High Court writ is to be served on Nottingham Forest after the city council was forced to pay a £4.5m debt on its behalf.
The club missed a June 10 deadline for the payment of a loan, which was taken out in 1994 to build the Trent End stand.
The council, which guaranteed the loan, paid bankers Prudential last week and issued Forest with seven days' notice of court proceedings.
The wrangle could have dire consequences for the club. If it does not pay, the council is expected to repossess the City Ground, which has been valued at £13m.
City council leader Jon Collins also fears the club could be forced into insolvency if it cannot afford to pay. "Forest have seven days to pay the money," he said. "If it is not paid we will be going to court to recover the money.''
He said the council has a legal duty to recover the £4.5m plus interest which is running at £1,000 a day.
If Nottingham Forest do not find the money they will not be able to pay Stoke for Kris Commons, and the left winger may be forced to accept a deal at the Potteries if no other club comes in for him.
