Poundland is reported to be only days away from collapsing, while the government says it is "on alert" about the danger of thousands of job losses.
The situation follows the planned resignation of three board members who were appointed just two weeks earlier, after a clash with the discounter's owner, Gordon Brothers, according to Sky News.
Sources told the outlet the dispute centered on the group's refusal to accept a "solvent offer from Martin Property Group".
They said this refusal makes it "increasingly likely to be broken up after being placed into insolvency proceedings."
The warning comes shortly after The Telegraph reported that the government was "on alert" over the risk of thousands of job losses at Poundland.
Downing Street learned of the concerns when the discounter's owner unexpectedly decided to put the chain up for sale.
Poundland currently operates more than 600 stores and employs 12,000 people.
