A French court yesterday granted a request for creditor protection by heavily indebted cross-Channel tunnel operator Eurotunnel.
The commercial court decision comes after 15 months of failed negotiations over the restructuring of the company's £6.18 billion of debt.
Last week, the court decided to delay its decision, in order to give more time for talks among the various groups of creditors of the Channel Tunnel operator.
"The court has given as much time as possible for the creditors and the company to find a solution before deciding to put the company under its protection," said Perrette Rey, the court president.
Under the "safeguard procedure", which is similar to Chapter 11 bankruptcy in the United States, the court is now expected to appoint an administrator to draw up a debt recovery plan.
During an initial period of six months, extendable twice, Eurotunnel would not make any payments on the debt.
Bondholders are more likely to agree to a plan under a court-administered process because of their legal advantage over shareholders when receiving money from a troubled company, a source familiar with the situation said.
Bondholders representing £1.9 billion of subordinated debt want a stake in a proposed £1.2 billion hybrid bond, to be converted into shares of the restructured company.
They also want to reduce the 13 per cent of the company offered to shareholders under a previous plan, leaving a smaller stake of the future company, the source said.
Chairman and chief executive Jacques Gounon said he expected an agreement could be reached within six months, avoiding bankruptcy.
He said last month the company would be insolvent in January if no agreement were reached by September.
Passenger trains will continue to run in the Channel Tunnel, which is the only fixed link between Britain and the rest of Europe.
Built between 1987 and 1993, the project faced soaring costs while revenue projections were overly optimistic.
