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Page last updated at 16:25 GMT, Friday, 31 July 2009 17:25 UK

Property woe for Irish government

Irish Finance Minister Brian Lenihan
Irish Finance Minister Brian Lenihan announced plans for a 'bad bank'

A court ruling in Dublin on Friday could cause problems for the Irish government's plans to buy bad property loans from financial institutions and manage them in a state-run "bad bank."

Plans for the National Assest Management Agency (NAMA) were announced on Thursday.

It is intended to unwind the crashed property market in an orderly way and allow banks to start lending again.

The plan is supposed to involve the government buying property loans at a discount, then managing them in such a way that the Irish taxpayer will at least break even on the deal over about 10 years.

In return the banks are expected to start lending again with the money the government has paid them for the loans.

Toxic

The Irish banks have been perceived to be going easy on highly indebted developers in anticipation of the scheme.

Their calculations appear to be that they will get more money back from the government than they would by forcing developers into bankruptcy.

However, the Dutch-owned bank ACC has begun to aggressively pursue developers who owe it money.

On Friday it won a case against developer Liam Carroll, who was seeking bankruptcy protection for his Zoe Developments group of companies.

The group owes its banks more than 1bn euro.

Mr Justice Peter Kelly refused to grant bankruptcy protection because he was not convinced the companies had proven that they met the legal test of "having a reasonable prospect of survival."

He said a rescue plan but forward by Mr Carroll's lawyers showed a degree of optimism which was almost "fanciful."

Mr Carroll may now be forced into a fire sale of his assets which could crystallise massive losses at the banks before NAMA has a chance to take over the toxic loans.

NAMA is not expected to be operational until October.

The judge said Mr Carroll's companies will be allowed to lodge an appeal to the Supreme Court.

Mr Carroll is reputed to have built more apartments in Dublin than any other developer and is also a major investor on the Irish stockmarket.

If his business goes under it would be one of the biggest corporate failures in Irish history.

"This is certainly the biggest failure of a construction company in Ireland and it may well be the biggest corporate failure in the state," said Michael McAteer, a partner in Grant Thornton's recovery & reorganisation department.



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