Woolworths is in talks to sell its entire high street business to Hilco, the specialist distressed fund, for £1.

Any deal will require the approval of the troubled chain’s banking syndicate, which recently appointed restructuring advisers from Deloitte to guide it on further loan negotiations with Woolworths.

The talks are likely to hinge on how much of Woolworth’s debt Hilco, a global turnaround specialist, is willing to take on. Negotiations over the responsibility for the £100 million pension fund deficit, which Hilco will not want to assume, will also be difficult.

Woolworths declined to comment but a solvent demerger of its underperforming retail arm and its media and distribution businesses - 2entertain, the DVD publisher, and EUK, a specialist distribution business - would be a huge victory for a company than many believe will not survive Christmas. The deal would also require the approval of Woolworths’ shareholders, who will be left with the remainder of the company, which is likely to be burdened with the bulk of the pension liability and debt.

Hilco, which has worked with many big name retailers including Sir Philip Green and Sir Tom Hunter, is viewed as one of the few funds with the skills to turn the ailing retail empire around. It was catapulted into the spotlight in 2005 when it bought up the debt of Allders and pushed the department store chain into administration. The move was controversial because members of Allders’ pension fund lost out while Hilco made a huge profit.

A host of high profile retailers including Malcom Walker, the Iceland boss, Sir Alan Sugar and the Iranian tycoon Ardeshir Naghshineh have bought into Woolworths in the hope of extracting unrealised value. Some investors claim that its property portfolio is worth much more than was previously estimated.

Woolworths, whose board has been advised by a KPMG corporate advisory and restructuring team for at least 12 months, is in parallel negotiations with Burdale Financial, a division of the Bank of Ireland, and GMAC, its lenders, about the sale of the retail business. The group also faces crunch talks with them to approve next year’s budget and financing. Woolworths last refinanced only a year ago.

One possible bidder for the 2entertain arm is BBC Worldwide, which already owns 60 per cent of the joint venture. It was put up for sale by the group’s investment banking adviser UBS this year but later withdrawn when no attractive bidders were found. The BBC has the right to buy out the 40 per cent stake held by Woolworths before any other bidder.

Shares in Woolworths, which have been worth less than 10p for most of the year, closed 5.81 per cent down at 3.8p yesterday. Retail analysts have suggested they have no value.

Times Recommends

• ‘Lame duck’ fear for FSA as chief quits
• Storm over bailout of EU's most ailing economy
• Northern Rock to drop 100% savings guarantee