Jarvis shares slump amid fears of collapse

Jarvis shares slumped a further 31 per cent yesterday as fears grew that the crisis-torn rail and PFI contractor will collapse under its mountain of debts.

Vince Cable, the Liberal Democrats' Treasury spokesman, meanwhile wrote to the Secretary of State for Education Charles Clarke demanding to know what safeguards were in place to keep open schools run by Jarvis in the event that the company did go bankrupt.

The latest crisis surrounding Jarvis was triggered last Friday after the group disclosed that it was in breach of its banking covenants and it would not be paying a dividend. Since then shares in the company, which is chaired by the failed Tory candidate for London Mayor Steven Norris, have fallen by 70 per cent. The company's stock market value now stands at just £34m.

The company is being pushed to the brink of collapse by huge write-offs, mainly in its troubled accommodation services division, which operates privately funded schools and hospitals and has lost two chief executives in the past six months.

The company has been heavily criticised over a number of schools projects in Merseyside and Brighton and Hove and its reputation was further undermined by the Potters Bar crash, which took place on a stretch of track maintained by Jarvis.

It has debts of £230m and is facing write-offs of £156m, forcing it to renegotiate its banking agreements with its lenders, led by Royal Bank of Scotland and Barclays.

Analysts believe that to survive, Jarvis will have to mount a rescue rights issue, swap debt for equity with its banks, sell off its one-third stake in the London Underground contractor Tubelines or possibly undertake a combination of all three. It is currently undertaking a group-wide review, the results of which were due this month.