UPDATE 1-Interserve to go in administration after rescue deal blocked

Troubled British outsourcer Interserve is on the brink of collapse after its shareholders rejected a rescue plan that would have slashed its debts and handed control of the ailing firm to its lenders. Interserve's shareholders voted 59 percent against a debt-for-equity rescue package at a general meeting in central London on Friday, in a victory for its biggest shareholder, US hedge fund Coltrane, which had opposed the plan.

The company is now expected to file to go into a 'pre-pack' administration on Friday evening, under a plan overseen by EY which would see Interserve's creditors buy its assets. The company said this arrangement should ensure that its business can continue to operate "as normal" for its customers and suppliers

Shares in the company have been suspended after falling 34 percent. Interserve employs 68,000 people worldwide and is one of the British government's biggest contractors, providing services from school meals to cleaning hospitals.

It ran into difficulty after a string of ill-advised acquisitions and loss-making contracts weighed on its finances and piled on debt, raising fears it could collapse into insolvency like rival outsourcer Carillion. The rejected rescue plan would have handed Interserve's lenders, which include banks and hedge funds, 95 percent ownership in exchange for cancelling 485 million pounds ($641.95 million) of its debts, with existing investors' holdings diluted to 5 percent.

A pre-pack administration would see all shareholder value wiped out entirely. Coltrane - which has proposed its own rival rescue plan for Interserve that protects more shareholder value - wants to take part in any bidding for Interserve assets. ($1 = 0.7555 pounds) (Reporting by Iain Withers Editing by Rachel Armstrong and Lawrence White)