FRESH doubts have emerged about the eligibility of a £2.4 million corporate election gift to the Liberal Democrats from a Scottish businessman based in Majorca.

The Electoral Commission, which can bring proceedings to make the party surrender the money, has been inquiring whether the donation breached the ban on parties taking foreign cash.

Last month the commission cleared the donation, but said it had concerns about the checks carried out by the party.

Now, investigations by The Times have discovered that the British-registered donor company had no staff or premises at the time it began handing over money to the Lib Dems.

The company, owned by the Scottish émigré Michael Brown, is also facing a fine after missing a deadline to file its 2004 accounts with Companies House. The donations were made in 2005.

Mr Brown is not on the electoral roll and so cannot legally make individual donations to a party here. A law was introduced five years ago to prevent foreign donations to political parties. A company can donate only if it is registered in Britain, incorporated in the European Union and “carries on business” in Britain.

The gift to the Liberal Democrats came in four tranches. The first two contributions, totalling £250,000, were registered in February 2005, before the company had premises or staff. Another £2.1 million came in March. The company also paid for £30,000 worth of free aircraft trips during the general election campaign.

Mr Brown’s spokesman has told The Times that the company had no staff when the first two donations were made in February. “We did not have a registered employee at 5th Avenue Partners until March this year,” he said.

As part of the commission’s inquiry, officials were waiting to study annual accounts for 2004, due to be submitted by 5th Avenue Partners Ltd at Companies House by October 31; but the company has missed the filing deadline.

The importance of the accounts of 5th Avenue Partners Ltd is appreciated by the Lib Dems. In a letter to Mr Brown’s solicitor, David Griffiths, the party treasurer, gave warning that the documents may reignite the issue for the Electoral Commission.

“As you can imagine, they could reissue the whole matter if, when the accounts are filed, there is no actual investment trading in the company,” Mr Griffiths wrote.

The Times has seen unaudited 2004 accounts for 5th Avenue Partners Ltd, which imply such a picture for that year. They state that the newly formed company had £2.9 million assets and owed £3 million to its parent undertaking.

The commission is aware that the expression “carries on business” in the Political Parties, Elections and Referendums Act 2000 is open to interpetation.

Mr Brown’s spokesman said that 5th Avenue Partners Ltd’s outgoings in 2004 amounted to “start-up costs”. He said: “Michael Brown believes that his company was trading then and continued to trade in Britain throughout 2005. The company is expanding and now has a number of employees who are taking the company on from strength to strength.

“As far as the late registration of accounts goes, the accounts . . . will be filed with Companies House in due course.”

A Lib Dem spokesman said: “The relevant year for the company in relation to donations made in February and March 2005 is 2005 and not 2004. The issue of filing of accounts is a matter for the company.

“The party was aware in February that the company was actively seeking new offices and it subsequently moved into them in March. Under the Act, the parties legally only have 30 days to make any checks on permissibility.

“By the time initial checks were completed on the February donations of £251,000, the company was occupying new premises and our understanding was that the company’s business activities in February included making arrangements for these new premises.”

The Electoral Commission requested The Times to hand over its fresh evidence. “We will go to the party and discuss this with them,” a spokeswoman said.

THE BROWN ROW

June 28 2004 Michael Brown creates 5th Avenue Partners Ltd

February 10 2005 5th Avenue Partners Ltd gives first donation of £100,000 to Lib Dems

February 25 Second tranche of £151,000

March 22 Main donation of £1,536,064

March 30 Final cash gift of £632,000

April 5 Tony Blair announces General Election. 5th Avenue Partners Ltd gives £30,000 worth of free flights

May 5 Lib Dems win record 62 seats

May 24 Electoral Commission releases list of donors for first quarter of 2005, showing the record size of Mr Brown’s gift

May 26 The Electoral Commission is prompted to open an inquiry

October 7 Electoral Commission provisionally clears the donation but says it has concerns about the checks made by the Liberal Democrats

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