The Bill provides for the establishment of a State-sponsored company, Fóir Teoranta, to cater for reconstruction finance for potentially viable firms which are in danger of closing down because of their inability to raise capital from commercial sources. The decision to establish this company has already been announced in the Third Programme for Economic and Social Development.
In recent years a number of firms have had to face the prospect of an immediate closedown because of serious financial difficulties although there was good reason to believe that they could be viable in the long-term. While the State has provided ad hoc financial assistance to tide some of these firms over their immediate difficulties and avert redundancy, I consider that there is need for an orderly, established procedure to deal with any such cases in the future. I propose that this work be undertaken by a new State-sponsored company, Fóir Teoranta, the principal functions of which are set out in section 4 of the Bill. Briefly, these functions are to provide finance for eligible concerns by such means as acquiring shares and debentures, issuing loans and bill finance and guaranteeing borrowing. It is envisaged that finance on concessionary terms as regards both interest and repayment will be necessary in many cases.
In order to be eligible for financial assistance a concern must comply with a number of conditions. It must be engaged in an industrial activity. Employment and capital invested in it must be significant. The proportion of the promoters' contribution to its total capital and the prospects of profitability on a permanent basis must be reasonable. It must be able to show that further finance cannot be procured commercially and that failure to obtain financial assistance would have serious repercussions nationally or locally. It is the intention to interpret industrial activity in the broadest possible terms to include all economic activities that can reasonably be described as being of an industrial nature. These conditions are set out in section 4 (2) (b) of the Bill.
The criteria for eligibility for financial assistance cannot be measured in quantitative terms and it will be left to the board of Fóir Teoranta to decide in each particular case whether or not a firm should be regarded as an eligible concern. For instance, one of the criteria is that the capital and the employment content of the firm in difficulties must be significant. It is not possible to lay down a single minimum measure of significance in this context and it will rest with the board of Fóir Teoranta to judge each particular application on its merits. The measure of significance will be influenced by the extent of industrialisation and the employment situation in the area where the applicant concern is located. The main consideration is that if the closure of a concern would have serious repercussions locally or nationally, it will be eligible for assistance under the Bill. To clarify the matter I propose to move an amendment on Committee Stage to provide that the measure of significance of employment and capital will be determined in relation to local or national conditions as appropriate. I want to make it clear, however, that, while the company may be a lender of last resort and will give sympathetic consideration to applications for assistance, there is no intention of applying State funds in supporting industrial concerns which have no reasonable prospect of viability in the long term. I would like to add that, since the purpose of the Bill is to assist firms threatened with closure, it is not the intention that the company's facilities will be used in a situation where a concern is already in liquidation and efforts are being made to replace it with another business.
In the past the State on occasion has had to deal at very short notice with appeals for help from firms which were in immediate financial difficulties. The decisions to give help in such instances had to be taken under the threat of imminent closure of the firms concerned, with the result that a comprehensive examination of their affairs was not possible in the short time allowed. These ad hoc arrangements are unsatisfactory, and in order to avoid a recurrence of this situation it will be the policy of the new company to encourage firms in financial difficulties which need State assistance to give sufficient notice to enable their affairs to be examined in detail before the position becomes so critical that a close-down is imminent.
As a condition of granting finance, it is envisaged that Fóir Teoranta may, in suitable cases, require applicants to employ consultants and implement their recommendations including changes in their board of directors and management. This is desirable in order to guard against the danger that State support would be given to concerns which might not of their own accord make the necessary changes in their internal organisation to improve the prospects of future viability. There may be special cases where, in order to maintain the continuity of a business, Fóir Teoranta might assist in finding a new owner or arranging a merger or other form of association with another firm. These arrangements can be made administratively and it is not necessary to cater for them in the Bill. The company will have a nominal share capital of £100 and will obtain its financial requirements by way of Exchequer advances.
Section 12 of the Bill fixes a limit of £7½ million on aggregate borrowing by Fóir Teoranta and section 13 fixes a similar limit on advances from the Minister for Finance to the company. Taiscí Stáit's aggregate commitments are currently of the order of £8.8 million, whereas the amount which it is empowered to borrow is £7.5 million. This limit has already been exhausted and in the normal course I would be seeking legislative approval for an increase in the limit on the amount which Taiscí Stáit may borrow. However, since this company is being wound up, it is proposed that Fóir Teoranta should fund Taiscí's outstanding investment commitments of £1.3 million which will devolve on the new company when Taiscí is dissolved and its assets and liabilities transferred under section 19 of the Bill. The effective ceiling, therefore, on moneys which the company may borrow for its own purposes will be of the order of £6.2 million. Taiscí Stáit's existing borrowing of £7.5 million will also be taken over by Fóir Teoranta as an additional liability. It is made clear in sections 12 and 13 that this liability is excluded in fixing the limit on Fóir Teoranta borrowings.
Senators may be of the opinion that the limit is too low having regard to the growing demand for rescue finance and the falling value of money. I consider, however, that the initial limit should not be determined by the possibility that some exceptionally large applications for assistance will be received. Also, the relatively low limit will ensure that the Oireachtas will have the opportunity to review the company's activities within a reasonable period when legislation to revise this limit is introduced. It is intended that Fóir Teoranta will pay interest on Exchequer advances to the extent that a return will be earned by it on its investments. The company will have discretion in deciding what form the assistance will take in each case and the extent of any interest and repayment concessions. Normally, freedom from interest or deferment of interest will not be allowed for a period exceeding five years.
Provision is also made in the Bill for the guaranteeing by the Minister for Finance of borrowings by the company from non-Exchequer sources.
While it is difficult to estimate the amount of assistance likely to be required for reconstruction finance in the average case, it is envisaged that the firms most likely to have to avail of the company's help will be small or medium-sized. On Second Stage of the Bill in Dáil Éireann I stated that it was intended to arrange administratively that Fóir Teoranta should not provide financial assistance to any individual concern in excess of £100,000 without the consent of the Ministers for Finance and Industry and Commerce. As the finance required will come from the Exchequer and is likely to be on concessionary terms in most cases, it is considered that some ministerial supervision should be exercised where exceptionally large amounts are sought by individual concerns. The proposed ceiling of £100,000 came in for some criticism in the Dáil on the basis that it is too low, having regard to the decreasing value of money. I indicated at the time that I had an open mind on this and I have since decided, after consultation with the Minister for Industry and Commerce, that ministerial approval will not be required for investments up to a ceiling of £250,000.
Section 19 of the Bill provides for the dissolution of Taiscí Stáit Teoranta, the transfer to Fóir Teoranta of the property and liabilities of Taiscí Stáit and the preservation of its existing contracts. Taiscí Stáit Teoranta was set up in 1964 principally to acquire shares in and to issue loans to State-assisted industrial concerns. In practice the main function of the company has been the provision of loans on preferential terms in part substitution for grants for large-scale industrial projects. In the absence of a more appropriate State source the company have also been used to assist certain firms which found themselves in financial difficulties and which I referred to earlier.
Since their establishment Taiscí Stáit have provided assistance to 25 industrial concerns by way of preferential loans or share investments. In a majority of instances this assistance was for new industrial projects or the expansion of existing projects. The demand for rescue finance was not significant in earlier years but the position has changed in the past two years when the main emphasis has been on rescue operations. Taiscí have already assisted or have undertaken to assist 12 industrial concerns in urgent need of finance which they could not raise from the normal commercial sources. Taking into account the commitments which will be transferred to Fóir Teoranta, Taiscí Stáit's contribution to Irish industry will amount to approximately £8.8 million and of this approximately £3.0 million represents rescue finance. So far the company have had to write off loans and interest to the extent of £40,000 but it now seems most likely that upwards of a further £1,000,000 is irrecoverable.
The Industrial Development Act, 1969, confers powers on the IDA to guarantee loans for and to participate in the equity of industrial concerns and to give interest subsidies in respect of loans. In the circumstances there is no longer a need for Taiscí Stáit to continue to provide facilities to large-scale industrialists, while their present functions in regard to rescue operations will be taken over by the new company. It is proposed, therefore, that the company be dissolved to avoid the possibility of a duplication of State facilities. As I have already indicated, Fóir Teoranta will honour existing Taiscí Stáit commitments and will take over their existing investments.
The Bill contains a number of standard provisions relating to the formation and operation of the company. There are the usual requirements in regard to the form of the company's accounts and their presentation to the Oireachtas—section 16—the furnishing of an annual report and other information to the Minister—section 17—and the contingency of membership of either House of the Oireachtas by the directors of the company—section 18. In accordance with section 5 of the Bill, the articles of association will provide that the number of directors, including the chairman, shall not exceed seven and that they shall be appointed by the Minister for Finance with the consent of the Minister for Industry and Commerce. While the board of Taiscí Stáit have always been comprised solely of civil servants, it is envisaged that, in accordance with normal practice in regard to State-sponsored bodies, the directors of Fóir Teoranta will be chosen mainly from outside the Civil Service.
The Industrial Credit Company have acted as managers to Taiscí Stáit Teoranta and have conducted the day-to-day administration of their affairs. This arrangement has proved satisfactory as the ICC have long experience in industrial finance; they have firsthand knowledge of the problems of industry and their staff have the necessary skills required in this field. The Board of Fóir Teoranta will decide whether the company should have their own staff or whether the ICC should be invited to act as managers of the company. To cover the possibility that the board of the new company may decide to have their own staff I propose on Committee Stage of the Bill to move an amendment to section 18 to extend the Oireachtas membership provisions to officers and servants. Whatever course is followed by the Board of Fóir Teoranta in relation to staffing, close liaison with the ICC and other State agencies will be maintained.
In a period of rapid transition in industry it is inevitable that some firms, however well managed or fundamentally viable, will be confronted with special difficulties and will be unable to get finance from the normal commercial sources. It is desirable, therefore, that the State should take positive action to ensure that no firm will be forced out of business unnecessarily. This Bill provides an appropriate means for the rehabilitation of potentially viable firms and I consider it as a vital link in the chain of measures to assist industrial development.
I, therefore, confidently recommend the Bill to the House.