Investors challenge Minister's burden-sharing move

THE HIGH Court has agreed to fast-track a legal challenge by two New York-based investment firms to the Government’s plan to buy back debt from subordinated bondholders in Allied Irish Banks at a significant discount.

The court has fixed June 2nd for the hearing of the case which has implications for the Government’s proposals to recapitalise the Irish banks. The firms are challenging a subordinated liability order obtained by Minister for Finance Michael Noonan from the court last month in what John Gordon SC, for Aurelius Capital Management, described as an effort to “beat” the subordinated bondholders into divesting themselves of their bonds in AIB at a steep discount.

Aurelius and the second firm, Abadi Co, initiated their proceedings on April 20th, days after the Minister secured the order in an effort to achieve some burden sharing by bondholders in AIB’s recapitalisation. The order allows the Minister to change terms, conditions and maturity dates on certain bonds.

The cases were before the president of the High Court, Mr Justice Nicholas Kearns, yesterday for case management purposes.

Brian Murray SC, for the Minister, said the matter was critically urgent as the disputed order was critical to the recapitalisation of AIB which the State had agreed with the European Union and International Monetary Fund to have completed by July 31st.

It also affected plans to recapitalise other banks. Coupon payments of more than €100 million would be payable to bondholders by the end of next month unless the Minister could proceed as planned, he said.

Urging the judge to fast-track the cases at a speedier pace than that proposed by the applicant firms, counsel suggested a timescale that would involve the full case, plus any appeal to the Supreme Court, being heard and determined by July 31st.

Mr Gordon, for Aurelius, and Jim O’Callaghan SC, for Abadi, accepted the matter was urgent but argued the timescale proposed by the Minister would impose inordinate pressure on them. They argued the time pressures were created by the decision of the Minister to apply at the “last possible minute” for the disputed order.

Mr Justice Kearns said he had been told the Minister regarded this matter as one of “extreme urgency” and must attach appropriate weight to that. He was told the Minister could have moved more speedily but that did not now determine the timing of the case.

The judge remarked the sides had not addressed the matter of judicial resources required. The High Court would need time to consider the issues and did not have the massive resources available to the sides. There may also be an appeal and, in the circumstances, he would grant the Minister’s application for a trial date of June 2nd.

The judge heard the Minister agreed to provide a copy of the full affidavit grounding his April application to the firms on condition certain price-sensitive material in it, which had been redacted, was only made available to lawyers and experts for the firms.