Poundland's future hangs in the balance as chain edges towards collapse

The future of Poundland hangs in the balance as the discount chain edges towards collapse, the BBC understands.

The retailer has filed a notice of intention to appoint administrators, which if approved by the High Court, will give the business 10 days breathing space to find a rescue deal.

Poundland's managing director Barry Williams wrote a memo to his 12,000 staff across its 600 stores in the UK and Ireland saying the American owner of the chain had limited the chain's access to funding.

Gordon Brothers bought Poundland, which had been struggling, from the Polish retail group Pepco last year for a nominal £1.

But little over a year later it put the business up for sale in September.

Irish firm Martin Property Group (MPG) put forward a bid to take the business on as a going concern, but it is understood this did not meet Gordon Brothers' expectations.

Gordon Brothers wants to recoup a £30m shareholder loan it inherited from the previous owners as part of a its deal, but it is understood the Martin Property Group offer fell short of that £30m total.

It is understood MPG was not prepared to pay the full amount in advance.

It means Poundland is now heading towards an insolvency process as Gordon Brothers either secures a new owner through what is known as a pre-pack administration, or it could break the business up and sell parcels of stores to interested parties such as Iceland, Lidl, and B&M.

Poundland in rescue talks as owners seek buyer

However, there is a split between the owners and the management running Poundland, who described the situation as "unexpected, unwanted and wholly avoidable".

"As you all know, our sales are strong and our recovery is taking root.

This business simply does not deserve to go into any kind of administration," said Williams, the chain's managing director.

He revealed that Gordon Brothers had limited Poundland's access to funds which help it run its day-to-day business in a message to his staff this week.

"I'm disappointed to have to tell you that Gordon Brothers have given instructions that restricts our access to funds that we would, in normal circumstances expect to access fully under our existing loan agreement," he added.

In the memo, seen by the BBC, Williams said the offer from Martin Property Group was a "fully funded, ready to go bid that would have kept the business intact and able to continue the remarkable progress we've made".

Three independent directors who were appointed earlier this month to help oversee a sale have resigned with immediate effect after disagreeing with Gordon Brothers' decision not to accept MPG's solvent offer.

If its notice to appoint adminstrators is approved, the management team will be given breathing space to look for a rescue deal.

The move creates a 10 day pause on creditors calling in debts.

Poundland's main creditor is its owner, Gordon Brothers.

The BBC understands Gordon Brothers has lined up AlixPartners as administrators.

Gordon Brothers has been approached for comment, but in an earlier statement it said while MPG was identified as the "preferred bidder" by Poundland's management team, "attention must now turn to other active bids".

"As well as interest from buyers for the whole business, the sale process has also surfaced a number of formal and indicative offers for significant viable parts of the business from established retail operators," they added.

"These options will now be objectively evaluated, with a view to minimising uncertainty for Poundland's people and all relevant stakeholders."