Birmingham Opera Company's Arts Council funding could be axed for the same reasons it won praise in a report commissioned by the organisation, it was claimed last night.

Jean Nicholson, the company's general manager, said the council had ignored recommendations from the 2005 report by innovation guru Charles Leadbeater.

And today company chairman Peter Phillips dismissed claims that the organisation had been on the brink of insolvency three years ago, as the council has claimed.

The company is threatened with closure after the council withdrew funding claiming it had misgivings about its structure, including the "project based" nature of its work.

It does not have a fixed site, but instead concentrates on one project a year at different locations.

The council's criticism comes after Mr Lead-beater's research singled out the company as a "prime example" of how arts organisations could be structured.

In Arts Organisations in the 21st Century: Ten Challenges, Mr Leadbeater said other organisations should be encouraged to follow the same model.

He said: "Many arts organisations need a place they and their audience can call home ... But many younger arts organisations are avoiding being trapped by the fixed costs of a fixed home. New models of flexible and mobile arts organisations - the Birmingham Opera Company is a prime example - should be encouraged."

Ms Nicholson said Mr Leadbeater's report had recognised there was a need to explore alternative ways to deliver work, a factor dismissed by the council.

She said: "It is about balancing flexibility and mobility with stability and predictability. But I think the Arts Council wants us to focus on the latter two and, for that, we would need our own site."

The company currently employs a full-time staff of just two and hires personnel for each production. It receives annual grants of £324,000 from the Arts Council and £197,000 from the city council.

It can appeal this month against the funding axe. Sally Luton, regional director of the Arts Council, said the body continued to encourage new models of flexible and mobile arts organisations.

But she added: "Work delivered on a non-fixed site project basis requires suitable levels of planning to ensure it links to the work of existing partners within the region and in so doing can benefit from a wider range of funding sources and have a more sustainable impact.

"It is the failure to develop these partnerships and the one-off nature of the impact which concerns us about Birmingham Opera Company."

Meanwhile, the company's chairman hit out at claims made by Ms Luton about its financial performance.

In a letter today to The Birmingham Post, Mr Phillips said Ms Luton's allegations that the company neared insolvency in 2002, and again after last year's production of La Traviata, were incorrect.

He added the company had made sufficient provision to cover any financial shortfall resulting from its 2007 production and had not been saved by a "VAT windfall", as Ms Luton suggested.