Wirral Metropolitan College looks set to be the first victim of the Government's new "get tough" policy on underperforming colleges, and its principal - who advises the Department for Education and Employment on its New Deal policy - is taking early retirement.
The Further Education Funding Council has told the college to devise a rescue plan for January 8. If it fails to do so, Education Secretary David Blunkett could sack the board of governors - a course of action which is now likely, according to Government sources.
Principal Jenny Shackleton, 55, has announced that she will leave in July after 11 years in post.
Wirral, although regarded as a progressive and innovative college, has been plagued by a series of financial problems including a deficit of nearly #163;9 million three years ago.
If Wirral fails to produce a viable solution, the FEFC could then recommend that Mr Blunkett invoke Section 57 of the Further and Higher Education Act which enables him to remove governors.
If he does it will be only the second time these powers have been used. In 1995 all but two of the governors of Derby Wilmorton college were sacked after an investigation revealed serious failings.
Wirral did not appear in the list of college accounts for 1997-8 published late last year by the FEFC. It still has not completed those for the previous year when its failure to reach student recruitment targets left it owing hundreds of thousands of pounds to the FEFC.
The college's self-assessment is understood to have found that quality assurance, management and governance were all less than satisfactory.