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Poundland has filed a notice of its intention to appoint administrators, according to court documents.
The move gives the retailer temporary protection from creditors while it explores whether the business can be rescued.
Advisers are understood to remain in talks with potential buyers interested in acquiring the Poundland brand and large numbers of its stores.
Managing director Barry Williams told the retailer’s 12,000 employees that the situation was “unexpected, unwanted and wholly avoidable”.
He said Poundland’s US owner, Gordon Brothers, had restricted the funding available to the business.
Gordon Brothers bought the struggling retailer from Polish group Pepco for a nominal £1 in June last year.
It then began looking for a buyer at the start of September.
Irish property company Martin Property Group submitted an offer to keep Poundland trading as one business and was reportedly management’s preferred bidder.
However, Gordon Brothers rejected the bid because it is understood to have fallen short of its expectations.
Gordon Brothers is seeking to recover a £30million shareholder loan inherited when it bought Poundland.
Martin Property Group reportedly offered £5million upfront, with the remaining amount to be paid later.
Gordon Brothers is now understood to favour breaking up the business.
Poundstretcher, B&M and Lidl have reportedly shown interest in buying some of Poundland’s roughly 600 stores.
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