The Victorian government is scrambling behind the scenes to prevent recyclables from going to landfill if a major player pulls the pin.
Giuseppe Italiano, the founder of SKM Recycling which collects about half of the state's kerbside recycling, says he has run out of money and plans to close his doors.
"We are closing up next week, I am closing the doors and destroying the machinery. Someone is out there playing games to have me closed down," he told The Herald Sun.
Labor MP Jacinta Allan told reporters on Sunday the government had already invested $135 million on a range of actions to prevent recycling ending up in landfill.
"If that eventuates, if that private company makes that decision - and that's a decision for them - the government has already been working ahead of this potential outcome occurring," Ms Allan said.
"The government has already been working on bringing alternative industry players into this sector and also working with local governments about what alternatives are available to them."
More than 30 local councils currently have contracts with SKM, making up about 50 per cent of kerbside recyclables.
"This whole recycling fiasco is entirely (Premier) Daniel Andrews' and his government's making. It is an absolute and total shambles," Opposition spokesman David Davis said.
"Now we see the predictable catastrophe, the predictable fiasco. It is a circus."
SKM Services Pty Ltd director Robert Italiano, faced a Melbourne court on July 16 charged with five counts of breaching the Environment Protection Act following a blaze at the firm's Coolaroo site.
The fire started on July 13, 2017 and took 11 days to be extinguished.
In recent times, the firm has been plagued by problems including growing waste stockpiles that exceed licence limits and fires which have created toxic smoke.
Australian Associated Press