Fruit of the Loom's decision to remove Mr Willie McCarter and two other directors from the running of its Irish-based operations follows the breakdown of relations between its Donegal-based executives and the group's US bosses.

The current dispute appears to have been festering since January 1996 when some of Mr McCarter's responsibilities were transferred back to the US.

This coincided with his growing involvement with the International Fund for Ireland, strongly supported by Fruit of the Loom group chairman and chief executive, Mr Bill Farley.

Fruit of the Loom yesterday refused to comment on any aspect of the case. A series of developments, particularly over the past 12 months, is believed to have contributed to the serving of the redundancy notices.

Tensions are understood to have emerged some time ago between the Irish and European management over repeated slumps in sales of Fruit of the Loom clothing which led to short-time working at the Irish plants.

Meanwhile, Fruit of the Loom has been examining its European operations in the quest for greater efficiency and lower costs throughout the group. Its overheads, especially in Continental Europe, are reported to be particularly high.

It is understood that the Irish management was concerned that the efficiency of the European operations be improved. The Irish executives are understood to have directly highlighted these weaknesses to Mr Farley, who, in turn, asked Mr McCarter to document the perceived problems in a confidential report.

The report is believed to have been highly critical of the European management structure. The findings were subsequently presented to a small group of senior US and European management, after which the relationship between the Irish and European management soured further.

The Irish management is understood to have offered to buy the assets of the Irish-based operations from Fruit of the Loom in a management buy-out in 1996.

Under the proposed management buy out, the directors intended to purchase the assets of the Irish and Moroccan plants while contracting to sell its products to Fruit of the Loom. Mr Farley, however, turned down the offer on the basis that it might not be well received on Wall St and could weaken the share price.

Some sources in the industry have suggested that the proposed MBO may have contributed to the worsening relationship between the Irish executives and their counterparts in the US.