I join in the tributes paid to Mr. Coughlan who, I understand is serving his last day in the Seanad. They are elevating him to our House and I will be there to welcome him next week. I have always found him extremely courteous and efficient in this House. This Bill provides for the dissolution of Fóir Teoranta, the repeal of existing Fóir Teoranta legislation, the transfer of its assets and liabilities to the Industrial Credit Corporation plc and related matters. It gives effect to the Government's decision, announced in February 1989, to wind-up the activities of Fóir Teoranta.
Fóir Teoranta was established in March 1972 under the Companies Act, 1963, as provided for in section 2 of the Fóir Teoranta Act, 1972. It was designed to fill a gap which was perceived in the range of State services available to manufacturing industry at the time. Its purpose was to provide an orderly procedure for restructuring ailing, but potentially viable industrial concerns which encountered financial difficulties and which were unable to obtain their financial requirements from commercial sources.
Fóir was established in a period of structural change in Irish industry prior to EEC membership in 1973, and the removal of many trade barriers. The progression to the open economy which we now have was taking place rapidly and the Government at the time took the view that transitional measures aimed at helping Irish industry to adapt to the new, more competitive conditions would be reasonable. Fóir's busiest period of activity was during the recessionary period of the early eighties when it provided very substantial assistance to Irish industry, mainly in the traditional sectors such as textiles and clothing, footwear and leather, furniture, etc. Unfortunately, despite Fóir's efforts, many of its client firms in these sectors did not survive. It would be difficult to assert that Fóir Teoranta had anything but a marginal effect on the overall performance of these sectors, one way or the other, over the period since its establishment. On the positive side, it must be said, that some firms in various sectors which were assisted by Fóir prospered and are trading successfully today.
Ireland joined the European Community in 1973 shortly after Fóir Teoranta was established. Since then, there have been wide fluctuations in the performance of the economy. In part, fast growth periods were stimulated by increased Government expenditure and borrowing. These borrowings eventually became unsustainable and the previous Government embarked upon the implementation of a Programme for National Recovery which had as one of its central aims the improvement of the environment for industry so that industry would be in a position to stand on its own feet and compete in the world marketplace. The aim was to reduce excessive Government expenditure, thereby reducing Government borrowing and lessening the upward pressures on interest rates and inflation. As Senators know, very considerable progress has been achieved in the past three years in this regard.
The level of activity in Fóir Teoranta had tapered off considerably in recent years, reflecting the improved outlook for industry from a peak of about £23 million in disbursements in 1983 to about £7 million in 1988. The number of applications received, cases approved and the average size of cases approved, had also substantially reduced.
In line with the fall-off in demand for its services and the virtual disappearance of large cases, together with buoyant own resources, Fóir Teoranta's requirement for Exchequer funding also declined in recent years. The last occasion when the company needed to call on the Exchequer was in 1987. Since then it has financed its operations from on-going income from its investments by way of interest and capital repayments, including a considerable element of pre-payments and share realisations. In fact, during the winding down phase, Fóir Teoranta has repaid a total of £10.6 million of Exchequer advances — £4 million in 1989 and £6.6 million this year. The company has been closed for new business since 23 February 1989.
Since Fóir Teoranta was a lender of last resort it is not all that surprising that a high degree of failure took place among its client firms. However, the failure rate experienced by Fóir Teoranta involved very considerable cost to the Exchequer. The failure rate may be measured by the fact that some £75 million of the Exchequer advances of £85 million currently outstanding has, in effect, already been written-off by the company as irrecoverable.
The level of write-off in Fóir Teoranta reflects the fact that many firms failed despite the assistance given by Fóir Teoranta. Many of those firms left it far too late to go to Fóir Teoranta for assistance in the first instance. Nevertheless, where assistance was given in such cases, the damage had already been done and the firms eventually went to the wall anyway. While there may be economic benefit in keeping jobs in existence longer rather than being lost at the outset, the prospect for long term sustainable employment may be better if firms are transferred to new owners quickly in the receivership/liquidation process than if they are kept in existence, with Fóir Teoranta's assistance, but with existing high levels of indebtedness and generally poor management as well as other weaknesses. The new examiner provisions in the Companies Act, 1990, will play an important and positive role in the area of company financial reconstructions in the future.
This is the background against which the Government considered the future of Fóir Teoranta. Their decision that Fóir Teoranta should be wound up, as indicated in the announcement I made on 22 February 1989, was based on the following: (i) the low level of demand for Fóir Teoranta's services; (ii) the very much changed industrial environment, as a result of the firm action taken by this Government and the previous one, as compared with when Fóir Teoranta was established; (iii) the provision, now enacted in the Companies Act, 1990, allowing for the appointment by the courts of an examiner in order to prevent a potentially viable company from going into immediate liquidation; and (iv) the need to prepare Irish industry to be ready to meet the challenges of the more competitive regime which will apply when the internal market is in place after 1992.
The decline in demand for Fóir Teoranta's services was due to a number of factors. The new climate of confidence in the economy and the favourable environment for industry were obviously major influencing factors. Another important consideration was the fact that finance for industry is now available on a much wider scale than ever before from private sector individual and institutional sources. Individual investors have the powerful advantage of State-backed tax schemes such as the Business Expansion Scheme.
Venture capital funds also exist on a significant scale with an important role in this regard being played by public sector agencies such as NADCORP and the investment arm of the Industrial Credit Corporation. Given these developments, it was inevitable that, leaving aside the improvements in the economy generally, demand for Fóir Teoranta services would be considerably lessened and the need for such an organisation diminished.
The examiner provisions of the Companies Act, 1990, have now been in operation for about three months. It is of course, too early to see how successful the provisions will be but there is, I believe, a strong desire among all concerned that the new procedure operates effectively to achieve the purposes for which it was intended. The similar Chapter 11 process in the United States has, of course, operated there for many years. The Companies Act, 1990, allows for a stay on the rights of creditors while the examiner attempts a reconstruction of the company's finances. One of my objectives in preparing the Bill originally was to provide a new procedure which would help to obviate the need for a separate State company to deal with industrial rescue, and indeed Fóir Teoranta itself advocated that the new procedures should be implemented. There is sufficient scope under the new procedure for genuinely viable firms to stave off closure if they are threatened by merely short term financial difficulties.
The industrial environment now is very much changed from the one which existed when Fóir Teoranta was established 18 years ago and during its main periods of business. Business confidence has never been greater. I believe that State intervention such as that provided by Fóir Teoranta has no place in this environment. Interest rates and inflation are at lower rates than those that exist in many of our competitor economies. The Confederation of Irish Industry is on record as stating that industry in Ireland would "prefer to have a competitive cost environment than seek to compensate for deficiencies in the environment through cash grants" etc., from the State. Clearly, we are living in an environment much more conducive to getting industry back on its feet and achieving increased long term industrial employment. The best action which the Government can take in relation to the survival of firms is to contribute as much as possible to lowering the input costs of industry, rather than giving them handouts when it is probably too late to save them anyway.
The underlying performance of manufacturing employment has been improving in recent years. The target set out in the Programme for National Recovery to generate 20,000 gross jobs on average per year in manufacturing and international services was achieved with average annual gains over 1988-89 of 20,900 jobs. The net annual gain in employment on average over the period was 4,700 in this sector. Total manufacturing employment is expected to grow further in 1990-91. The level of growth will be dependent on a number of factors, in particular the performance of economies such as those of the UK and the US.
To sum up, the Government took their decision in relation to Fóir Teoranta in the light of prevailing circumstances. The Government's view at the time was that with the other sources of finance available for investment in industry and with the economy in good condition, there should be little if any adverse impact on employment as a result of the closure of Fóir Teoranta. I am happy to say that view has proved correct; as already indicated, in the period since Fóir Teoranta closed for new business, employment in manufacturing industry increased. As regards the view that a need may arise in the future for the State to be actively involved in industrial rescue should economic conditions deteriorate, it has to be made clear that the days of feather-bedding Irish industry are over. Irish industry must be able to compete in the marketplace and in an intensive effort to ensure that this will be the case post-1992, the Government are already devoting greater resources to industry in the context of the EC Structural Funds over the next few years. Expenditure supported by the Structural Funds will be over £1 billion over the five-year period to 1993. There is, therefore, no lessening in the level of resources being devoted to industry. It is the purpose for which those resources are used which is important and we will ensure that the funds involved are put to best effect in order to secure good solid progress the aim of increasing the level of employment in the economy.
There has been an orderly winding down of Fóir Teoranta's activities. Its portfolio of loans and investments under the terms of the legislation now before the House, will be assigned to the Industrial Credit Corporation to administer. The Exchequer's investment in the client firms concerned will be looked after by the Industrial Credit Corporation in accordance with the contractual arrangements entered into by those firms with Fóir Teoranta. It is not possible to say how long the administration of the portfolio in the hands of the Industrial Credit Corporation will take. However, I expect it will probably take of the order of five to seven years, but it could be longer in particular instances.
My Department are negotiating with the ICC on the fee for remunerating the ICC for its work in administering the Fóir Teoranta portfolio. The House is aware that in relation to ICC I have employed consultants to consider and report on the State's options in relation to the future of the company. Whatever the Government's decision in due course on the future of the ICC, I envisage that ICC will continue to administer the Fóir Teoranta portfolio on the basis now being established.
As regards the staff of Fóir Teoranta, I am pleased to report that the bulk of the staff have now either been redeployed to other parts of the public service or have taken early retirement on terms similar to those under the general public service early retirement scheme. Some temporary staff have been taken on so as to ensure that the winding down process proceeds smoothly and that the Exchequer investment is protected.
Before dealing with the specific provisions of the Bill, I would like once again to express publicly my appreciation and that of the Government of the work done by Fóir Teoranta since its establishment. I wish to pay tribute to the hard work, commitment and dedication of the staff, management and directors of the company over the years.
I will now deal with the individual sections of the Bill. First of all I should point out that the provisions of the Bill will come into effect on a day to be appointed by Ministerial order.
Section 1 is a definitions section. Section 2 dissolves Fóir Teoranta. Section 3 transfers all the assets and liabilities of Fóir Teoranta to the Industrial Credit Corporation save for a sum of £75 million of Exchequer advances which is being written off. This amount has already been written off in the books of Fóir Teoranta as being irrecoverable. It is important to emphasise that, apart from about £10 million written off in 1983, this £75 million represents losses incurred by Fóir Teoranta over the full 18 years of its existence. The balance of the outstanding Exchequer advances, which is about £10 million, will be transferred to the ICC.
Moneys received by the ICC in respect of the assets of Fóir Teoranta, mainly its portfolio of loans and equity investments will, under subsection (4) of this section, be paid to the Exchequer. Subsection (5) allows the Minister to pay to the ICC a fee in respect of its management of the assets and liabilities transferred to it.
Section 4 provides for the preservation of existing contracts of Fóir Teoranta and their transfer to the ICC. Section 5 provides that the ICC will be substituted for Fóir Teoranta where the latter is a party to legal proceedings immediately before the commencement of the Act. Section 6 exempts the transfer involved under these provisions from the imposition of stamp duty.
Section 7 deals with the final accounts of Fóir Teoranta which will be prepared by the ICC and submitted to the Minister who will present them to both Houses of the Oireachtas. The section also requires the corporation to keep all proper and usual accounts in relation to the assets and liabilities transferred to it and to present them to the Minister who will submit them to both Houses of the Oireachtas.
Section 8 provides that the ICC shall present a report of its activities in relation to the assets and liabilities transferred to it to the Minister who will present it to both Houses of the Oireachtas.
Section 9 (1) provides that the Minister may make advances not exceeding £2 million to the corporation in respect of liabilities of Fóir Teoranta, arising from the exercise of its statutory functions, which had not been discharged by Fóir Teoranta as of the transfer date. These liabilities arise from some outstanding commitments to client firms and to receivers of client firms where in certain circumstances moneys paid to Fóir Teoranta by receivers may have to be returned to the receivers together with interest thereon. The remaining sub-sections contain standard provisions in relation to Exchequer advances.
Section 10 provides for the repeal of existing Fóir Teoranta legislation. Section 11 provides that the expenses incurred in the administration of the Act be paid from moneys provided by the Oireachtas. Section 12 deals with the short Title and the commencement. As I mentioned already, the Act will come into operation on such day as the Minister may appoint by order.
I commend the Bill to the House.