Boston-based Palladin Capital has been told that its three-year management contract at Arnotts will not be renewed when it expires at the end of this month.

The Irish Times has learned that Ulster Bank and the special liquidators of Irish Bank Resolution Corporation – which effectively own Arnotts – told Palladin about two months ago that its services would not be required beyond the end of this month.

In a separate development, Arnotts chief executive Nigel Blow has decided to step down from the role and return to Britain for family reasons.

However, Mr Blow is expected to take on the role of non-executive chairman of Arnotts, a position currently held by Palladin's founder and chief executive Mark Schwartz.

Palladin's three representatives on the Arnotts board – Schwartz and non-executive directors Tobias Nando and Steven Silverstein – will step down from these roles shortly.

Palladin was appointed by the banks to take over the running of Arnotts in 2010.

Its remit was to turn around flagging sales and reinvigorate the store in the wake of the decision to scrap the €750 million Northern Quarter retail development that had been promoted for the Henry Street area by Arnotts former controlling shareholder Richard Nesbitt.

Arnotts has received a makeover under Palladin’s watch with a number of new brands and concessions added to the mix, along with a dedicated shoe garden and restaurants run by Bewley’s and Clodagh McKenna.

The store is believed to be cash-flow positive and no longer requires financial support from its lenders, which were given permission by the European Commission in 2010 to take control of the retailer.

Latest accounts for Arnotts Holdings Ltd show that sales increased by 3 per cent in the year to the end of January 2011 while operating losses from continuing operations narrowed by 28 per cent to €6.6 million.

The banks were owed €315.7 million at the end of that financial year.