Private equity managers rejected criticism of their industry yesterday and denied that their financial wizardry had left Britain's biggest care home group teetering on the brink of collapse.

As Southern Cross struggles to meet its rent bill, the company has slashed payments to landlords by 30 per cent for four months, leaving an uncertain future for its 41,000 staff and 30,000 elderly residents, despite a government guarantee that none of them will be thrown on to the street. Its chairman, Christopher Fisher, warned this week that a third of its 750 homes would have to be sold or closed to cope with losses of £310m reported earlier this year.

At the centre of the controversy is the sale and lease-back of hundreds of Southern Cross care homes in a well-known City manoeuvre called the "opco-propco shuffle".

Under the arrangement, Southern Cross homes were sold to investors in a property company (the propco) that was guaranteed rents for 30 years. Meanwhile, Southern Cross concentrated on caring for the elderly in properties leased from the new landlord, making it the operating company, or opco.

Yesterday the British Private Equity and Venture Capital Association (BVCA) condemned what it claimed was misreporting of the behaviour of Southern Cross' former owner, Blackstone Capital Partners, and another private equity company, Castlebeck.

The latter, part-owned by the Irish tycoons John Magnier and JP McManus, runs Winterbourne View, the care home near Bristol where a BBC reporter filmed abuse of adults with learning difficulties and which is now having all its 30 centres inspected.

The BVCA said: "Recent coverage of Southern Cross and Castlebeck has not only been based on material inaccuracies and mis-statements of fact regarding the role played by private equity, but misses the critical role that the independent sector plays in the provision of care services in the UK."

It continued: "It is completely false to state that Blackstone has stripped the property assets out of Southern Cross... It is inaccurate to state or imply that Blackstone created the Southern Cross leases, saddling the company with artificially high rents to the gain of Blackstone and detriment of the company."

The BVCA's statement does not tell the full story of how Southern Cross came to the verge of collapse: it went through the hands of three private owners – the original entrepreneur and two private equity companies – before it was sold to stock market investors who have seen their investments almost entirely wiped out by the company's current predicament.

In September 2004, Blackstone bought Southern Cross from West Private Equity, an offshoot of the German bank WestLB, for £162m.

By this time many of Southern Cross' care homes had already been sold to another care giant, Nursing Home Properties (NHP), which was both a Propco and an Opco, owning and operating nursing homes.

Blackstone then bought NHP for £564m, and sold off properties before transferring the running of its care homes to Southern Cross.

In the five years since Southern Cross was floated, occupancy levels have fallen due to the financial crash and sometimes poor levels of care, meaning it can no longer meet its rent payments. A Blackstone source said the idea that it had "created a husk of a company to die" was untrue.