• 'Collapse of Carillion won't affect patients'

The stricken company, which employs 20,000 workers across Britain, said crunch talks over the weekend aimed at driving down debt and shoring up its balance sheet had failed to result in the "short term financial support" it needed to continue trading while a deal was reached.

Carillion, which has been struggling under £900m of debt and a £590m pension deficit, has seen its shares price plunge more than 70 per cent in the past six months after making a string of profit warnings and breaching its financial covenants.

The group had been part of the Siglion joint venture, alongside regeneration expert Igloo and Sunderland City Council, which worked on the regeneration of the former Vaux Brewery site.

It was also previously part of Durham City's Milburngate £150m development.

However, it was revealed late last year that Arlington Real Estate and the Richardson family had bought Carillion’s joint venture share in the scheme.

David Lidington, Minister for the Cabinet Office and Chancellor for the Duchy of Lancaster, says the Government will continue to deliver all public sector services following the insolvency.

He added it will provide the necessary funding required by the Official Receiver to maintain public services.

The Government has also said all Carillion staff should still come to work and "those already receiving their pensions will continue to receive payment", following the construction giant's collapse.

The company's chairman Philip Green said: "This is a very sad day for Carillion, for our colleagues, suppliers and customers that we have been proud to serve over many years.

"Over recent months huge efforts have been made to restructure Carillion to deliver its sustainable future and the board is very grateful for the huge efforts made by Keith Cochrane, our executive team and many others who have worked tirelessly over this period.

"In recent days however we have been unable to secure the funding to support our business plan and it is therefore with the deepest regret that we have arrived at this decision.

"We understand that HM Government will be providing the necessary funding required by the Official Receiver to maintain the public services carried on by Carillion staff, subcontractors and suppliers."

Referring to Carillion's Vaux work, Niall Hodson, Sunderland Liberal Democrat councillor for Millfield and Thornholme, which covers the West of Sunderland city centre, and includes the Vaux site), said: "Residents have long expressed dismay at the lack of development on the Vaux site.

"It has taken nearly two decades for there to be any sign of progress, and it now seems that yet another stumbling block has emerged.

"While I hope this is just a temporary setback, and will be resolved in due course, questions must be raised about Sunderland City Council’s choice of partner in redeveloping this already troubled site.

"Carillion has been in financial difficulty for months, and the time has come for Sunderland City Council to reappraise their relationship with the company."

The company is understood to have public sector or public/private partnership contracts worth £1.7bn, including providing school dinners, cleaning and catering at NHS hospitals, construction work on rail projects such as HS2 and maintaining 50,000 army base homes for the Ministry of Defence.

As a result, the Government has been under increasing pressure to intervene to prevent the collapse of the company.

Unions are calling for urgent reassurances over the jobs, pay and pensions of thousands of workers following the "disastrous" news.

Officials from several unions representing workers on the railways, construction sites, prisons, hospitals and schools are seeking information from the company and ministers.

Rail, Maritime and Transport union General Secretary Mick Cash said: "This is disastrous news for the workforce and disastrous news for transport and public services in Britain.

"We have been warning since Thursday night that we thought the collapse of the company was imminent.

"The blame for this lies squarely with the Government who are obsessed with out-sourcing key works to these high risk, private enterprises.

"RMT will be demanding urgent meetings with Network Rail and the train companies today with the objective of protecting our members jobs and pensions.

"The infrastructure and support works must be immediately taken in house with the workforce protected.

"Transport Secretary Chris Grayling and his Tory colleagues must be forced to take responsibility for this crisis which is wholly of their making."

Carillion had met with lenders HSBC, Barclays, Santander and Royal Bank of Scotland on Wednesday to discuss options for reducing debts, recapitalise or restructure the group's balance sheet.

It was followed by a meeting on Friday between the Government, pension authorities and stakeholders in an attempt to thrash out a rescue package for the firm.

A petition launched over the weekend calling for Carillion to be nationalised had attracted more than 1,200 signatures.

Cabinet Office shadow minister Jon Trickett said: "The Government must act quickly to bring these public sector contracts back in-house to protect public services and ensure employees, supply chain companies, taxpayers and pension fund members are protected.

"Given £2bn worth of Government contracts were awarded in the time three profit warnings were given by Carillion, a serious investigation needs to be launched into the Government's handling of this matter.

"It is vital that shareholders and creditors are not allowed to walk away with the rewards from profitable contracts while the taxpayer bails out loss-making parts of the business."

Despite its large pension deficit, the liquidation of Carillion will not threaten the pensions 'lifeboat', the Pension Protection Fund (PPF), according to Steve Webb, Director of Policy at Royal London.

He said: "Carillion workers will understandably be devastated by the announcement of the liquidation of their firm, but they, and retired Carillion workers, can be assured that the pensions 'lifeboat', the Pensions Protection Fund (PPF), will help to protect their pensions.

"Although there is a big shortfall across the Carillion pension schemes, the PPF is financially strong and will be able to pay out pensions in line with its normal rules. The deficit in the Carillion schemes will not sink the pensions lifeboat."