I move that the Bill be now read a Second Time.
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. It was provided that dividends at the rate of 5 per cent. per annum on the paid-up capital would be guaranteed by the State. In order to raise further resources for its business the corporation was empowered to borrow money by issuing what were called certificates of charge, that is a form of security backed by first mortgages on land, to an amount not exceeding £7,500,000, but subject to a maximum issue in any one year of £1,000,000. These certificates of charge were to be guaranteed as to principal and interest by the Minister for Finance. These provisions in relation to certificates of charge, as extended by the Act of 1929, are still in operation and it is not proposed to interfere with them by the present Bill.
The 1927 Act defined in detail the persons to whom, and the purposes for which, loans might be made, and contained also some express prohibitions against particular forms of lending. The corporation had only just 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. 10/- shares rather than £1 shares are adopted in view of the nature of the existing partly paid holdings.
These provisions relating to reorganisation of capital are designed to bring to an end a situation which is out of keeping with present-day monetary conditions, whereby a security, bearing a Government guarantee and backed by the corporation's assets, 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 reserves or free resources of any description, could not make loans with reasonable freedom and 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 by the 1927 Act 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 a dividend over the "B" shares.
This arrangement worked in accordance with anticipations for a few years, and the corporation paid the full dividend on all its "A" shares out of profits in the years 1930, 1931 and 1932, but by 1933, farmers' incomes had been so reduced by the depression that, for the time being at any rate, many of them were unable to meet their commitments to the corporation. Faced as it was with a heavy potential loss on bad debts, the corporation decided to build up its reserve position at the expense of dividends. By 1936, its position had so much improved that it began by degrees to make contributions, small at first and gradually increasing, towards the statutory dividend on the "A" shares. By 1942, it was back in the position that it could afford 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 a reserve sufficient to meet all ascertained losses as well as any to which, on a conservative estimation of possibilities, it might be exposed in the future, on its then existing loans.
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 repayable on 1st November, 1944, and the remainder not earlier than 1st May, 1946.
By 1942, it had become clear that the corporation's interest rate was unduly high by comparison with current interest rates, so much so as to be to some extent a hardship on its borrowers and to imperil the maintenance of its lending business, and that a reduction in the rate was desirable. With the cooperation of the Department of Finance, the corporation made arrangements 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.
Having thus cleared up any uncertainty as to the future cost of this part of the corporation's working capital, it became possible for the directors to reduce the interest 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 Department of Finance recognised that this sacrifice made it impossible for the corporation to pay more than a small proportion of the statutory 5 per cent. dividend, until the time the corporation became entitled to repay the 5 per cent. bonds.
These bonds having been paid off, the corporation is now in a reasonably good profit-earning position and should in the future be better able to fill a useful role in supplying farmers' longterm credit needs. However, at the present time and for some years past, the demand for loans has been very limited, owing to a combination of high agricultural prices and scarcity of farm materials and equipment of all kinds. Simultaneously, redemptions of mortgages by farmers in advance of contract dates have been abnormally heavy. For these reasons, a considerable amount of money, which at the present time cannot be suitably employed in loans, has accumulated in the corporation's hands.
It is the intention, under the provisions of this Bill, that part of these surplus funds shall be used to repay and cancel the shares owned by the banks and public.
The proposals involving this 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 saving 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 of about £5,000 a year may not appear substantial in relation to a credit institution, but they represent a material contribution to the strengthening of a company, the net profits of 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 its bankers up to £250,000. It is not anticipated that the first of these provisions will be required to be brought into operation in the early future, but it is designed to provide a temporary expedient enabling the corporation to continue to make advances if, during a period of general financial difficulty, its resources should all be used up and additional resources for the continuance of lending operations could not readily be obtained otherwise.
The reorganisation of the corporation's share capital involves no effective limitation on its resources for lending in view of the extent of its power to raise loan capital as required. Only £500,000 of mortgage bonds are at present in issue out of the statutory maximum available for creation, viz., £7,500,000 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. The position at present is rather that 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 considerably because it has been found by experience that the existing limitations are unduly 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 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 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.
The nature of the foregoing definitions widens the field of operation open to the corporation. The purposes for which loans may be made to persons who qualify under these definitions may in general be said to include 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 (from persons or bodies corporate to whom the corporation may lend money) or by a bank from any person in the ordinary course of its 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 claimants (in the case of registered land) and of puisne claimants (in the case of unregistered land) extends not only to the principal of the loan but, in addition, to the interest on the loan 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 (provided, however, that in the event of the sale realising a surplus the corporation will ascertain and pay over the surplus moneys to the parties whose rights are protected by the note).
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, which will have the effect of saving legal expenses which are recoverable from a defaulter, 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.
It is proposed in this Bill to give the corporation a more flexible instrument than was hitherto in their possession, so that they may be enabled to give financial assistance to farmers in need of it without imposing too great a burthen on them: and also to include among its beneficiaries many classes of smallholders who in the past were precluded from consideration on purely technical grounds.
Before finishing this statement, the members of the House may desire that I should give some facts in relation to the present position of the corporation. Its financial year ended on the 31st October, 1946, and up to that date it had made since the commencement of business 26,403 loans aggregating £2,716,000.