BHS could be put into administration, placing thousands of jobs in jeopardy, unless its landlords agree to swingeing rent cuts of up to 75 per cent, insolvency sources say.
On Thursday BHS entered into a company voluntary arrangement (CVA), a type of insolvency process, so it can restructure its liabilities.
It said it is being crippled by onerous rents and it is looking to cut its monthly payments by 25 to 75 per cent at 87 out of its 164 stores.
The high-street stalwart, which employs close to 10000 people, is being advised by restructuring experts at KPMG.
The accountancy firm has begun talks with the retailer's landlords and other creditors, who will vote on the CVA on March 23 a week before its quarterly rent day.
A source close to BHS said that it and KPMG will make it clear in talks that unless the landlords back the CVA and the rent reductions, there will be serious consequences.
"We want the CVA to work. But if it is not agreed, then you're looking at the administration route, "he said.
"With CVAs, its one of the strongest arguments you have for cutting rents. Obviously the landlords will want to have reduced rents and thriving tenants rather than empty buildings. "
BHS also wants its landlords to agree to monthly rents, instead of the current quarterly payments. It was bought by its current owners, investment consortium Retail Acquisitions, 12 months ago from retail tycoon Sir Philip Green for a nominal amount.
Led by chief executive Darren Top, BHS is cutting costs and has installed new concessions and food halls in a bid to win back customers.
According to its last set of accounts, BHS made a pre-tax loss of & pound; 85.1 million for the 12 months to August 302014 despite having sales of & pound; 668 million.
Nick Hood, business risk adviser at Opus Restructuring, said: "A CVA fixes a bit of the problem, but it's not a silver bullet. I wish it the best of luck, but I'm struggling to see how it can have a future. "
Elsewhere, WM Morrison chief executive Dave Potts is expected to say that the supermarket giant is back in the black, when he announces its annual results on Thursday.
In 2014 Morrisons made a pre-tax loss of & pound; 792 million but, thanks to Potts' stabilisation and turnaround plan, the retail giant is understood to have made a profit of & pound; 300 million.
Potts was parachuted into Morrisons 12 months ago and it is understood that although revenues for the year as a whole are down, sales picked up during the fourth quarter and that it traded well over the festive period.
Shore Capital head of research Clive Black said: "Morrisons had positive trading momentum over Christmas and while one swallow does not make a summer, it has stabilised. It is definitely going in the right direction. "
John Lewis will also report its full-year results on Thursday.
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