The Association of Learning Providers has agreed to back private training firms who are suing the Learning and Skills Council for refusing to pay them the full nationally-agreed rates.
Some were left with deficits of more than a million pounds, the association said. Meetings were due to be held with solicitors this week to prepare the case.
Both sides agree the problems with the pound;800 million contracts emerged after the percentage of students completing their apprenticeships rose unexpectedly from 32 to 39 per cent.
When the money ran out, the LSC argued that training providers should have budgeted properly and not exceeded their income.
But the training companies said that 16 to 19-year-olds were guaranteed funding for apprenticeship places, and the council should find the cash.
Training providers say ambiguities in the contract prompted the crisis.
Graham Hoyle, chief executive of the ALP, said the amount of work required did not correspond to the sum of money available.
But, he said, the shortfall did not become apparent until midway through the year because of the complexity of the funding system.
"We believe that the contract is confusing and inconsistent. It's incredibly complicated," Mr Hoyle said.
"Quite rightly, providers are being asked to increase the number of completions. But what has happened this year is the success of apprentices ran ahead of what the LSC budgeted for. We are being penalised for success."
The shortfall was originally estimated at about pound;100m. That was reduced when the LSC provided an additional pound;38m for new apprentices, but it meant providers were only paid half the rate for existing trainees.
The ALP now estimates that the total deficit is between pound;10m and Pounds 25m after some companies were forced to turn away applicants.
A similar contract is in place this academic year, and the association hopes that successful legal action will set a precedent and prevent a repeat of last year's financial crisis.
The court action is the latest in a series of protests from training providers over funding.
In June, the ALP wrote to Ruth Kelly, the Education Secretary, to object to the post-16 funding arrangements for 2005-6.
It argued that they would amount to a 2.5 per cent cut in real terms for teenagers, and a 6 per cent cut for over-19s.
Stephen Gardner, director of work-based learning at the LSC, denied there was any ambiguity in the contracts. This maximum value had been agreed with training providers in advance and could not be exceeded, he said.
He said: "What we have made crystal clear to providers is that, when they sign a contract, they are signing for a maximum value.
"There is no reason why training providers should go bust. From the beginning of the year, they knew what their income would be. Any reasonable business would plan on the basis of that, wouldn't they?"
He said training providers were in the same position as colleges which faced unexpectedly high levels of demand, and neither could expect the LSC to provide limitless funding.