A manufacturer employing 450 workers has called in receivers after a pension fund deficit.
The Armstrong Group, with 400 people at factories in Darlaston and Willenhall and 50 in Hull, said it had been in protracted negotiations with the trustee of its pension fund for two years after being served with a #36 million debt.
The firm, with sales of #33 million, said it did not have the cash to pay the money but had tried to avoid insolvency and protect jobs.
Failure to reach agreement generated "considerable uncertainty" for employees and suppliers and started to affect company performance.
The group was told by the trustee insolvency was being considered to secure benefits under the Government's Financial Assistance Scheme.
The trustee was forced into action due to an overriding obligation to pensioners.
Armstrong businesses, which make industrial fasteners and automotive pressings, are being run by receiver PricewaterhouseCoopers with a view to a sale.
Parent company Caparo said it sought to avoid insolvency and negotiate a solution.
Steps included offering the trustee a "substantial proportion" of Armstrong's future free cash flow and an immediate cash injection equivalent to its evaluation of the FAS benefits.
Caparo, whose financial affairs are wholly separate from Armstrong, said the trustee had rejected these. The FAS is intended to provide assistance to members of final salary pension schemes who have lost out because their scheme was under funded when wound up, the employer became insolvent or no longer exists.
FAS benefits are available only to those already above or within three years of a firm's normal retirement age.
It is estimated the FAS would compensate only around 120 of the 3,000 members of Armstrong's scheme, 250 of whom are current employees.
Angad Paul, Caparo chief executive, said: "This is a bizarre world when a pension fund can only access Government subsidy by closing down a successful firm and damaging suppliers.
"This could not have been the intention behind the Financial Assistance Scheme. The situation we are in is ridiculous and frustrating. The FAS was to be available to schemes where companies were already insolvent, not as a reason to push companies into bankruptcy to gain the FAS benefit against the interests of the workforce."
The group said it would make every effort to minimise the effect on workers.
Caparo claimed, despite the MG Rover collapse, Armstrong had been a "success". Caparo made #17 million of loans available since 2000 to finance its turnaround, including #2 million in the past year.
"This investment has allowed Armstrong Group to consolidate its position in the UK market, enabling it to remain viable and to move from a period of trading losses to break-even this year," a company statement said.
Mr Paul said: "We are firm believers in the quality of the British workforce and British industry, which is why we have continued to invest so heavily.
"This has now been under-mined by the short-term approach the trustee has been obliged to take. We have been funding the business, but now we have to draw the line. Our overseas operations generate the lions' share.
"Do we kill that to pay off the pension fund? In 2002 we could have wound up the whole business rather than the pension scheme, but we didn't and have continued to lend money. We do not lightly wind up any company. The #36 million deficit was untenable; it's that simple."
Matthew Hammond, joint administrative receiver, at PwC, said: "The businesses are currently operating with a full order book and manufacturing is ongoing. With the support of employees, key customers and suppliers we hope to receive interest in the businesses from third parties with the objective of achieving a sale of all or part of the businesses, safeguarding the jobs of the workforce."