The Immigration Advisory Service, a legal advice charity for immigrants and asylum seekers that employs about 250 people, has gone into administration.
The charity, which was founded in 1993, received 90 per cent of its funding from the Legal Services Commission, which runs the legal aid scheme in England and Wales.
An LSC spokesman said it had recently raised concerns about "financial management and claims irregularities", and this prompted trustees at the charity to choose administration.
"We are now identifying alternative advice provision in the areas affected and arrangements for case transfer will follow as soon as possible," he added.
Anna Meyer, London regional officer for the trade union GMB, which represents about 120 staff at IAS, said it knew the charity was in serious financial difficulties and had written to management and trustees several times asking whether it had enough money to pay staff for the next three months.
"They did not respond," said Meyer. "We believe there was mismanagement."
Steve Hynes, director of the Legal Action Group, a charity that campaigns for equal access to justice, said recent changes to legal funding, such as the introduction of fixed fees instead of hourly rates, had adversely affected many immigration charities.
The charity Refugee and Migrant Justice went into administration in June last year.
"There has been a series of problems for immigration advice providers," said Hynes. "Refugee and Migrant Justice was the first to go. We knew the IAS had similar problems but thought they could weather them. Obviously, something has happened and the trustees felt they couldn't carry on."
The charity had an income of £16.1m in the year ending March 2010.
Third Sector's phone calls to IAS offices were not answered.