The SNP candidate chosen to fight the by-election in the seat of former Commons speaker Michael Martin has stepped down following newspaper reports over his finances.
James Dornan used a 'protected trust deed' to keep creditors at bay between 2004 and 2007, according to press reports.
A Glasgow newspaper questioned whether Mr Dornan was wrong to help manage Culture and Sport Glasgow for seven months during that time. The 2005 Charities and Trustees Investment (Scotland) Act bars an "undischarged bankrupt" from being a charity trustee.
Mr Dornan, SNP leader on Glasgow City Council, said he was taking legal advice on whether he has breached charities legislation. He said he had acted in good faith but did not want the issue to overshadow the forthcoming by-election.
Labour seized on Mr Dornan's recusal from the race. Paul Martin, Labour MSP for Glasgow Springburn, said: "The SNP campaign here is in complete, utter and total meltdown. On Sunday afternoon they were delivering leaflets saying James Dornan was their candidate. Now they have no credibility left."
In a statement on Sunday evening Mr Dornan said: "In light of a report in one of today's newspapers, I have decided to step aside as the SNP candidate in the Glasgow North East by-election. In doing so, I want to make clear that I am not ashamed of having experienced financial difficulties in the past. Many people know only too well how that feels.
"I am taking legal advice on the suggestion that there may have been a technical breach of charities legislation by virtue of me being appointed a partner director of Culture and Sport Glasgow by Glasgow City Council, a position for which I received no financial gain whatsoever.
"However, I am absolutely clear that throughout the period of the Protected Trust Deed, I acted in good faith. I took advice about its implications and was advised that it was not a bar to holding public office."
A Protected Trust Deed lets an individual repay their debt over a specified period of time, based on what they can afford. The 2005 Charities and Trustees Investment (Scotland) Act defines an "undischarged bankrupt" as someone who has granted a trust deed for or entered into an arrangement with creditors
The Glasgow North East by-election is taking place after former House of Commons Speaker Michael Martin stepped down as the MP for the area.
Party members in the Glasgow North East constituency selected Mr Dornan over former broadcast journalist David Kerr, the other man in the running, at a meeting on July 7. No date has yet been set for the poll.
Mr Dornan, 56, who represents the Langside ward in the city, said: "I am not prepared to allow this issue to overshadow the by-election or to be exploited by Labour as a distraction from the real issues of the campaign."
The SNP said it will now arrange a selection meeting to choose a new candidate. A party spokesman said there was nothing to stop Mr Kerr putting his name forward again. He added that the party respected Mr Dornan's decision.
The spokesman said: "This is an honourable decision by James Dornan. He is clearly putting the interests of the SNP and the Glasgow North East constituency ahead of his own. There is absolutely no shame in experiencing financial difficulties. Many people - particularly in this economic climate - know what that is like. Nor is having a Protected Trust Deed any bar to holding public office or being a candidate for election."