The company said yesterday that its consortium of banks had only agreed to extend their lending facilities on condition of the sale of the loss- making American stores and the launch of the pounds 24.6m fundraising.
In a grim statement, which also included full-year losses of pounds 30m, the company said: "Without the revised bank facility the company would not be able to meet its commitments and, in the absence of an immediate alternative source of funds, would not avoid insolvent liquidation."
The 106 US stores are being acquired by a new company controlled by Laura Ashley's Malaysian backers MUI. They will continue to run the business as a franchise operation. Laura Ashley said it had received no other firm offers for the business. The deal will also include a write off of $34m.
The US operation has been a major problem for the company ever since former chief executive Ann Iverson began an ill-fated expansion programme of larger stores. Last year the US operation lost pounds 14m, compared with pounds 19m in the previous year.
Laura Ashley will concentrate instead on its UK and continental European markets.
Stephen Cox, a Laura Ashley director, said the rights issue will settle bank borrowings and be used for working capital.
Priced at 13p per share the fund raising is being under-written by the company's main shareholders, including MUI.
If no other investors take up their rights MUI will own 60 per cent of the company.
However, it has said this would not trigger an obligation to buy the rest of the company and has denied plans to take the group private. The shares closed 1.25p lower at 16p.
In a current trading statement Laura Ashley said underlying sales were down by 5 per cent.
North America has been the worst performer with sales down by 11 per cent on a like-for-like basis. The UK, the best performing division, also saw underlying sales fall by 3 per cent.
Mr Cox said the US sales and fund raising was "a step in the right direction. The stock situation is under control and gross profit margins are also improving."
MUI's involvement in Laura Ashley has been a financial disaster. It first bought a 40 percent holding in the company in last April. Since then, the shares have dropped 55 per cent.
The company recently hired Pat Robertson, a TV evangelist as a non-executive director.
Outlook, page 17