Fashion group Mosaic is to begin talks with its lenders in an attempt to secure the future of the business.

Mosaic, which owns chains including Karen Millen, Oasis and Principles, will enter talks with Icelandic bank Kaupthing about its working capital after being hit by tough trading and the withdrawal of some of its credit insurance.

According to The Sunday Times, Mosaic, which is backed by Baugur, is not paying any interest on its estimated£400 million of debt at present, which is being controlled by a government appointed committee running Kaupthing since the collapse of the Icelandic banks.

It is understood that if the retailer was to start making interest payments its financial future would be put in jeopardy.

Mosaic is also said to have been looking for a debt-for-equity swap with potential suitors including Sir Philip Green and private equity group Alchemy.

If no deal can be reached the retail group faces possible administration as the management team would not want to break City rules that do not allow a business to trade that is technically insolvent.