West Brom are locked in a legal dispute with their own fans over a controversial loan made to former owner Jeremy Peace before his £200million sale of the club to Guochuan Lai.

Sportsmail has learned that a £3.7m loan from the club to Peace's company, WBA Holdings Ltd, has never been repaid and is now in default, leading a group of small shareholders to demand answers from the club.

Shareholders 4 Albion (S4A), who represent over half of the 12 per cent minority shareholders in the club, have written to chief executive Mark Jenkins asking for an extraordinary general meeting about the September 2014 loan.

West Brom are in a legal dispute with their own fans over a loan to ex-owner Jeremy Peace

It has been alleged that Peace used the loan from the club to WBA Holdings to assist funding an offer he had made, three months earlier, to purchase shares in WBA Group, the club's parent company.

That offer resulted in Peace increasing his stake in WBA Group from around 65 per cent to 88 per cent, which he then sold to Lai for £200m two years later - with the shares trading at £24,000 a share, eight times what his company had paid for them in 2014.

The loan due back to WBA Group is clearly identified in the club's most recently published accounts, covering the financial year ending June 30, 2018.

The shareholders' anger at the loan has been magnified by the club announcing earlier this year that they would not be able to repay the loan, or any interest it has accrued, because of Chinese Government restrictions.

A £3.7m loan from club to Peace's company, WBA Holdings Ltd, in 2014 has not been repaid

West Brom insist that the loan took advantage of favourable interest rates, but declined to comment when asked why the club are unwilling to meet the fans. Peace denies using the loan to purchase shares but declined to comment further.

S4A have issued a Section 303 Notice under the Companies Act demanding an EGM, but West Brom are disputing the notice.

The 21-day period stipulated in the Companies Act for the club to give notice of an EGM has expired, and both parties are locked in a legal stalemate.

No interest has ever been paid on the £3.7m loan, which has been accruing interest at five per cent above the Bank of England base rate for the last five years, with the debt owed to West Brom now £4.1m.