Reuters reported gun maker Colt Defense and its creditors are close to a deal on a plan to bring the company out of bankruptcy, but if it fails, the business will go on the auction block next month, a company lawyer told a judge on Thursday.

According to the Reuters report, Colt filed for bankruptcy earlier this year due to falling sales of its sport rifles and the loss of military contracts. The company's private equity owner has been battling its bondholders for control of the business, and the parties are pressured by Colt's dwindling cash.

Colt filed for bankruptcy in June with a plan to sell the company to its private equity owner, Sciens Capital Management, in return for some of Colt's debt. Under that plan, which was abandoned, holders of the company's $250 million in bonds would have received nothing, Reuters reported.

To read the full Reuters report, click here.