A scene from the current production Treasure Island

In a letter, Arts Council England did say it intended to continue funding a theatre in Derby.

But bosses said they had reservations about how the financially-troubled theatre was being managed.

A spokesman for the administrators said the decision would have no impact on the theatre's current production Treasure Island.

The theatre was put into liquidation after only five performances of the show.

'Not disastrous'

But after administrators stepped in the theatre was allowed to re-open, a week after it closed its doors.

Administrators Tenon Recovery said a consortium bidding to run the theatre had raised enough cash to allow Treasure Island to complete its run until 26 January, although its long-term future hung in the balance.

Peter Knott, Arts Council England East Midlands director of arts and development, said: "We've had concerns over the ability of the current organisation to construct an effective model which means that theatre can go forward in Derby.

"There would need to be an extraordinary change to persuade us that the current organisation could take theatre forward in Derby."

Dilip Dattani from Tenon said the Arts Council's decision was not disastrous news.

"It is a disappointment. Having said that it's better we know [the Arts Council's decision] at this stage so that the consortium can plan accordingly," he said.

He added the council had ring-fenced funding for a theatre in Derby but whether the previous management would be involved had not yet been decided.

'Delightful' news

Tickets sales for Treasure Island during the first week after the theatre reopened were "in line with expectations", he said.

"Things are moving in the right direction."

The theatre's artistic director Stephen Edwards said the council could have simply stopped funding the Playhouse altogether.

"Ten regional theatres are not getting a grant at all. We could have had a letter telling us we were out of the funding loop.