The firm warned the Stock Exchange this morning that it will breach its banking covenants as debts soar above the £120m previously predicted.

The news sent the contractor’s share price into a tailspin as three-quarters of its value was wiped out in minutes with shares dropping 75% to 23.3p

The dire trading update stated that Connaught: “Has identified an urgent requirement for additional funds to meet the current and ongoing needs of the business, in part caused by additional pressure from suppliers and subcontractors.

“The Group has also concluded that net debt will be significantly in excess of the previously advised level of £120m at its year end of 31 August 2010 and that it will breach its banking covenants.

“It has therefore entered into negotiations with its lenders to secure additional funding and these discussions have been constructive.”

Connaught has also assembled an emergency team of new directors to steer it through the current crisis which saw shares dive last month following a profit warning as Government spending cuts on social housing hit home.

Stephen Billingham, the former Finance Director of British Energy Group and W S Atkins has joined the group to work on financial and funding matters.

Roger Wood, the former Managing Director of British Gas Services and Managing Director of the AA business, is chairing a steering committee responsible for  Connaught’s operational efficiency programme, focussing on the delivery of significant cost savings.

Michael Young, who was Corporate Affairs Director at Centrica plc and Director of Corporate Policy and Communications at Compass Group plc, will be advising the Board on communication and reviewing management processes.

Chris Sellers, the Group’s Business Development Director, who previously held operational roles at Capita, Agilisys and Shell, has assumed the full operational role of acting Chief Executive of the Social Housing business.

Non-executive chairman Sir Roy Gardner said: “These are challenging times for Connaught.

“We are fortunate that we have been able to attract a number of senior and experienced individuals to support the company at this time and we welcome the constructive discussions with our lenders.

“We continue to place great importance on the solid relationship we have built with our supply chain and customers and the continuing support we receive from our employees.”

A Connaught spokesman told the Enquirer: “We do have good relationships with our subcontractors and have been in discussions with them.

“The  important thing to emphasise is that we have every intention of paying them.”