Carillion PLC (LON:CLLN) shares dropped by almost 30% in late afternoon trading on reports that its lenders have rejected the embattled construction firm's business plan, and that it has lined up an accountancy firm as a standby administrator.
Ministers are drawing up plans to take over prisons contracts worth £200m from Carillion, .
"Of course the government will make contingency plans for many different situations", May's spokesman, Max Blain, told reporters in London on Friday.
It has previously been reported that EY is on standby for an administration.
Carillion said "constructive discussions with a range of financial and other stakeholders" were continuing.
Carillion is a key supplier to the Government and has contracts in the rail industry, education and NHS.
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In 2016 the Wolverhampton-based company, which employs 43,000 people globally, had sales of £5.2bn and until July boasted a market capitalisation of nearly £1bn.
But it is perhaps best known for being one the largest suppliers of services to the public sector.
The government has said it is "monitoring the situation closely".
The company employs more than 20,000 workers and there are many more workers reliant on the company's future in its supply chains.
The Rail, Maritime and Transport (RMT), Unite and GMB unions all called for workers rights, including pensions, to be protected as a priority.
The firm is now under investigation by the Financial Conduct Authority over the "timeliness and content of announcements" made between December 2016 and July 2017.
A government spokeswoman said: "Carillion is a major supplier to the government with a number of long-term contracts".
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"We are committed to maintaining a healthy supplier market and work closely with our key suppliers".
The company is fighting net debts of more than £900 million, following a crisis sparked in July past year when it issued a profit warning.
Adding to the pressure on the small cap firm - which issued three profit warnings in less than six months past year and has seen its market value collapse by 90% - was a recommendation from broker Peel Hunt to sell the stock ahead of forthcoming newsflow.
The company has been working on a plan which it said "will provide the basis for the agreement of a proposal to restore Carillion's balance sheet".
Carillion revealed half-year losses of £1.15bn in September and is struggling under £900m of debt and a £590m pension deficit.
They added: "The PPF is aware of the discussions between the company, government and banks and, along with the trustees and TPR, will act as it always does to protect the interests of Carillion scheme members and levy-payers".
"We will not comment further unless it becomes appropriate to do so".
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