Waheed Alli and William Astor have stepped down as chairman and deputy chairman of Chorion, the group that owns the rights to characters such as the Mr Men and the Famous Five.
Lord Alli and Viscount Astor quit after failing to negotiate new terms on debt the group took on at the height of the private equity boom.
The peers were part of a management team that took a stake of £7.4m in the £111m deal and could now lose all of their investment.
Relinquishing the chairmanship will be a double blow to Lord Alli because he is an avid fan of another of Chorion's popular characters – Agatha Christie's Miss Marple.
After breaching lending covenants in March the peers failed to get the support of all Chorion's backers, which include 3i and Lloyds Banking Group. Chorion's buyers were caught out by the increased cost of borrowing caused by the credit crisis. When Chorion was sold in 2006, debt was cheap as banks competed to lend to the buyout industry.
At the time of the deal, Chorion's independent directors said the high price offered by 3i and its team justified the sale.