British Energy says the debt-swap is in the best interests of the firm

The firm, which has applied to delist its shares, feared it would to go into administration if shareholders blocked the deal. US investor Polygon had said the plan was unfair to shareholders and too generous to banks and bondholders.

It now says there is no "commercial logic" in pursuing its complaint.

Brandes Investment Partners also complained about the planned debt-for-equity swap but it is unclear what it intends to do now.

The �5bn ($9bn) debt restructuring deal - which has been cleared by the European Commission - will reduce the stake of existing shareholders to 2.5%.

Reverse

Polygon had called for a shareholders' meeting to be held on 22 October to oppose British Energy's delisting plans.

However - following its decision to drop its opposition to British Energy's plans - Polygon is now set to vote against its own resolutions at the meeting.

British Energy welcomed the news.

"British Energy Board continues to believe that the agreed restructuring is in the best interests of the company and shareholders as a whole," the company said in a statement.

British Energy, which produces about a fifth of the UK's electricity, nearly collapsed in 2002 in the wake of a slump in wholesale power prices.

The debt restructuring deal was agreed in October 2003 but disgruntled shareholders - including Polygon - had argued that the company's prospects had changed considerably since the deal was first struck,