Duchess could face bankruptcy over huge business debts

It is believed that the Duchess owes about 2 million relating to her business concerns.

But while voluntary bankruptcy is still an option, the spokesman said the situation is "being managed" and that all her personal debt had been paid off.

He also revealed that some of the financial claims against her were being disputed.

Reports that the Duchess owes as much as 5m were yesterday dismissed as "significantly" exaggerated.

The latest details about the former royal's financial situations are said to have left the Queen concerned.

No member of the royal family has ever been declared bankrupt and it is understood royal officials are paying close attention to the situation.

A spokesman for the Duchess said: "She is doing everything she can to avoid bankruptcy."

He added: "The only debts she has are business debts, some of which are disputed.

"All her personal debts have been paid. There is a number of options open to the Duchess of which bankruptcy is one.

"But it would be premature to say she is going into bankruptcy as the situation is being managed."

The news is the latest development in the financial dealings of Sarah Ferguson which have sparked controversy in recent months.

In June she admitted to living beyond her means after she hit the headlines for trying to sell access to her former husband the Duke of York.

She was forced to apologise publicly after she was filmed promising an introduction to Prince Andrew for 500,000 in May.

The Duchess, who is mother to Princesses Beatrice and Eugenie by Prince Andrew, has had several business ventures.

In the mid 1990s she ran up debts of 4.2m but repaid them after various earning ventures in the US including the publication of her autobiography.

A senior source close to the royal family said: "The Duchess simply does not have any real idea about money.

"She has been taken for a ride by some people who have not been honest with her about the way the bills were running up."

In June, the Duchess admitted being "substantially" in debt, during a highly publicised interview with American celebrity interviewer Oprah Winfrey, but she refused to say by how much.

The former royal claimed she agreed to see the businessman who wanted to meet Prince Andrew because she was trying to get 26,000 for a friend, but was not sure why she asked for the rest of the money.

In the interview, the Duchess painted a picture of herself living beyond her means - and admitted at the time that she was considering filing for bankruptcy.

She said: "I've been living, trying to be the Duchess of York. [Living] beyond my means? Yes."

Of her money problems she said: "I was out of control with desperation where I'd reached a point of no return."

It emerged earlier this year that the Duchess and her daughters received about 3m from the Royal family as part of her divorce settlement.