A troubled lender, whose loan book was wound down last year, is in exclusive talks over reviving its lending arm.

 The Davenham Group, an Aim-quoted asset-backed lender, was forced to close its loan book last year after its June 2010 results showed its revenues had fallen by 35 per cent to £32 million, and its pre-tax losses were £23.3 million.

In January this year there were unconfirmed rumours that the company was considering rejuvenating parts of the business. However the company has now revealed that its largest shareholder, Kingswood Property Finance, is in talks with the group’s banking syndicate over the possible revival.

An exclusivity agreement has been signed between Davenham and Kingswood, meaning that Kingswood cannot start talks with any other possible investors until March 31st at the earliest.

These exclusive talks come just months after 15 per cent shareholder and former Head of Hitachi Capital (UK), David Anthony, and 6 per cent shareholder, Tony Murtagh, raised concerns and asked for major changes to be made to the board.

Tony Murtagh asked for the current board to be ousted, and David Anthony wanted existing Managing Director Paul Burke and Chairman James Kerr-Muir to be removed.

Their discontent with the current board is thought to be a classic principal-agent problem, whereby the agents of the company (its directors) are not majority shareholders and thus have less to lose if the company fails or share prices plummet. The two directors in question have been accused of being too little concerned with the rejuvenation of the company.  The accusations suggest that the duo are happy to sit back and see the loan book diminish, as their wages remain constant.

However despite the discontent of two major shareholders, both of their proposed actions were out-voted during meetings. Paul Burke therefore still holds the position of Managing Director, and his comments seem to suggest that he is keen to go ahead with revival of the loan book.

Managing Director of the group, Paul Burke, told The Manchester News: "Whilst there can be no certainty as to the outcome of these discussions, we are pleased to have the support of the banking syndicate to enable more detailed discussions with Kingswood and Moor Park Capital regarding a potential recommencement of writing new business.

"In light of the exclusivity granted to Kingswood and Moor Park Capital, the board is working intensively with them to try to maximise the chances of a reconstruction proposal being formally proposed by Kingswood and Moor Park Capital to the banking syndicate."

By Katie-Jill Rowland