EMI has abandoned talks to license out the rights to its music catalogue in the US and Canada, a deal it hoped would raise vitally needed funds.
The UK record company had been in separate talks with rivals Universal and Sony, seeking to raise £200m.
The news means EMI's owner, private equity group Terra Firma, will have to raise £120m from investors before a 14 June deadline to meet debt covenants.
If not, control of EMI could pass to US banking giant Citigroup.
A spokesman for EMI said the company would not be making any comment.
If EMI cannot raise the £120m by the mid-June deadline, Citigroup - which holds all of EMI's £3.2bn debts - will be entitled to take over the firm and put it up for sale.
According to reports, EMI failed to agree a price with either Universal or Sony.
The idea had been for Universal or Sony to pay about £200m in exchange for pocketing the earnings made by EMI's sales in North America over five years.
Terra Firma is suing Citigroup, claiming the bank "misrepresented fundamental facts" over the sale of EMI.
It alleges that Citigroup falsely claimed there were other bidders for EMI, which caused it to raise its bid when it bought the company back in 2007 for £4.2bn.
EMI's roster of artists include the Beatles, Pink Floyd, Coldplay and Robbie Williams.
The company - like its rivals - has been hit hard by the big growth in illegal downloading.
Last month, EMI reported an annual net loss of £1.56bn.