THE accountancy firm KPMG resigned as auditor of XL Leisure, the travel firm that collapsed on Friday, after saying its board had ignored “potential accounting irregularities”.

In a strongly worded resignation letter, a copy of which has been seen by The Sunday Times, KPMG said the company had “not satisfactorily addressed the concerns we had raised about other arrangements and potential accounting irregularities in the financial statements”. KPMG quit in October 2006 and was replaced by BDO Stoy Hayward.

XL was put into administration on Friday after running out of cash. Its demise hit 85,000 people on holiday, and another 240,000 booked for travel in coming months. This weekend a huge repatriation exercise, being handled by Monarch Airways on behalf of the Civil Aviation Authority, was in full swing.

KPMG’s resignation came after staff at XL arranged to delay the payment of invoices to Alpha Airports, an airline catering company. The delay flattered XL’s figures ahead of the flotation of its then parent company, Avion, on the Icelandic stock exchange.

The affair led to the departures of Alpha’s chairman, chief executive and finance director, and the departure from XL of Steve Tomlinson, chief operating officer, and Paul Robinson, chief financial officer.

In the letter KPMG said that after an initial probe “no further investigation work was carried out”. KPMG told the company it still had concerns, but was ignored. “In the light of the above circumstances we have resigned as auditors with immediate effect,” the letter said.

Kroll, the advisory firm, was appointed administrator on Friday at the request of the directors. As The Sunday Times revealed a fortnight ago, it had been working behind the scenes for a number of weeks. It was brought on board by Eimskip, an Icelandic group that guaranteed a $280m (£156m) loan used by XL’s management to buy the company in 2006.

XL’s collapse was finally triggered by the directors’ realisation that the company would not be able to meet a fuel bill due on Friday. Efforts to find new investors had proved fruitless, and a last-minute appeal for working capital to Straumur and Landsbanki, its main banks, was declined. Barclays had earlier reached a standstill agreement on a £10m fuel-hedging debt.

The biggest financial hit will be taken by two of Iceland’s richest men, Thor Bjorgolfsson and his father, Bjorgolfur Gudmundsson, chairman of West Ham football club.

Kroll is this weekend in preliminary talks with potential buyers of XL businesses. Straumur has already taken XL’s French and German operations, while a number of tour operators, including Virgin Holidays, are understood to be looking at the other assets.

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