Claims Direct is reportedly facing a Department of Trade and Industry (DTI) probe over the £15m it paid its Lloyd's underwriters for additional insurance capacity, as it enters the final stages of a bitter boardroom battle for control of the company.

In its March 2001 results, Claims Direct said the £15m payment was needed to cover the cost of new insurance policies.

These were introduced to guarantee successful claimants minimum compensation of at least £1,000, following harsh media criticism over the size of its payouts.

News of the official investigation leaked out as the company this week advised shareholders to reject moves by Claims Direct's founders Colin Poole and Tony Sullman to take the public company back into private ownership. The two men, the company's former chief executive and chairman respectively, jointly own 43% of its shares.

A letter to shareholders from two Claims Direct's independent directors, David Hickey and David Hankinson, said: “Our strong advice to you is that you should reject this bid. We believe the offer, at 10p per share, is a deeply cynical attempt by Sullman and Poole to take advantage of uncertainties facing the company at this particular time.”

De-listing Claims Direct could also reduce the liquidity and marketability of its shares and the level of regulatory protection, the two men claim.

Part of the company's uncertain trading environment stems from legal concerns about the extent to which after the event insurance premiums are recoverable.

A test case, Callery vs Gray, which is before the Court of Appeal, is expected to clarify this argument by July 31.

Claims Direct has issued a statement confirming DTI officials visited its offices during March 2001.

It said it was unaware of the nature of the probe: “Both at that time and again prior to the release of its annual report and accounts (in March 2001), the company sought advice regarding the requirement to make a public statement about the investigation. The advice was that such a statement was unnecessary.”