THE Government faces a major controversy over how much it plans to pay for 'toxic' assets as the future of the country's biggest developer hangs in the balance.
The High Court yesterday refused to appoint an examiner to protect the crumbling empire of property tycoon Liam Carroll.
If the Supreme Court upholds that decision on Tuesday, and a liquidator is appointed, the sale of his assets at knock-down prices would set a new market value for risky property loans.
A firesale of Mr Carroll's property empire could completely undermine the valuation formula being drawn up by the National Asset Management Agency (NAMA), whose job is to take risky loans from the banks.
And that would leave the Government facing taxpayers' anger and questions over why it is paying massively over the odds for banks' risky property development and commercial loans.
But if the Government pays too little for the loans, the banks' losses would leave gaping holes in their coffers -- potentially forcing the taxpayer to pump further billions into the ailing financial institutions.
A senior Dublin-based stockbroker said the collapse of a developer would not have a real impact on the day-to-day workings of NAMA.
"But it would have an impact on the perceptions of valuations," he said.
This would make it very difficult politically to justify paying prices for loans that reflect hopes of asset increases as the economy improves.
The court drama came just 24 hours after Finance Minister Brian Lenihan published draft laws underpinning NAMA, which will take over €90bn-worth of loans from banks and building societies.
Last night, ACC bank threatened to immediately appoint a receiver to four of Mr Carroll's companies, but the threat was averted -- at the last minute -- when the judge agreed, "with misgivings", to postpone his refusal to continue protection, pending an appeal to the Supreme Court on Tuesday.
Other banks which had been supporting Mr Carroll were also on stand-by to send in the receivers if ACC was successful in starting the winding-up.
Yesterday, Mr Justice Peter Kelly launched a scathing attack on Mr Carroll, whose Zoe Group is €1.2bn in debt.
He rejected as "fanciful" and "lacking in reality" survival proposals heavily dependent on a greatly improved property market, which suggested the €1.2bn deficit could be turned into a €300m surplus within three years.
That was not the objective for which examinership legislation was envisaged, he said.
All of the group's major banker creditors and the Revenue adopted a neutral stance towards the examinership application but ACC Bank, which prompted the protection petition by demanding repayment of €136m loans earlier this month, signalled after yesterday's judgment it might yet move against the companies if the judge's decision stands.
AIB and Bank of Scotland Ireland are the largest lenders, with 40pc and 23.8pc of €1.1bn in borrowings respectively.
The Department of Finance said it had no comment to make on the case because banks were entitled to go to the courts to uphold their rights.