Lawyers for an investor challenging plans to burn junior bondholders in AIB today raised the possibility of the High Court delaying the process while the case is heard.

The Government is hoping to cut around €5 billion from a €70 billion bill for bailing out its banking sector by imposing losses of up to 90% on junior bonds in AIB, Bank of Ireland , Irish Life & Permanent and EBS Building Society.

But a legal challenge by Aurelius Capital Management and Abadi Co, two bondholders in AIB, risks derailing Finance Minister Michael Noonan's plans if the High Court finds in their favour.

Justice John Cooke delayed the start of the hearing until today to give himself and lawyers for both sides more time to read reams of documents.

John Rogers, a lawyer representing Abadi, said there was a risk that his client's investments would be wiped out before a judgement was given in the case. Most junior bondholders in AIB have until June 13 to decide whether to accept losses of between 75-90% in some €2.6 billion worth of subordinated debt or risk being left with just 1 cent for every €1,000 in bonds they hold.

'This has the effect of possibly setting to naught my client's investments under these proceedings,' John Rogers said. 'This issue must be dealt with at the outset. It's a critical issue,' he said.

Justice Cook said he could not immediately order Mr Noonan to delay or extend the bond buyback programme.

The two bondholders took up the case against the Government after it got a court order on April 14 to force losses onto owners of AIB's subordinated debt. The government subsequently launched the buyback plans on May 13.

Minister Noonan is using sweeping new legislation to execute the losses, which are designed to ease the burden on taxpayers.

Legal experts said the scope of the law and the fact that bondholders would likely have lost all of their investments had the government not stepped in to save the banking sector from collapse meant that Aurelius and Abadi faced an uphill battle in court.

The bondholders have argued that their property rights have been violated.