Committee Reports > List of Committees > Joint > 1981 > Committee on Commercial State-Sponsored Bodies > Report No. 17 - Fóir Teoranta

APPENDIX 1

SECTION I—BACKGROUND AND FUNCTIONS

Background

Fóir Teoranta was established under the Fóir Teoranta Act, 1972 (details of the 1972 Act and subsequent Acts are set out in Attachment D) to cater for potentially viable manufacturing firms which are in danger of closing down because of their inability to raise capital from commercial sources.

It had been the experience at the time that a number of firms had been forced to face the prospect of an immediate close-down although there was good reason to believe that they could be viable in the long term. While the State had provided ad hoc financial assistance to tide some of these firms over their immediate difficulties and avert redundancies, the Government considered that there was a need for an orderly established procedure to deal with such cases. Fóir Teoranta was set up to undertake this work.

Functions

The principal functions of Fóir are set out in Section 4 of the 1972 Act.* 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. A concern shall be an “eligible concern” if in the opinion of Fóir:—

(i)it is engaged in an industrial activity (including any activity ancillary to industry);

(ii)the employment involved and total capital employed in it are significant either nationally or locally;

(iii)the proportion of its owners’ contribution to its total capital is reasonable;

(iv)it has reasonable prospects of profitability on a permanent basis whether as for the time being constituted, or after adaptation;

(v)its continuance is in doubt because of its inability to obtain its financial requirements from commercial sources;

(vi)its failure to receive financial assistance would have serious repercussions either nationally or locally.

In its day-to-day operations Fóir functions as a normal finance house, subject to its special statutory criteria. All applications are fully investigated, premises and production facilities are examined, and applicants must submit all relevant information, including Accounts and Balance Sheets, cash flows and trading budgets and market information. Particular attention is paid to management problems. Views are also sought from all relevant Government Departments and State agencies. Fóir assistance is usually provided by way of secured loan but other forms of participation, such as share investment, are also considered. Interest is charged on all loans and the interest rate is usually somewhat below current commercial rates. Loans are repayable over periods of up to 12 years. In some cases, repayments of principal are deferred in the early years in order to reduce the borrower’s commitments during the initial recovery period. When assistance is given conditions are imposed which, in Fóir’s opinion, are necessary to improve prospects of viability. These conditions may include changes in management, the appointment of a Nominee Director(s) or the appointment of Consultants to examine and report upon various aspects of the business.

SECTION II

PERFORMANCE (1972-1979)

The following table shows the extent of Fóir’s activity from commencement on 31st March 1972 to 31st December, 1979:—

For the first seven months of the current year (to 31st July, 1980) activity was as follows:—

Notes:

(i)disbursements in 1972/73 included £1,280,000 in respect of commitments taken over from Taiscí Stáit*.

(ii)Fóir’s accounting year was changed from 31st March to 31st December in 1974. Accounts were prepared for the nine months to 31st December, 1974.

(iii)the difference between the total amount approved and the amount disbursed is mainly due to approved funds not drawn down at end of period and to withdrawals.

(iv)Thirty-four applications for a total of £5.7 million were on hand at 31st July, 1980. Twenty-eight of these applications were from new clients.

Total applications dealt with during the seven-year and four-month period to 31st July, 1980 were 648, an average of 88 per annum. Of these 411 (63%) were approved and 237 (37%) were declined.

The following table shows the outcome of approved cases up to 31st December, 1979:—

Eighteen per cent of cases approved were not proceeded with, usually because required loan conditions were not complied with or because funds were obtained elsewhere.

Repayments refer to full repayment of loans out of a company’s own resources, i.e. realisations from Receiverships/Liquidations are not included.

The performance of companies assisted as at 31st December, 1979 was as follows:—

The overall situation has since deteriorated because of the current trade recession.

The employment situation of companies assisted by Fóir up to 31st December, 1979 is set out in the following table:—

Note: The employment figures relate to the number of workers at the time application was made to Fóir.

The following table shows, at 31st December, 1979, an analysis of Fóir’s loans and investments in the main industrial sectors:—

SECTION III

BOARD, MANAGEMENT AND STAFF

Board

Fóir has seven Directors, including the Chairman, all of whom are appointed by the Minister for Finance with the consent of the Minister for Industry, Commerce and Tourism.

In accordance with the Articles of Association two Directors retire each year and may be reappointed. The Board meets at least once a month. The Directors are non-executive. Details of the Directors are given in Attachment E.

Management and Staff

Fóir’s management, executive and administrative staff is provided by the Industrial Credit Company, Limited under the terms of a management agreement. The staff provided is:—

In addition I.C.C. provides all financial and accounting services and all office services, excluding legal services. Fóir’s legal requirements are looked after by an outside firm of Solicitors.

Fóir has four directly employed staff who are management specialists employed under contract. These, who have previous experience in industrial management, are engaged on special assignments relating to client companies and loan applications and also manage or supplement management in client companies on a temporary basis pending recruitment of permanent managers.

SECTION IV

OPERATING RESULTS AND FINANCIAL POSITION

Fóir’s certified operating results from inception to 31st December, 1979 are shown in Attachment A.

The results show that Fóir made an operating surplus in each year and the annual deficits have entirely arisen from amounts written off investments as being irrecoverable. The accounts are prepared on a conservative basis as only income actually received is included, i.e. interest on loans accrued and unpaid up to the accounting date is not taken into account.

No interest has been charged on Exchequer Advances made to Fóir.

The overall operating results up to 31st December, 1979 were as follows:—

The amount written off loans and investments represents 40% of the total amount disbursed. Of the amounts written off £2,085,000 relates to non-Fóir assisted Taiscí Stáit cases.

A Sources and Application of Funds Table covering the period up to 31st December 1979 is set out in Attachment B.

The cost of Fóir’s operations over the period, and the method of financing, may be summarised as follows:—

From the above table it can be seen that Fóir has financed 41% of its activities from internal sources. Advances from the Exchequer have been received as follows:—

Two repayments were made to the Exchequer, one of £550,000 in 1975 and one of £750,000 in 1979. These represented accumulated funds which were surplus to Fóir’s requirements at the time.

Financial Position

A copy of Fóir’s certified Balance Sheet as at 31st December, 1979 is shown in Attachment C.

SECTION V

FUTURE PLANS

As the level of Fóir’s activities is primarily determined by outside factors, it is not the practice to prepare medium or long-term projections. The company will continue to exercise its functions in accordance with the Fóir Teoranta Acts.

ATTACHMENT A

FÓIR TEORANTA

CERTIFIED OPERATING RESULTS—1972-1979

Notes: (i)In 1972/73 loans and investments totalling £1,142,000 were written off as being worthless. These had been taken over from Taiscí Stáit and the concerns involved had ceased business. Under the Fóir Teoranta (Amendment) Act, 1973 it was provided that Fóir should not be liable to repay an equivalent amount of advances made by the Minister for Finance. The sum written off in 1972/73 was accordingly credited in the accounts for 1973/74.

(ii)In the nine months to 31st December, 1974 an adjustment (debit) of £99,000 was made in respect of interest previously capitalised but not actually received.

ATTACHMENT B

FÓIR TEORANTA

SOURCES AND APPLICATION OF FUNDS—1972-1979

ATTACHMENT C

FÓIR TEORANTA

BALANCE SHEET AS AT 31ST DECEMBER, 1979

Notes: (i)Deposits from Receivers. This represents monies paid by Receivers of companies to which Fóir has advanced loans. Under certain circumstances these monies may have to be refunded to the Receivers.

(ii)Contingent Liabilities. In respect of interest on payments made by Receivers and of guarantees given by the company as at 31st December, 1979 were £143,466.

ATTACHMENT D

LIST OF FÓIR TEORANTA ACTS

ATTACHMENT E

LIST OF DIRECTORS

*Details of Fóir Teoranta Acts 1972 to 1976 are set out in attachment D.

*Under the Fóir Teoranta Act, 1972 Taiscí Stáit Teoranta was dissolved and its assets, liabilities and commitments were vested in Fóir.