THE Liberal Democrats faced renewed embarrassment yesterday after their biggest donor was told that he faced jail for perjury.

Michael Brown, the Majorca-based businessman, pleaded guilty to telling lies in a multimillion-pound court case and to obtaining a replacement passport to flee the country.

His conviction will increase pressure on the Lib Dems to repay the £2.4 million donation from Brown’s company, 5th Avenue Partners Ltd. The Times has also learnt that Lib Dem officials will be interviewed about the donation by detectives investigating suspected money-laundering.

A senior Lib Dem source disclosed for the first time that Charles Kennedy’s office had always been aware of the size of the gift. The Electoral Commission is investigating whether the donation is eligible. It has the power to force the party to surrender the cash.

Brown, 40, whose lavish lifestyle once extended to lending Charles Kennedy his private jet, stood in Court 1 of Southwark Crown Court. “On the face of it, a custodial sentence would be appropriate,” Judge Geoffrey Rivlin told the Glasgow-born entrepreneur, adjourning sentencing until September 25.

HSBC began a civil action against the businessman and 5th Avenue Partners last year. As part of those proceedings, Brown swore an affidavit stating that millions of pounds from HSBC accounts had been used as collateral for trading and generated $16.5 million (£8.9 million) profits.

By December the bank claimed that statements in the affidavit were false. The bank suspected that no such trading had ever taken place. Although he had surrendered his passport, Brown obtained a new one by pretending that the document had been destroyed in a Spanish washing machine.

He returned home to Majorca but the CPS obtained a European arrest warrant and Brown was extradited from Madrid in May. He pleaded guilty yesterday to one charge of perjury in respect of the affidavit. He also admitted that he had “made an untrue statement” to the Passport Office. Another 30 charges brought by HSBC will remain on file.

His conviction comes as a City of London police investigation widens into alleged money-laundering involving 5th Avenue. Brown gave the Lib Dems £2.4 million in February and April of last year. He was banned by law from making political donations as an individual because he is not on the British electoral roll. The Lib Dems instead received the donation as a corporate gift from his company.

The Times has learnt that the gift was offered around the time the businessman flew the party leader by private jet to and from the party’s spring conference in Harrogate in the run-up to last year’s general election. A senior Lib Dem source has now disclosed that party officials learnt about Mr Brown’s gift on March 7, the day after the leader flew back with the Scotsman.

Mr Kennedy’s office was “absolutely” aware of the huge gift. “The offer went to the leader’s office,” the source said. A party official said: “This has nothing to do with the Liberal Democrats.” The party’s lawyers say that it was reasonable to treat the gift as permissible.

The Electoral Commission said that it was awaiting the result of the police inquiry before making a final decision on whether the Lib Dems could keep the money.

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