Committee Reports::Report - Appropriation Accounts 1984::15 March, 1988::MIONTUAIRISC NA FINNEACHTA / Minutes of Evidence


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APPENDIX 20

AVOCA MINES LTD.

23 March, 1987

Secretary,

Committee of Public Accounts,

Leinster House,

Dublin 2.

I refer to my letter of 14th January 1987 in which I indicated that a separate note would be prepared providing further information in response to questions posed by the Committee of Public Accounts on 6th February 1986. I now enclose fifteen copies of a note in this regard prepared in this Department.

Yours sincerely,

J.C. HOLLOWAY,

Accounting Officer.

An Roinn Fuinnimh

(Department of Enegy)

Department of Energy

Provision of further information to the Committee of Public Accounts in connection with questions arising at the Committee’s meeting of 6th February, 1986 in regard to the Receivership of Avoca Mines Ltd.

A. Advance of £2.5 million to the Receiver in December, 1982
Questions:	Why was £2.5 million given to the Receiver in December, 1982. Was the Department trying to get rid of the money before 1st January — Deputy Naughten.
	Is is not a highly irregular way of handling public finances to hand over £2.5 million to the receiver in advance of his requirements — Deputy Naughten.
	How much interest has the Department lost through advancing £2.5 million to the receiver in advance of his requirements — Deputy Naughten.
	I would venture to suggest that the deposit interest earned by the receiver would be less than the cost to the Exchequer of providing funds in advance of requirements — Comptroller and Auditor General.
	Did the Department take any steps to recoup the £1.1 million which the Receiver had in hands at the end of April, 1983 — Chairman.
	Replies to the above questions (taken together) On 22nd December, 1982 the Government directed the Minister for Industry and Energy to make every effort to clear the Exchequer costs of liquidation of Avoca Mines before 31st December, 1982 and also authorised the payment of extra-statutory redundancy monies from the Department’s Vote. Having regard to estimates received from the receiver as to the monies he would require to cover the costs of implementing the Government decision and to the fact that he had stated that he would be “drawing down the monies requisitioned at short notice for early disbursement” the Department made a payment of £2.5 million to the Receiver on 30th December, 1982. In those circumstances the payment was necessary and in no way irregular.
	The reasons why the sum of £2.5 million advanced to the Receiver was not disbursed by him as quickly as he had anticipated were the subject of a Query by the Comptroller and Auditor General on 28th March, 1984. Attached is a copy of the Query and of the Accounting Officer’s Reply on 18th May, 1984.
	Calculation of the precise cost to the State arising from undisbursed monies being in the hands of the receiver would be an extremely time consuming exercise. Separate calculations of interest would have to be done in resepct of each occasion a change occurred in the sum the receiver had on deposit; such changes would have been frequent.
	The Department is satisfied, having regard to (i) the situation that State borrowings in December, 1982 were at a rate of 13.88%, that average deposit interest rates in 1983 were 13.6% and in 1984 were 12.25% and (ii) that the sums on deposit were diminishing steadily, that the net cost to the State was relatively modest. It is to be borne in mind that it was necessary for the receiver to have certain funds on hands at all times to meet outstanding obligations and liabilities of the company (an alternative of operating on bank overdraft would have been more costly for the State).
	As regards the amount of the monies he had on hands the situation was that the receivers anticipated outstanding liabilities throughout 1983 and 1984 were substantial and that at no time were funds on hands in excess in those liabilities. As it was the Department’s understanding that the receiver could require significant funds at short notice it was decided to leave the undisbursed monies with him.
B. Conduct of the Receivership
Question:	What was the total amount of money received by the receiver for winding-up the company — Deputy Naughten.
Reply:	The total amount paid over to the receiver was £2,854,000 (£2,825,000 in 1982 and £29,000 in 1986).
Question:	How much fees has the receiver been paid to date — Deputy Naughten.
Reply:	The total amount of fees and expenses paid to date is £228,975. A breakdown of this figure is given in the receiver’s report (Page 47). Fees and expenses in respect of the years 1985-1987 have not yet been paid. These are estimated at £50,000.
Question:	How often are his accounts submitted — Deputy Naughten.
Reply:	To the end of 1986 seventeen sets of accounts had been received at approximately quarterly intervals.
Question:	What is the name of the receiver — Chairman.
Reply:	Mr. Noel Fox of Oliver Freaney & Co.
Question:	Does the Accounting Officer envisage any further expense on the State before the conclusion of the receivership—Deputy Ahern.
Reply:	At the present time it would appear that the receiver will be able to conclude his business without further call on State funds. However the final outcome will depend on whether he has to pay cash to clear certain indebtedness of the company or whether he will be able to trade certain company property against such debts. He is a actively negotiating with the creditors in question at present. A further factor is whether he will be able to dispose of certain other company property for significant consideration. If he is successful no further funding will be required.
Question:	What are the terms of employment of the receiver — Deputy Crotty.
Reply:	The receiver was appointed, on foot of debentures issued to the Minister by the company. Formal terms of employment were not set out in the warrant of appointment of the receiver but his instructions from the Department were to realise the company’s assets, discharge its indebtedness and to close down the mine in accordance with statutory, planning permission and mining lease requirements.
Question:	How is the receiver remunerated — Deputy Crotty.
Reply:	The receiver’s fees and expenses have been calculated on the basis of standard charge out rates applicable to ordinary commercial clients of his firms. He deducted his fees from the monies he had on hands.
Question:	Has the receivership been prolonged on purpose because it is being funded by the State — Deputy Crotty.
Reply:	The activities undertaken by the receiver during the course of the receivership have been well documented in the receiver’s report. The Department is satisfied that the receivership has not been prolonged. It is not possible to compare the winding-up of a mining operation with other commercial receiverships. As explained by the receiver in his report there was a good deal more involved than disposing of the assets of the company and settling with the debenture holder and with preferential creditors. Indeed there are several instances where the wind-up of mining operations (including site restoration) took considerably longer than the Avoca receiverships.
C. Redundancy Payments
Questions	How much redundancy money was paid. Was it the statutory sum or a sum greater than that — Deputy Naughten. Was it not rather unusual that the redundancy paid should be three times the statutory amount seeing that this company was bankrupt — Deputy Naughten. Was the decision to pay extra statutory redundancy a Government decision — Deputy Naughten. Replies to the above questions (taken together) The total amount of redundancy paid was approximately £1,050,000 of which £215,000 was the statutory redundancy payment and £835,000 was extra statutory. The workers’ statutory redundancy entitlement ranged from a half week to one weeks pay per year of service depending on the age of the employee. As regrds extra statutory payments the mine employees submitted a claim to the Labour Court in October, 1982 for an extra statutory payment of five weeks pay for every year of service. The Court recommended on 29th October, 1982 that an extra statutory payment of three weeks pay for each year’s service should be made. On 22nd December, 1982 the Government decided, inter alia, (decision No. S22978C) to provide funds for implementation of the Labour Court’s recommendation.
D. Revenue Commissioners
Question:	What was the delay in setting with the Revenue Commissioners — Deputy McGahon.
Reply:	The two main items which had to be agreed with the Revenue Commissioners were (a) the company’s liability for VAT, PAYE and PRSI; and (b)a claim by the Inspector of Taxes for corporation tax on deposit interest earned by the receiver on funds in hand. With regard to (a) the receiver had a counter claim in regard to a refund of VAT. The situation was not fully clarified until a VAT inspection was carried out in 1985 and an agreed figure for the company’s liability was settled. The position as regards (b) was that both parties agreed to await the outcome of a High Court action being taken by a Receiver against the Revenue Commissioners on this issue. The High Court judgement, delivered in late 1986, was that a receiver’s deposit interest was not taxable. This decision saved the Avoca receivership £125,000 (approx.).
E. Cost to the State of Avoca Mines Ltd.
Questions:	Can the Accounting Officer inform the Committee of the total cost of Avoca Mines Ltd. to the State — Deputy Naughten. At the end of 1982 the total charge on State funds was approximately £12.7 million. What is that figure as of to-day — Deputy Lyons. Replies to the above questions (taken together) The total funds advanced were £12,762,848.92 (£9,908,848.92 by way of State loans to the company and £2,854,000 to cover the costs of the receivership). If, however, the interest payable on the State loans of £9,908,848.92 to the company is considered to be charge on State funds a further £10,905,805 in interest due to the end of 1986 should be included. It is not anticipated that any of the loans advanced to the company will be recovered. Accordingly the sanction of the Department of Finance for the write-off of the loans and their accrued interest was sought and obtained in 1986.
F. Completion of Receivership
Question:	What is the present state of the receivership and when will it be finalised — Deputy Crotty.
Reply:	The present situation is that the bulk of the receivership is complete and it is expected that outstanding matters will be concluded in 1987. The outstanding items which are being attended to at present are:— 1.Sale of company houses. Most of the sales have been completed at this stage — a small number are being finalised. 2.Demolition of the concentrate mill building. This had been delayed because of interest in acquiring the building shown by a third party. The sale is not preceeding and a price has been agreed with a local contractor for demolition of the building and grading of the site. This work is now underway. 3.Negotiations with Wicklow County Council in the matter of outstanding rates. The receiver is attempting to lessen the company’s rate liability by trading company property (lands and buildings) against the Council’s demands. These negotiations have been in train for some time. The receiver expects that he will succeed in having the rates demand reduced considerably from its present level of £100,000. 4.Sale or transfer of other company properties. Negotiations for the sale of several parcels of company land are in train. All lands which remain unsold at the conclusion of the receivership will be transferred to the State. Accordingly land sales will not delay the conclusion of the receivership. 5.Disposal of spoil heaps. Negotiations are in progress with a company which is interested in acquiring a number of spoil heaps in the leasehold area.

REFERENCE SHEET

Oifig an Ard-Reachtaire

Cuntas agus Ciste.

(Office of Comptroller and Auditor General).

Dated 28 March 1984

The Accounting Officer

Department of Industry and Energy

Information required, or notified 1983

Vote 49 — Industry and Energy

Avoca Mines Ltd. (in receivership)

It is noted that £2.5 million was issued to the Receiver of Avoca Mines Ltd. on 30 December 1982 following confirmation from him that he required £3 million immediately for early disbursement to creditors and work force and in respect of ongoing costs.

It is further noted that

(a) the Receiver informed the Department on 7 January 1983 that he had placed the £2.5 million on bank deposit

(b)the Receiver’s accounts disclosed

(i)that he had £1,097,912 cash on hands at 29 April 1983 and still had £644,769 on hands at 15 November 1983 and

(ii)that bank deposit interest of £147,126 had been received up to 15 November 1983 including £92,489 to 29 April 1983.

As it would appear therefore that public monies in excess of immediate requirements were issued in this case your observations are requested. Information is requested also as to why funds could not have been released to the Receiver as and when payments had to be made by him.

1. The reasons why the sum of £2.5 million advanced to the Receiver was not disbursed as quickly as he had anticipated were:

(a)In the first instance the process of proving creditors, involving research of invoices and payment and delivery records, was more protracted than had been expected. Secondly an examination of mine stores, which could not be put in hands until early 1983 because of lock-out of the Receiver by the workforce, gave rise to the prospect that new items in store could be returned in lieu of case payments. Pursuit of this possibility whilst worthwhile insofar as credits of some £54,000 were secured by returning goods to suppliers, was a slow process. By 29th April, 1983 £816,581 had been paid out to creditors but creditors to whom stock might be returned and foreign creditors, totalling some £380,000 were still on hands. Most of this balance was disposed of before the end of 1983 but there is still a small number of creditors to whom payments may be necessary.

(b)It appeared to the Receiver at the end of 1982 that Avoca Mines Ltd had a liability of £471,000 to the Revenue Commissioners in respect of PAYE/PRSI. However examination of the company’s records suggested that a VAT rebate was due to the company which would balance off the PAYE/PRSI liability. The Receiver is in contact with the Revenue Commissioners in the matter and he has not so far discharged the liability of £471,000 which had appeared appropriate for disbursement in early 1983:

(c)The placing of contracts by the Receiver for fencing off of various parts of the mine property and for sealing of shafts and other openings in accordance with the requirements of the Mining Inspectorate, at a total cost of £82,500, was delayed by

(i)pressure on the Receiver’s staff arising from work on extrastatutory redundancy and creditor payments. As in the case of the payments to creditor payment of the extra-statutory redundancy monies gave rise to unexpected problems, one aspect requiring referral to the Labour Court:

(ii)an indication of interest in the property which initially appeared to be concerned with take-over of the property. Clearly fencing and sealing should not proceed as long there was a prospect of sale of the property as it stood.

2. At the time the sum of £2.5 million was paid to the Receiver it was expected that payments to that amount would be made by him within a short period. Graduated payments to him appeared inappropriate in the circumstances.