Thames Water’s creditors are preparing a legal challenge for nationalisation.

Creditors are preparing a legal challenge to Thames Water if the Burnham-led government tries to nationalize the UK’s biggest water company.

Burnham – who took over as prime minister on Monday – has previously said he wants to see “more public control” of the water and energy sectors and has called for Thames Water to be nationalised.

Thames Water is about £20bn in debt.

The lenders offered a deal to write off nearly half of the debt and inject new cash to offset future pollution fines, but the deal was previously rejected by the government as “weak” and harmful to consumers and the environment.

Sources close to the lenders have told the BBC they will pursue full repayment of outstanding debts as they have done in the past under full citizenship, which could leave the government with a multi-billion pound bill.

Fears that the Thames could collapse were first raised three years ago, and on Thursday the organization warned that Enough money to last until the end of this year.

Lenders stressed they were still working with authorities and regulators to save the company.

A spokesman for the Department for Environment, Food and Rural Affairs said the government was “prepared for any eventuality”.

A spokesman said: “Thames Water’s customers have been under-performing for 15 years and showing high levels of pollution for far too long.

The Secretary of State has written to Ofwat to outline her early views on whether London and Valley Water’s proposal is good enough for consumers or the environment.

Creditors have offered £9.4bn to cancel nearly £20bn of Thames Water’s debt pile and inject £3.35bn of cash into the company, but in return they want amnesty from pollution fines to turn the company’s fortunes around.

Opposing the proposal, Emma Reynolds said in June that she did not want Thames Water customers to “foot the bill for the company’s failings”.

He told reporters at the time that the government is “ready for all situations,” including temporary nationalization.

Asked in a Sky News interview on Sunday whether the Burnham government would nationalize Thames Water, Labor deputy leader Lucy Powell said: “Let’s see.”

“This is an ongoing issue and concern within the government,” she said.

“The government has the power to bring a water company in trouble with special measures, and if the government needs it, let’s see if it wants to use these powers.”

“Water privatization has not worked,” Powell added.

“There’s no competition. You’ve seen the bills go up and up and up for years and years. Investments aren’t being made … and now these companies are in real trouble,” she said.

Thames is halfway through being placed into “special management regime” or SAR, which is usually a temporary status until another private sector buyer is found.

Existing lenders have made it clear that they are ready to join bids for Thames in that scenario.

However, comments from incoming Prime Minister Andy Burnham are expected to make it difficult to imagine that key utilities should be under “public control”, making it difficult to imagine there will be much political will to find a new set of private sector owners in government for a company that serves 16 million people, meaning temporary nationalization could be permanent.

But under SAR or full nationalisation, the Thames’ continued problems could leave taxpayers footing the bill for Thames’ funding shortfall – a figure which will see the Thames Water Authority earn £2bn by the end of next year.

Regardless, the customers’ taps and loos will still work, but the future of Thames Water is a key policy challenge for the new administration.