UK telecoms firm Colt is defending itself in court against claims that it cannot repay its debts and should be put into administration.

Colt emphatically denies Highberry's allegations, and believes that the petition is without merit Colt statement

One of the firm's bondholders, US-backed hedge fund Highberry, is asking the High Court to have the company wound down on the grounds that it will be unable to repay its debt.

Highberry, part of New York-based hedge fund Elliott Associates, believes Colt is set to miss repayments on bonds worth �1.1bn ($1.6bn) which fall due between 2005 and 2009.

The fund says Colt's forecasts have been overly optimistic, and questions whether the telecoms market can recover.

Aggressive action

But Colt has rejected Highberry's claim as 'baseless', pointing out that it is free of bank debt and is sitting on a �1bn cash pile.

"Colt emphatically denies Highberry's allegations, and believes that the petition is without merit," the company said in a statement.

It said its latest audited accounts, drawn up in late September, showed that it was "strongly solvent."

The court case, expected to last three days, will begin on Friday with a statement from Highberry's director.

Highberry's move is seen as an aggressive attempt to protect its investment in Colt telecom. The fund holds about �75m of Colt bonds.

Hit by the downturn

Analysts say Highberry's move has little chance of success since the bonds do not fall due for another three years.

A further factor in Colt's favour is that it has never missed a debt repayment to date, and has not warned that it is likely to do so.

However, two years ago Highberry managed to win a $58m payout from the Peruvian government in a legal dispute over bond repayments.

Colt, which specialises in providing telecoms services to businesses, has been hit hard by the downturn in telecoms markets.

The company was forced to lay off 800 staff earlier this year.

Colt shares were flat at 44.75p in early trade, down from peak of over �40 in February 2000.