The British government is taking moves to place Railtrack into administration. The Transport Department says it will go to the High Court today.
It follows the Transport Secretary, Mr Stephen Byers' decision to refuse the firm's request for more money.
The British government says it has been in talks with Railtrack since July about its funding position.
Government sources say the process does not mean that Railtrack is being re-nationalised.
A brief statement from the Transport Department said: "Later today Transport Secretary Stephen Byers will petition the High Court to place Railtrack plc into Railway Administration."
It is understood the Government has no plans to buy all of Railtrack's shares.
Speculation that the troubled railway operator will be re-nationalised now appear wide of the mark despite the company being on the brink of bankruptcy.
Department of Transport and Treasury officials reportedly spent yesterday locked in discussions about a public-private partnership with Railtrack board.
Chairman Mr John Robinson and his team are said to be unable to finance their capital investment programme. And the company's current debts of stg£3.3 billion are expected to rise steeply.
The stg£5 billion cost of upgrading Virgin Rail's west coast line which runs from London to Glasgow is thought to have finally pushed the company's accounts into chaos.
Its shares are expected to be suspended when the London Stock Exchange opens tomorrow - which would be another humiliation for a company that has faced huge problems since its privatisation in April 1994.
An official inquiry, chaired by Lord Cullen, heavily criticised Railtrack's safety record following the 1999 Paddington rail crash which killed 31 people, recommending the company be stripped of its role.
Mr Don Foster, Liberal Democrat transport spokesman said: "At last there is recognition by the Government that action needs to be taken over Railtrack... The part of Railtrack directly related to running the railways should be held in not-for-profit public investment company."
"There would be greater public involvement and public investment in the railways. The obscene conflict between passenger safety and shareholder profit would be over," he added.
PA