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Woolworths' banks have been ordered back to the negotiating table to find a way to save the struggling retailer, by a senior government minister in the department run by Lord Mandelson.

It is understood a minister from the Department for Business Enterprise and Regulatory Reform (BERR) last night called John Varley, chief executive at Barclays, as well as the Bank of Ireland's Burdale divison and GMAC, to ask why the banks were pushing the 99-year old pic 'n' mix retailer into administration.

The fate of Woolworths hung in the balance before government ministers intervened, and this morning shares in the business were suspended as the company tried to wrap up talks to sell its 840 stores chain to Hilco for £1.

Times Archive

• 1919: Frank Winfield Woolworth, pioneer of the sixpenny store

• The Woolworth Building, a wonder of the world

• That's the wonder of Woolies

Times Archive, 1968: Woolworth disappoints again

• Times Archive, 1969: Changing patterns of High Street trade

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Woolworths is also in discussions to sell its 40 per cent stake in 2Entertain, the DVD business, to BBC Worldwide, its joint venture partner.

Hilco is almost certain to put the stores through a pre-packaged administration in any event, but Woolworths needs a deal immediately to save its other two divisions, EUK and 2Entertain, from going into bankruptcy.

The retailer employs 30,000 people and it also has a pension deficit of £100 million. Around 20,000 pensioners could be left in the lurch if Woolworths fails.

In the meantime, it has emerged that Woolworths' biggest shareholder, Ardeshir Naghshineh, wrote to the retailer’s entire board this afternoon to ask them for one final meeting to discuss a deal.

Mr Naghshineh declined to comment, but it is understood the Iranian tycoon has found financial backers who could give the company an immediate cash injection.

How much the Naghsinheh consortium could commit and whether the money would be enough to satisfy Woolworths’ banks, remains unclear.

But a source told The Times: “This is crazy. We just want to get around the table and talk to them properly and they are stopping us at every turn. We think the company is worth about £400 million over 3-5 years.”

The woes of the retailer’s board may also be about to get worse. It is understood Mr Naghshineh is serious considering legal action against the board if the company goes into administration.

The Iranian tycoon stands to lose around £5 million if the company collapses and the value of his shares is wiped out.

Woolworths declined to comment.

A source close to the retailer said: “Mr Naghshineh has spoken to the board every day and has every opportunity to meet us. There’s no way board members have broken the law.”

Woolworths' shares have been suspended at 1.22p, after falling 8.96 per cent yesterday, valuing the company at just £17.8 million - 95.3 per cent less than its £385 million debt mountain.

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 and 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.

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