Shares dived by two-thirds within minutes of reports by the Wall Street Journal that the world’s second biggest cinema business has hired lawyers from Kirkland & Ellis and consultants from AlixPartners to advise the bankruptcy process.
Cineworld has declined to comment on the report.
The world's second biggest cinema chain, which employs 30,000 worldwide, has 128 cinemas in the UK and Ireland including at Broad Street, Birmingham; Old Potts Way, Shrewsbury; Telford town centre and Bentley Bridge, Wednesfield.
The Shrewsbury cinema was the third the business ever opened, opening its doors in 1998 after the first two in Stevenage and Wakefield.
The company, which was founded in 1995, bought the UK UGC operation in 2004 and listed on the London Stock Exchange three years later.
On Wednesday, Cineworld warned that audience numbers have been weaker than expected, blaming a lack of blockbuster films.
It has predicted numbers will stay low until November due to “limited” film releases.
Cineworld, which also owns the Picturehouse chain, said it was assessing options to shore up its finances as a result.
It planned to continue with cost-saving plans but also look at new ways to improve its financial position.
The business, which was saddled with £4bn of debt at the end of the last financial year, said it is in talks with stakeholders over potential funding or considering restructuring its balance sheet.
Cineworld posted a loss of £429 million in 2021 as revenues were boosted by higher admissions.
Sentiment around the company has also been dented over the past year by a pair of separate legal spats.
Walid Koudmani, chief market analyst at financial brokerage XTB, said: "Cineworld share prices tanked even further in midday trade on Friday, with prices falling from 20p to a little over 2p within a matter of minutes as shareholder reacted to speculation that the cinema chain had filed for bankruptcy.
"This would mark the end of the road for the indebted cinema chain, which has around £4bn worth of debt before factoring leaseholder liability and annual revenues of under £1.5bn.
"Talks over recent weeks to restructure the debt through a de-leveraging transaction are likely to have failed.
"The firm will blame the lack of summer blockbusters as a reason behind its sharp downfall but in reality its aggressive acquisition plan has taken on too much debt and this was always a huge risk as interest rates rise.
"Moreover, the move to stay at home entertainment and streaming providers has created a pivotal shift in the way consumers enjoy films and Cineworld simply has not adapted fast enough.
"It's all quite sad as the UK's high street will now likely lose a popular and familiar brand name."