Kerbside recycling from dozens of Victorian councils now looks destined to go straight to landfill, after a major recycling company announced it would stop accepting their waste.

Key points: Local councils will have to find another recycler or send the materials to landfill

Local councils will have to find another recycler or send the materials to landfill SKM Recycling collects 400,000 tonnes of recyclable material from councils each year

SKM Recycling collects 400,000 tonnes of recyclable material from councils each year The company is on the brink of financial collapse but could be saved by prospective buyers

SKM Recycling last night told councils it would cease taking their recyclables, effective immediately.

The company, which has contracts with 33 Victorian councils, had earlier warned 400,000 tonnes of recyclables would be sent to landfill each year if fears of the company's demise were realised.

But the State Government has branded it a "rogue operator" and refused to bail it out.

Darebin Mayor Susan Rennie said her council, in Melbourne's north, would still collect households' recyclable waste this week, but had not yet figured out where it would be taken instead.

"There is a chance at the moment it will go to landfill … we are devastated that this is the possibility," she said.

"We've been actively working on a solution to avoid that — we haven't got a solution yet but hope to have one soon and we'd be calling on the State Government to assist with that."

SKM Recycling's sites have been hit with multiple shutdowns in recent months over stockpiled waste. ( ABC News )

Geelong mayor Bruce Harwood said his council's only immediate option was to send recyclable materials to landfill.

"I don't see what other options we have because we just have not put in place other options for our community," he said.

Affected local councils: Melbourne, Port Phillip

Melbourne, Port Phillip Darebin, Nillumbik, Hume, Whittlesea

Darebin, Nillumbik, Hume, Whittlesea Wyndham, Brimbank, Moonee Valley, Hobsons Bay

Wyndham, Brimbank, Moonee Valley, Hobsons Bay Cardinia, Booroondara, Stonnington, Knox, Casey, Kingston, Mornington Peninsula

Cardinia, Booroondara, Stonnington, Knox, Casey, Kingston, Mornington Peninsula Geelong, Colac Otway, Queenscliff, Surf Coast

Geelong, Colac Otway, Queenscliff, Surf Coast Ballarat, Macedon, Hepburn, Golden Plains

Ballarat, Macedon, Hepburn, Golden Plains Mildura, West Wimmera, Yarriambiack, Buloke, Hindmarsh, Pyrenees, Glenelg

Cr Harwood urged the State Government to act, suggesting it spend some of the $500 million it had raised in a sustainability fund to set up a container deposit scheme.

Some councils, however, saw the problem coming.

Glen Eira Mayor Jamie Hyams said his council's recycling would not end up in landfill because it had made alternative arrangements.

The council, in Melbourne's south-east, previously sent its recycling to SKM, but when issues arose early this year the council arranged a back-up contractor, Polytrade, with whom they signed a contract in May.

"It is important that we all continue to separate recyclables from non-recyclable materials and place them in the correct bin," Cr Hyams said.

An auditor-general report in June found the Victorian Government's failure to set a statewide waste policy had led to "significant" amounts of recyclable materials going to landfill.

Recycling sites 'fully loaded'

SKM Recycling consultant Rob Spence said the business's recent troubles began when the Environment Protection Authority (EPA) banned glass processing at SKM's Coolaroo site in May.

Because the company was unable to take any glass to the site, unsorted recyclables were taken to the Laverton North site, which was later banned from accepting more waste due to stockpiles.

"They can't take any more [recyclable materials] without breaching their permits with the EPA, because the system is fully loaded," Mr Spence told ABC Radio Melbourne.

Tonnes of recycling from 33 Victorian councils could be headed to landfill. ( ABC Radio Canberra: Jolene Laverty )

Mr Spence, who is a former head of the Municipal Association of Victoria, estimated it could cost councils about $700,000 per week to send recyclable waste to landfill during the closure.

He said the family-owned business — which Environment Minister Lily D'Ambrosio described as a "rogue operator" last week — had been unfairly demonised.

"If there's a fault on their side it's that they've tried to keep the thing operating when the system was under stress internally because of various things," he said.

He said there had been "absolutely limited" engagement with the company by the Victorian Government over the past 18 months as the EPA issued a series of bans and penalties.

Drones spot 'real' fire risk

EPA chief executive Cathy Wilkinson said a notice was placed on SKM's glass recycling facility in May because it was a fire risk.

"The glass coming onto that site is contaminated with material that's combustible," she told ABC Radio Melbourne.

"That's what has created the fire risk."

The site, Glass Recovery Services, is located next to SKM's processing facility in Coolaroo, which burned for days after fire broke out in July 2017, blanketing nearby suburbs in toxic smoke.

Dr Wilkinson said the EPA used drones this week to inspect Glass Recovery Services and found the site continues to be dangerously overstocked with recycling material.

"There is real material fire risk on a site that needs to be dealt with," Dr Wilkinson said.

"This is the pointy end of regulation. It is evidence-based, it is risk-based."

SKM waits for buyout

SKM Recycling, which allegedly owes more than $5 million to creditors, was given until the end of next week to pay its debts in an insolvency hearing at the Supreme Court on Wednesday.

At that hearing, creditors moved to have the company wound up in a bid to recoup their money.

But the company's lawyer told the court that if it was wound up, those creditors would probably get "zero" and a prospective $40 million deal was expected to save the company from collapse.

"I know there is still an investor that's interested, but whether that comes to fruition, we'll see," Mr Spence said today.

The judge agreed to adjourn the case until August 2, in order to avoid large volumes of recyclable material going to landfill and to protect the jobs of 300 employees.

In March, the company was charged with environmental offences over a 2017 fire at its Coolaroo site in the city's north, which burned for several days and led to the evacuation of more than 100 homes.

The State Government has been contacted for comment.