Dawnay's owners have complained about the "unwarranted fees" Treasury pays itself for managing REO's Irish property portfolio, writes Clay Harris

The first time he met Peter Klimt, Guy Naggar was exasperated.

Mr Naggar was outlining an intricate business situation to Mr Klimt, then a solicitor. "He wasn't taking a single note and it annoyed me," recalls Mr Naggar.

"I said: 'Mr Klimt, don't you think you should take a few notes?' He looked at me and just said 'umm'. I was very annoyed. So I continued for another 10-15 minutes, and then he began shooting questions at me - so complex that I had to think about them. I thought to myself - I want him to be my partner. Within months, we were working together."

In the 22 years since that initial encounter, Mr Naggar and Mr Klimt, jointly, have built a private empire based on property and financial services through a loose grouping of companies under the Dawnay Day umbrella, with combined gross assets of more than £1.5 billion (€2.3 billion) and a net worth exceeding £250 million.

The duo's current projects include Real Estate Opportunities (REO), the former split capital trust controlled by Treasury Holdings. Dawnay Day owns 30 per cent of REO and plans to seek an extraordinary general meeting to replace Richard Barrett, Johnny Ronan and Paddy Teahon as directors. It follows the cancellation of the firm's annual general meeting planned for last Monday after Mr Naggar and another shareholder complained they had not been given enough time to consider the firm's accounts.

Dawnay Day has also complained about the dominant role of Treasury, which owns 35 per cent of the company. In particular, it is unhappy with REO's decision to lend €40 million to Havenview, a property firm 50 per cent owned by Treasury.

REO is also accused of sitting on large cash balances of an estimated €41 million while still refusing to pay a dividend to ordinary shareholders.

Dawnay Day is unhappy with what it sees as the unwarranted management fees Treasury is paying itself to look after REO's Irish property portfolio. According to those familiar with the accounts, Treasury has been paid about €10 million in the past two years.

Aberdeen Asset Management and Treasury set up REO in 2001, floating it at £1. It is now trading at about 45p - hit by the collapse of the split capital trust market.

To many in the City, Dawnay Day is a name that has always been around but cannot immediately be placed. It was established as an issuing house in 1928 but was not much more than a shell with membership of the London Investment Banking Association by the time Mr Naggar bought it from RIT in 1981. Previously, he had created banks in his native France and in Switzerland and had been deputy chairman of Charterhouse Bank.

With ownership of the Chez Gérard restaurant chain; a 16.3 per cent interest in clothing retailer Austin Reed Group; and a listed shell ready for the next deal, Dawnay Day is poised to make a more public splash. It has its sights on buying four-star hotels in the UK and expanding in corporate finance, asset management and principal finance.

But it is property that has been the foundation for growth. Starting with £3 million in equity, the group has amassed a commercial portfolio throughout the UK worth more than £1.5 billion.

Mr Klimt, at 58 the younger by five years, says: "If the deal makes sense on day one, and you can afford it, you should buy it."

Expanding the base of their business was a natural step, says Mr Naggar. "Because we are so active in commercial property throughout the UK, Peter and I thought a few years ago we should look at situations in public companies... undervalued in terms of assets but cash flow positive. The way we've done it is to accumulate shares in companies that are not so huge that we couldn't have an effect on them or that if, under certain circumstances, it was the right thing to do, we could buy them," he says.

A core principle is always to be able to do a quick deal. Mr Naggar says: "There are some deals you can't do intelligently for cash - you have to have paper. We thought we should always have a cash shell in the arsenal."

They used Paramount to buy Chez Gérard and recently took control of Amberley, a former chemicals and minerals group. In financial services, Mr Naggar's arena, they want to extend the use of their model. When it finds the right people, Dawnay Day sets up a joint company, in which it owns at least 50 per cent and management has the balance.

Dawnay Day provides offices, compliance and IT expertise and financial management. Bonuses do not exist but the management decides at what rate and frequency to pay dividends out of profits. "The exit, like the dividend, is for to decide," he says. "If you back good management, you can't go wrong."

Ownership of most of the investments is split 50-50 between him and Mr Klimt and yet nothing is written down.

"We totally rely on each other. Both of us are entrepreneurial and have long views. We are not short-term operators; we're also both builders. We've never broken up anything," he says.

This view is not surprising given the experiences of his early life. That his Jewish family had survived the second World War was nothing less than a miracle, he says. His parents had fled Paris to Cannes, which was initially under more relaxed Italian occupation and where he was born in 1940.

"We were hiding during the whole war," he says. "It was a miracle that we weren't taken... We went to Annecy to try to pass into Switzerland. [My father] spoke to friends of his, who told him that the passeurs - the people who were taking you - had gone bad and were taking the money and jewellery and then denouncing the Jews. So we were stuck in Annecy and we managed to survive there in extraordinary circumstances."

The "extraordinary circumstances" included a younger sister dying within seven days of birth after a doctor prescribed concentrated milk that was too strong. "It left a mark on me," says Mr Naggar.