HOWZAT

Alan Duncan, Shadow Business Secretary, called on the Government to change Britain’s insolvency regime to help companies like Woolworths survive for longer. “Thousands of people who work for Woolworths will today be worried about their jobs and families,” he said.

“Our insolvency reforms would have given Woolworths a temporary breathing space to give it a better chance of coming up with a recovery solution.”

The Times revealed last Wednesday Woolworths was in crunch talks to sell its retail arm to Hilco, a distressed investment fund, for just £1.

Woolworths, which was has been loss-making for years, has a £385 million debt mountain. The retailer’s own two leading lenders are themselves struggling under the weight of the global financial crisis.

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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Woolworth’s management, which started its talks with Hilco last month, believed that a sale of the stores was the only way it could keep the business solvent.

Steve Johnson, chief executive, who previously ran DIY chain Focus, which was bought for £1 by a US hedge fund last year, had been worried for more than a week that Woolworths’ directors would soon break the law by trading without being able to pay creditors.

Several of the retailer’s unpaid suppliers had already filed winding up petitions with the courts to try to push the retailer into bankruptcy. Woolworths, which has been squeezed by falling sales and suppliers who have revoked their credit lines, also needed enough cash in its Barclays bank accounts to pay its 30,000 staff their November wages.

One of the last acts of the board was to secure staff wages, which will be paid out by Barclays on Friday. Mr Johnson has written to staff personally to guarantee that they would all receive their pay packets.

Woolworths’ pensioners also stand to lose out. The group’s pension fund had a mammoth £100 million pension deficit. Woolworths has agreed to pay £50 million to trustees of the scheme as part of the sale of 2Entertain to the BBC for about £100 million. Pensioners and current employees of the two collapsed arms will now have to stand in line other with other creditors.

Woolworths’ board, whose members include Littlewoods Direct’s chairman David Simons - also face legal action from the company’s leading shareholder.

Ardeshir Naghshineh, who owns 10 per cent of Woolworths and will lose millions of pounds as a result of the collapse sent an e-mail to the retailer’s board on Tuesday saying he would take them to court if they put the business into administration. Mr Naghshineh believed Woolworths’ retail arm was worth much than £1 despite its debt mountain.

Mr Naghshineh declined to comment on the potential legal action, but told The Times: “I am deeply disappointed that the company has gone into administration. I am also deeply disappointed that the Woolworths board was not prepared to enter meaningful discussions with us.”

Woolworths’ collapse will send shockwaves through the high street and could problems for the chain’s many supplies and for customers of the EUK arm.

Concerns were mounting amongst music, film and games companies, all of whom rely on Woolworths’ Entertainment UK arm to get CDs, DVDs, and games into Asda, J Sainsbury, Zavvi (formerly Virgin Megastores) and Woolworth itself. Deliveries collapsed yesterday, hitting the entertainment sector at a time when it is critical get products into shops.

About half of all music and film sales are conducted in the last six weeks before Christmas, although it is expected that the major supermarkets will find a way of resuming deliveries quickly, possibly using other suppliers.

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