Helen Chandler, the assistant director of Stoke-on-Trent College on sick leave with full pay has appeared in a Wrexham Court making an application for a pub protection order.
Mrs Chandler and college director Neil Preston - also on sick leave - are being investigated over allegations that they have been running a Welsh pub.
Nearly 200 staff are to be made redundant at the college to meet an #163;8 million shortfall due to lack of growth.
Mrs Chandler appeared before the licensing committee of the Wrexham court and said she had been "very ill and considerably upset" because she and her partner had been besieged by the press. She had been on tranquillisers and sleeping pills.
The court chairman asked whether it was right for the court to give her a full licence if she was so ill. Mrs Chandler said that the circumstances were unusual and that six people relied on the pub living.
This week more than 500 staff attended an emergency college meeting. They passed a unanimous motion deploring the continuing absence on full pay of Mr Preston and Mrs Chandler and urged the corporation to resolve the situation.
Stoke's problems stem from a failure to reach its student numbers target - there was a shortfall of 20 per cent last year. It has been ordered to repay the Further Education Funding Council #163;3.5 million it received for 199596. This year's targets included 3.9 per cent growth. As a result there will be a cut in income for 199697 of a further #163;2. 8 million. This adds up to #163;8m with interest.
Urgent talks between the college and the funding council were taking place this week. Staff learned this week that funds had been secured to enable salaries to be paid at the end of this month.
Paul Mackney, the regional officer for the National Association of Teachers in Further and Higher Education, told the staff meeting: "This is the worst financial crisis for an FE college in England and Wales, ever."
He said more than 100 staff had tried to give the message to governors that things were not right, but they had not been heeded.
The meeting called for an independent public inquiry into the events which led to the financial crisis. Mr Mackney said: "A fully independent inquiry must consider whether essential information has been withheld from the governors. We want to know the truth about who is responsible."
The meeting called on local MPs and trade unionists to campaign for the cancellation of the #163;8 million debt "owed to the FEFC due to the failure of the post-incorporation FE system".
If this bid fails they want repayments to be rescheduled and the FEFC restructuring fund re-opened to enable redundancy payments to be related to actual earnings.
The unions have for the moment ruled out any strike action. The students union also called an emergency meeting. They launched a campaign to save the college calling on Mr Preston and Mrs Chandler "to do the decent thing and resign". Many students were angry at the extent of the problems which were revealed.