November 25, 2012 10:43 pm

Warring investors threaten legal action

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In-fighting at the group behind the Malmaison and Hotel du Vin boutique hotel chains is heading for a showdown in court, after warring parties threatened to sue each other over the circumstances that led to the administration of the parent company.

Pyrrho Investments, the Hong Kong-based fund which owns 24.5 per cent of MWB Group, is expected to issue a statement today denouncing “the poor corporate governance, the conflict of interest and serious strategic efforts” of its board when it was led by founder Richard Balfour-Lynn.

It will say it reserves its rights to take legal action against MWB Group’s current and former directors.

MWB Group went into administration earlier this month following a dispute between the group and its subsidiary MWB Business Exchange over an intercompany loan.

MWB Group called in administrators at Deloitte, after suspending trading in its shares in October when Business Exchange said it intended to offset £4.8m in contractual payments against a loan to the group of £8.3m.

MWB Group has £47m of debts, and the hotels have debts of £230m.

Pyrrho’s statement is in part a response to creditors, including Mr Balfour-Lynn, who are threatening legal action. They want Deloitte administrators to look at Pyrrho’s actions in the run-up to the shares suspension at MWB Group.

In its statement, Pyrrho will blame actions under Mr Balfour-Lynn’s stewardship for the administration – including the sale of Liberty, the central London department store, in 2010 – and what it called the “toxic” debt refinancing of the group last year.

The statement will go into how Pyrrho sought to persuade MWB to accept equity funding to strengthen its capital structure. Pyrrho claimed it was resisted because of “the dilutive effect” this would have had on the shareholding of Mr Balfour-Lynn and those connected with him.

Anson Chan, chairman of Pyrrho, told the Financial Times that he was prepared to provide £30m of equity funding into MWB in September.

Mr Balfour-Lynn said all MWB decisions were taken by the full board, were unanimous and following independent third-party advice, and that all attempts to get equity funding from Pyrrho had failed.

“[Pyrrho’s] personal attacks on me are inappropriate. I have always sought to maximise shareholder value,” said Mr Balfour-Lynn.

Mr Chan added that he would be interested in making a bid for Business Exchange. “If it becomes available, this is an asset we would like. We are the second-largest shareholder and it would be natural to consider it,” he said.

Creditors are consulting lawyers about a potential conflict of interest relating to Pyrrho speaking to the board of Business Exchange about the disputed intercompany loan.

Pyrrho’s Mr Chan said that, as an 11.6 per cent shareholder in Business Exchange, “we had every right to do so”.

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