INTERIM REPORT FROM THE COMMITTEE OFPUBLIC ACCOUNTS.
The Committee has made progress in the matters referred to it, and has agreed to the following Interim Report:—
NATIONAL LAND BANK.
1. The Vote under this head was for a sum of £300,000 “to provide for an Advance to the National Land Bank Ltd. for the general purposes of the Bank, including the making of advances in respect of loans guaranteed under the Trade Loans (Guarantee) Act, 1924.”
2. The Comptroller and Auditor-General has reported on the circumstances in which a loan made by the Bank was guaranteed by the Minister for Industry and Commerce (with the sanction of the Minister for Finance) under the powers conferred on him by the Trade Loans (Guarantee) Act, 1924. In his Report the Comptroller and Auditor-General stated that in view of the limitations for guarantee of loans imposed by section 1 of the Act he did not consider that the guarantee in the case in question came within the terms of the section and therefore he deemed it necessary to call attention to it.
3. The Comptroller and Auditor-General is required by the terms of his office to satisfy himself that moneys granted by the Oireachtas are applied to the purpose or purposes for which the grants were intended to provide. It is therefore necessary for him to consider what those purposes are and in this the Estimate and the Acts and Regulations governing expenditure are his guide. If any circumstance comes to his knowledge in the course of audit which appears to him to affect the national finances in a way which was not intended or foreseen, it is within his discretion to call attention to the matter.
4. The loan referred to in the Comptroller and Auditor-General’s Report was made by the National Land Bank out of moneys voted by the Dáil. The repayment to the Bank was guaranteed as to both principal and interest by the Minister for Industry and Commerce under the Trade Loans (Guarantee) Act. The following are the circumstances in which the loan was effected:—
5. Application was made by a Company in the first instance for a guarantee of a loan to enable the National Land Bank to purchase the claim of another bank upon the Company’s premises, plant and machinery, the National Land Bank then to lend a sum to the Company to provide working capital. It was suggested to the Advisory Committee that by this method the objects of the Trade Loans (Guarantee) Act, 1924, would be complied with since the effect of the transaction would be to promote employment while at the same time no part of the money which it was proposed should be guaranteed would be used as working capital.
6. In normal working the Company employed up to 400 persons; at the time of the application only 50 were employed, but it was claimed that there were good prospects of a rapid expansion if working capital could be obtained.
7. Doubt was expressed by the Advisory Committee whether a guaranteed loan, the proceeds of which would be used for the purpose of purchasing the claim of another bank upon the Company’s premises, plant and machinery, would come strictly within the terms of section 1 of the Act. This section provides that loans “are to be applied towards or in connection with the carrying out of a capital undertaking … and that the application of the loan in the manner proposed is calculated to promote employment in Saorstát Eireann. …”
8. the Advisory Committee suggested to the Ministry of Industry and Commerce that, if it were held that the Minister had not the necessary statutory authority to guarantee the loan in these circumstances, the object which the Company had in view could be met by putting the Company formally into liquidation and forming a new Company for the purpose of purchasing the assets of the existing Company; that a new Company formed for the purpose of purchasing the assets of the existing Company would come within the provisions of section 1 of the Act and the necessary guarantee could be given to the new Company for a loan the proceeds of which were to be applied towards or in connection with the acquisition of the assets of the existing Company.
9. The terms of the first proposal were submitted by the Minister for Industry and Commerce to the Attorney-General for his opinion, which was that the loan proposed was not a loan to which the provisions of Section 1 of the Act applied. The guarantee applied for was thereupon refused.
10. At a later stage there was submitted by the Department of Industry and Commerce to the Attorney-General for his opinion the alternative proposal, viz.:—
11. That the Company be wound up and a new Company formed; the liquidator to sell to the new Company the premises, plant, machinery and fixtures for cash and the stock-in-trade for ordinary shares of the new Company; the purchase price of the premises, plant, machinery and fixtures to be borrowed from the National Land Bank secured by second mortgage debentures: this loan to be guaranteed by the Minister. It was argued that “since the loan is to be expended only in the purchase of the old Company’s premises, plant, etc., it seems clear that it is to be applied towards or in connection with an undertaking involving capital expenditure and that no part of it is to be used as working capital.”
12. The Attorney-General gave it as his opinion “that the proposed loan comes within the terms of the Act.”
13. Following upon this the Minister for Industry and Commerce, having sought and finally obtained the sanction of the Minister for Finance, informed the Company of his willingness to give the the required guarantee and the formation of the new Company was then proceeded with and the guaranteed loan was obtained.
14. The Committee considers that as this question directly affected the Exchequer, the submission of the case to the Attorney-General ought to have been made through the Department of Finance in order that that Department, as the central financial authority, might be fully informed on the. matter and given an opportunity of making any observations thereon.
15. The Committee desires to make it plain that no question arises affecting the good faith of the Company in applying for the guarantee or in responding to the suggestion that, so as to make it possible for the guarantee to be given under the Act, a formal reconstruction of the Company should be made. The Department of Industry and Commerce for its part was eager to fulfil what was regarded as the primary purpose of the Act, viz., to promote employment in the Saorstát. The Advisory Committee recommended that the application was one which should be approved and the guarantee given. The Department, after making its own inquiries was assured that employment would be promoted to a noteworthy degree by the granting of the loan, and were satisfied that the assets of the Company were a good security for a second mortgage. The Minister also for the greater security of the loan exercised his right to nominate a director on the Board of the reconstructed Company.
16. The Committee does not propose to express any views on the question as to whether or not a guarantee can be brought technically within the scope of the Act by winding up a Company and formally reconstructing it so as to enable such a proposed new Company, by purchasing the assets of an existing Company, to carry out a capital undertaking, as required by section 1, with the proceeds of a guaranteed loan.
17. But it is necessary for a correct understanding of the case under review to point out that the amount of the guaranteed loan made by the National Land Bank was practically identical with the amount required for the purchase of the claim of the other bank against the Company. It would, therefore, appear that the net effect of the purchase was to place the Company in a position to raise the required working capital from the bank on the security of a first mortgage debenture, leaving as security for the State guaranteed loan a second mortgage debenture.
18. The Committee considers that the creation of a liability in front of a State guarantee is not desirable and should not be repeated.
19. The Committee is also of opinion that the facts in this case point to the advisability of amending the Act so as to remove all doubt regarding the conditions which are to be complied with before a loan can be guaranteed. The fact that high legal opinion has been obtained saying that the loan in question comes within the terms of the Act (which provides that the proceeds of and loan “are to be applied towards or in connection with the carrying out of any capital undertaking or in connection with the purchase of articles manufactured or produced in Saorstát. Eireann required for the purposes of any such undertaking,” and provides also that “no guarantee shall be given,” under the section, “in respect of a loan the proceeds or any part of the proceeds of which are intended to be used as working capital”) creates a doubt as to the value of the limitations of section 1 and leads the Committee to the conclusion that the expression “a capital undertaking” used in the section ought to be more clearly defined than it is in section 8 of the Act.
(Signed) THOMAS JOHNSON.
15th June, 1926.