The asset manager – led by chairman and founder John Duffield – asked for a temporary suspension of its shares until the negotiations had been concluded, but its request was rejected by listing authorities.

Shares at one stage dropped by 73 per cent after it said it was in "advanced and constructive discussions" with its banking syndicate. Speculation has focused on the possibility that New Star is negotiating a debt for equity swap.

The group was one of the UK's fastest growing fund management companies, but has been hit hard by the financial crisis as swathes of worried investors have rushed to redeem capital.

Its assets under management have plunged to around £14bn, down from more than £23bn last summer.

While investments are affected by the financial turmoil, all investor money is held in separate trusts and therefore ring-fenced from the fund manager's operations.

It is understood that New Star is working on a debt for equity swap to reduce its net debt, which stands at around £240m.

The deal would remove growing concern surrounding its outstanding bank debt, but would see shares diluted if banks took equity holdings.

New Star employs around 380 staff, but is looking to axe 50 to 60 jobs under plans to cut £20m from its annual cost base.

The stock has tumbled in the past year from 450p to just 5.5p in morning trading yesterday.

But the group announced last month it had renegotiated its banking covenants, with increased interest payments, and stressed at the time it had not been in breach of bank agreements.

New Star was launched by former Jupiter Asset Management founder Mr Duffield in 2000 and floated in 2006 at 250p.

It grew aggressively and quickly became one of the best known names in retail fund management.

The firm has offices in London, Dublin, Madrid, Milan, Zurich, Bermuda and Hong Kong.