More than half of the Victorian rubbish usually handled by stricken recycling operator SKM will be sent to the tip after the company told 30 local councils it could no longer collect material from them.

Victorian minister for the environment, Lily D’Ambrosio, said other operators had the capacity to absorb about 40% of the approximately 300,000 tonnes of recycling handled by SKM every year, leaving about 180,000 tonnes destined for landfill.

She said that a contingency plan put together by the Labor government and councils to deal with the crisis would increase the capacity of other operators to take on the extra load, but did not say how long it would be before no recycling was sent to landfill and refused to say how much the plan would cost or who would pay for it.

SKM, which is owned by Melbourne’s Italiano family and handles about half of Victoria’s recycling, is teetering on the brink of insolvency after a crisis sparked by fires at its waste stockpiles and other problems that have led the Environment Protection Agency to impose a series of bans on its operations.

The garbage crisis affects 30 councils across the state, including the City of Melbourne, inner-northern Darebin, the southern metropolitan enclave of Boroondara, the Mornington Peninsula and regional city Geelong.

“It’s across the board,” Rob Spence, a former local government executive who is acting as a consultant to SKM, said.

He said SKM could not take any more waste because its stockpiles of glass were full after a ban imposed by the EPA in May stopped it recycling glass for six weeks.

SKM also recycles paper and plastic but was also unable to recycle those materials because everything arrives from households mixed together with glass, he said.

The company, which was yesterday lashed by D’Ambrosio as a “rogue cowboy operator” and described by premier Daniel Andrews as having a “shady history”, also faces a deep financial crisis.

It is currently being pursued in the Victorian supreme court by unhappy creditors owed more than $5m, who claim the company is insolvent and want it wound up.

But that figure is dwarfed by the tens of millions industry sources said SKM owed to its financiers, the Commonwealth Bank and Westpac, who have appointed external advisers to monitor the situation.

Sources said SKM owes Westpac less than $10m but the CBA, which has been providing ongoing financial support to the company, is owed about five times as much.

Westpac has appointed a big four accounting firm to monitor SKM while the CBA is using insolvency outfit KordaMentha as advisers.

This week SKM’s general manager, Rob Italiano, told the court there was a buyer willing to rescue the company by paying $40m for the business, with a downpayment of some $5.5m set to arrive on Friday.

A spokesman for Deloitte partner Sal Algeri, who is running the sale process, declined to comment.

However, speaking shortly after lunchtime on Friday, Spence told Guardian Australia the deal was “still alive” but said he suspected the money had not yet arrived.

Speaking to reporters later that afternoon, D’Ambrosio said it was unfortunate that material Victorians put in the recycling bin would instead go to the tip.

“Our priority is to ensure that we divert as much materials away from landfill as we possibly can,” she said.

She said community safety was the state government’s No 1 priority.

“We know from history, very recent history, when we have stockpiles of combustible materials that are not properly processed they are a danger, they are a major fire waiting to happen.”

Rob Millard, the chief executive of the state government body that coordinates waste collection in Victoria, the Metropolitan Waste and Resource Recovery Group, said the crisis plan involved putting on extra shifts at other operators and “looking at how we can go out to market with some new collective tenders” to increase the industry’s capacity to take on SKM’s waste.

He said in the next two to three months the proportion of recycling diverted from landfill could be increased from 40% to “as high as 60, 65%”.

“The other material will be landfilled until we have other options,” he said.

Speaking alongside D’Ambrosio and Millard, the president of the Municipal Association of Victoria, Coral Ross, called for a container deposit scheme to reduce the amount of glass going into the recycling system.

However D’Ambrosio immediately rejected the proposal, which has the support of the Greens.

Earlier in the day, Andrews said SKM had “a shady history when it comes to safety and providing services to the highest standards”.

He accused the company of “trying to pressure people into bailing you out when you’ve got significant underlying financial problems as a business”.

“Our focus has been on making sure they comply with the highest of safety standards,” he said. “At a number of sites there’s been notices issued, there’s been sites closed, there’s been sites catch fire”.

Spence told ABC radio the company’s portrayal as cowboys was “really unfair”.

“They could have shut down the system and protected themselves,” he said. “They’ve spent a lot of money to support the recycling system in Victoria.”

The case brought against the company by creditors returns to court next Friday.