Three banks owed €113m by McInerney Homes succeeded in blocking a restructuring plan that would have forced them to share a loss of €88m in the High Court last night.
US investor Oaktree had been prepared to fund the rescue plan if the debt was written off, but is now set to walk away from the deal where banks are poised to take control.
Bank of Ireland, Anglo Irish Bank and KBC are owed €113m between them by the company.
The three banks objected to the company's restructuring plans, saying that they could recover more of what they were owed by taking over McInerney's assets themselves.
The three banks were set to share just €25m under the proposal put forward by the company.
A majority of McInerney's other, unsecured, creditors had voted to back the plan in return for a recovery of just 7pc of what they are owed.
McInerney is one of Ireland's biggest and longest-established housebuilders, with operations and assets in the UK and Spain as well as in Ireland.
It was taken into examinership last August, with total bank debts of €240m and net debt of €113m.
At the time of that development, McInerney blamed NAMA for its inability to continue trading as normal.
The company said that NAMA had insisted that banks whose loans were heading to NAMA should stop providing it with overdraft facilities.
In September, the High Court appointed Billy O'Riordan of PwC as examiner to McInerney to allow the firm time to put together a rescue package.
That opportunity ended last night, when Mr Justice Frank Clarke rejected a proposal from the examiner that would have allowed the company to exit examinership by writing off its debts.
International investor Oaktree had agreed to pump €40m into the company to pay off some loans and recapitalise the business.
That included the €25m to be paid over to the three banks. The banks argued that they could recover as much as €50m by taking over the assets themselves.
Each side is understood to have backed up their claims with expert advice, including valuation reports.
The judge did not back any particular valuation of McInerney's property assets, but ruled that the banks should be allowed the option of trying to recover the higher amount.
A source involved with Oaktree said the decision was "incredibly disappointing".
The source said the fund put a lot of effort into the McInerney situation and was particularly disappointed that the case did not include a cross-examination where their valuations could be defended.
However, it is understood that the US-based fund will lose little by walking away because it did not make any investment ahead of getting the court's blessing for the restructuring plan.
Loans that were originally made by Bank of Ireland and Anglo Irish Bank have transferred to NAMA since the case began last August.
Details of the ruling are not due to be published until Friday, but the scene is now set for the three banks to appoint their own receiver to take over McInerney.
A source involved in the case said the banks would not take any action until they had consulted with NAMA.