ALLIED IRISH Banks has secured an interim High Court order which may allow it to avoid making a £21 million (€23.6 million) payment to junior bondholders.

That coupon payment was due to be made today but, following a decision by Mr Justice John Cooke yesterday, the funds will instead be lodged in court pending the outcome of a challenge by a Cayman Islands investment firm to an order secured by the Minister for Finance last April.

That Subordinated Liabilities Order, if upheld by the court, will permit AIB not to pay the coupon at all. The order allows the Minister change terms, conditions and maturity dates on AIB’s subordinated bonds, lift restrictions on buybacks and reduce the value of the bonds so as to encourage bondholders to take up a debt buyback offer which had a take-up deadline of June 13th.

Under the buyback, AIB will impose losses of up to 90 per cent on subordinated bondholders.

Aurelius Capital Master Ltd, along with some linked firms, has challenged the order in proceedings against the Minister for Finance which opened earlier this month before Mr Justice Cooke. AIB previously consented to the making of the order.

Earlier this week, Paul Gallagher SC, for AIB, asked the judge for permission to apply to the court for liberty to bring an application to suspend the June 25th coupon payment pending the outcome of the Aurelius case.

If the Aurelius challenge fails, the bank could avoid making the coupon payments but, as the case was continuing, the bank wanted directions from the court as the payments were due, counsel said. The bank was prepared to consider paying the relevant sum into an escrow account pending the outcome of the case, he added.

Mr Justice Cooke allowed Mr Gallagher bring the application yesterday when it was strongly resisted by Aurelius. Bondholders represented by Aurelius stood to gain about half of the €21 million coupon payment.

Moving the application, Mr Gallagher argued provisions of the Credit Institutions Stabilisation Act 2010 provide that no event of default arose if a coupon payment was suspended and paid into court pending the outcome of the legal challenge to the order.

He agreed with the judge the best way to approach the matter was to join AIB as a notice party to the Aurelius action.

Counsel also agreed, if the coupon was paid and Aurelius lost its challenge, the coupon monies would in the interim have been diversified to a number of unidentified people.

Declan McGrath, for Aurelius, argued that AIB had no legal standing to bring the application and the court should refuse to join it as a notice party to the proceedings.

AIB had a contractual obligation to pay the coupon and was seeking the court order in an effort to be “immunised” against an event of default, he said.

The case is to continue on Monday.