BBC’s Newsnight programme has said that the organisation, which supports around 36,000 children, young people and vulnerable adults, will close its services today.
The news comes just weeks after chief executive Camila Batmanghelidjh agreed to step down in order to secure £3m in Cabinet Office funding to enable the organisation to restructure.
Alison O’Sullivan, president of the Association of Directors of Children’s Services, said councils will be working to help those in receipt of support from Kids Company.
“The Department for Education has been co-ordinating Kids Company, local authorities and other charities in preparation for the closure," she said.
"The impact of this will vary across the areas where the charity operated.
"However all of the authorities where the Kids Company delivered services will be working hard to limit the impact of its closure on the vulnerable children, young people and communities who rely on its services.”
Meanwhile, Mayor of London Boris Johnson told BBC Radio Four’s Today programme that voluntary organisations must play their part as well.
“What I want to happen is to ensure that all the kids who have been receiving care and attention from Camila and her team will have some kind of safety net.
“If indeed it is correct that Kids Company is going to close, then what I want to see is that the other voluntary organisations that we support through City Hall, Team London, and the Mayor’s Fund for London, try and do what they can to provide some help.”
Tim Loughton told the Today programme that he had raised "serious concerns" over whether funding the charity represented value for money when he was in government.
"This was a large amount of public funds, it was the second largest grant I think I was responsible for in the Department for Education and they really did need to justify how the money was being spent," he said.
Kids Company operates through nine centres and two therapy houses in London, Bristol and Liverpool, providing therapeutic and social work services.
The BBC reports that the charity will be forced to shut down because the Cabinet Office intends recover the recent £3m grant due to the conditions attached to the use of the money not being met.
The £3m grant had been intended for a "transformation and downsizing plan" that would support the charity as it reformed itself.
But it has been claimed that the charity used some of the cash to pay staff.
News of the possible closure comes just a week after it emerged that police have launched an investigation into Kids Company over claims of child abuse.
The Metropolitan Police said it has launched an inquiry into the children’s charity, but has not given precise details of what it describes as “a number of allegations”.
Kids Company has been contacted for comment.