The City watchdog is looking into whether Connaught fully disclosed its financial problems to investors ahead of last month’s shock profits warning.

The news comes in the wake of yesterday’s dire trading update which saw Connaught’s share price tumble 69% as the firm confirmed it was seeking extra cash to pay suppliers as debts soared beyond £120m and banking covenants are likely to be breached.

Analysts are now predicting debt levels to exceed £200m by the end of next month as the share price slide saw Connaught’s market value fall to £44.3m.

The second FSA probe follows an initial investigation into a share sale by one of the firm’s directors two days before last month’s profit warning.

Peter Jones was removed as managing director of its northern division, as Connaught called in lawyers and began an internal inquiry.

Yesterday’s announcement has spooked subcontractors who are worried about getting paid.

One told the Enquirer: “The whole situation is getting dire and our main worry is that Connaught has run out of cash to pay us.”

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.”

The firm is believed to be looking at significant job cuts among its 10,000 employees as it trys to reduce costs.

The latest share price fall means the firm has lost more than 90% of its value since June 25 when it warned that public sector spending cuts would wipe £80m off revenues this financial year, and said chief executive-Mark Tincknell and finance director Stephen Hill were leaving.