Spring PLC was invited to be one of the Government’s “external partners” - the body of 26 representatives from key organisations appointed to advise on new post-16 funding. But the Serious Fraud Office, which has been investigating the company since April 1998, recently made two arrests. Neither has been charged but have been released.

The continuing investigation arose out of complaints made by North Derbyshire Tertiary College after a High Court action. Link Training, a subsidiary of Spring, had sued the college for withholding payment under a franchising agreement involving more than 7,000 students, one of the largest contracts in the sector.

Link had originally claimed payments amounting to nearly pound;3.5 million, but this was reduced to a little over pound;2.7m by the time of the High Court trial. After seven weeks the judge found for the college. The colleg did pay Link more than pound;600,000 for the training it had delivered.

The judge said that some of Link’s mentors had made “impossible” claims, exaggerating the amount of time they spent with students. One had recorded 80 hours of tuition at 10 locations in one day, a figure described by the judge as “inexplicable.”

One of the roles of the “external partners” for the Learning and Skills Council is to look at how organisations have financed students.

The partners’ initial meeting took place in September. The involvement of Spring was subsequently raised with David Blunkett, Secretary of State for Education by Tony Benn, Chesterfield’s Labour MP.

Mr Blunkett confirmed that Spring had been invited. “Nonetheless,” he said, “I agree that Spring’s representation at the next stage would be inappropriate, pending the outcome of the police enquiry” into its subsidiary.

Karl Chapman, Spring’s chief executive, said: “I would be very surprised if this was true. We enjoy good working relationships with the DFEE and sit on DFEE advisory groups.”