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The company said that due to the steep fall in financial markets over recent months and the subsequent fall in New Star’s assets under management and associated revenues, the restructure was necessary.

As a result, £240m of its £260m of gross debt will be converted into equity with the bank syndicate to own 75 per cent of New Star’s enlarged fully diluted ordinary share capital and £94m out of £100m of new convertible redeemable preference shares to be issued by New Star.

As part of the restructure, New Star intends to de-list and says the capital organisation will enable it to concentrate on its investment performance and client service.

New Star believes that the reporting requirements and public scrutiny that is part of being a listed company magnified concerns about the company and added to the temporary suspension of dealing in its international property fund.

In order to retain its key find managers and attract new talent, New Star has agreed with the banks a senior management incentive scheme comprising warrants over a new class of ordinary shares representing 5 per cent of the fully diluted ordinary share capital.

These warrants will vest over the next 2 years subject to profit targets with minimal cost options over a total of £6m of preference shares to be granted to certain employees.

John Duffield, chairman of New Star, said: "The Board recognised the concerns of our clients regarding the level of our debt during these difficult times. We have therefore taken this radical step to address these concerns completely and with one stroke.

"We are now free to focus all our attention on improving our investment performance. Our existing share-based bonus scheme will be replaced by a new scheme to ensure that our key people are locked in.

"The cost of this restructuring is regrettably a substantial dilution for ordinary shareholders, including me. However in current market conditions, we have to recognise that there is no other option to ensure the stability of the business."