The cash crisis at Cobra Beer, the Indian lager group controlled by Lord Bilimoria, is expected to precipitate a company voluntary arrangement (CVA) or a pre-pack administration as the company is restructured ahead of a sale, The Times has learnt.

The group, which in November appointed Rothschild to find a buyer, is understood to be close to agreeing the sale of the Cobra brand in the UK to a new joint venture controlled by Molson Coors, the American brewer behind the Carling and Worthington brands.

A mooted sale of the smaller Indian business to Wilbur Ross, the wealthy American investor, is understood to have hit a wall and alternative options, including a refinancing, are being considered. It has also launched a restructuring to reduce costs, scaling down its presence from 24 states to 13, renegotiating its brewing and distribution arrangements and halving its staff.

Negotiations over the sale of the British business have been complicated by mounting losses. While its main business supplying Indian restaurants is performing well, it has sought to buy market share in the pub and retail sectors with low pricing, while spending heavily on marketing.

According to the sale memorandum, it reported underlying 2008 losses of £15.9 million and is forecasting losses for the next three years. It admits in the memorandum that its focus has been “on the top line rather than profitability”, with net sales forecast to rise from £34.1 million last year to £73.6 million in 2011. The group claims to have spent about £40 million on marketing the brand since its launch in 1990, arguing that the investment was necessary to position Cobra as one of the top premium lagers.

Lord Bilimoria, who is chairman, had been hoping to secure between £180 million and £200 million from selling the business, but the continuing losses, allied to the rapid decline of the British beer market over the past two years, has affected the price.

It was unclear last night how much money the peer might make from the sale in the light of the likely restructuring. While ordinary shareholders and creditors could expect to take a severe haircut under the terms of a CVA, the status of Lord Bilimoria's 64 per cent holding is less clear. One insider suggested that most of his holding, and that of Och-Ziff, the investment firm, was in the form of preference shares, which would rank below bank debt but above ordinary shareholders in any winding up of the company.

Under the terms of the proposed Molson Coors joint venture, Cobra's UK operation is likely to be dismantled as the brand is plugged into the Carling brewer's existing infrastructure. Several head office staff have already left the business, including Adrian McKeon, the chief executive.

The deal with Molson Coors could also affect Cobra's contract with Wells & Young's, the Bedford brewer, which produces the beer in the UK. Molson is likely to explore options for producing Cobra at its own facilities.

Despite the upheaval, plugging the Cobra brand into the sales, marketing and distribution network of Britain's second-biggest brewer should restore it to profitability almost immediately and enhance its growth ambitions.

Lord Bilimoria founded Cobra after coming to Britain to study law at Cambridge and becoming dissatisfied with the fizzy lagers served in the Indian restaurants that he frequented. The beer, with its gold label, has almost 50 per cent of the curry house market, ahead of rivals such as Kingfisher, Tusker, Lal Toofan and Bangla.

None of the parties involved would comment.

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