Job cuts at Wilko’s head office and warehouses are expected to begin this week after a surprise £90m bid for the discount retailer fell through.

The bid by M2 Capital collapsed because the group failed to provide proof of funding. It is understood that about a third of the 1,400 staff at Wilko’s headquarters and distribution centres are to be made redundant.

Talks on a rival bid from the HMV owner, Doug Putman, continue. It is understood that he does not want to hold on to Wilko’s back-office function, only the brand and its stores.

Almost 12,500 jobs are at risk after Wilko called in administrators this month as it ran short of cash.

M2 is a little-known Anglo-Canadian finance group that has set up funds to buy hotels and car parts makers but has yet to complete any deals. It is the only bidder that has pledged to take on Wilko’s support staff as well as its shops.

The private equity firm has reportedly been in discussions about financing the deal with Michael Flacks, an entrepreneur who owns a diverse array of businesses including the US retailer Kelly-Moore Paints.

Wilko’s branches have remained open since the company collapsed in the hope a buyer can be found.

In a letter to M2, Wilko’s administrators asked for “clarification as to the status of your interest” including “proof and source of funds, which is satisfactory to us” by 5pm on Wednesday.

A source close to the process has questioned the credibility of the M2 bid.

M2 Capital has responded: “Money talks and bullshit walks.”

The news of the job cuts is a blow to Wilko’s staff and customers. The retailer has been a popular fixture on the high street for over 100 years.

It is not yet clear what the future holds for Wilko. If the M2 bid fails, it is likely that the majority of the company’s stores will close and thousands of jobs will be lost.