof of the seal or of the due execution of documents to which it is affixed. These matters are governed by the ordinary rules of evidence which apply to all companies, whether incorporated by statue or otherwise. If any Senator wishes to study further the law on the matter, I am advised that they will have it adequately explained in Butterworth's Encyclopædia of Forms and Precedents, Volume 4, No. 340.
Is the Minister aware that, if you left out that provision in connection with an ordinary company, the registration officer would refuse to take it? I left it out once by mistake and he threw it back at me and said he could not register the company without it. That is why the thing was so very vivid in my mind.
What is the date of Butterworth's?
The general rule that contracts entered into by a corporation aggregate must, with certain exceptions, be made under seal, does not apply to companies under the 1845 Act, which are subject to special provisions in that Act with respect to the making of contracts. Trading companies are another exception to the general rule as to contracting under seal. They, like companies under the 1845 Act, may contract, by their agents, in the same manner as individuals.
I read that Act of 1845. It appeared to me to provide that certain work should be done by committees and that, when the contracts are entered into by committees, the seal can be affixed. But it does not seem to provide for the affixing of the seal where the contract is made by a subcommittee.
I have had the matter fully examined and the legal advisers are fully satisfied that it is not necessary to make any provision. On the question of whether the provisions of the Companies Clauses Act, 1863, apply to the issuing of new stocks and shares, Sections 16 to 21 of that Act provide that the company may dispose of new shares at such times, to such persons, on such terms and conditions and in such manner as the directors think advantageous to the company. If, however, the ordinary stock is at a premium new shares or stock may be offered to existing ordinary shareholders at par.
As to the third question raised by the Senator which related to a possible conflict between Section 61 of the Bill and Section 135 of the 1845 Act, that section of the 1845 Act is incorporated in this Bill only so far as is applicable and as varied by Part II of the Bill. Section 8 provides for the incorporation of these sections in so far as is applicable and as varied by Part II of the Bill, so that there could be no conflict. If there is any provision in a section of this Bill which is at variance with any incorporated section of the 1845 Act, then it is the provisions of this Bill which operate. There is a slight difference; as the Senator said, but it is the section in this Bill which operates. Section 61 governs the service of all documents by the company. The sections of the 1845 Act which are expressly excluded deal with matters of principle which are either dealt with in a contradictory way by the Bill or are designedly not dealt with at all. Sections 161 and 162 of the Act, as to keeping copies of special Acts at the company's premises and so forth, are not included at all because they are not considered necessary in present circumstances. In none of these cases is there any exactly analogous section of the Bill which could be relied on to override the relevant section of the 1845 Act. If it should be contended that there is a conflict in any respect between the provisions of this Bill and the provisions of the 1845 Act, it is the provisions of this Bill that apply.
I believe it is in order to make a few final or valedictory remarks. I hope they will not sound too valedictory. This Bill is in fact a nationalisation of our transport system in substance, though in form it preserves some of the features of a privately-owned company; but the interest of the private shareholder in the new Transport Company is so attenuated as to have disappeared almost completely. It is, therefore, a long step away from a capitalist economy in the direction of a nationalised or socialised economy so far as the important interest of transport is concerned. It is not necessarily any worse on that account, but we must still recognise the fact that it is an important step in the direction of a kind of national socialism, at all events nationalisation of transport.
Now, a capitalist economy had much to recommend it, but it had some serious defects. One of these defects was that, even in a capitalist economy, the only permanent source of improvement in the economic conditions of all was by the increase of production by all and, even under capitalism, the unconscious co-operation of all was a necessary condition of improvement by any important section of the community. Nevertheless, under capitalism the idea was all too readily accepted that the best and quickest way to promote selfish sectional interests was to eat into the vitals of some other sectional interest which happened to be less well able to further its sectional interest at the expense of another interest. Consequently, we have under capitalism a kind of tendency to economic cannibalism practised on the part of one organised interest against other organised interests. That is something which not only labour has indulged in at the expense of so-called capital, but in which new capital indulges even at the expense of old capital and nowhere more notably than in the way in which the interest connected with the development of road transport have battened on the vitals of the capitalist interests connected with the railway company. Now cannibalism is a substantial form of diet so long as the victim has any vitals left to batten on. But, now that the vitals of the old railway company have been attenuated almost into nonexistence and we have got a new principle in public transport involving the essence of the nationalisation of transport, I foresee a new danger. I foresee the danger that the cannibal instincts of certain interests, instead of being directed against the helpless shareholders will be directed against the helpless taxpayers. There will be a tendency to try to further the interests of certain highly organised concerns at the expense of the State and the community in general. That kind of thing reminds me of a phrase which is used in India to describe going for a walk. It is called going for a hawa khana, which means going out for the eating of air, for an air-eating expedition.
We had some suggestion that, in certain events, the new transport company might pay a part of the interest on debentures by the issuing of credits. That kind of procedure is a form of monetary inflation, concealed or otherwise, and if it is indulged in to any great extent it will really amount to something which I must invent a new term for—a kind of aerophagism, air eating. I hope the country is not going to be afflicted by the new disease of aerophagism taking the place of this old disease, economic cannibalism.
I had a misgiving when I heard Senator Duffy seriously arguing that the State could comfortably pay its way by the issuing of so-called credits. I would like to say that neither the State nor the banking system can issue credits; it can only issue debits against itself, which are, no doubt, credits from the point of view of the person who gets these evidences of indebtedness. I hope there will be no question of the organised interests trying to improve their position by encroaching on the interests of the general community or taking unfair advantage of the liabilities of the taxpayers.
This whole transport company that we are about to create involves the most curious partnership between an almost defunct private interest and a predominant State. One might almost say that the Minister, in his Ministerial capacity, is taking the shareholders "for a ride". We know what happens in America when people are taken "for a ride". But the Minister, no doubt, has not malicious intentions with reference to those shareholders, and any bumping-off that is in question has, I hope, already been done in reference to the shares and not in reference to the shareholders. I hope there will be no more question of bumping-off or writing-down the legitimate claims of shareholders.
The matter might be further illustrated from the point of view of the Government and the shareholders by another comparison. No doubt you have all heard the story of the young lady of Riga. For the sake of the record, I will repeat that it concerns a young lady who smiled as she rode on a tiger. She came back from the ride in the tiger's inside, and a smile on the face of the tiger. The shareholders here are going for a ride on the Ministerial tiger, and I hope in ten or 15 years' time, or whenever they do come back, there will be a smile on the face of the shareholders and transport users and employees of the transport company, and a broad grin on the face of the Minister.
With respect to the amendment that was carried in Committee, I considered the desirability of asking the Seanad to reconsider its decision. I was influenced in doing so, when I found that the Seanad was somewhat misled as to the obligations placed upon companies by the 1908 Act to provide, as a statutory obligation, copies of their accounts for their shareholders. That is not a statutory obligation under the 1908 Act unless a company constituted under that Act decides to accept it as an obligation. I decided not to ask the Seanad to reconsider its amendment because, while that is, so far as I know, the first time in legislation that any company has been placed under a statutory obligation to send accounts to all the shareholders every year, it has, in fact, been the practice of the Dublin United Transport Company and the Great Southern Railways Company in the past. In view of the fact that it was the practice, I decided it was not worth while having any further debate about it, and that the amendment might as well stand.
I have little further to say. The matters of controversy which have arisen have been settled by a majority vote. They may not have been settled to the satisfaction of each individual. but, now that the measure has passed beyond the controversial stage, I am sure that I express the hopes of all members of the Dáil and Seanad, no matter how they may have voted, that whatever we may hope or fear, we trust that the company to be constituted under this Bill will have a long and prosperous future.
I am going to vote for this Bill because I believe that within its framework we have the possibility of a transport system that will give general satisfaction to the community. This measure is timely; it is necessary, and I would like to say this, that it is one of the best things that Fianna Fáil has ever done. At any rate, it has given them a lease of life as a Government that they might not otherwise have got. Of course, the American letter might have had something to say to that, too.
There is no doubt about it that this Bill was before the electors and they have given their verdict. There can be no mistaking the verdict of the people on the Bill, notwithstanding all the slander and the misrepresentation that went on. As a matter of fact, I do not remember any measure that has been before the Oireachtas that was subjected to so much abuse as the Bill which we are now considering. In spite of all that, the people have given their verdict. The Minister in charge of it stood for an area in the City of Dublin where there was a very large number of railwaymen voters and he had their confidence. In spite of all this we have people here and in the other House trying to misrepresent the position and the conditions of the Bill.
With regard to the conditions of the Bill, I believe they are as good as they could possibly be for the railway workers. The Minister has told us that one of the first charge on the revenue of the new company will be a superannuation fund costing £175,000 a year. That ought to be a model for many of the industrialists in this country, that the worn-out employees of the transport company will be looked after and provided for in their old age.
As against that, while we have this system of capitalism in this country, there is no doubt that this Bill skins the shareholders' profits and benefits to the very bone. No one can deny that the debenture holders are losing 25 per cent. of their income in the new company. That is a fairly substantial slice off their revenue. There is a possibility, though a fairly remote one, that the common stockholders will ultimately get a dividend. Some of the people here of what I might call the chameleon Party were very interested in the shareholders' affairs, but not so very long ago those shareholders were denounced as sharks who got their shares by unscrupulous or dishonest means. Now they want in this House to hand over to the representatives of those people the right and power to use the new transport company in the interests of the private subscribers or shareholders instead of in the community interest.
It lay with the Minister to put that right and make that correction. A good deal of the time of this House was spent in looking after the interests of shareholders who got their shares by fairly dishonest methods. I do not know why that should be, if they got the shares by wrong methods, but the fact remains that a good deal of concern was shown.
As regards the future of this transport company, I believe that, with the proper co-operation of the people engaged in the transport industry, it will be a success. There is talk already of some non-co-operation with the people responsible for running the railway, or with—to put it broadly—the man who is responsible, because he is not a railwayman. I think we must be thankful that he is not a railwayman, as we know what the condition of transport was when railwaymen were in charge. The former Government and this Government have tried to rescue the railway companies from the chaotic condition in which they were while they were run by the capitalists operating in the country at that time. They were in a private company then and could not make a success of it. Now, as Senator Johnston has said, we have the substance of nationalisation.
We have only the name, not the substance.
We have not the name; we have the substance. Can anyone tell me any more power a man could have than is given to the chairman of the new company, being subject only to the Minister elected by the people? We prescribe on the one hand what the shareholders are to get out of the company, and, on the other hand, we make provision to ensure that the people in the industry will have reasonable and comfortable conditions of employment. If that is not nationalisation in substance, I do not know what is.
I have great hopes for the success of this very daring experiment, and if the man who is likely to be in charge of this organisation gets the co-operation to which he is entitled, I believe he certainly will do for the new company what he did for the Dublin United Transport Company.
Sul a gcuirfimid an Bille seo thar n-ais go dtí an Dáil, ba mhaith liom aontú leis an Seanadóir Ó Foráin sa méid atá ráite aige ar son an Bhille seo. Is mise ceann de na daoine a bhfuil spéis aige in imeachtaí iomcharais in Eirinn. Le chúig bliain déag, táim ag déanamh stuidéir ar a chuid imeachtaí. De thoradh an stuidéir sin, táim sásta go bhfuil Bille fónta againn; táim sásta go bhfuil Bille againn a rachas do leas na n-oibritheorí agus a rachas do leas na tíre fré chéile.
Before sending this Bill on its way to the Dáil, I would like to join with Senator Foran in his expression of appreciation of its contents. In certain ways, I would have liked the Bill to have gone somewhat further than it has gone. However, I believe that it is a most valuable contribution to the welfare of this country. For 15 years, year in and year out, it has been part of my duty as lecturer in economics to study transport conditions and to lecture to my students on such matters; and I know, from what I have seen and from what information I have been able to gather, that there are great possibilities for our transport here, granted that we get the right type of management. This Bill secures the right type of management for us, but that alone will not be sufficient and it is mainly to make an appeal to the servants of the railway company that I make these few remarks.
There is a belief that, by skimping work, men can stretch out their jobs and, perhaps, make work for their fellows; but a greater fallacy does not exist. If the servants of the transport company want to make themselves secure in their employment, and if they are anxious to provide work for others in transport and otherwise throughout the country, they will attend to their own work and carry out their own duties loyally and conscientiously. In their own interests, I think we should appeal to the servants of the railway company to co-operate to the utmost with the management.
In conclusion, I do not think we should let this occasion pass without putting on record some appreciation of the tremendous work put into this Bill by the Minister for Industry and Commerce. I think those who differ from him politically and all of us who have watched him in the Dáil and here in this House cannot fail to have been struck by his great care and great patience and by his desire to do the right thing by everybody. The country owes him a great deal for what he has done, and as this transport company gets on its way they will appreciate that and they will register more and more their appreciation of what he has done.
My remarks will be very brief. I would not have spoken at all were it not that I do not wish to allow pass unchallenged what certain previous speakers have said. I wish to stress another aspect of the matter. Personally, I am prepared to join in tribute to the Minister for his ability in carrying this Bill through Parliament. At the same time, I wish to express now appreciation of the sacrifices of the people who built this railway in generations past, many of whom have lost large sums of money, the bulk of their savings, in this enterprise. I would point out what we owe, and the country owes, to the capitalist system, to the people—not taxpayers, but poor, humble people up and down the land—who have lost 90 per cent. of their investments in this company. In my opinion—and I have done my best in that behalf—they are not getting a fair deal by this Bill. There is no good in my voting against the Bill. I would do so if I thought it would serve my purpose. With these few remarks I am going to let the Bill pass.
