The Agricultural Credit Corporation was established following the passing of the Agricultural Credit Act, 1927, which implemented certain recommendations of the Banking Commission of 1926. The capital of the corporation was fixed at £500,000 and dividends at the rate of 5 per cent. per annum on the paid-up capital were guaranteed by the State. In addition the corporation was empowered to borrow money by issuing certificates of charge, that is a form of security backed by first mortgages on land and guaranteed as to principal and interest by the Minister for Finance, to an amount not exceeding £7,500,000, but subject to a maximum issue in any one year of £1,000,000. These provisions in relation to certificates of charge, as extended by the Act of 1929, are still in operation and are not altered by the proposals in the present Bill.
The corporation had only commenced to operate when it was found that the main security which farmers could offer was first mortgages on land. As a very large number of the farms in the country have been registered under the Registration of Title Act, 1891, subject to equities, many prospective borrowers could not show title to their lands without incurring undue expense and, accordingly, the Agricultural Credit Act of 1928, a short enactment, was passed, which solved this difficulty in the main by giving the corporation the right to register a priority charge for a principal sum not exceeding £400 against a farm without requiring the discharge by the borrower of the note as to equities. The provisions of the 1928 Act in this respect are in a slightly extended form continued by Chapter II of Part IV of the present Bill.
The Act of 1929 made certain changes in the capital structure of the corporation. The nominal capital was increased to £1,000,000 in 1,000,000 shares of £1 each, which are at present paid up to the extent of 10/- only, and are held in the manner described in the third paragraph of the White Paper which has been issued in connection with the present Bill. The balance of 10/- per share is payable only upon a winding-up. It is proposed to replace the present capital by a capital of £300,000, consisting of 600,000 shares of 10/- each, fully paid up, and all in the ownership of the Minister for Finance.
These provisions relating to reorganisation of capital will bring to an end a situation which is out of keeping with present-day monetary conditions, whereby a Government guaranteed security is yielding 5 per cent. interest to holders. The original provisions of the 1927 Act relating to capital were early seen to be unsuitable, as it was recognised that the corporation, set up without free resources, could not make loans at a reasonable interest rate and at the same time carry out the obligation imposed on it by the Act of paying 5 per cent. on all its capital. The only relief afforded to the corporation was that if its profits were insufficient to pay the 5 per cent. dividend, it could borrow the necessary moneys from the Exchequer at such rates of interest as might be fixed by the Minister for Finance. The 1929 Act tempered the position to some extent, by providing that any money obtained by the corporation from the Government for the purpose of paying dividends should rank not as a debt owing by the corporation to the State, but as a bonus right on the shares owned by the State. That Act also divided the shares into "A" and "B" shares, all the "B" shares and 109, 237 of the "A" shares being held by the State. By this device the Minister for Finance became, as it were, a deferred shareholder, the "A" shares being given priority of claim to dividend over the "B" shares.
This arrangement worked in accordance with anticipations for a few years but farmers' incomes were subsequently so reduced by the depression that for the time being at any rate, many borrowers were unable to meet their commitments to the corporation. Faced as it was with a heavy potential loss, the corporation decided to build up a substantial bad debts reserve. About 1936, it began by degrees to make contributions, small at first and gradually increasing, towards the statutory dividends on the "A" shares which had in the meantime been paid from the Exchequer. By 1942, the financial position of the corporation had so improved that it was able to pay the full 5 per cent. dividend on its "A" shares, other than those held by the State, having in the meantime built up adequate reserves.
The corporation had carried a further burden during these years in its mortgage bonds, of which it had issued £500,000 at 5 per cent. interest. Under the terms of issue, £250,000 of these were payable on 1st November, 1944, and the remainder not earlier than 1st May, 1946. Arrangements were made in 1942 to provide funds to meet the 5 per cent. mortgage bonds in anticipation of their maturity. Accordingly, £500,000 3 per cent. mortgage stock was issued and the proceeds temporarily invested, until the 5 per cent. bonds should mature, when they were duly paid off.
By 1942, it had become clear that the corporation's interest rate on loans was high by comparison with current interest rates and the directors decided to reduce the rate to 4½ per cent. As this reduction applied to existing as well as future loans, it involved a considerable sacrifice of revenue — about £10,000 a year — by the corporation. The 5 per cent. bonds having been paid off, however, the corporation is now in a reasonably good profit-earning position and should in the future be better able to fill a useful rôle in supplying farmers' long-term credit needs.
The proposed reduction in its paid-up share capital from £500,000 to £300,000 will simplify the capital structure and strengthen rather than weaken the corporation because it cannot at present invest its surplus resources at rates which will give a higher return than about 3 per cent. while the dividend on the "A" shares is 5 per cent. The savings resulting from this capital reorganisation will be at least £4,000 a year. To this can be added also the saving which will result from the reduction in the number of directors, at present seven, to a maximum of five. These savings will be a material advantage to this company, having regard to the level of its net profits which for the year to the 31st October, 1946, amounted to £16,222 only, when interest on the mortgage bonds had been met.
To strengthen the position further, there are the provisions of Section 13 which enable the Minister for Finance to advance to the corporation, from moneys voted by the Oireachtas for the purpose, up to £250,000 at a rate of interest not less than the rate on advances from the Central Fund to the Local Loans Fund, at present 2½ per cent., and also enable the corporation to borrow from credit institutions up to £250,000. The first of these provisions is designed to tide the corporation over a period of general financial difficulty when additional resources which might be required for the continuance of lending operations might not readily be obtainable otherwise.
The reorganisation of the corporation's share capital involves no effective reduction in its lending resources in view of the extent of its power to raise loan capital. Only £500,000 of mortgage bonds are at present in issue out of the statutory maximum of £7,500,000 available for creation, and it is unlikely that the demand for new loans will so seriously exceed repayments of loans already made as to require in the coming years the issue of more than part of the available balance of £7,000,000. At present many farmers have money in bank which they are unable to employ productively on their farms partly because of the acute shortage of materials.
The lending powers of the corporation are being widened because it has been found that the existing limitations are too restrictive. For example, the corporation cannot at present make a loan to a co-operative society which even as an incidental part of its business sells goods retail except these goods are produced by the society itself or by its members or are requisites of agricultural production or marketing. Many co-operative societies which are clearly agricultural in character cannot at present obtain loans from the corporation because they sell ordinary household requisites produced by industrial concerns even though such sales may form only a very small portion of their retail business and an infinitesimal part of their total business. It is now proposed to exclude only co-operative societies which, in the opinion of the directors of the corporation, engage in retail sales of nonagricultural goods as a substantial part of their business.
In general, it is proposed that loans may be made to the following:—
(a) individuals who are farmers; (b) bodies corporate which are farmers in the sense defined in the Bill, and (c) bodies corporate which have as their principal business the supplying of agricultural goods or services to farmers.
In Section 3 of the Bill, a "farmer" is defined as any person who carries on some form of agriculture or any body corporate which as its principal business carries on some form of agriculture. For this purpose the term "agriculture" is defined in the Bill as including, in addition to the activities covered by the definition in the 1927 Act under which the corporation is at present working, the processing, manufacture, preparation or completion for sale of any farm produce. Loans may accordingly be made to qualified persons for all purposes which, in the opinion of the directors, relate to agriculture.
These wide powers are qualified by certain restrictions and prohibitions contained in the Bill, of which the most important are:— (1) the limit of £10,000 in the amount of the maximum loan which the corporation may make to any person with the exception of a co-operative society; (2) that power is not given to make loans for the purchase of land, save for the purpose of realising a security held by the corporation, and (3) that the corporation cannot alter the lending powers as expressed in its memorandum and articles of association in accordance with the terms of the Bill without the consent of the Minister for Finance and the Minister for Agriculture.
Part III of the Bill deals with chattel mortgages, which were first introduced into this country by the Act of 1927. It is proposed to establish a system which will enable chattel mortgages to be taken by the corporation or by a bank from any borrower in the ordinary course of business, and such mortgages may relate to specific stock or to the floating stock from time to time on the borrower's land. The proposed system will have the effect of restricting severely the manner in which the owner of stock the subject of a specific chattel mortgage may deal with it without the consent of the mortgagee. It is hoped that these provisions will have the result of enabling farmers to borrow from the corporation and the banks by means of chattel mortgages to a greater extent than has been possible up to the present.
Part IV of the Bill codifies and amends the law relating to charges on land in favour of the corporation. The ten sections numbered 37 to 46 in Chapters I, II and III correspond to the provisions of the 1928 Act and Part III of the 1929 Act. To remove doubts, it is made clear by this Bill that the priority of corporation charges on land over the rights of equitable or puisne claimants covers not only principal but extends also to interest and to any expenses incurred in realising the security for the loan. The power given to an executor or administrator, by the Act of 1929, to charge lands with repayment of a loan not exceeding £400 obtained from the corporation for any purpose for which the corporation is entitled to make advances, is strengthened and clarified. The corporation is also being given statutory power to sell and convey lands registered under the Registration of Title Act, 1891, without discharging the note as to equities.
Part V deals with miscellaneous matters. Section 53 re-enacts Section 26 of the 1929 Act which provided that debts due to the corporation might be proved in the Circuit Court by sealed certificate, instead of by sworn affidavit. This provision is necessary in view of Circuit Court Rules made subsequent to the Act of 1929. Section 54 abrogates the powers of the Commissioners of Public Works to make loans for farm improvements under certain existing enactments. Section 55 was inserted on the Committee Stage in Dáil Éireann in implementation of the general policy regarding Irish in relation to appointments to State sponsored companies and organisations.
The principles on which the Bill has been drafted were not subjected to criticism in Dáil Éireann and on the whole its proposals were favourably received by Deputies of all Parties in that House.
It was possible for me to meet by amendments on the Report Stage a number of the points made by Deputies during the discussion in Committee. The paragraphs of Section 24 which gave the corporation and the banks the right to inspect chattel mortgage registers were criticised severely by several Deputies on the grounds that they militated against the secrecy of the registers and, although these provisions merely re-enacted existing law under the 1927 and 1929 Acts, an amendment was submitted in the name of the Minister for Finance on the Report Stage providing that the corporation or a bank cannot in future inspect a register of chattel mortgages directly but must do so through the county registrar. In addition, any request to the county registrar for information contained in the chattel mortgage register for his area must be made under seal, and must be specific and not general.
Section 28, under which it would have been possible — even though unlikely to occur — for the corporation or a bank to require immediate repayment of the full amount due on a floating chattel mortgage when the mortgagor sold any of the stock off his lands, was amended so that the obligation of repayment would not arise if the mortgagor within one month restored the value of the stock on the land to the value of the stock at the date on which the mortgage was made.
The provisions of Section 29 regarding the service of notices for the purpose of converting floating chattel mortgages into specific chattel mortgages were amended in the Dáil so as to provide that such notices must be delivered to the mortgagor or left at his residence or place of business with a member of his family or his agent, clerk or servant.
I might say a word about Sections 26 and 53 in regard to which there has been some misconception. These provisions are designed to mitigate legal expenses recoverable from defaulters and do not involve any new principle not enshrined in earlier legislation. Section 53 merely re-enacts Section 26 of the 1929 Act. The section does not deprive any person sued by the corporation of the protection which the law affords him against an unfounded claim. A certificate under the section isprima facie proof only and if a defence is entered and the correctness of the corporation's claim challenged, the corporation would find it necessary to prove the claim in the normal way.
The provisions of Section 26 of the Bill replace the provisions of Section 26 of the 1927 Act under which the mortgages has the right to seize the stock when any moneys due under a specific chattel mortgage are outstanding for more than seven days. Seizure and realisation will in future be carried out by the county registrar acting on the direction of the lending body and the period that moneys may be outstanding is extended to 14 days. I am quite satisfied that unless a lender of money on foot of a specific chattel is in a position to realise his security promptly when the need arises, there is no future at all for this means of credit for farmers.
Before concluding, the members of the House may desire that I should give some facts in relation to the financial position of the corporation and the service which it has rendered to farmers. The report and accounts for the year ended on the 31st October, 1946, show that up to that date it had made, since the commencement of business, 26,403 loans aggregating £2,716,000. The average loan was thus £103. The amount of loans outstanding at that date was £844,000, and the other main asset of the corporation consisted of trustee securities to the value of £328,000, the total of its assets being £1,181,000. The corporation's main liabilities consisted of £500,000 Three Per Cent. State-guaranteed Mortgage Stock and the paid-up capital of £500,000. Sundry creditors stood at just over £125,000, the great bulk of which consisted of reserves, including a reserve for bad debts of £110,000, approximately. This substantial reserve has been built up to the extent of almost one-half by the recovery in recent years of sums deemed irrecoverable during the period of agricultural economic depression. There was a bank overdraft of about £47,000. The total of these and other minor liabilities was £1,181,000.
Attention may be directed to the provisions of Section 19 of the Bill, which ensure that full annual statements of the financial and other aspects of the corporation's business will in future be presented to the Oireachtas.
It is proposed in this Bill to give the corporation a more flexible instrument than has hitherto been in their possession, so that they may be enabled to give financial assistance to farmers in need of it without imposing too great a burden on them; and also to include among its beneficiaries many classes of small holders who in the past were precluded from consideration on purely technical grounds.