The Immigration Advisory Service (IAS) has gone into administration, BBC News has learnt.
The IAS, which employs 300 people, has closed its 14 branches.
One employee told the BBC that staff had been told to clear their desks and that administrators were already in the central headquarters in London.
The free service is one of the leading charities giving legal advice and representation to immigrants and asylum seekers in England and Scotland.
From April 2009 until March 2010, the charity handled more than 24,000 cases, 14,462 of which were publicly funded immigration cases.
In a statement, the ISA said: “The government’s reforms include the removal of immigration from the scope of legal aid, and a 10% cut in legal aid fees for refugees seeking asylum within the UK. Immigration accounts for around 60% of IAS’s income.
“There are few organisations that could cope with the compound effect of removal of immigration from the scope of legal aid and a cut in fees for asylum clients.”
‘Complex funding rules’
The IAS also failed to reach an agreement with the Legal Services Commission (LSC), which runs the legal aid scheme in England and Wales, over the repayment of money which the charity had claimed in error, partly, in IAS’s view, due to the LSC’s “complex funding rules in place”.
The charity said the legal aid cuts put it in the position of needing to repay this money from a much reduced income base.
The trustees said all avenues of support had been exhausted for it to seek a solvent restructure, and that they had no alternative but to put the charity into administration.
Trustees’ chairman John Scampion said: “It is a very sad day for us all, and I would like to pay tribute to the staff who have worked diligently and professionally through what has been very difficult and trying circumstances, and to reassure IAS’s clients that everything possible is being done to protect their interests during this very difficult time.”
The LSC said the IAS’s decision to go into administration was “theirs alone”.
A spokesman said: “During recent stewardship activities LSC raised concerns around financial management and claims irregularities which prompted IAS trustees’ to conclude that the organisation was no longer financially viable.
“Our priority now is to work closely with IAS and the administrators to ensure clients of IAS continue to get the help they need, whilst safeguarding public money.
“We are now identifying alternative advice provision in the areas affected and arrangements for case transfer will follow as soon as possible.”