Fixit team of accountants go in to sort out Zavvi's troubles

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Zavvi was forced to close its website and turn to other suppliers after its major supplier EUK was put into administration at the same time as its owner Woolworths at the end of last month.

Ultimately, the team from Ernst & Young could become Zavvi's administrators if they and the management team cannot ensure repayment of its debts.

Formerly Virgin Megastores, Zavvi has been relying on Sir Richard Branson's Virgin Group to keep it in stock in the run-up to Christmas with a rolling loan of between £4 million and £5 million.

But the retailer also owes a total of £100 million to EUK, whose administrators Deloitte asked for the E&Y team to be brought in, with the agreement of Zavvi's management.

Virgin, which sold Zavvi to its management for a nominal £1 just over a year ago, has since then stood as guarantor to stock supplied by EUK on 60-day credit terms. Those terms ceased when Woolworths went into administration on 28 November.

So far, it is reckoned that Zavvi has sold about half the £100 million of stock supplied by EUK and therefore has £50 million of cash to pay its supplier's bills when they finally fall due towards the end of January.

But in the meantime, the retailer will also have to find payments for its shop rents early in the New Year and sort out a longer-term solution to replacing its supplies.

Ernst & Young's team is focusing on a wide range of options for the business, from a full-scale restructuring to immediate ways to improve cashflow.

Meanwhile, at Woolworths, the closing-down sale continued for a second day. Yesterday, when it kicked off, administrators Deloitte said that it resulted in the highest daily turnover in the company's 99-year history.