The fate of iconic high street retailer, Woolworths, was hanging in the balance last night with only desperate early hours negotiations with lenders standing between the group and administration.

Sources last night said administration was the most likely option as the retailer scrabbles to find sufficient funds to pay its monthly wage bill, despite an agreed side deal to sell, 2 entertain, its music and film distribution business. Woolworths has agreed in principal to sell 2 entertain to BBC Worldwide, its joint venture partner, for £100 million in a bid to cut its debt.

However, the deal must go ahead together with a rescue deal to sell its 840-store high street business to Hilco, the distressed-business fund, or not at all because lenders must agree the whole package.

Woolworths is expected to make an announcement this morning.

Steve Johnson, Woolworths chief executive, fears that he and the rest of its board will be forced to put Woolworths into administration themselves to avoid breaking the law by trading while insolvent, is trying to juggle its cash position to allow it to meet its payroll obligations on Friday.

It is understood that the retailer’s finances are balanced on a knife edge as its till receipts have fallen and its suppliers have refused to trade with it.

Woolworths and its banks refused to comment last night, but well-placed sources say that the retailer must have the money in its accounts by the end of tomorrow to pay staff at the end of the week. It also faces a series of other bills that it needs to meet.

However, Woolworths’ talks to sell to Hilco for £1 are understood to have advanced. A deal between Hilco and Woolworths’ banking syndicate – led by Burdale, the Bank of Ireland subsidiary, and GMAC and advised by Deloitte – could be concluded by the end of the week, if it is to happen at all. Hilco, which has been in exclusive talks with Woolworths for weeks, wants to take over its retail arm as soon as possible to maximise revenue from Christmas trading. If Hilco succeeds with a bid, it is tipped to put the retail business into a prepackaged administration immediately, allowing it to shed some liabilities. Mr Johnson is refusing to meet Woolworths’ largest shareholder, Ardeshir Naghshineh, an Iranian property magnate with a 10 per cent stake. Sources say that Mr Naghshineh has been told that its exclusivity pact with Hilco precludes talks with a rival bidder.

Shares in Woolworths hit another low yesterday, closing 8.96 per cent down at 1.22p.

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