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

MIONTUAIRISC NA FIANAISE

(Minutes of Evidence)

Dé Máirt, 11 Samhain, 1980

Tuesday, 11 November, 1980

Members Present:

FÓIR TEORANTA

Mr. E. Coree, Chairman, Mr. K. McGuinness, Manager, and Mr. W. Moroney, Secretary of Fóir Teoranta, called and examined.

Chairman.—I thank the witnesses for coming. The procedure is that members of the Committee will direct their questions through the Chair and witnesses can deal with them. I take it that witnesses do not wish to make an opening statement.

Mr. Coree.—No. Anything that I might say in opening will probably come up in questions and answers later on.

1. Chairman.—In one of the tables submitted, the Company deal with help to existing clients as opposed to help given for the first time. Does the fact that help has to be given a second time imply that the first help was not satisfactory?

Mr. Coree.—No, it does not mean that it was not effective. It could mean that there had been an expansion in the firm and they could need some additional capital to keep them moving in the right direction. It is not always a sign of failure that they have to come a second time.

Mr. McGuinness.—Sometimes it could be that a firm has not progressed as rapidly as might have been expected although the company is moving in the right direction, and that would justify the provision of extra funds. The finance required may have been underestimated in the first instance and as time goes on the need for more capital manifests itself, and the Board would feel justified in giving a second helping of assistance.

Chairman.—It is just as likely to be a good sign as a bad sign to help somebody for the second time.

2. Senator Hillery.—How successful were Fóir in meeting their objectives?

Mr. Coree.—It is difficult to say exactly how successful as we would not like to be our own judge. We have been successful in that of the number of companies that we have helped, at least 50 or 60 per cent have continued to operate although in some cases things are not working out as well as they should. We have approximately a 30 per cent failure rate. The type of firm that comes to us needs capital which they cannot get elsewhere; they have probably been badly run and cannot get finance from normal sources. Fóir Teoranta are in a high risk business, and therefore there are bound to be a certain number of failures. If the number of failures dropped considerably, or if we did not have any failures, we might be construing the criteria too severely.

3. Senator Keating.—Would the Company like more precision in the criteria? Would the Company like the 1972 Act to be tighter and clearer? Is it a bit restrictive in its criteria?

Mr. Coree.—The criteria are very clear and easy to work with. Down through the years the Board have looked at the criteria to see where there could be changes and after a number of discussions we found the criteria clear and easy to work with. We do not recommend any major change.

4. Senator Keating.—In industry, some firms are getting into difficulties because of individual management problems, but sectors like the clothing, footwear, textiles, furniture industries and so on, are clearly disadvantaged and are getting into difficulties, although they are sometimes very well managed. Is there need to widen the scope of your Company a little to enable it to proceed in a slightly more interventionist way, to make approaches to such firms to give special aid?

Mr. McGuinness.—The Board of Fóir Teoranta sees itself as a specialist organisation to help individual concerns that find themselves in difficulties for one reason or another and cannot get help from the usual sources. We come across situations where the problems of individual firms suggest that the difficulties are general to a particular sector. There we tend to co-operate and slot in with the other State agencies in existence rather than try to duplicate or overlap with them. If the Board see there is a problem in a particular sector their initial reaction is to bring their views to the attention of the Department of Industry, Commerce and Tourism and the IDA with whom they have very close liaison and to take it from there. The Board would co-operate with them in any action that was felt might be necessary in relation to any sector. We have co-operated in a number of such instances over the years. In the early days of Fóir Teoranta we were involved with the IDA and the Department of Industry, Commerce and Tourism in connection with the worsted industry. Consultants were brought in to prepare a report on that industry. That has happened to a greater or lesser degree in other industrial sectors. In the footwear industry a task force was set up representative of the Department of Industry, Commerce and Tourism, the IDA, CTT and Fóir Teoranta. We tend to draw on the resources of other State agencies rather than try to do these things off our own bat. The Board sees itself as a specialist organisation and rather than set up a whole paraphernalia of people engaged in research and sectoral studies can, quite readily, call upon the resources of larger organisations, particularly the IDA, who have a more direct interest in industrial sectors.

5. Senator Hillery.—In practice you provide financial support for manufacturing firms only and I should like to know if you see a need to widen the number of sectors that your Board might help?

Mr. Coree.—As a general rule, the Act, as it stands, relates to helping manufacturing firms—there is one other industry we help also, mining—which means that the functions of the Board should be directed to those sectors. To widen the scope would not help. If there are problems in the service industries or those which the Act does not cover, or if a gap occurs, it will be filled by normal competition within the country.

6. Chairman.—Has there been a demand to widen the scope? Have you got applications from people who were ineligible?

Mr. Coree.—Very few.

7. Deputy B. Desmond.—In its annual report published in June last, Fóir Teoranta indicated that towards the end of 1979 there was a distinct increase in the number applying for assistance. I should like to know if this trend accelerated this year up to mid-1980? What is the present position? What number of applications have you received for the first ten months of this year? What kind of money was involved?

Mr. Moroney.—Up to 31 October 45 cases were approved of which 31 were new clients and 14 were existing cases.

8. Deputy B. Desmond.—How many were refused?

Mr. Moroney.—A total of 27 were declined. The amount of money involved in the approvals was £12.9 million.

9. Deputy B. Desmond.—How many jobs would those figures represent?

Mr. Coree.—In the 31 new applicants approved there were approximately 7,900 jobs involved. There were ten withdrawals or closures, representing approximately 1,400 jobs.

Mr. McGuinness.—The net retentions in that figure would be 6,500 jobs.

Mr. Coree.—We have been instrumental in holding 6,500 jobs.

10. Deputy B. Desmond.—What was the cost of holding each job? I am anxious to make a comparison between the cost of holding a job as distinct from the cost to the IDA of creating a job.

Mr. Coree.—If you take that direct comparison, which may not be the correct way of doing it, it would be £2,000 a job on those figures, but we have other figures worked out over a longer period which might be more meaningful.

11. Deputy B. Desmond.—At the moment is it about £2,000 per job?

Mr. Coree.—That is the figure on the first nine months based on a direct comparison between the amounts approved and the number of jobs saved. That may not be the correct way to calculate it. We have other calculations here which may be more meaningful. This is on the cumulative figure up to December 31 1979. If we take the cumulative deficit of Fóir Teoranta up to that date and add on notional interest on Exchequer advances, we work out at £976 per job if we take the number of jobs in the active client companies at this moment. However, if we take another basis, that is total Exchequer advances plus notional interest divided by the number of workers in active client companies, it works out at £1,731 per job. Getting back to the cost of creating a job, in 1979 the figure for an average IDA grant per job created was £6,279. That is only the IDA’s investment. There would be the employer’s investment as well.

12. Deputy B. Desmond.—You turned down 27 applications. Were they dead from the word go?

Mr. Coree.—They failed to meet the criteria. We felt they would not fulfil the criteria.

Deputy B. Desmond.—They had been turned down by the banks and the other lending agencies. Had their markets collapsed totally or what? There are pressures on politicians to get firms before Fóir Teoranta and to get money for them in one way or another, but very often the criteria are very subjective.

13. Chairman.—Do the applicants have to comply with all the criteria?

Mr. Coree.—Yes. They must comply with all the criteria.

14. Deputy B. Desmond.—How do you assess applicants at the moment? The criteria are fairly loose, are they not?

Mr. Coree.—Not altogether loose, but we take the view that we assess them fairly liberally. In other words, if there is any doubt we usually give it to the applicant.

Mr. McGuinness.—Taking the criteria seriatim. The first is that the applicant concern engages in industry. That is fairly straightforward. That is a question of fact. Then, employment involved and total capital employed must be significant. Again these are largely questions of fact. Any employment is regarded as significant. Even at the best of times we would regard any employment as being significant, particularly outside of Dublin. Even in Dublin at present small employment is regarded as being important. Owner’s contribution as a proportion of total capital, must be reasonable. Again, a fairly liberal interpretation is given by the Board to this. They would give credit for money which had been put in previously by the proprietor and which may have been lost in bad times. The most important one is the one where the judgment element enters into it. This is the question of reasonable prospects of profitability on a permanent basis. This is where the element of judgment comes in. Given help from Fóir Teoranta, will the company be able to survive and prosper, meet its commitments and give employment on a continuing and permanent basis? That is the crunch one in all of these. Another criterion is, is the firm’s continuance in doubt? Its inability to get its requirements from commercial sources can be readily demonstrated by the company itself and by our speaking to the bank and other financial institutions. Finally, would its failure to receive financial assistance have serious repercussions on a local or national basis. This would have to be interpreted in relation to what the effect there would be on the community if a particular factory were to go out of existence. Applicants might have most difficulty in satisfying the Board that they will have a permanent on-going situation if given the assistance they are seeking, and obviously that is a question of judgment.

15. Deputy L. Lawlor.—On the financing of the various operations, have you a preference for a secured loan rather than a share equity? Do Fóir Teoranta find that they are called in very late in most cases? What is the co-operation from the banks? Are you dealing particularly with the manufacturing sector and relieving the banks of their responsibilities in the more difficult aspects of trading? Do you find that because Fóir Teoranta comes in with assistance, the banks can renege on their responsibilities?

Mr. McGuinness.—There are a number of questions there. On the question of share capital, it is true that most of our assistance takes the form of secured loans. There are a couple of reasons why we are not too keen to become involved in an equity situation. Most of the companies Fóir Teoranta helps are small to medium sized and generally tend to be owner-controlled and owner-managed. If we were to take equity for any significant part of our assistance, we would probably swamp the existing equity and become virtual owners of the company. As a matter of policy this is not a situation in which the Board would wish to find themselves. They do not wish to control, or even negatively control, a company which is in competition in the private sector. There is the negative side of it too. If, having got involved in an equity situation, we find that a mistake was made in giving help in the first instance, and that probably the right thing to do was to wind up the company, it could become very difficult to do so if the State, through a State organisation, had an equity interest in it. It could become very difficult to close down a company even if it is patently clear that that is the right course of action to take. Further, providing money by way of secured loan in many instances affords a measure of protection for the State’s money because, if, unfortunately, things do go wrong, there is a prospect of recovering some of that money.

16. Deputy L. Lawlor.—How often would you recommend to owner-operators that additional expertise should be taken on at director level as a condition of the loan? In the main a company wants finance but probably needs expertise as well. Is it a normal function of yours to suggest that they should get additional expertise on to their boards because this is the only on-going influence you can have over the loan?

Mr. Coree.—If we felt it was necessary we would certainly recommend to the board of our client company that they should take on additional expertise. It might be a matter of employing a financial controller or, possibly, even changing a managing director. That might be a condition of the loan. Going back to the matter of the banks which you brought up, the banks have their criteria as to what is an acceptable risk. Prudence would not allow them to go any further in many cases. We do not see any evidence that the banks are pulling the rug from under companies in the hope that Fóir Teoranta will pick up the pieces. When a company comes to us, probably it has got as much from the banks as possible, and sometimes even more. We see no evidence of the banks shirking their responsibilities.

17. Deputy B. Desmond.—Does that observation apply to the current economic situation?

Mr. Coree.—Yes.

18. Deputy B. Desmond.—Do many applicants come to you after the banks have reached the end of their tether with them?

Mr. Coree.—All the applications that are made to us are made after the banks say they are going no further.

19. Deputy B. Desmond.—Have you many at present?

Mr. Moroney.—The level of business during the year was very high.

20. Deputy B. Desmond.—Funds were approved for 33 firms in 1979, employing 5,200 people. Would the figure be as high as 60 for this year?

Mr. Coree.—That would be a reasonable figure.

21. Deputy B. Desmond.—There are twic as many approved rescue operations for 198 as there were for 1979. Would the employment figure, as a result, go up to 10,000 by the end of the year?

Mr. Coree.—We said 6,500. It is very difficult to project. Sometimes we get big companies employing a lot of people and then perhaps five small companies employing only a few people.

22. Deputy B. Desmond.—During the recession of 1974-75 you approved funds for 65 firms. Is the situation as bad as that or is it worse?

Mr. Coree.—It is as bad. An educated guess on the number of workers involved for the year would be 7,500 or 8,000.

Mr. Moroney.—It would be more because the cases approved amounted to 7,900. The figure you are quoting are the ones we have retained. We lost some because of closures. The new cases this year would be closer to 9,000.

Mr. McGuinness.—The number of workers involved to end October was 8,000. You can add one-fifth to that number.

23. Deputy B. Desmond.—About 9,000 odd. Is there a positive role for Fóir Teoranta in that situation?

Mr. Coree.—Yes.

24. Senator Hillery.—Your main function is to assist companies in financial distress. Is there a need for you to become more involved in industry reorganisation rather than supporting companies when they have been turned down by the banks? In other words, would you welcome a role which would involve you in initiating reconstructions, mergers and so on?

Mr. Coree.—If we see an opportunity in the course of our looking at an industry and feel there are possibilities of a merger or reorganisation within that industry we bring that to the notice of the IDA and the Department of Industry, Commerce and Tourism and discuss it.

Mr. McGuinness.—That is the general situation. I cannot say if the Board would welcome such a role. The Board would probably prefer to see Fóir Teoranta availing of the services that exist through the IDA and the Department. If it is clear that the way to proceed is through rationalisation, either by merger or closure, this is better done in association with people dealing with the whole spectrum of industry such as the IDA.

25. Deputy L. Lawlor.—What is your relationship with the IDA rescue unit? Is there duplication between the two? Should your rescue unit be absorbed into the IDA unit or should the IDA unit be incorporated into yours?

Mr. McGuinness.—There is a rescue division in the IDA with which we work in close harmony. The essential difference is that they do not have any funds at their disposal. They become aware of situations where companies run into difficulty and need to be rescued. That rescue can often be effected without involving Fóir Teoranta. They may be able to arrange for a take-over of the company or know of an investor wishing to start up in Ireland and may be able to marry the company to him. If the need for finance arises they speak to us about it and, in conjunction with them, we put together a rescue package.

26. Deputy L. Lawlor.—There is no duplication?

Mr. McGuinness.—No. We work closely with them but we are primarily a provider of finance. The IDA do not have that facility in regard to rescuing firms.

27. Deputy L. Lawlor.—Fóir Teoranta’s borrowing power in 1976 was limited to £35 million. By 1979 you had borrowed £25.1 million. Is it correct to anticipate that you will provide £10 million in 1980? Have you any plans to request an increase in funds?

Mr. Coree.—We expect this to be scheduled for the next session of the Dáil.

28. Deputy L. Lawlor.—What amount will you be looking for?

Mr. Coree.—We have not decided on that yet.

29. Deputy L. Lawlor.—Is £10 million a reasonable sum to assume for 1980?

Mr. Coree.—It may be on the low side.

30. Deputy L. Lawlor.—May you go over the limit?

Mr. McGuinness.—The borrowing powers of £35 million are exclusive of moneys borrowed by our predecessor, Taisce Stáit, which had borrowings of £7.5 million. We have a margin of £7.5 million more than would superficially appear and, therefore, have more leeway than would appear from our accounts. A decision on how much extra should be given to us is a matter for the Minister but our borrowing powers will have to be increased. We will be having further discussions with the Department of Finance on this but no decision as to the amount has been taken.

31. Deputy L. Lawlor.—Will it be a straight capital injection from the Exchequer? Will the make-up of the existing funds and future income for Fóir Teoranta’s activities be Exchequer advances?

Mr. Coree.—That is how it has been up to now and that is how we expect it to be next time round, unless the Department says otherwise.

32. Deputy L. Lawlor.—When do the Board hope to table a figure to the Department?

Mr. McGuinness.—It is not a question of tabling a figure. We are talking of an agreed figure. It will be in the course of the next couple of months. The decision rests with the Minister. We will probably suggest that the borrowing powers be increased to give Fóir Teoranta sufficient funds for two to three years ahead. It is then a question of trying to estimate the figure bearing in mind what happened this year when the demands on our resources increased very substantially. It is very difficult to forecast ahead. Normally we hope to arrange for a figure which would see our finances right for two or three years ahead, which would avoid the Minister having to come back to the Dáil too frequently to increase the borrowing powers.

33. Chairman.—At the moment the Board have to get special permission to advance more than £250,000. Does this cause any administrative difficulty and, if so, will the Board be asking the Ministers to raise that limit too?

Mr. McGuinness.—It does not cause any great administrative difficulty. Obviously, we have to get the consent of both Ministers which means that we have to give them the background to the application which the Board have approved. In general, the consent is forthcoming reasonably readily.

34. Chairman.—Would that arise fairly frequently?

Mr. McGuinness.—It does now. The figure was fixed in 1972 at £250,000. It is very probable that our Board will ask the Minister to raise that figure because of the reduced value of money since 1972. I cannot say if the Minister will agree to that. We suggested it on the occasion of the last Bill, but the Minister did not take us up on it. We assume that the Minister did not feel it appropriate to increase the limit at that stage presumably because £250,000 is still a fair slice of public money.

35. Deputy B. Desmond.—The annual report of Fóir Teoranta indicated that despite the Board’s best efforts an effective early warning system is not in operation. The Board say that they have endeavoured to devise an early warning system, but so far, they must confess, without any marked degree of success. The Board have been trying to do this in consultation with the Department of Industry, Commerce and Tourism and with the IDA. Can you outline to us why there is not an effective early warning system in operation? Is it solely the failure of industrialists to come to Fóir Teoranta in time, if they are in trouble? Is there any way to improve that situation?

Mr. Coree.—We have not been able to get the early warning system working as well as we would like it. Through our association with the Department of Industry, Commerce and Tourism, the Industrial Development Authority, the ICC, professional accountancy bodies, the Associated Banks and other financial institutions, Fóir Teoranta has endeavoured to introduce an “early warning system” whereby concerns in difficulty would give timely notice of their problems so that remedial action can be taken before it is too late. We have also made repeated references to the matter in our annual reports. While our efforts in this direction have met with some success, the fact is that we continue to receive requests for assistance at very short notice. The reason for this would seem to be psychological; many businesses experiencing financial difficulty will go to endless trouble to conceal their plight from creditors, bankers and financial advisers in the expectation that things will come right. The result very often is that irreparable damage has taken place before we become aware of the company’s problems.

In our day-to-day operations we maintain very close consultation with the Department of Industry, Commerce and Tourism and the Industrial Development Authority. We avail of this close liaison to keep ourselves informed, as best we can, of companies which may be encountering difficulties. Apart from this informal liaison, the Department of Industry, Commerce and Tourism, the IDA, ICC and ourselves meet on a regular basis, monthly or perhaps sometimes more than once a month, to review and co-ordinate rescue efforts, including “early warning”. With a view to improving the existing arrangements for early warning and for the appraisal of firms facing difficulties, the membership of the inter-agency group has now been extended to include representatives of the Department of Labour, the Department of Agriculture and CTT.

So far as the banks are concerned, when Fóir Teoranta was first set up we had discussions with the major banking groups and impressed on them the need for timely notice. The banks are more than anxious to co-operate with us but they too are very often kept in the dark. A concern in difficulty can manage to keep its bank account in order for extended periods by stretching its creditors and by withholding payments to the Revenue Commissioners such as VAT, PAYE and PRSI which can run into very large figures. The banks’ position is further complicated by the confidentiality of customer/client relationships.

Under the aegis of the inter-agency committee already referred to, a fresh approach is now being made to the major banking groups and discussions have already taken place with one of the main groups. That is the situation as we see it.

36. Deputy B. Desmond.—Is that with a view to getting the major commercial banking groups to have a more positive liaison with Fóir Teoranta to let it know, even on a confidential basis, that a certain firm was heading into trouble, so that Fóir Teoranta could help?

Mr. Coree.—That is correct.

37. Deputy B. Desmond.—Obviously Fóir Teoranta would not know if a firm owes £½ million for VAT and so on.

Mr. Coree.—We would not know until they come to us.

38. Deputy B. Desmond.—Is it not arguable that despite the sacrosanct aspect of the Revenue Commissioners confidentiality, if ten or 15 firms are drifting into a chronic situation of owing the State money, particularly on PRSI or VAT, which tend to feature largely in receivership proceedings, and as it appears that Fóir Teoranta is often called in anyway with further State aid to try to help such firms, some acceptance of an alert early warning system from Departments is justified notwithstanding the aspect of alleged total confidentiality of relationships between private firms and the Revenue Commissioners? Is there some merit in that suggestion?

Mr. Coree.—There is some justification for it.

39. Deputy B. Desmond.—Is there any other way in which one might devise an early warning system?

Mr. Coree.—We hope that the firm’s auditors and accountants would be sufficiently interested and up-to-date with the firm’s affairs that they would advise their clients to seek help before it is too late. They are the people, even before the banks, who should know what is going on in a particular firm and if it is running into difficulties. If they are doing half-yearly or annual audits they will see the signs, probably before the banks.

40. Deputy B. Desmond.—You made some extremely critical comments about the calibre of Irish industrial management in your annual report and I should like to know if you still stand over that in 1980? You said that in your experience, the calibre of industrial management is frequently poor and the average small industrialist usually controls the entire capital of a company with a management capacity which is extremely limited and lacks an appreciation of total management practice. They are sharp words on the modern Irish industrial setting.

Mr. Coree.—We used those words in reference to the cases we looked at. Obviously, we were not speaking of cases we did not look at. We have done an analysis over the years of the reasons why companies run into difficulties and the one quoted by the Deputy is the number one on the list.

41. Deputy B. Desmond.—What is the best remedy? How do you feel that the level of Irish management of companies involved in those rescue operations could have been improved?

Mr. Coree.—One of the best ways of training managers is within companies that have a good management record. If they had trained in the better managed companies they would be better able to take the experience gained and apply it to the companies where they end up as managers. Very often the managers are trained in an environment which is itself badly managed.

42. Chairman.—We were talking earlier on the basis that the help being given was in cash but have there been many cases where you were able to solve the problem of a company almost entirely by suggesting improved management rather than by injecting cash?

Mr. Coree.—Yes, there have been. We have loaned out some of our management executives to clients for an interim period while they were waiting to appoint their own managers. We may tell a company that we think it needs a managing director, a financial director, or production manager, and while such a person is being sought we would loan our management executives to that company for three or six months.

43. Chairman.—Have you something called a management services unit?

Mr. Coree.—That is what I am talking about. We have four permanent people in that unit.

Mr. McGuinness.—Basically, it is quite a small unit with only four people in it. We use those people to supplement management or we put them into companies being provided with money by us. They carry out specific assignments, perhaps on the costings, financial controls, marketing or the production side. These would be once-off assignments to put in systems, improve on existing systems or lay down a blueprint for the future as to how the company should operate.

44. Chairman.—Would it amount to more than advice? Would those executives actually go to work in the company?

Mr. McGuinness.—They would work in the company for a period. Indeed, on occasions they might take on the role of manager or chief executive of the company. That would occur less frequently but such executives would take on those roles while a new chief executive was being recruited. That could take time. It is not always easy for a company which finds itself in financial difficulties to recruit a suitable person.

45. Deputy B. Desmond.—Would those specialists be contracted to work for Fóir Teoranta? Would they be regarded as established permanent staff?

Mr. McGuinness.—They are not established permanent staff but they have contracts with us which range up to a period of five years. They are full-time with us and we can switch them from one company to another. At present we also have two people on short-term retainer because of the demands on the rather limited resources of this unit. If things get really tough we can call on outside consultants.

46. Senator Keating.—I understand the boundary line between you, the ICC and the commercial banks in regard to loans, but what is the boundary line between you and the IPC, as they are called? I am thinking of the number of people who run fire brigade services in regard to management. Is there any duplication, lack of clarity or lack of simplicity there? The IDA, SFADCo and Gaeltarra do it in a small way but you and IPC have units to do it and I should like to know if that is a tidy area. Maybe it is untidy but still works well. Would you like to comment on it?

Mr. McGuinness.—In so far as Fóir Teoranta is concerned it would provide this service for clients. I am not aware that the IDA provides people from its own staff to go in. It might arrange for outsiders to go in. The IPC provide a service to industry at large. While we have availed of their services from time to time, I believe they are more concerned with the general field.

Mr. Moroney.—They have an advisory service. They are consultants and we have used them as we would use other outside consultants, depending on the situation. When we have used up our existing staff, as at present, we go for outsiders. Our four permanent officials suffice, generally speaking, but when we are very busy we have to go for outsiders.

47. Senator Keating.—Is there any overlap or is it a question of opinion as to whether there is or is not? We see this Joint Committee as a place where a State company can make a point like that.

Mr. McGuinness.—I do not think there is overlapping. The IPC provide a service to industry at large. The IDA may supplement existing management by putting in outsiders but, as far as I know, it does not have any full-time staff for this. Fóir Teoranta has a small unit which we utilise as best we can amongst client companies.

48. Senator Hillery.—I should like to return to the criteria under the 1972 Act and, specifically, the prospects for profitability regarding companies which you assist. How do you view profitability? Is it as a return on the capital employed or as a return on the shareholders’ funds?

Mr. Coree.—We look on the profitability of the companies as a fair return so that the company can fund its borrowings, including its borrowings from Fóir Teoranta. It should be able to fund the borrowings it has and generate sufficient working capital to allow for expansion.

49. Deputy L. Lawlor.—We talked earlier about equity and secured loans. With the information now coming to light on AET, one of the lessons learned was that if we move away from the normal loan situation into equity it could involve a substantial sum, in this case £4 million. What comment do you make on Fóir Teoranta involving themselves on an equity basis for such a large amount? We discussed earlier the benefits of the secured loans.

Mr. McGuinness.—In coming here today we did not brief ourselves on every individual company. Obviously AET got some publicity lately. We would be prepared to provide whatever information the Committee may require. I will comment generally from my own knowledge, and this is off the top of my head. AET was a company which Fóir Teoranta inherited from Taisce Stáit. On the day Fóir Teoranta were set up they had AET included in their portfolio in which there was an equity investment of £900,000. That increased over a period to a figure of £4.9 million. That is the figure mentioned. It is not all shares. A lot of it would be secured loans. There was £900,000 in the form of equity. The figure of £4 million was the loans. That is on a point of clarification and speaking from the top of my head. Those figures are subject to correction. For the moment you can take the £900,000 equity as being near enough.

50. Deputy L. Lawlor.—Going back to a point Deputy Desmond raised earlier about management, have you an input into the IMI giving the benefit of the experience gained by your organisation to endeavour to rectify problems you find? In your report you go on to talk about the need for the Government to strive to give a strong lead to management and trade unions together to further improve industrial relations. Do you go further than commenting in your report by giving the benefit of the knowledge gained?

Mr. Coree.—Not to IMI. We certainly have not had any association with IMI and neither have our management executives, as far as I know. They may have done it in a private capacity, but I would doubt that.

51. Deputy L. Lawlor.—Somebody has to try to rectify the problems which you are highlighting genuinely. Would you agree?

Mr. Coree.—We could certainly have discussions with IMI. We would be prepared to meet them and talk to them to see if our experience would be of any use of them.

52. Deputy B. Desmond.—On the question of the composition of your Board, bearing in mind the firms which would come to you for a rescue operation, have you any comment to make on the fact that there is no trade union member on the Board of Fóir Teoranta? At the moment on the Board there are two business men, a practising accountant, a business consultant, an insurance broker and a quantity surveyor. Of course you have Con Murphy as well. Is there any reason why there is no trade union member on the Board? Do you disclaim all responsibility in that area? Would you feel it would be an advantage if you had?

Mr. Coree.—Obviously the Minister appoints the members to the Board of Fóir Teoranta. We have had a trade union representative on the Board in the past and we found his input very helpful.

53. Senator Hillery.—On the question of the Board, all the members are part-time. Given the nature of your work and the speed with which you need to make decisions and the negotiating authority which, presumably, is required, do you think it would be of benefit to have at least one full-time executive on the Board?

Mr. Coree.—The executives actually attend all the Board meetings. At least the General Manager and Secretary do. They are there to advise the Board and, in fact, we do not think it would be any great advantage to have an executive on the Board.

54. Chairman.—The staff generally are seconded from the ICC. This sounds like a makeshift arrangement. Possibly it was intended to improve on it by having a more permanent arrangement ultimately. Has it proved successful, or do you think something of a more permanent nature should be set up?

Mr. Coree.—The management agreement was first entered into by Fóir Teoranta and ICC in 1972 immediately after the Act was brought into force. Obviously to get off the ground quickly, it was necessary to have staff and have them there from day one. It certainly was a great help to Fóir Teoranta to have the services of ICC on day one. The agreement was reviewed and extended on two occasions since then. Fóir Teoranta is satisfied with the arrangement which has worked very well from Fóir Teoranta’s point of view. In practice the ICC staff are assigned on a full-time basis to process the applications, to implement the decisions and to monitor the concerns to which assistance has been provided. In addition, ICC look after all Fóir Teoranta’s accounting records and prepare the accounts for audit and are responsible for matters such as accommodation and staffing. The arrangement has the added advantage that Fóir Teoranta can call on additional staff from ICC from time to time as the need arises without incurring additional expenses. In other words, we can take in two, three or four people from ICC, say, on the basis of two months, and then let them go back to ICC. Our business tends to fluctuate quite considerably.

54A. Chairman.—That gives you flexibility.

Mr. Coree.—It gives us a lot of flexibility.

55. Chairman.—Generally speaking from what you say I gather you find this a satisfactory arrangement. Is this so?

Mr. Coree.—Certainly.

56. Chairman.—Are much the same people with you all along, or is there a continual rotation of people?

Mr. Coree.—It tends to be a hard core of people, and then a number of executives move in and out.

57. Deputy B. Desmond.—You are concerned with the manufacturing sector. Have you any feelings about the fact that in Ireland, with a not all that large manufacturing sector, but yet a crucial sector, there is a multiplicity of State agencies, which it seems are likely to be added to more and more as the decades go by? There is Fóir Teoranta, the IDA, IIRS, CTT and so on, and now under the terms of the new National Understanding we will have a national enterprise agency. There are many politicians who believe that, on top of that, there should be a super-structure such as a national development corporation. Would it not be better to try to rationalise the existing system? Are you satisfied with being the fire brigade of the operation putting out the bad fires when inevitably a lot are totally burned? Would you prefer to be involved in the general reorganisation of industry or, if you had statutory powers, launch joint ventures or voluntary mergers or, with an early warning system get in on a more positive basis? Is your operation, both for yourselves and your staff, a frustrating one, in that you have a limited statutory role and there are many other State agencies aiding the manufacturing sector? In a small country with a limited number of experts, industrial managers and so on, should not State aids be on a more rational basis?

Mr. Coree.—The Board have not discussed that point. We are not frustrated in doing our job. It gives us great satisfaction. We have had some success in maintaining jobs. There is a multiplicity of agencies and where they may overlap should be looked at. We would give full support to any proposal put forward for a programme to enable such rationalisation to take place.

Deputy L. Lawlor.—Fóir Teoranta comes in at the end and very often other organisations could have given assistance earlier on. With your experience you could contribute by way of suggestions and advice but the problem would be the format in which to put them forward. You may have to make representations to Ministers, the IMI and the trade unions to get them to recognise your experience.

Senator Keating.—In the awful times of 1974-75 and wearing a different hat, I had a lot to do with Fóir Teoranta. They were very efficient. Of its very nature, recourse to them is not mooted abroad by those who have recourse to them and their victories are silent ones. It is inevitably a last resort and some safety net like it is necessary. This is not a comment on whether or not there should be rationalisation. My experience of Fóir Teoranta was a good one. Sometimes we say hard things so it is right in this case to say approving things.

Mr. Coree.—Thank you.

58. Deputy Fitzsimons.—To what extent have the banks an option on the money you make available? For example, you provided £3½ million to the Youghal group. Did the bank have a charge on some of that money rather than re-investing it all in the group?

Mr. Coree.—The banks would have the first charge on the fixed and floating assets before the company comes to us. If we gave a loan we would take a second charge or would negotiate with the bank to have a pari passu debenture. We are usually standing behind the bank as far as debentures are concerned. There have been isolated cases where we have got a first charge but as a general rule we would have second.

Mr. Moroney.—Our money does not go to repay the banks. It is used as a top-up. While the company are negotiating they may increase their overdraft from, say, £100,000 to £110,000. Our money would go towards paying back the additional £10,000. We do not give money to repay bank loans.

59. Deputy B. Desmond.—Banks are very publicity conscious and could it be alleged that some of them do not insist on the firms being given a total shake down at an early stage because in you there is a last resort agency?

Mr. Coree.—By putting the firms into receivership?

Deputy B. Desmond—Yes.

Mr. Coree.—Banks go as far as they can and lend up to the criteria which they lay down as commercial banks. If Fóir Teoranta was not there and firms got into difficulties they would probably appoint a receiver.

60. Deputy B. Desmond.—Could there be a case where a bank knows it should appoint a receiver but instead sends the firm to Fóir Teoranta as they know if they themselves took drastic remedial action that it could result in the client taking his business to another bank?

Mr. Coree.—Fóir Teoranta will not bring in a receiver unless it has a loan with the company. If we give a loan to a company we feel it will recover at the time we give the loan. We feel that the company will recover because that is one of the criteria under which we operate. If eventually that company has to go into receivership the banks would normally either appoint a receiver or Fóir Teoranta in conjunction with the banks would appoint a receiver. The banks would not step back and say that they would not join in the receivership.

61. Deputy B. Desmond.—Some very major investments have been made by Fóir Teoranta. How do the Board assess things like that? For example Fóir Teoranta gave £1 million to Lough Egish, £640,000 to Munster Chipboard and £1.2 million to G.W.I. A lot of the loans are quite modest ranging from £50,000 to £100,000 but Fóir Teoranta gave out some very substantial ones: to AET £4 million, to Arklow Pottery £¼ million, and to Ballingarry Collieries nearly £½ million. Are they given as a result of very intensive discussion with the Departments concerned? Five or six very big loans account for a substantial block of the Company’s loans.

Mr. Coree.—They would have come to us in the normal course of events. We would have put our executives into those companies. We would have looked at them in great depth. The executives would have reported to the Board and the Board would make a decision in the light of the information available at the time. Obviously, in these cases the Board decided to give the money. If they were over £250,000 they would have been referred to the appropriate Departments and the Ministers who would have approved them.

62. Deputy B. Desmond.—If there is a situation where enormous pressures are brought to bear on a Minister with some very close contact with Fóir Teoranta, where a firm needs £1 million to get itself going, can Fóir Teoranta reach a stage where they can say “no” to the Minister?

Mr. Coree.—Yes. We have gone to that stage.

63. Deputy B. Desmond.—When can a Minister say “Give them the money”?

Mr. Coree.—I have been on the Board of Fóir Teoranta since its inception and that has never happened to me nor, I am sure, to any of my colleagues.

64. Deputy B. Desmond.—I am interested in this because I understand that one of the great untangled areas is the precise relationship between the Minister and the Boards of State-sponsored bodies. In your case, when the Board says “No”, is that it?

Mr. Coree.—Absolutely.

65. Chairman.—All the Board can say is that it does not comply with the criteria.

Mr. Coree.—The criteria are so clear that they are simple to operate.

66. Deputy B. Desmond.—The Minister can bring a lot of pressure to bear on a Board.

Mr. Coree.—If so, the Minister has not done so in the case of Fóir Teoranta.

Mr. Moroney.—We get representations from Senators and TDs as well.

67. Deputy B. Desmond.—Is a very special watch kept on the very big investments?

Mr. Coree.—They are reported on regularly. Every case is looked at by the Board at least twice yearly and the bigger ones are looked at more frequently.

Mr. Moroney.—The Committee mentioned a number of companies with a number of big loans. The Committee will note that these were all big employers. This would be taken into account. The big amounts of money reflect big companies with big employment.

Deputy B. Desmond.—And where the banks had threatened to pull down the curtain.

68. Senator Hillery.—On the question of the banks, in the case of companies whom Fóir Teoranta assists, the banks are heavily involved. On a more positive note, would it be worth while to have the banks participate in the general direction of Fóir Teoranta by providing it with finance for their operation in partnership with the State?

Mr. Coree.—That concept certainly needs be looked at. We have not had discussions with the banks and I do not even know whether our Act would allow us to have, but it is an interesting concept. Certainly our Board would welcome looking at that.

Mr. McGuinness.—There are two ways in which they might do this. They could take shares in Fóir Teoranta, but the prospects of getting any return would be pretty slim. On the other hand, if a company needed an injection of finance Fóir Teoranta could provide part of it and the banks might provide the balance. This may be what the Committee has in mind. That has not come up for consideration by Fóir Teoranta, but it could be looked at. I do not know precisely how banks operate but this might introduce more rigidity into the situation. The banks might allocate a certain amount of money which they would set aside each year for Fóir-type operations and having gone so far they might go no further, whereas by leaving it flexible we might in a way be getting more from the banks. It is very difficult to know. In most cases when Fóir Teoranta becomes involved, it is usually a condition that the banks stay in for what they have there already. In a few instances they have topped that up. They have been prepared to put in a little more because we were going in. There is a fair bit of flexibility. That happens, but not in every case. There was a case recently where they put up quite a substantial amount. The idea has not been teased out by the Board but it might well merit looking at further.

69. Chairman.—Fóir Teoranta has a job to do, the funds are provided and it has the criteria under which these will be spent. But looking back over eight years that Fóir Teoranta has been giving assistance, will the Board comment on whether the State got value for money spent or whether it proved to be a worth-while operation.

Mr. Coree.—Yes. Looking at the cost of jobs saved we feel it is much below the cost per job created. On top of that there are obviously savings in redundancies and social welfare payments. Also additional tax was paid by the workers in these companies which we have saved. There would also be a contribution towards the balance of payments. Saving jobs and keeping people employed in those companies, obviously creates jobs in other sectors which are supplying these companies. The State has got value for money.

The witnesses withdrew.