Considering the fragile state of affairs that timeshare operator Sunterra (NASDAQ:SNRR) is facing these days, its executives may end up having to stay at one of their competitors' resorts instead of their own when they go on vacation. Teetering on the edge of a Nasdaq delisting amid an accounting probe of its European division, Sunterra is facing a very cloudy future, one that could result in the entire company being sold off.

Sunterra emerged from bankruptcy in 2002 and has been busy trying to recover the lost glory of the timeshare industry. Since filing for bankruptcy in 2000, the resort operator has nearly doubled vacation-interest annual sales and increased the number of families owning timeshares from 260,000 to more than 300,000 over the same period. While Cendant (NYSE:CD) is the largest timeshare operator, with more than 3,700 resorts located in more than 100 countries around the globe, ILX Resorts (NYSE:ILX) and Bluegreen (NYSE:BXG) remain the two pure plays in the industry.

However, the European division has long been a drag on company performance since tighter regulations were imposed on the industry. For example, Great Britain timeshare buyers get up to two weeks to work through their "buyer's remorse," creating jitters for interval interest sellers.

Sunterra reported that the European division saw sales drop more than 13% for the quarter ended last December, which was the last quarter for which it filed a report, but it would have been much worse -- a drop-off of 18% -- had it not been for unfavorable exchange rates softening the blow. And had accounting procedures relating to costs incurred for selling real estate not been changed in 2004 to exclude timeshares, the decline would have been even worse, at more than 23% from the year before.

The accounting probe of the division began when a terminated employee notified the company in December that accounting regularities were occurring in Europe. That spurred the company to launch an internal probe and led to its decision to place its president and CEO on paid administrative leave. The situation has also caused a rift with its accountant, Grant Thornton. That's interesting, since Sunterra had asked shareholders to ratify Grant Thornton as its accountant at its annual meeting in February, but then voted to dismiss the firm just one month later.

According to a letter Grant Thornton submitted to Sunterra, it did not agree with the company's characterizations of why it was being dismissed. It said it had never been notified about the employee's allegations when it was conducting its audit and that it may require a restatement of prior financial reports. Sunterra, however, retorted that not only did it give oral and written notice of the allegations to the accounting firm, but the firm itself also received an email from the employee outlining the allegations at the same time the company got notified.

What is apparent is that the timeshare company is in disarray. While the stock has recovered somewhat from its lows in the aftermath of the accounting-probe disclosure, that has been more on the strength of rumors that the European division might be sold off. And there are, in fact, interested companies willing to buy. Moreover, dissident shareholder Chapman Capital has fired off a nasty letter to management calling for a sale of the entire company, estimating that it is worth around $14 a share.

The internal probe is expected to conclude its investigation by mid-July and report to the board of directors on its findings and recommendations. That may include a restatement of past financial reports. Sunterra had hoped to negotiate with the Nasdaq exchange to give it until September to file its report and maintain its listing until then, but the exchange stated that beginning with the market's open tomorrow, Sunterra's stock will be delisted.

Perhaps the forced vacation its stock is getting will allow Sunterra the chance to get its financial house in order and return yet again with still another "clean slate" start.

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Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. The Motley Fool has a disclosure policy.