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EMI, the music group behind artists ranging from Kylie Minogue, to Pink Floyd to Katy Perry and country and western band Lady Antebellum, crashed £1.75bn into the red last year, according to figures released by the company tonight.

The loss is one of the biggest black holes ever seen in a private equity-backed business and threatens to shred the ­reputation of Guy Hands, the outspoken City financier whose Terra Firma group paid out more than £4bn for EMI just before the credit crunch took hold in the summer of 2007. It could ultimately, push the famous record label into the ­control of US bankers.

EMI Group operates two divisions – recorded music and music publishing – but its financial problems are concentrated in the recorded-music operation, whose assets include Coldplay and Kylie Minogue, and an extensive and much-lauded back catalogue that encompasses albums such as David Bowie’s Aladdin Sane, the Beatles hit Sgt Pepper, and Pink Floyd’s Dark Side of the Moon.

Hands must now persuade Terra Firma investors to inject a further £105m into Maltby Capital, the vehicle he set up to acquire EMI, by the end of March, to prevent the record company from breaching its loan agreements. Such breaches could allow lender Citigroup, which is owed some £2.6bn, to seize control of EMI. Maltby says in its accounts that it is not certain it can persuade the required 75% of investors to back the fund raising.

This cash injection will only provide Hands with a year’s breathing space while he tries to find a longer-term solution to EMI’s debt problems. In the Maltby accounts the directors say they expect to breach covenants next year too unless they find more cash. They reveal that the pensions regulator has been called in as a result of a disagreement between the company and the EMI pensions trustee on how to fund a pension scheme deficit of up to £200m. It adds there is “no certainty” funds will be available.

EMI’s music business – which has a heritage stretching back over 100 years – has actually ­performed well: with profit before financial charges up 81% to £298m as its chief executive, Elio Leoni-Sceti, has cut costs and grown market share by finding and promoting new musical talent. EMI’s Capitol Nashville label has the number one album in the US this week, with country and western band Lady Antebellum.

But Maltby – whose chairman is Lord Birt, former director general of the BBC – has plunged £1.75bn into the red as a result of a £1bn financial writedown, a vast interest bill, derivative and foreign exchange losses and restructuring costs.

The crisis is centred on the £4.2bn price tag Hands agreed when he acquired the business. With hindsight it is apparent that he paid out far too much, and he has admitted as much, launching a legal battle in the US and claiming that his adviser, Citigroup, tricked him into offering too much for the business by ­failing to tell him that other potential buyers had pulled out. The bank also provided some £2.6bn of debt to Hands for him to do the deal.

Hands attempted to thrash out an agreement during last year, offering to inject another £1bn into EMI if the bank would, in turn, write off £1bn of its debt. Citigroup rejected that deal.

In order to persuade Terra Firma investors to stump up another £105m, Leoni-Sceti has now been asked to produce a new business plan to show that they would not be throwing good money after bad.

However, a source close to the company said that the new strategy was “more of the same really, with more emphasis on digital and less on physical [music products]“.

The cash injection would protect EMI only until next spring. In that time, Hands must either win his legal case against ­Citigroup, reach a settlement or come up with a new refinancing plan.

Citigroup is now attempting to get the legal dispute moved from New York to London – a move that threatens a potential double blow to Hands. Hands wants the case to be heard in New York, arguing that that is where Citi is based. If the case is transferred to London, any potential damages for Terra Firma would be far lower.

A London legal dispute could also wreck Hands’s personal tax planning. He moved to Guernsey last year in what he claimed was a protest at higher capital gains and income taxes – and for him to appear in a London court as a ­witness could endanger his non-resident tax status.