Markland Group, the Irish property group that has acquired Prague's landmark Kotva department store, is being challenged by investors who claim they are the rightful owners.

The Kotva sale shows how keen Irish investors are to move into the east European property market, but also how risky such acquisitions can be.

Kotva, built in 1975, was the focus of one of the biggest scandals during the wild capitalism of the mid-1990s.

During the post-communist coupon privatisation programmes, Kotva was taken over by the Trend investment fund, which held the coupons of 200,000 citizens.

In 1996, Trend's managers, close to the then-ruling Civic Democrats, sold the store's joint stock company to an offshore vehicle, Forminster Enterprises, for which they held power of attorney.

This transaction and others cost the fund $40 million at the time, forced it into bankruptcy, and led to years of litigation and still uncompleted criminal investigations of managers.

Meanwhile, Kotva languished, becoming a warren of tacky boutiques, as shoppers drifted away.

Markland's Sean Mulryan and Patrick Kelly who own developers Ballymore Properties and Kelland Homes, respectively, plan to change that. However, Markland could now become entangled in the web of litigation surrounding the store.

Markland paid £50 million ($64.7 million) for a company with unknown owners which holds the assets of the store. Forminster, whose owners are also unknown, transferred the store into this vehicle because its disputed 56 per cent shareholding in Kotva is frozen.

Kotva's minority shareholders fear they will not see the proceeds of the sale, while Trend shareholders are still demanding compensation for the disputed sale of the store in 1996.

Flow East, a British-owned real estate company that owns 2 per cent of Kotva, plans legal action in the UK against Markland on the grounds that it has a prior forward contract with Trend to buy the store.

Markland plays down the threat of litigation. "We have consulted our legal advisers at length throughout this transaction, and are satisfied that there is no legal basis for any such claim," Aidan Scully, Markland's managing director, said. - (Financial Times Service)