The Labour Party is considering turning itself into a limited company so that senior figures, including Gordon Brown, can avoid being made personally liable for its spiralling debts.

The drastic action is being discussed as the party struggles to stave off bankruptcy by finding new donors or persuading existing ones to hold off on repayment of their loans.

Lawyers have warned the party that leading officials and elected members of the ruling National Executive Committee are responsible for the party’s debts, now well over £20 million.

Labour’s constitution is being likened to that of a local cricket or football club, and in law there is no way of limiting the liability of officials and managers.

Officials are now looking at the option of converting the whole party into a limited company – Labour plc – to avoid individuals being held responsible.

The legal advice is understood to have been the main reason why David Pitt-Watson, the equity fund chairman, did not go through with taking over as Labour’s new general secretary, even though he was Gordon Brown’s choice for the job.

Labour’s parlous state has prompted a desperate search by Jon Mendelsohn, its director of election resources, for new funds.

Efforts are also being made to persuade donors recruited by Lord Levy, Labour’s former chief fundraiser, to extend the terms of their loans. The party needs to find more than £7 million in the next few weeks in case the donors insist on calling in loans, and a further £6 million by Christmas.

Officials are awaiting the outcome of a police investigation into whether Labour broke the law in accepting donations worth £650,000 from the property developer David Abrahams. That money is now in limbo and officials do not rate highly the chances of it returning to party coffers.

The Labour Party is an unincorporated association. As such “members . . . are subject to unlimited personal liability in the event of the association’s insolvency”.

Members of the National Executive Committee, who include Mr Brown and Harriet Harman, and particularly the Treasurer, Jack Dromey, and general secretary may be particularly at risk. The liability of members of an unincorporated association is usually “joint and several” – that is to say a creditor can normally look to one or a number of members to satisfy in full a debt incurred by the body.

Under a limited company structure, should financial difficulties arise, the liability of members is limited and they cannot normally be pursued personally by creditors.

Francis Maude, Shadow Minister for the Cabinet Office, said: “Labour have run their party finances in the same way that Gordon Brown ran the economy – incompetently. Now the party is mired in debt. David Pitt-Watson has already jumped off the sinking ship, how long before others follow him?”

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