Embattled alternative fuel producer Biofuels Corporation could have just weeks left as a public company after saying yesterday it had received an "outline proposal" from its bankers to restructure its debts.

The Teesside-based company, operators of Europe's largest biodiesel plant at Seal Sands, said it intended to hold further discussions with Barclays about proposals to clear some of its £100m debts, which includes a debt-for-equity swap. It said in a statement: "Shareholders are reminded that in the event that there is any restructuring, they would very likely see their shareholding significantly diluted."

Biofuels Corporation's shares immediately fell to near an all-time low of 10.25p in early trading yesterday, valuing the company's equity at around £8m. The company said the restructuring "could lead to the company seeking a cancellation of its listing" from the London Alternative Investment Market, where it has traded since the middle of 2005, reaching an all-time high of more than 300p later the same year.

A source close to the company said the terms of the balance sheet restructuring would be confirmed "in weeks, rather than months".

Barclays bailed out Biofuels Corporation in December 2005 with a £71m debt package, after the company ran up a £15m extra costs on the Seal Sands plant, and a £50m one-off loss from the closing out of hedging contracts put in place by the previous management.

Current chief executive Sean Sutcliffe has had to contend with worsening margins as a result of falling diesel prices and a surge in feedstock prices, which has seen soy prices surge from $620 per tonne 12 months ago to $750 per tonne in the last three months of last year. In March, the company warned that its bottom-line figures would be "materially" worse than the £16m loss predicted earlier this year by analysts.

Mr Sutcliffe yesterday would not give details of how much debt Biofuels Corporation would swap with Barclays for new shares in the company.

He said: "Again that is a matter of discussion. But certainly the restructuring we are talking about would lead to a debt reduction. The amount would be part of the details of the proposal. If the free float was reduced significantly and you have got a single large holder, it may not make much sense [to have an AIM listing]. That is something that we are saying it could lead to."

A leap in oil prices since the beginning of the year had been cancelled out by a further increase in the price of feed stocks, leaving the company struggling to improve margins and operating the plant to "meet the market's requirements", said Mr Sutcliffe.

Biofuels Corporation's plight has not been helped by a diplomatic dispute over export credits allowing US exporters to undercut European rivals by at least a quarter, and has seen traders exploiting the loopholes by shipping the fuel to the US and then re-exporting it to European customers.

Mr Sutcliffe said: "If it continues, we are not competing on a level playing field. It is an issue that is effecting the whole of the biofuels sector in Europe."

Shareholders set to lose 95% of stake

Long suffering shareholders in Biofuels Corporation could be left with as little as 5% of their existing stake in the company if a move to restructure the company's balance sheet goes ahead.

The company has been locked in discussions with bankers Barclays over the future of £100m of debt, which has exacerbated the plight of the company which has been struggled to turn a profit against a backdrop of rising feedstock costs and falling diesel prices. A plan to write off some of this debt - probably in exchange for new shares issued by the company - is understood to be at the top of the proposals put to Biofuels Corporation this week by Barclays.

Vinay Bede, regional head of Newcastle stockbroker Wise Speke, said: "From a shareholder's point of view, it is not the news that they wanted to hear, but from a company survival point of view, it is the best possible solution, that the bank is prepared to be supportive. I think that nobody with debts of £100m, and capitalised at £10m, was really going to survive, certainly without major dilution of shareholders' interests.

"It would appear to me that this sort of venture is going to be able to continue, but it is not going to continue as a listed company.

"It is entirely likely that the shareholders' investment is going to be of minimal value."