Bond ruling may cost taxpayer millions

Irish taxpayers could end up paying hundreds of millions more to bondholders on the basis of a ruling in Britain’s High Court.

Bondholders who were burned by the Government, losing up to 80% of their investments, are planning to take legal action seekingrepayment of their bonds in full.

The move follows a ruling in the British High Court, where Mr Justice Briggs found that “exit consents”, which forced losses of 80% on bondholders, were illegal. Justice Briggs was ruling in a case taken by Assénagon Asset Management against IBRC, the former Anglo Irish Bank.

Mr Justice Briggs described the “exit consent clauses” contained within the 20% bond offer as nothing more than a veiled threat.

“Quite simply, a coercive threat which the issuer invites the majority to levy against the minority, nothing more or less,” the judge said.

The ruling, which sets a precedent in British law, leaves the door open for burned bondholders to sue Irish banks and the Government to have the full value of their bonds restored to them.

Steven Friel, litigation partner with Brown Rudnick, said that following the ruling last Friday, he had been contacted by a number of bondholders looking to have the full value of their bonds restored.

“A number of bondholders who participated in the tenders have made inquiries about taking legal action to recover the full value of their bonds following on from the ruling,” he said.

Mr Friel said there were two categories of burned bondholders, those who accepted an 80% writedown in the value of their bonds and participated in the Government buy-back exercise, and those who had not.

Mr Friel said that, under Justice Briggs’s ruling, bondholders who did not accept IBRC’s bond buy-back offer of 20% of the value of their bonds can now sue for the full value of their bonds. A small percentage of bondholders did not accept the offer at the time and the value of their holding was wiped out.

Assénagon Asset Management refused to accept the 20% offer and eventually found that its €170m bond was forcibly bought out by the IBRC for just €170.

Those bondholders who did accept the offer can also now sue the Irish banks, arguing that they were forced into accepting the terms of the auction under “economic duress”.

A spokesperson for the Department of Finance said they had been challenged in the courts throughout the financial crisis.

“We will be appealing the judgment to the English Court of Appeal.

“We would be confident that there won’t be any major implications from this ruling,” said the spokesperson.