Fopp, one the country’s biggest music store groups, is preparing to appoint Colin Dempster of Ernst & Young as administrator as it warned some staff not to expect their monthly pay.

The company was in meetings with its bankers and Mr Dempster last night after earlier halting credit card transactions and online sales.

The talks come a week after Fopp closed its 50 stores, including its flagship on London’s Tottenham Court Road, for an extraordinary stock check.

A spokeswoman for Ernst & Young said: “We have been brought in to discuss the options with the management.”

She added that they involved administration, receivership or insolvency but cautioned that Mr Dempster had not yet been officially appointed by the court.

Dermot Power, of Ernst & Young rival BDO Stoy Hayward, said that, although HBOS, the banker to Fopp, and trade creditors had been “incredibly supportive”, administration was likely.

“BDO looked to create a restructuring without resorting to insolvency but we could not make it work,” he said.

Gordon Montgomery, the chairman and major shareholder of Fopp, who founded the chain from a market stall in Glasgow in the early 1980s, admitted last weekend that sales were falling. “We are experiencing difficulties. However, I can categorically state we will not go into administration.”

In a statement the company said: “Fopp continues genuine and lengthy negotiations with its bank, and is not in administration. Stock taking is complete, stores reopened on Saturday and will remain open.”

One member of staff told The Times that he had been told his store would not open tomorrow and that employees would not receive their monthly pay packet.

No one was immediately available to answer calls or confirm that the stores are due to close tomorrow. HBOS last night declined to make any comment.

A notice on Fopp’s website states: “Due to circumstances beyond our control we cannot currently take orders online. Sorry for any inconvenience caused.”

Store staff also report that they were unable to take card payments in the store and that all sales must be cash only.

One said: “I’m sorry we don’t accept cards any more across all the stores due to a problem with our system.”

It is thought Fopp’s acquisition of 67 stores from the administrator of failed rival Music Zone in February put pressure on its cashflow.

But all specialist retailers of CDs and DVDs have been hit by growing competition from online downloads and supermarkets. HMV today reported a 70 per cent fall in profits. Music Zone’s demise was blamed on the same factors.

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