The firm plunged into crisis in the late 1990s

The company had been given until midnight (2300 GMT) on Tuesday to strike a deal or face the possibility of renationalisation.

British Energy's creditors were being asked to write off more than half of the debt they are owed - �1.3bn - in order to keep the company afloat.

The deal would leave bondholders and banks owning the business, while taxpayers foot the �3bn nuclear clean-up bill.

EC probe

If creditors fail to sign up to the rescue plan, the government will have to choose between pushing British Energy into receivership - and risking power blackouts - or taking it back into public hands.

Will British Energy hang onto its power stations?

Ministers have already repealed special privatisation legislation in case they have to renationalise the firm, which was sold to private investors in 1991.

The bail-out also still faces an investigation by the European Commission into whether it constitutes illegal state aid.

Power blackouts?

British Energy produces about a fifth of the electricity in England and Wales, and about half of Scotland's.

Nuclear power expert, Malcolm Grimston, of Imperial College London warned: "If British Energy simply went bust there'll be two enormous problems.

"First, the lights would go out this winter.

"Secondly, someone would have to manage the power stations after they close.

"They are very radioactive places and there are safety implications."

Under the proposed rescue plan, the government will take on some �3bn worth of future liabilities - such as recycling nuclear waste - in exchange for future profits.

At the same time, in return for swapping �1.3bn of debt, lenders will receive a mixture of new British Energy shares and bonds worth about �425m.

Bondholders and banks will be left owning the business while shareholders will be left with less than 5% of the firm.

Price slump

Gordon McKerren, of the National Economic Research Associates, said the government had little choice but to intervene.

British Energy was in such dire financial straits there is "no serious sign" it can cover its future expenditure, he added.

"If it can't be taken on by the government, which it is now being, it could fundamentally affect the firm and make it impossible to trade."

British Energy, already suffering from a slump in wholesale electricity prices, crashed to a multi-million pound loss in June after slashing the book value of its nuclear power plants by �3.6bn to around �80m.

It was only just kept afloat by a �650m loan from the government as it restructured.