Directors are insisting their refinancing proposal is bondholders only hope of getting at least some of their money back, even though their own documents show that is a long shot.

Michael Warrington at Chris Lee & Partners describes the deal as a violation of the well-established principle that shareholders get to eat last behind all debtors.

Liam Mason, the FMA's general counsel, says the Blue Star's prospectus has to contain information investors need to make an informed decision, but "at this stage, we have not seen evidence that the Blue Star prospectus is misleading."

Mason acknowledges the FMA has received "complaints from investors concerned that the offer from Blue Star is not in their best interests.

However, FMA does not comment on the merits of any offer. We encourage investors to take advice from an authorised financial adviser."

On Wednesday, Blue Star said it had "become aware that certain market commentators and bondholders have been advancing a view that, in the event that the amendment offer is not approved at the bondholders'

meeting, a further proposal or offer may be made by Blue Star."

However, Blue Star's board expects if the offer is rejected "Blue Star's banks will immediately move to protect their interests, likely through the appointment of a receiver," it says.

"In this scenario, it is probable that there would be no value recovery for bondholders."

Bondholders, whose investment has a face value of $105 million and against which $32.3 million in unpaid interest has accrued since August 2009, are being asked to vote to have the net present value of their investment reduced to $44 million, just over a third of its current face value. But that's only if everything proceeds as directors propose, a prospect which appears unlikely.

Warrington, a bondholder himself as well as adviser to clients who are bondholders, is likely to be one of the "market commentators" Blue Star refers to.

"I don't see that I can vote for it because to do so is for me to tolerate a proposal that puts a shareholder ahead of a lender,"

Warrington says.

Under the deal, the existing major shareholder will provide a new loan of $15 million earning 18.05% ranking ahead of $67.5 million of bondholders's money (after they've accepted the complete write-off of the $32.3 million in interest they're owed). A previous $12.7 million shareholder loan earning interest which Warrington calculates as 17.25% will rank ahead of the remaining $37.5 million of bondholders' money.

The first tranche of bondholders's money will earn zero interest until July 2013 and then will start earning 9.1%. The second tranche will earn no interest at all and will get just 20% of the business' future sale price. The shareholders will retain 80% of that sale price.