Lord Black isolated as directors desert him

Lord Black faces a deepening crisis across his media empire this week as his Hollinger Inc holding company begins an urgent search for new directors to replace members of its audit committee, who have resigned en masse.

Support for the peer was ebbing away after the committee apparently attempted to have him ousted as chief executive and several of his supporters removed as directors.

Hollinger Inc is the Toronto-based holding company that controls the publicly quoted Hollinger International, through which Lord Black owns the Telegraph newspaper group, the Chicago Sun-Times and the Jerusalem Post.

The audit committee's showdown with the rest of the board failed, and Maureen Sabia, Fredrick Eaton, Allan Gotlieb and Douglas Bassett, all independent directors, said they could no longer hold their posts in the company.

The committee had been investigating payments of $16.5m (£9.7m) to Hollinger Inc in connection with sales of local newspapers by its subsidiary, Hollinger International. It put forward a report detailing its findings to the board last week but its recommendations for management changes were dismissed at the board meeting on Friday.

The audit committee, however, stood by its recommendations as being in "the best interests of Hollinger and its shareholders in the current circumstances". A statement from the resigning directors said: "Accordingly, the members of the audit committee believe they are no longer in a position to serve Hollinger."

Lord Black said it was "regrettable" that the members of the committee felt compelled to resign. "While the board agreed with a number of recommendations made by the committee, it was not prepared to accept them all," Lord Black said, describing the recommendations on management and board changes as "not appropriate".

While the company did not say who the committee had targeted, it is thought it wanted three directors to stand down along with Lord Black.

Lord Black resigned as chief executive of Hollinger International last week after a special committee of the company found that he and other directors collected multimillion-pound payments without approval from the board. Filings to the Securities and Exchange Commission (SEC), the US regulator, have also been found to be inaccurate, perhaps overstating profits by as much as $17m. Lord Black has refused, however, to cede control of Hollinger Inc. The SEC is investigating the affair.

As a result of the mass resignation, Hollinger Inc is now in breach of US corporate laws, which require companies to maintain audit committees that are composed solely of independent board members. The company has said it will endeavour to hire new board members as soon as possible, but it was unclear who might be willing to join a company in crisis.

The four former directors were all long-standing members of the Hollinger board. Mr Gotlieb, a former Canadian ambassador to the US, has been on the board since 1989. Mr Eaton has served since 1979, Mr Bassett is understood to be a long-standing friend of Lord Black's, and Ms Sabia, the chair of the audit committee, joined the board in 1996.

Hollinger International has hired Lazards, the investment bank, to look at a possible sale of its newspapers, and a number of UK media players are already circling the Telegraph group. Carlyle Group, a US private equity firm that had been tipped as interested in as much as 40 per cent of Hollinger, yesterday ruled itself out of the running for any part of the company, but there were reports that Richard Desmond, owner of the Daily Express, had won the support of his banks for a bid.