A group of 18 local newspapers in Warwickshire and Worcestershire is at risk of closure after the family-controlled parent company became the first significant newspaper group to descend into administration.

Chris and Pat Bullivant founded the Leamington Spa Observer in 1988 and started a free paper almost every year thereafter, spreading their business to take in Coventry, Redditch and Warwick, eventually employing 150 people.However, months after celebrating its 20th anniversary, Observer Standard Newspapers, the Bullivants’ company, went into administration on Monday. Grant Thornton, the accountant, is now in control of the business.

Observer Standard’s failure demonstrates the crisis in Britain’s local newspapers, all of which are suffering falls in advertising of up to 40 per cent. As a publisher of free newspapers, Observer Standard depended entirely on advertising for its £9 million annual revenue and was hit hard when property advertising collapsed. Grant Thornton is seeking a buyer for the group and will publish the papers this week.

Elsewhere, Guardian Media Group (GMG), owner of the Manchester Evening News and the Reading Evening Post, said yesterday that it would make 150 out of 800 employees redundant in Manchester and at satellite titles. More redundancies are expected to be announced today at its newspapers in Surrey and Berkshire.

GMG, owned by the trust behind The Guardian and The Observer, expects profits at its regional newspaper division to fall 85 per cent in the year to March 31, to about £2 million. Insiders said that if no job cuts were made the local newspapers would make “substantial losses” in 2009-10.

The group has decided not to close any of its 38 titles at this point, but Mark Dodson, the chief executive of its regional business, said: “The economic viability of local and regional newspapers is under very real and imminent threat.” He said that a “lower-cost business model” had to be found.

Trinity Mirror, the largest regional newspaper publisher, closed 27 titles in 2008. It said that the failure of Observer Standard, which had tried to buy Trinity’s Birmingham Post, was “yet another example of why the Government needs to act swiftly and decisively to change the merger regime” to allow further market consolidation.

The Office of Fair Trading began an inquiry into those rules yesterday, with companies in the sector believing that the “big four” regional publishers — Trinity Mirror, Johnston Press, Daily Mail and General Trust and Gannett’s Newsquest — should be allowed to consolidate to two. A final decision on the rules is expected in May when the Digital Britain review is published by the Government.

Adrian Jeakings, the chief executive of Archant, the fifth-largest local newspaper publisher, said there was a risk of “other publishers falling into administration in the next year or so”, but added that new merger rules would only partially mitigate the financial pressure. “I think, in the end, we are going to have to tough it out,” he said.

Times Recommends

• Minister in talks with Saudis to protect creditors
• Premier Inn hits back in £29-a-room row
• Bankers hit back at 'populist' bonus supertax