Hearings that could determine the outcome for creditors to Cattles in a restructuring of the troubled subprime lender will start in London’s High Court on Thursday.

The hearings are expected to last two days but the case could run until the new year if any decision is appealed against, people close to the situation said.

The case, between Cattles and Welcome Financial Services, will settle an argument between the company’s banks and its bondholders over which would rank highest if Cattles went into administration.

Despite the ongoing dispute, a standstill arrangement to avoid a default has been agreed and is set to be signed off in the coming days, the people said.

In exchange for their support, the company’s bondholders will receive a cash payment of more than £10m ($16m), half of about £20m in interest due on the bonds.

The case will help determine what bondholders could recover on their investment in a restructuring of Cattles’ debt. The bonds are currently trading at about 10 per cent of face value, but one person said they could be worth several times that if bondholders win the case.

The banks believe their claims rank ahead of bondholders because of a guarantee given to the banks by Welcome, a Cattles subsidiary.

The court will be asked to decide, in the event of an administration, whether the construction of this guarantee will mean Cattles’ banks and private placement noteholders will receive most of the cash the company gets back from its customers, which bondholders dispute.

A restructuring could still be agreed out of court between creditors.

The company, which provides loans to people with poor credit histories, was thrown into crisis this year after it emerged it had underestimated the provisions it should have made in relation to bad debts.

It is being investigated by the Financial Services Authority over how it accounted for bad loans.

Cattles declined to comment on Wednesday.

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