Sir Richard Branson's Virgin Group is reported to be embroiled in the collapse of Woolworths through the music chain it sold to the management more than a year ago.

Virgin, which sold Virgin Megastores to its management which then subsequently changed the name to Zavvi, is believed to be facing liabilities of£100 million.

Zavvi had been relying on Woolworths' wholesale arm to supply it with its stock when it fell into administration, leaving the chain without some bestsellers in the key Christmas period. This has forced Zavvi to buy stock at short notice from other suppliers and pay cash upfront.

Under the management buyout, Virgin agreed to guarantee millions of pounds of Zavvi's payments to Woolworths for stock, and has therefore stepped in with its cash and management expertise.

According to the Financial Times, Zavvi currently owes Woolworths between£50 million and£100 million. In addition, Virgin put up a sum of£50 million to help fund the new business, part of which is due to be repaid. If Zavvi were to fail, some leases on the Zavvi stores would revert back to Virgin. It is understood that there is little danger of Zavvi being unable to pay its bills, however, as the goods it had yet to pay for were being sold in the run-up to Christmas.