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HMV enters administration, seeks a buyer

HMV has announced that it has entered administration, putting the company's 239 UK and Ireland stores - and an estimated 4,500 jobs - at risk.

Following a continued slump in sales - the blame for which many analysts place firmly at the feet of cut-price internet-based retailers like Amazon - HMV announced that it was to appoint an administrator to handle the company's operations while it attempts to find a buyer. Should no buyer be found, the company will be broken up and its assets sold off to pay its debts.

The company's troubles came to a head when Christmas sales failed to live up to expectations, preventing the paying off of bank debts taken on in order to fund stock purchases and salaries for its 4,500 staff. As a last-ditch attempt to stay afloat, the company reportedly requested aid from the music, game and film industries - representatives of which own a 5 per cent stake in the company - in the form of a £300 million finance package. Sadly, this cash never materialised - giving the company no choice but to enter insolvency protection and seek a buyer in order.

Insolvency protection is roughly analogous to the Chapter 11 bankruptcy protection system in the US: a third-party financial firm is appointed as administrator of the company, while shares are frozen and debts go unpaid. This gives the administrators a window of opportunity to find funding, typically by seeking a buyer or investment group that is willing to take on both the company and its debt. If no buyer can be found, the company will typically be broken up and its individual assets sold off to cover existing debts.

For HMV and its staff, the next few months will be critical: the company's directors have issued a statement claiming that it is their understanding that the administrators will continue to operate the chain as normal until a buyer can be found, but with the high street being hit hard by the weak financial climate it's hard to think who may splash out on saving the brand when many of its high-profile compatriots - including the recently-closed Jessops photography chain - have fallen by the wayside in recent years.

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