There were no rooms for hopeful callers to the Holiday Inn on Dublin's Pearse Street this weekend and the bar looking out onto the street was doing a healthy trade. Business looked good.

In fact a receiver is running the Holiday Inn and the company which managed the hotel, Cristeeg Catering Ltd, has debts of more than £1 million (€1.27 million) and estimated realisable assets of only £60,835.

Cristeeg, according to its accounts, is owed £1.14 million by related companies but the Cristeeg directors do not now believe that this money can be recovered. The inter-company debts were included in the audited accounts for the year to end September 1999, filed in the Companies Office as recently as January.

Cristeeg Catering was incorporated in May 1996 and its original role was the day-to-day management of the Blainroe Hotel in Co Wicklow. The directors were Mr Kent Gross (46), a US national and former attorney, and Mr Robinson Callen (75), of Miami Beach, Florida, an operator of casinos and Holiday Inn hotels in the US.

The US businessmen are understood to have had plans to develop a number of Holiday Inn hotels in the Republic. A British Virgin Islands company, Tara Virgin Resorts Inc, bought the Blainroe and developed the Pearse Street site. As the opening date for Pearse Street drew near, Mr Charles Daly, who had been working with the Equity Bank subsidiary, Smurfit Finance, which was funding Cristeeg, left to join the board of the company. The Holiday Inn opened for business on November 17th, 1997.

Management of the Pearse Street hotel was to be handled by Cristeeg, which was still running the Blainroe. The Wicklow hotel was losing money and being carried by the Holiday Inn. Under pressure from Equity Bank, the Wicklow hotel was sold, for something in the region of £1 million. After all debts and bills were settled, the company was still £170,000 out of pocket on the deal, according to information given to creditors this week.

Business was better in Pearse Street. The Holiday Inn had an occupancy rate of 68 per cent in the latest financial year and was making an operating profit. Turnover at the hotel was £2.25 million, net of VAT, in the year to September 1999. Despite this, however, Cristeeg was getting more and more heavily into debt.

In February J&J Harmon, which was owed £40,000 for car parking spaces it rented to the hotel, approached the courts seeking the winding up of Cristeeg. Following the Harmon move, the Revenue transferred the Cristeeg file from its compliance branch to the collector general's office, where the official assigned to the case took the view the company was insolvent, based on the view that the £1.1 million in inter-company debts was unlikely to be recovered.

On Friday of last week Equity Bank, through its subsidiary Smurfit Finance Ltd, sought to have a receiver appointed to Cristeeg to recover its debts of £268,000. Mr Pearse Farrell, of Farrell Grant Sparks, was appointed. Meanwhile, as they were unable to produce the £355,000 being sought immediately by the Revenue and Harmon, the Cristeeg directors were advised their company was insolvent. The appointment of a liquidator was set in train. Mr Tom Kavanagh was appointed at a creditors' meeting this week.

On the face of it, the Holiday Inn venture had come to a sorry end. But there are complications. When Mr Farrell went to the hotel on the day of his appointment, none of the Cristeeg directors were there. Speaking to them on the telephone, Mr Farrell was informed that Cristeeg was no longer involved in the running of the Holiday Inn, and that it had been "thrown out" for failing to comply with its obligations. Millura Enterprises Ltd was now running the show, Mr Farrell was told.

"I was amazed to hear this assertion," Mr Farrell told the High Court the following Monday.

The Pearse Street hotel is owned by a consortium of partners in the accountancy firm KPMG and, according to a source close to the hotel management, the lease between them and Cristeeg was assigned to a company called Mayhaps Investments Ltd about a year and a half ago, after Mr Gross put £300,000 into Cristeeg. This is said to have occurred against a backdrop of a falling out between Mr Gross and Mr Callen. The latter left the board of Cristeeg in August 1998.

Mr Farrell told the court he believed no such assignment was permissible without the permission of Smurfit Finance or the KPMG landlords who leased the hotel to Cristeeg for £420,000 per annum. The receiver told the court he had been informed Millura had been in turn been appointed by Mayhaps and had been running the hotel since February 25th last and that no lodgements were made to the Cristeeg account since that date. Staff were being paid from the hotel takings and net receipts were being lodged to an account in the name of Millura.

Mr Farrell said he believed the Cristeeg directors were seeking "to dispose of the business of the company in order to avoid paying its creditors. I say and believe that the said attempt at disposal of the hotel is a sham transaction designed to strip away from Cristeeg the monies received in the course of operating the hotel business".

The Cristeeg source, however, maintains the takeover by Millura was a last ditch effort to keep the business going. The Mayhaps assignment had been made a year and a half earlier, in return for Mr Gross's investment and not so that debts accumulating to Cristeeg could be avoided, the source says. (Mr Gross and Mr Daly were both directors of Mayhaps, though Mr Daly resigned last month. There are no Irish resident directors of Millura.)

Equity Bank, for its part, says it regrets having had to appoint Mr Farrell. "The bank believes the hotel remains a viable commercial proposition and that this course of action will ultimately result in returning Holiday Inn to a sound commercial footing.

"As well as providing for the future and viable operation of Holiday Inn, the decision to appoint a receiver will ensure that the integrity of the tax incentive structure under which the hotel was founded will be preserved."

The bank and the KPMG partners who own the tax allowances are seeking a new operator. It is understood that if the hotel can be kept in business, then the KPMG investors' tax allowances remain good.

Meanwhile, Mr Kavanagh is working on the liquidation of Cristeeg Catering Ltd. A key issue will be the inter-company debts of £1.1 million, divided, it is understood, between Carville Investments, the Cristeeg holding company which is in turn owned by British Virgin Islands General Partnership and Tara Virgin Resorts Inc, the British Virgin Islands company which originally purchased Blainroe and developed the Holiday Inn.

Cristeeg got a facility of £460,000 from Smurfit Finance to buy fixtures and fittings for Pearse Street. The £1.1 million in inter-company debts was further capital expenditure on the Dublin and Wicklow hotels, paid for by Cristeeg but assigned to the books of Carville and Tara Virgin, according to the Cristeeg source.

The Cristeeg source insists that "no money went to feather anyone's nest. It was all legitimate expenditure on the two hotels." A further matter which remains unclear is the use of the Holiday Inn brand. The licence agreement with the owner of the brand, Bass Hotels and Resorts Inc, is with Tara Virgin Resorts, and Mr Gross has written to Mr Farrell, on Mayhaps Investments Ltd notepaper, claiming that the receiver has no right to operate the Holiday Inn in Dublin. Mr Gross wants Mr Farrell to reach a deal with Millura to allow it to run the hotel.