Railtrack plans in disarray as Robinson refuses Byers' offer

The Government's plans for replacing Railtrack with a not-for-profit trust were in disarray last night after John Robinson, the current Railtrack chairman, rejected the offer to lead the new company and the bonds which will finance it were downgraded to junk status.

Meanwhile, Railtrack said it would proceed with court action today against its administrators, Ernst & Young, and HSBC in an attempt to get access to £351m in cash which has been frozen in the parent company's bank account. Railtrack may also sue the Government.

Mr Robinson had a terse telephone conversation with Stephen Byers, the Secretary of State for Transport, yesterday in which he turned down the invitation to chair the new limited liability company the Government intends to set up to run the rail network because of the conflict of interest it created. In a statement Mr Robinson said that because of the way Railtrack shareholders were being treated he was unable to accept the offer.

His decision underlines the growing anger felt within Railtrack at the way Mr Byers pulled the plug on the company last Friday, leaving shareholders at risk of receiving nothing in compensation. Railtrack's chief executive, Steve Marshall, resigned on Monday, describing the Government's behaviour as "shoddy and unacceptable". The clash between Railtrack's board and Mr Byers became still more bitter after Railtrack's finance director in effect accused the Secretary of State of being "economical with the truth" when he claimed the Government had met all its legal obligations to the company.

Mr Byers yesterday denied that he had broken any promises to Railtrack and said that a payment of a government grant, due on 1 October, had been paid in full. But Railtrack's finance director, David Harding, hit back saying that Mr Byers had not given "the complete picture".

He said that although £336m of deferred grant had been brought forward and paid, a further £445m grant also due on the same day from the Strategic Rail Authority was not forthcoming.

Under Mr Byers's proposals, Railtrack's debts will be transferred to the new not-for-profit trust, which would have a long-term credit rating of at least BBB/Baa2 and a short-term one of A-2. But yesterday Standard & Poor's downgraded Railtrack's debts by 15 notches from A to CC ­ the largest single reduction ever on a UK company's unsecured bonds. S&P said the Government's plan to transfer £1.54bn of Railtrack debt into the new company violated bondholder rights, and could force them to accept losses.

The Centre for Economics and Business Research said Mr Byers's plan potentially endangered the long-term funding of the rail network and would do little to resolve the problems in industry's current structure.

The plight of Railtrack's 250,000 small shareholders is made worse by the fact 100,000 of them chose to accept their final 17.15p dividend, paid on 3 October, in the form of shares ­ what is known as a scrip dividend. These shares may now be worthless. Around 11,000 Railtrack employees, who own 4.2 million shares, also face the complete loss of their investment.

Meanwhile, a website to galvanise shareholders' opposition, Railofftrack.info, was launched by the son of an 89-year-old, who bought Railtrack shares as a retirement nest-egg.