Administrators asked the former chairman to waive his claim for #300,000 last week.
When he refused to accept their proposal, there were fears the club would fold. But Mr Gibb insists he had his reasons.
He told the Telegraph and Argus:``It would have been a contravention of Inland Revenue rules and I was not at liberty to do that...I will do a lot for the club, but I won't go to jail fo it.''
Now City are bracing themselves for a crucial week of talks between administrators and possible investors.
Among those believed to be expressing an interest in saving the club from closure are Julian Rhodes and Gordon Gibb himself.