Eurotunnel faces financial collapse if it does not sort out its debts

The group had warned that unless it agrees a deal on its �6bn ($11bn; 8.7bn euros) debt pile with creditors by Thursday it will be declared insolvent.

But Eurotunnel has said the deadline may be flexible if both sides feel an agreement is around the corner.

In an effort to stave off bankruptcy, the group sought protection from French courts earlier on Wednesday.

Eurotunnel has vowed to work hard to agree a deal with bondholders and intends to keep negotiating up until the deadline of midnight on Wednesday.

Flexible

"If we get to one minute before midnight but see that there is a chance of coming to a conclusion we will not stop if the parties are willing to go later into the night," a Eurotunnel spokeswoman said.

But she warned there would be no statement on the outcome of the talks until early on Thursday.

Eurotunnel is seeking the French equivalent of US "Chapter 11" bankruptcy protection, which gives firms time to rearrange their finances while still operating.

If approved by the courts, the "Procedure de Sauvegarde" would give an insolvent Eurotunnel a six-month window of protection from creditors while a court-appointed administrator attempted to restructure the company's debts.

The company agreed a preliminary restructuring plan with its priority lenders and Goldman Sachs, Barclays, Axa and Macquarie back in May, which would see Eurotunnel's debt cut by more than 50% to �2.9bn.

Insolvency threat

They have given Eurotunnel a waiver to allow it to have talks with a group of bondholders who have rejected the deal before it runs out on 13 July.

If an agreement is reached, Eurotunnel has said it will withdraw its application for court protection.

But if it fails, Eurotunnel chief Jacques Gounon has threatened to put the group into insolvency.

The bondholders are the lowest-ranked debt holders, who would be very unlikely to get any of their money back if Eurotunnel is declared insolvent.

They have complained that they are being offered too little money to allow the restructuring to go ahead, and are seeking a different deal which would leave them with cash and shares in the company.

Obstacles remain

Even if a deal is struck with bondholders, the preliminary restructuring agreement has to be put to Eurotunnel shareholders at an extraordinary general meeting on 27 July.

Some of them have voiced their opposition to the deal.

The crisis at Eurotunnel has its origins in the construction of the channel tunnel, completed in 1994.

The tunnel cost about 14bn euros ($17.7bn; �9.8bn) to build, but traffic has never been nearly as heavy as was originally forecast, hurting Eurotunnel's revenues.