THE POSSIBLE collapse of Liam Carroll’s €2.3 billion property empire will not derail the establishment of the National Asset Management Agency (Nama), according to the Department of Finance.

However, banking sources said the opposite yesterday. They warn that any significant insolvency will jeopardise the valuation model on which Nama is based.

One of the state’s largest developers, Liam Carroll, was teetering on the brink of bankruptcy over the weekend after a High Court decision on Friday to lift the protection from creditors granted to one of his businesses, the Zoe Group, two weeks ago. The move could precipitate the collapse of the entire group – with reported debts of €2.7 billion – as its creditor banks seek repayment of their loans.

Mr Carroll is expected to appeal last Friday’s decision by Mr Justice Peter Kelly to the Supreme Court tomorrow and have an examiner appointed to the group. If the Supreme Court decides to hear the appeal it is expected to extend the protection of the courts pending the appeal being heard.

The group’s banks, led by AIB and Bank of Scotland Ireland, are supporting Mr Carroll but are understood to be lining up to seek recovery of their debts if he is unsuccessful.

AIB is owed €520 million and Bank of Scotland Ireland €348 million. It was an original application by ACCBank for the appointment of a receiver to the Zoe group over debts of €136 million which triggered the application for court protection.

The department was adamant yesterday that a large receivership could be dealt with by the Nama process.

The new agency will take over €90 billion of property and land loans which are sitting on the balance sheets of the Irish banks. It will buy the loans at a discount as part of a wider, long-term process to allow the banks accept the losses associated with the loans and avoid going bankrupt themselves.

Nama will use its own method to value the loans and underlying assets. This will be based on what the department calls the economic value of the assets, as against the market value which would be achieved if the underlying properties were put on the market today.

However, banking sources said that a free-for-all, with each bank acting unilaterally resulting from the collapse of a large property group, could cause problems for Nama.

It could force the flooding of the market with properties, with writedowns of up to 80 per cent being forced on sellers. This would have a damaging effect across the entire market and jeopardise the long-term economic valuation model being created for Nama, leading to distressed pricing across the market, according to sources.

The department said Nama will be able to decide what loans it buys from the banks and also the price it pays for them.

Once it has been established it will be able to decide whether it wants to get involved in any receivership that is under way, it said. If a bank has put in a receiver, sold a property and written off a loan, then Nama will have no need to get involved.

The department spokesman pointed out that the document published last Thursday by the Government was a draft of the Bill and could be amended if any issue arises before being put to the Oireachtas in September.

Government sources said that it might be a welcome development if the Zoe Group does not succeed in getting an examiner appointed because it would discourage other large developers from going down this route – in the hope of protecting their assets – ahead of the establishment of Nama in the autumn.

Fine Gael yesterday renewed its attack on the absence of any valuation of assets in the draft legislation. George Lee, Dublin South, said this “key piece of information had been left out”.

The party’s deputy finance spokesman Kieran O’Donnell said the failure to include a valuation was “like buying a car without an engine”.

“Nama will create a false market by buying assets well above their market value in a very uncertain market and probably at a cost to the taxpayer,” he said.

The Labour Party expressed concern over the duration of the process, saying it was alarmed it could take 30 years to complete.