A HIGH Court judge in London will rule on Monday whether a legal action taken by two subordinated bondholders to wind up Irish Nationwide Building Society (INBS) over multimillion euro loans it owes should proceed.
Two subordinated bondholders, Satinland Finance and Trimast Holdings, have sued the lender, claiming the bank bailout is forcing them to share the burden of losses with the Government.
They are seeking to compel a unit of French bank BNP Paris, the trustee of the bonds, to file a winding-up petition against the building society in the Irish courts.
Irish Nationwide has asked the London court to dismiss the action, claiming it was “misconceived on a whole host of grounds” and that the action was damaging to the institution.
“We are concerned with anything that could cause a run on the Nationwide,” Mark Howard, a lawyer for the lender, told the court earlier this week. “Potentially, it is very damaging to a financial institution that there is a threat it could be winded up.”
Judge George Mann said he would not rule on the Irish Nationwide application to strike out the action before next Monday.
The two investment funds hold 25.6 per cent of lower tier 2 bonds, due in 2016. The loans cannot be repaid before the maturity date unless the lender is liquidated.
“It is a contract that is intended to stop noteholders from saying there has been a repudiatory breach and claim damages,” Mr Howard said.
Lawyers for the funds claimed the burden-sharing imposes “losses on one class, namely subordinated noteholders, while not imposing losses on another class, namely the Irish Government”.
Irish Nationwide has received €5.4 billion from the Government to meet losses on property loans. Minister for Finance Brian Lenihan has said he will seek a significant contribution from subordinated bondholders to the losses.
The building society owes €250 million on subordinated debt.
Trimast Holdings is controlled by the London investment firm Fortelus Capital Management.
Irish Nationwide has said that no event of default has occurred and the bonds are being honoured.
The action is viewed as an attempt by the funds to guarantee full repayment of the debt by the building society before any burden-sharing measures are introduced to impose losses on them.
