Lib Dems may be forced to hand back £2.4m donation

The Liberal Democrats face a court battle to hold on to a £2.4m donation from a jailed financier.

The Electoral Commission disclosed it was examining new evidence and could go to court to force the Liberal Democrats to give the cash back.

Sir Menzies Campbell, the party leader, would be left with the dilemma of whether to repay the money, which helped bankroll last year's election campaign, or mount an expensive legal action to hold on to the biggest donation in its history.

His party has always trailed Labour and the Conservatives in its ability to raise money and is understood to have had just under £300,000 in the bank at the end of last year.

The donation was made by a company owned by Michael Brown, 40, who is serving a two-year jail term after admitting perjury and a passport offence.

The High Court ruled this month that his firm, 5th Avenue Partners, was fraudulent and had never traded. The commission had said it believed the party could keep the cash. But it disclosed yesterday that it was investigating new details about the gift, although it accepted that the Liberal Democrats had acted in good faith.

A Liberal Democrat spokesman said the party was confident it would not have to forfeit the donation.

"We remain convinced that the company was carrying on business in the UK at the time it made the donations," he said.