Bitter internal feuding follows the collapse of a deal with the Bertelsmann media conglomerate...

NAPSTER, the music file swapping application that just months ago looked set to bring the entire music industry to its knees, is close to meltdown.

The company founder Shawn Fanning and other top executives are reported to have resigned amongst bitter internecine feuding and the company has told employees it was insolvent after a deal with global media conglomerate Bertelsmann collapsed.

The LA Times reports that without a last minute rescue deal, Napster is expected to seek bankruptcy protection within days.

One of those to resign was Konrad Hilbers, a former vice President of BMG (Bertlesmann’s music wing) who was brought last year as Chief Executive when Bertlesmann bought their substantial stake in the company last July.

Splits in the board appear to have come over the $16.5million (about £12 million) Bertelsmann were offering to take full control of the company. Hilbers walked when became exasperated over infighting between John Fanning, Shawn Fanning’s uncle, and Hank Berry, the former Napster chief executive and partner at venture capitalist group Hummer Winblad Venture Partners. Bertlesmann has already poured over $85 million (£58 million) into Napster to help develop a legitimate version of its service.

Napster’s future has looked shaky for some time. Last month, they laid off 30 staff in a cost cutting measure, having got rid of another 16 last October and more in March. Seventy people now stand to lose their jobs if the company folds.

Despite Napster’s previous might, they were hit by massive and costly copyright infringement suits for allowing users to copy music from computer to computer using their free software. They have worked to install an updated service that would require users to pay to swap songs.