Circuit City, one of America's best known high street names, has filed for bankruptcy protection after electronics manufacturers withdrew credit lines from the laptop to camera retailer.

Shares in the electronics group, which was founded in 1949, plunged by 56 per cent to just 11 cents as US trading opened after the business announced it would close 155 of its 600 American stores and renegotiate its shop leases.

The stores Circuit City is closing generated $1.4 billion in net sales in the financial year of 2008.

In a statement today, Circuit City said it has also managed to secure an emergency credit facility of $1.1 billion to reassure electronics suppliers that it can pay for goods.

Circuit City has already sacked 700 staff across the country and has cut back at its main corporate headquarters in Virginia.

However, following its Chapter 11 bankruptcy protection filing, the company estimates that it will have sacked a fifth of its entire workforce after its restructuring.

Bankruptcy protection is a legal mechanism which allows a troubled company to keep its creditors at bay while it draws up a new business plan, which has to be approved by a bankruptcy judge. The process is devised to buy time for distressed companies to sort out their problems, cut costs and prevent them from going bust.

Circuit City said today that while the sharp slide in consumer demand had placed the retailer under strain, it was the behaviour of electronics suppliers which had been the final straw.

In a statement, it said: "Despite aggressive efforts to secure vendor support, vendor concerns about the company's liquidity and ability to pay for its purchases in this difficult economic climate have escalated considerably since the company provided a liquidity update on November 3, 2008, further impairing the company's ability to conduct business and provide service to its customers."

In a separate statement, the retailer explained that electronics companies had become so anxious about whether Circuit City would survive, they had demanded up front payment for all goods before they were shipped to the retailer.

Such a withdrawal of credit facilities has come at a critical time for the retailer which is trying to stock up ahead of the crucial shopping season which traditionally kicks off during the Thanksgiving bank holiday, in two weeks' time.

While Circuit City has been struggling for some time, the company admitted today that the speed of the slowdown among shoppers had taken it by surprise.

Only in May, its shares traded at more than $5, but have collapsed to as low as 25 cents on Friday evening.

James Marcum, vice chairman and acting president and chief executive officer of Circuit City Stores, said: "We appreciate the support we have received from our lenders in the midst of such a tight credit market.

"With this support, we believe we have the opportunity to leverage our market position and the strength of our brand to restore Circuit City to solid financial footing."

Circuit City is the latest American company to axe jobs, fuelling the astonishing rise in unemployment across the country.

At the end of last week, Ford said it would sack 10 per cent of its workforce, while earlier today DHL - the US parcel delivery company owned by Deutche Post - cut 9,500 jobs in America.

Wall Street was shocked last week when Washington's Labour Department published official data showing that around 6.5 per cent of the US workforce is now without a job. The rise - from 6.1 per cent - is far faster than economists had been expecting.

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive