Channel Tunnel operator Eurotunnel issued a warning yesterday that it had two months to avoid bankruptcy after talks with dissident investors over its £6.2 billion debt pile collapsed.
Eurotunnel went to court to seek a debt freeze and court protection after the failure of overnight talks with bondholders who have been holding out against a debt restructuring deal hammered out with the majority of Eurotunnel's creditors.
"If we cannot present a plan to shareholders before the end of September at the latest, then the end of the story is easy to write," chairman Jacques Gounon said.
The company had set a deadline of midnight on Wednesday to reach a restructuring agreement with its creditors.
In a statement, Eurotunnel said it had scrapped its annual shareholder meeting, due to have been held on July 27, and confirmed its intention to seek protection from the Commercial Court of Paris.
After a short closed-door hearing the court session was suspended. A judicial source said the court would make its decision known on July 25.
Eurotunnel blamed the talks breakdown on creditors grouped around Deutsche Bank, which has backed an alternative financial restruc-turing deal to one signed in May between Eurotunnel and a majority of the firm's debt holders.
"I fail to understand how an institution such as Deutsche Bank has maintained its unreasonable demands without taking into account the consequences on the 2,300 employees and 800,000 share-holders of Eurotunnel," Mr Gounon said.
If the court accepts Eurotunnel's request, the company will have at least six months to try and seek an amicable solution with its financial backers and trade creditors.
Eurotunnel shares - mainly held by thousands of French retail investors - remained suspended in Paris, as they have been since mid-May.
Eurotunnel took on massive debts to dig the rail tunnel - an engineering masterpiece that has never paid its way.
Delays in the start of train services in 1994 and lower traffic figures than anticipated exacerbated the problems.
Eurotunnel has told travellers that trains will keep running whatever happens, but the outcome of the little used French court "safeguard procedure" is impossible to predict.
Dubbed France's "Chapter 11" after part of the US bankruptcy code, the new procedure allows firms on the brink of liquidation at least six months of breathing space to prepare a court-administered survival plan without waiting for default.
However, Eurotunnel will be the first major test of the procedure, which can be extended up to 18 months in exceptional circumstances.
The Anglo-French operator in May reached a preliminary agreement to restructure its debt with its main creditors.
This included a plan with banks Goldman Sachs, Macquarie Bank and Barclays and AXA Private Equity that would cut the operator's debt and dilute shareholders' ownership to 13 per cent.
However lower-ranking debt holders, who own about £1.9 billion of the debt, proposed an alternative plan backed by Deutsche Bank.
Bond holders yesterday said they were willing to continue talking once the court had ruled.