An interesting exchange of emails between the Central Bank Governor, Patrick Honohan and a senior official in the Department of Finance Ann Nolan, revealed that he believes that there is a "moral case" for making sure that surplus money from the liquidation of IBRC is returned to the taxpayer - not bondholders.

The emails were released through a freedom of information request by the Irish Independent. As part of the ongoing liquidation of the assets of the former Anglo Irish Bank and Irish Nationwide by KPMG – including the controversial sale of Siteserve, a surplus of close to €2bn may accrue. The extent of any surplus depends principally on the outcome of some outstanding legal cases including the Quinn Family action against IBRC, recently deferred until next January.

In the event of a surplus, the minority of junior bondholders in Anglo – these are unsecured creditors – who resisted the bank’s offer to repay 20 percent of their original investment and who subsequently won a case in the English High Court on this issue,  may recover up to €280m they are owed ahead of any repayment of that money to the taxpayer.

In his emails, Mr Honohan claims that under new European rules to deal with failing banks, the taxpayer shouldn’t rank behind junior bondholders. In acknowledgment that the bondholders will contest this decision in court, he says that if the State doesn’t want to take on this legal challenge itself, it should hire the leading US debt lawyer, Lee Bucheit, who has worked with both the Greek and Icelandic governments in similar circumstances.

"The more I think about it, the more I am convinced that the State should take further steps to ensure that unexpectedly strong asset disposals by the IBRC liquidator return to the State and not to subordinated debt holders," Mr Honohan wrote on March 4th.

In her responses, Ann Nolan says the matter is being reviewed by the Attorney General, but that she is not optimistic on behalf of the taxpayer. She also indicates surprise that the Governor and the Central Bank seem to have changed their position over whether junior bondholders need to be repaid in the event of a surplus.