Negotiations on a restructuring plan for troubled engineering giant Babcock Borsig AG have broken down once and for all. As a result, the insolvency application filed on 4 July cannot be withdrawn and remains in force. An assessment will now be made, in collaboration with Helmut Schmitz, the provisional bankruptcy trustee, as to which other group companies are affected by the insolvency and how the group’s business operations can be continued. This will not be a rapid procedure in a group with 300 member companies.

Under German law applications for state aid may be made on behalf of the company’s staff once the bankruptcy trustee has made the appropriate application. Aid is calculated on the basis of the average net pay of the last three months.

Babcock’s last hope, a rescue mission mounted by a consortium of banks and creditors and, because of the company’s imporance and for the sake of its 10 000 local employees, brokered by no less a person than the North Rhine-Westphalia state prime minister Wolfgang Clement, has failed to procure the necessary financing, put at E700 million by analysts. This followed on from the group’s failure to raise E200 million in June to meet immediate debts and pay company salaries.

Troubles resurfaced recently when US venture capitalist Guy Wyser-Pratte, who owns 8 per cent of the company, demanded the board’s resignation after it sold off military shipyard HDW, the jewel in its crown and at the time the only profitable part of the company.

But the installation of a new chairman in Dr Jochen Melchior, the appointment of management consultants Roland Berger and the personal intervention of Germany’s Chancellor Gerhard Schröder have failed to save the group or produce a plan acceptable to creditors and potential lenders. Even the offer of state-backed credit gurantees worth E430 million has not had any effect on the banks, who argue that previous rescue attempts had failed to trigger modernisation.