A financial catastrophe: and threat of legal action

The former chairman was given the warning on a dramatic day in which he also came under pressure at a public examination of his business affairs.

He was grilled for almost five hours over the collapse of his former company, George Reynolds UK, at a court hearing called by its liquidators, Deloitte and Touche.

While the 67-year-old gave evidence on Teesside, the administrators now in charge at the Reynolds Arena confirmed that they were considering legal proceedings against him.

Insolvency practitioner David Elliott said Mr Reynolds had pledged to cover the cost of any shortfalls incurred while the Quakers were in administration.

But he breached the legal agreement within days of signing it, meaning players and employees were not paid in December and only received their wages from the administrators in two instalments after Boxing Day.

News of the potential legal action came as the club was told it must come out of administration in the next three months - or be shut down.

The club has debts of about £20m, including £14m loaned by Mr Reynolds, and creditors agreed that it should be liquidated if a satisfactory solution was not found by April 22.

Creditors are owed a total of more than £2m, and there is £4m outstanding in mortgage loans secured on the stadium.

Forecasts show a likely trading loss by the end of the season in the region of £200,000.

The dire situation was spelled out at a creditors' meeting yesterday morning.

And with only one interested party said to be in a position to take on the ailing business, administrators conceded that the future of professional football in Darlington was in grave doubt.

Mr Elliott said he believed that only a £6m cash injection and a deal to reschedule the debts would be acceptable to creditors.

The main contender to buy the club and 25,000-capacity ground is thought to be a consortium of local businessmen, headed by lifelong fan Mark Meynell and including Darlington Supporters' Trust.

There are six interested parties, but the consortium is the only one understood to be in a position to meet the February 13 deadline for bids.

A list of 168 creditors has been drawn up and includes claims for £461,000 from the Inland Revenue, £321,570 from Barclays Bank, and £241,000 from Customs and Excise.

Hall Construction, based in Ferryhill, County Durham, which worked on building the Reynolds Arena, is also claiming £148,000.

Mr Elliott said after the meeting: "I don't think they would do a deal unless we receive an offer of £6m."

But joint administrator David Field, of Sheffield-based Wilson Field, said: "I think we would be very fortunate to get an offer in that region, but it's probably what the creditors will be expecting."

The administrators' work has not been helped by the lack of a proper statement of the company's affairs. Accounts have not been filed with Companies House since April 2002.

Administrators are understood to have set a deadline of yesterday for the records to be produced by directors, but none was forthcoming.

Mr Elliott said the policy of ploughing cash into a Premiership-class ground, hosting Division Three football, had ultimately proved the club's downfall.

"It is a valid criticism to say that the carpets, the fittings and the money that's been spent on anything other than the footballing side are out of sync, out of balance," he said.

"There's too much money been spent on carpets and not on the essentials. If a 10,000-seater stadium had been built, we would not be here now."

The Quakers are surviving on a week-to-week basis and a bumper crowd is essential for celebrity matches on Sunday and at the following Saturday's game against Rochdale.

Mr Field highlighted the gravity of the situation, saying: "We are optimistic, rather than confident, that we can continue until the end of February. After that, we can't guarantee that the club will be in business. It needs support and it needs a buyer - and it needs both very quickly."