THE former owner of van maker LDV is this weekend finalising a rescue takeover of SCS Upholstery in a deal that is expected to wipe out most of the value of investors’ shares.

Sun Capital Partners has been locked in discussions with the struggling furniture chain. It has a period of exclusivity that runs out tomorrow and a deal may be announced by the middle of the week.

However, it is understood that any agreement requires the approval of Barclays, which provides the credit facilities that many SCS customers rely on to finance their purchases.

Failure to agree a deal with Sun Capital by the deadline will allow other interested parties to approach the Sunderland-based group, which has been hit by the consumer downturn.

If a rescue deal can’t be done, SCS, which has more than 100 UK stores and 1,500 employees, could go into administration.

Sun Capital Partners is an American private-equity firm with about $10 billion (£5 billion) under management and which specialises in investments in underperforming companies.

Its European arm has bought several struggling British firms. The most publicised was in 2005 when it came to the rescue of LDV, which was formerly part of the collapsed British Leyland group.

LDV fell briefly into administration and Sun Capital’s buyout saved nearly 1,000 jobs at the Birmingham-based firm.

However, the takeover was later mired in controversy. Creditors owed about £220m by LDV were mostly wiped out by the administration procedure and the company’s £22m pension deficit was passed on to the British government.

Just over six months later, Sun Capital sold LDV to Russian tycoon Oleg Deripaska.

Ernst & Young and Close Brothers have been looking for solutions for SCS over the past few weeks. A big decline in trading conditions meant its working-capital needs are greater than previously estimated.

The market value of SCS is £2.2m, a fraction of its all-time high of about £190m less than two years ago.

However, sources have suggested that the company may suffer a similar fate to that of MFI, which was bought by turnround specialist Merchant Equity Partners for £1 in 2006.

Last week, in an announcement that stunned the stock market, SCS said: “The additional working capital funding required may result in only negligible value being attributed to the shares in SCS.”

Rescue plans have been hampered by the make-up of its shareholder register, which contains several of the same institutions that are investors in Land of Leather, a rival furniture chain.

Land of Leather was recently forced into a £13.5m rights issue after a 35% decline in sales over the previous six weeks. It was able to tap investors for cash before SCS could attempt a similar move.

Stancroft Trust, owned by Nicholas Berry, the millionaire son of former Telegraph proprietor Lord Hartwell, has a combined 30% in both companies and has previously pressed for a merger of the two.

Times Recommends

• Lenders face huge hit on mortgage fraud
• Mortgage rescue fund at the ready
• Zoom airline collapses and halts all flights