The firm plunged into crisis in the late 1990s

Under the deal, key creditors have agreed to write off what they are owed in exchange for 97.5% of the newly-restructured firm's shares, and about �425m in new bonds.

At the same time, the government will help meet some of the firm's future liabilities, such as the cost of decomissioning nuclear power plants.

British Energy chief executive Mike Alexander said the agreement would allow the company to focus on improving its performance.

"We are determined to see British Energy return to being a prominent and respected participant in the UK energy market," he said.

Still at risk

The debt-for-shares swap was announced after all-night talks during which a government-imposed deadline for wrapping up a deal came and went.

Without an agreement, the company, which supplies a fifth of the UK's electricity, would have faced the prospect of going bust or being renationalised.

The government on Wednesday welcomed the deal, but warned the firm could still be put into administration if any of the conditions attached to it were not met.

These include regulatory clearance from the European Commission, which enforces European Union restrictions on state aid to industry.

The commission is already probing a programme of emergency government loans which has kept the firm afloat since the end of last year.

Cash crunch

British Energy has been fighting for survival since moves to liberalise the wholesale power market pushed electricity prices below the company's production costs last year.

The crisis triggered a collapse in British Energy's share price, and left creditors owed some �1.3bn wondering if they would ever be repaid.

The company's woes were underlined in June this year, when it turned in a �4.3bn full-year loss after writing down the value of its eight UK nuclear power plants by �3.6bn.

British Energy shares, which peaked at more than 700p four years ago, were unchanged at 5.35p by about 1125 GMT on Wednesday, valuing the firm at just �33m.

Trading in the firm's shares had been suspended for most of the morning while the firm and its creditors put the finishing touches on the restructuring deal.