Directors of a Co Kildare grain merchant are expected to apply to the High Court on Monday under a little used provision in the bankruptcy laws for protection against creditors who are owed up to £20 million.

It is understood that directors of Edward Kavanagh (Maynooth), who include Messrs Edward, William and Tom Kavanagh, personally guaranteed loans from several banks. These banks are owed around £10 million.

The directors will apply for protection under a provision in the Bankruptcy Act 1988. If granted, it would mean they would have protection against further orders (concerning debts) being made against them.

It is understood the directors will ask the High Court to appoint an administrator to handle their personal affairs and negotiate with the banks on their behalves. The move would give them protection against being declared bankrupt, according to sources. The directors could not be contacted last night.

Banks which are owed money include AIB ,Ulster Bank, Irish Intercontinental Bank, ICC and Bank of Scotland.

The action is separate from ongoing proceedings to liquidate the company. A meeting of creditors will be held in the CityWest Hotel, Naas Road, Dublin on Friday. It is expected to ratify the provisional liquidator Mr David Hughes of Ernst & Young.

The directors are currently drawing up a full statement of affairs, outlining the extent of their debts. The statement will play a key part in negotiations with the banks and will be furnished to the court next week.

One source said the bankruptcy provision may used increasingly in the future where directors have personally guaranteed debts. If agreed to by the High Court, it will allow the directors to avoid being declared bankrupt and to "pick up the pieces and get on with their lives", according to one source.

Earlier this month, Mr Edward Kavanagh told the High Court the company's problems had arisen through a recession in the pig and poultry industries which began last year and which had worsened since.

The court was told the company had liabilities of £20 million and assets of £14 million. It is understood the IAWS group of companies is owed around £1 million. Another creditor, who is owed almost £1 million, is Quinns of Baltinglass. Some sources said last night creditors were likely to get no more than 50p in the pound.

Sources said the directors had mis-timed the property boom. Another said they had temporarily "taken their eye off the ball," when becoming involved in plans for property development.

The directors had applied for and been granted planning permission for apartments at sites they had in Maynooth, Co Kildare and Ashbourne, Co Meath. They had intended closing down the grain merchants in Maynooth and building a new plant, but later abandoned this project, according to one source.

Sources said that when they went to sell the lands earlier this year - they had not intended to develop them themselves - they found this market sector had slowed due partly to measures introduced in the recent Bacon report.

Sources said such projects (involving apartments) were now selling at a later stage in their development because investors were not as plentiful in the market. Such apartment schemes were being sold to owner/occupiers, who wait until a development is almost complete before buying.