Railtrack's own advisers first raised idea of insolvency, says Byers

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Stephen Byers, the Transport Secretary, shrugged off Tory calls for him to resign yesterday as he mounted a staunch defence of the decision to put Railtrack into receivership.

In an emergency Commons statement, Mr Byers revealed it was the privatised firm's advisers who first raised the idea of declaring insolvency because its finances were so dire. Railtrack had also decided to pay its shareholders a £88m dividend earlier this month despite "coming with a begging bowl to Government month after month", he said. To cheers from Labour MPs, Mr Byers confirmed that he wanted to create a not-for-profit private company to take over Railtrack and vowed not to pay any more taxpayers' money to its shareholders. The new company would work along commercial lines but invest all surplus back into the network, as well as ending the split between track and wheel that had undermined the whole system.

Mr Byers claimed the new structure would bring "an end to the self-defeating system of penalties and compensation" and "an end to perverse incentives". He said he had decided to act after the Railtrack chairman, John Robinson, had told him in July that the firm's financial position was far worse than it was thought in April. "It was obvious that the company could not continue unless we offered to fund whatever losses they might have had for a period of several years. I took the view that I simply could not responsibly enter into such a guarantee on behalf of the ... taxpayer. I decided that I could not give Railtrack a blank cheque," he said. In a letter to Railtrack last night, Mr Byers indicated he would allow the company access to funds from its ownership of the Channel Tunnel Rail Link.

Steve Marshall, Railtrack's chief executive, accused Mr Byers of being "seriously misleading in significant respects" in the account he gave MPs. The company indicated it could still launch legal action against the Government and the Rail Regulator, Tom Winsor, for failing in his duty to act in a way that would enable Railtrack to finance its activities.

The Railtrack Shareholders' Action Group, which represents investors owning more than 30 per cent of the company, also criticised the Secretary of State. "We are extremely disappointed at the cavalier way Mr Byers has written off the legitimate expectations of shareholders who paid ... £2bn to the Government in 1996 for the ownership of Railtrack and the railway infrastructure and are now having that infrastructure removed ... without compensation."