Debenhams has been placed into administration and the retailer's lenders have seized control of the company.
The department store chain, which has branches in Sunderland, South Shields, Newcastle, the MetroCentre and Middlesbrough, had been subject to a rescue offer from Newcastle United and Sports Direct owner Mike Ashley, which was upped to £200million this morning - but was conditional on the tycoon being made chief executive.
His offers were turned down and the company was placed into administration, with lenders taking over the business. Mr Ashley's Sports Direct owned a 30% stake in Debenhams, which will be wiped out together with the stakes of other investors.
FTI Consulting has been appointed to carry out the process but the firm insisted that stores will continue to trade as normal.
Administrators have sold the group to a newly-incorporated company controlled byDebenhams' lenders, including hedge funds thought to include Alcentra, Angelo Gordon and Silver Point Capital.
Under new ownership, Debenhams will have access to £200million in emergency funding.
The move is expected to trigger store closures and job losses as part of a wider restructuring that will see around 50 outlets shut via a Company Voluntary Arrangement.
Debenhams had on Tuesday rejected a separate rescue bid tabled by the billionaire tycoon.
Terry Duddy, Debenhams chairman, said: "It is disappointing to reach a conclusion that will result in no value for our equity holders.
"However, this transaction will allow Debenhams to continue trading as normal; access the funding we need; and proceed with executing our turnaround plans whilst deleveraging the group's balance sheet.
"We remain focused on protecting as many stores and jobs as possible, consistent with establishing a sustainable store portfolio in line with our previous guidance.
"In the meantime, our customers, colleagues, pension holders, suppliers and landlords can be reassured that Debenhams will now be able to move forward on a stable footing. I would like to thank them all for their recent and continuing support."
A spokesman for the Debenhams Pension Schemes said: "Debenhams Retail Limited has been transferred to a newly-incorporated company and continues to trade and operate as normal. Members can therefore be reassured that the schemes are carrying on as usual.
"The trustees have worked with our specialist advisers throughout the process of the company's refinancing and restructuring, to ensure that members' interests are taken into account and we have consulted closely with The Pensions Regulator and the Pension Protection Fund at every stage.
"We are in the process of writing to all members with further information and we will continue to keep them informed."