Rangers have rejected the Blue Knights' bid to save the Scottish Premier League club from liquidation.
After negotiating with the Gers' administrators Duff and Phelps, Brian Kennedy has been informed the joint £8.5m bid - made with Paul Murray - will not be accepted.
The Blue Knights are expected to hold a press conference on Friday in response to their offer collapsing.
Duff and Phelps claim there are two other bids on the table, one from the UK and one from overseas.
The administrators said: "We have continued discussions with the parties remaining in the bidding process and good progress has been made," read a statement from Duff and Phelps.
"We can also confirm that Craig Whyte has confirmed that he will transfer his shareholding in Rangers Football Club to two of the parties and has indicated he would not be an impediment to a sale of the club.
"We will issue a further update for supporters tomorrow and can say that every effort is being made to conclude the sale of the club as quickly as possible."
Singaporean businessman Bill Ng, who previously led an offer to buy the Blues before pulling out, is not believed to have re-entered the bidding
Kennedy, owner of Sale Sharks Rugby Club, had previously had two individual bids for the club rejected by the administrators.
This latest setback for the club comes after American businessman Bill Miller had a bid rejected last week.
Owner Craig Whyte meanwhile has agreed to transfer his majority shareholding.
Whyte's per cent stake in Rangers is required for the club to exit administration via a Company Voluntary Arrangement (CVA).
He bought the Teddy Bears from Sir David Murray for £1 in May 2011.