Bank of Ireland has pulled the plug on the rapidly-growing Music Zone chain of record shops in the UK, forcing the business into examinership. Barry O'Halloranreports

The Irish bank has backed the chain since 2005, when Lloyds Development Capital (LDC) bought the business from founder Russ Grainger for £12 million (€17.8 million).

Music Zone was recently billed as the "fastest growing chain in the UK". Since the LDC takeover it has grown the number of stores from 54 to 102, largely thanks to the purchase last year of a smaller rival from receivership.

However this week the bank moved to recover a €2.23 million (£1.5 million) loan to Music Zone, and said it was withdrawing credit facilities. It advanced the loan before Christmas. The bank gave no notice of the withdrawal of credit.

The move forced the company's management to place the chain in administration, the UK equivalent of examinership. This will allow it to keep trading until a rescue plan can be put in place or a buyer can be found.

The administrator, Deloitte partner Bill Dawson, is confident it can be sold as a going concern. Its projected turnover for the 12 months ended next May is £115 million.

Music Zone's below par performance in the key pre-Christmas period is understood to have prompted Bank of Ireland's decision.

In a statement, the bank said: "Following a period of difficult trading at Music Zone, Bank of Ireland regrettably concluded that it could no longer support the business."

Increased competition from the internet hit pre-Christmas trade at the major music and DVD retailers, and last month prompted profit warnings from HMV and Woolworths.

LDC also acknowledged that the business "struggled" in the face of aggressive pricing and decreasing sales in the music and DVD markets.

Consumers are increasingly buying these products online or, in the case of music, downloading it directly from the web. The sector is also blaming the lack of blockbusters for poor seasonal trade.

Christmas is a vital period for these businesses, and is often the difference between making a loss and making a profit for the whole year.

However ahead of the December rush, Ged Doherty, head of Sony BMG's UK operations, predicted that CD sales would halve over the next three years, while digital growth would reach about 25 per cent.

He forecast that music industry revenues would fall by 30 per cent by 2010.

In an interview with the Manchester Evening News in October, Music Zone boss Steve Oliver was bullish about the company's prospects for Christmas, and claimed that Music Zone was successfully dealing with the internet threat.

He also revealed plans to enter the games console market, and to open a further 25 new stores in the UK.

The Stockport-headquartered company employs over 1,100 people.