Poundworld is on the brink of collapse after a buyer walked away from talks to rescue the business and 5,300 jobs.
Sky News has learnt that Alteri Investors, which specialises in backing troubled chains, pulled out of negotiations with Poundworld's owners and advisers within the last 24 hours.
However, a source familiar with the retailer said Poundworld's private equity owner TPG was in talks with an "interested party" over the sale of the business.
Poundworld's founder, Chris Edwards, is understood to be putting together a rescue plan to buy back part of the chain.
U.S. firm Flacks, which had expressed interest, is also understood to no longer be a contender.
Department store chain House of Fraser is close to unveiling a restructuring, which could come as early as Wednesday.
If a solvent sale of Poundworld cannot be agreed, the business could be sold through a pre-pack administration or collapse outright, underlining the urgency of rescue talks which are being led by Deloitte, the professional services firm.
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Failure to successfully conclude a deal with creditors will lead to HoF plunging into administration, it warned in an announcement about its restructuring.
It is now understood to have pulled out of bidding for the company, which has 355 stores in the United Kingdom and employs 5,300 people.
Current owner TPG put Poundworld up for sale last month.
The potential end of Poundworld comes in a devastating year for the once-great British High Street - with Toys R Us already disappearing from towns and cities.
In addition, Carpetright, Mothercare and New Look have all undertaken sweeping store closure programmes.
Restaurant groups including Carluccio's, Prezzo and Byron have also been shutting dozens of branches as they are squeezed by rising costs and a fall in consumer spending.
Poundworld was acquired by TPG Capital for £150m in 2015 but it has struggled in the wake of the Brexit blow to sterling that pushed up the cost of imported goods.