The board resigned after the non-profit Rubem Berta foundation, which controls its stock, blocked a deal to renegotiate debts of $900m.

The outgoing Varig chairman, Arnim Lore, had agreed with its creditors - including GE Capital, the aviation regulator Infraero, a fuels chain and three local banks - to delay an overdue debt payment of $118m until a restructuring plan had been completed.

Rubem Berta's rejection of this agreement caused the mass resignation.

In an effort to sort out Varig's finances, Mr Lore has been seeking fresh cash injections from its creditors and from and Brazil's National Development Bank (BNDES).

But BNDES had demanded that Ruben Berta should first loosen its grip on the airline.

BNDES had wanted Varig, under Mr Lore, to present a viable strategy for turning the troubled carrier around.