CCS chairman Paul Nolan disputed the local authority's claim and warned that the closure would be a disaster for its 28 staff, 202 children and the deprived community of Craigmillar.
Director of education Roy Jobson had written to the Craigmillar Partnership, which distributed council money to the CCS, warning that the funding would be withdrawn. He said a council investigation into CCS had revealed 'concerns about the current financial position'.
The local authority said CCS had amassed debts of 105,000. A council spokesman said, 'Our auditors have advised us that the company is insolvent and that it would be inappropriate to give them public money.' The council was withholding 45,000 in grants - 25,000 awarded through the Craigmillar Partnership and 20,000 through Edinburgh Childcare Partnership.
Mr Nolan argued that the deficit was 59,000 and that it had been tackled by making five staff redundant, cutting two services - a breakfast club and wrap-around care - and putting up fees.
Accusing the council's decision of being political, Mr Nolan, himself a former councillor, said, 'We have been at loggerheads with them for three years. We had an agreed plan with the council. The grant we needed to have in the bank to pay salaries and commitments was stopped on the orders of the leader of the council.
'What we are being punished for now is a problem we recognised and resolved a year ago. We run this on a shoestring. We are at the mercy of the tax credit system which has been a disaster for communities like ours.'
Council leader Reverend Ewan Aitken said the childcare facilities would reopen as soon as another company could be found to run them.