By Robert Peston
BBC Business Editor
SRM, a hedge fund that controls 9.9% of Northern Rock, has warned Alistair Darling not to consider nationalising the bank for less than a fair price.
Northern Rock is still looking for a buyer
In a letter sent to the chancellor before Christmas, SRM said it has been advised that otherwise there would be a breach of the Human Rights Act.
It would have a strong case to pursue ministers and the government through the courts, the letter says.
SRM's view of a fair price would be more than 400p a share.
The Monaco-based hedge fund says that ministers would be vulnerable to a charge of "misfeasance" if they expropriated the Rock for less.
The epistle makes the curious statement that the chancellor has already formally ruled out nationalisation.
The epistle makes the curious statement that the chancellor has already formally ruled out nationalisation
The Treasury denies this.
Treasury officials sent a reply to SRM on the chancellor's behalf to its Monaco offices last week.
In it, the Treasury says that the government would comply with the Human Rights Act at all times - and that all options, including nationalisation, are on the table.
What the discourse shows is the gulf between the Treasury as the leading creditor and the Rock's biggest shareholder.
Can that gulf be bridged?
Only if there is a rescue of the Rock that keeps the bank in the private sector and leaves the current shareholders with the bulk of its shares.
Frenzy of activity
Will there be such a rescue?
There is a frenzy of activity by putative bidders, bankers and the Rock itself to secure one.
Putting a probability on their prospects is impossible - though conditions in money markets are less tight than they were, so it looks a bit less bleak for the Rock than it did before Christmas.
Northern Rock was forced to seek an emergency loan from the Bank of England on 13 September last year.
UK taxpayers are now exposed to the troubled bank to the tune of £57bn in direct loans and guarantees.
The bank got itself into difficulty as it borrowed most of its funds from the global wholesale money markets.
After the credit crunch hit at the beginning of August, Northern Rock suddenly found that it could no longer obtain the funds it needed.
The Rock's leading shareholders, SRM and another hedge fund, RAB Capital, have called an extraordinary general meeting of the bank next Tuesday.
At the meeting shareholders will vote on resolutions to restrict the ability of the bank's board to dispose of assets.
RAB and SRM are trying to prevent the Rock's board from agreeing any kind of takeover without obtaining the approval of shareholders.