Its shares were suspended at the same time and Robert Feld, managing director, resigned as an executive although he remains with Resort.
Tim Barker, who is due to take over the chairmanship of the mid-market hotel company at the end of the year, said he was unable to comment on what had prompted the suspension except that 'the matters arose very recently and a full investigation is taking place'.
He confirmed that the investigating accountants were not the company's auditors, Coopers & Lybrand, but could not say whether full-year results for the year to April would be announced as scheduled at the beginning of August.
It is thought that Resort's suspension was called for after the company breached a banking covenant, either on the basis of interest cover or gearing. Tim Baldwin, an analyst at Greig Middleton, estimated Resort's gearing at more than 100 per cent with borrowings of as much as pounds 50m. A likely reduction in the book value of the company's hotels would push that higher, he said.
The freezing of the shares at 45p follows similar problems at Queens Moat Houses, its larger rival. One analyst said he 'was not surprised by the suspension'. Resort was known to be highly borrowed and was felt to have overpaid for recent acquisitions.
During 1992 Resort's shares slumped from 90p to 16p as the market worried about the planned acquisition of two Business Expansion Scheme-funded hotel groups, County and Country Resort Hotels. Resort had contracted to buy the groups after their five-year tax-saving schemes matured.
According to Mr Baldwin, Resort had paid the equivalent of pounds 100,000 per room for County, the larger of the two acquisitions. He thought pounds 60,000 would be a more realistic valuation.
Resort paid pounds 4.25m in shares for County and took on debt of almost pounds 30m. The group of seven hotels made a pounds 3m operating loss last year. The Country group of hotels cost pounds 17m and made a pounds 600,000 loss.
The investigation at Resort comes just a day after the group said it had acquired the management of five hotels from Welsh Water.
Resort came to the market in 1988 at an equivalent of 90p a share, the first company to graduate from the BES to the USM. During the last five years it has staged four rights issues, raising more than pounds 50m.
In the six months to last October, Resort made pre-tax profits of pounds 3.25m, an 11 per cent improvement. Thanks to its aggressive share-funded growth, however, earnings per share fell 22 per cent.
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