I would have thought you are legitimatly holding that name. It may not be the nicest way to operate but if you have bought it, I dont think there is much they can do.

Over here, to buy the domain name you must have a business name registered either with the same name or an abbreviation, hence the ones I own. When I have bought UK ones, you dont need the business name so I dont think there is much to stand on, on their part.

Would be interested to know the outcome though and if they are a UK company and daft enough to let the UK domain lapse or not buy it, then its their own fault