General Motors, the US car manufacturer, is facing bankruptcy after creditors rejected a proposal to swap $27bn in debt for 10 per cent of the company's stock.
The struggling firm has until June 1 to complete a government-ordered restructuring that includes debt reduction, labour cost cuts and plant closures.
The Obama administration has said it would only provide more funds if 90 per cent of the bondholders, as well as unionised workers, agreed to concessions that substantially reduced GM's costs.
General Motors said on Wednesday that "substantially less" than the 90 per cent threshold had been reached and that none of the exchange offers would be accepted.
The US automobile industry has been hit hard by a slump in sales amid a US recession and a global financial crisis and Chrysler, another of the so-called big three Detroit-based vehicle manufacturers, has already entered bankruptcy proceedings.
The company told Al Jazeera on Wednesday it now has $185bn in liabilities it will seek to shed through bankruptcy.
The US government is likely to become the majority shareholder in the company after it enters bankruptcy, reports said.
The Canadian government and the United Auto Workers union are also set to own smaller shares in the firm, according to reports.
Workers hit hard
John Pottow, a professor at the University of Michigan who specialises in bankruptcy, said GM evading bankruptcy now is almost impossible.
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GM's total liabilities of $185bn break down into:
$27bn in unsecured debt
$25.5bn in government and bank loans
$20bn owed on healthcare and pensions
$112.5bn in other debt
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"They said no. That's it. They tried. That's why they're going to have to file for bankruptcy," he said.
Al Jazeera's Rob Reynolds in Washington said that current and former workers were likely to bear the brunt of the costs of GM restructuring as medical benefits were cut and that sales were likely to be hit further by bankruptcy proceedings.
Tens of thousands of workers have already been sacked by GM in recent months.
Fears are also growing over the future of GM's European subsidiaries, which include Opel and Vauxhall, which also employ of tens of thousands of staff.
GM's board has approved a plan to place Opel and Vauxhall under a separate holding company in an attempt to keep them safe from bankruptcy while it assesses bids for the firm.