Emergency talks are being held to source new funding.
McColl's has more than 1,300 stores in the UK, including branches in Blackpool, Cleveleys, Preston, Chorley, Leyland, Blackburn, Darwen, Rossendale, Colne, Clitheroe, Nelson, Lancaster, Morecambe, Wigan and Leigh.
The retailer is understood to be working with advisors to try to find a buyer to help the business stay afloat.
Shares dropped by almost 60 per cent to a record low of 2.82p on Monday as McColl’s also warned that its earnings are set to miss targets for the year.
McColl’s told investors it “continues to believe that a financing solution will be found that involves its existing partners and stakeholders”.
According to a Sky News report, the retailer has a matter of weeks to secure new funding, with millions of pounds of its bank debt being sold to hedge funds.
Asda owners the Issa brothers and the private equity firm TDR Capital are said to have held discussions about making an offer for McColl's but decided against doing so last week.
McColl's is listed on the London Stock Exchange and employs about 16,000 people, or roughly 6,000 on a full-time equivalent basis.
It raised £30m from shareholders in a cash call just six months ago.
Wm Morrison, which agreed to a £7billion sale to the private equity firm Clayton Dubilier & Rice last year, is understood to be monitoring McColl's situation closely with a view to possibly acquiring hundreds of its stores out of insolvency.
Around 200 of its stores already trade under the Morrisons Daily brand, and in November, McColl's announced that it would expand the number of Morrisons Daily conversions from 350 to 450 within a year.
But the supermarket giant it is not believed to be in active discussions about a complete takeover of the company.
Retail industry sources said that McColl's shares were now effectively "worthless" and that a pre-pack administration or other forms of insolvency increasingly looked like the most likely outcome.
McColl's lenders are being advised by PricewaterhouseCoopers, while Stephens Europe, a corporate finance firm, is leading the search for additional capital.
Jonathan Miller, McColl's chief executive, said in December that the financial year had "undoubtedly been a tough year for the business, ending with the widely reported and ongoing supply chain challenges".
The retailer had already been struggling previous to the pandemic.
"Although we have been able to partly mitigate these external factors, they have still had a significant impact on underlying trading," he added.
Mr Miller is understood to have invested £3m personally in the fundraising last summer in a bid to save the business.
McColl's revealed that it has seen a “tangible improvement” in product availability in recent months but said shopper footfall was affected by the spread of the Omicron variant of Covid-19 over the festive period.
Revenues have picked up recently but for they remain below expectations for the quarter to the end of February, it said.
The company’s board said it therefore expects adjusted earnings for the current financial year to be “slightly behind current market expectations”, with a net debt of around £100m.