The owner of Yellow Pages was seized by its lenders under a restructuring plan that will safeguard the jobs of 12,000 staff but wipe out long-suffering shareholders.
Hibu, which changed its name from Yell last year, has been struggling under a £2.3 billion debt mountain built up on a raft of overseas acquisitions made before the credit crunch.
It has also fallen foul of competition from internet search rivals such as Google.
Creditors including Wall Street hedge funds and banks have now agreed a deal that will see them take control of the phone books and digital services company before the end of this year, leaving nothing for shareholders.
They agreed to eliminate £800 million of the debt owed to them.
Once listed in the FTSE 100 Index with a £5bn market value, Hibu has been struggling to sustain interest payments on its mammoth debts.
The firm had already warned that any debt restructuring deal with a panel of creditors would leave investors with little or no value on their shares.
Chairman Bob Wigley said: “This has been a very demanding year for the group, with some difficult and painful decisions made.”
He added in a letter to shareholders that the move secured the future of 12,000 jobs and laid the foundations for Hibu’s transformation to a digital business.
It has reinvented itself as an online hub for local businesses, including through the offer of services such as loyalty schemes, marketing initiatives and computer software to help them do their accounting.
Results published yesterday showed revenues from its traditional Yellow Pages business in the UK slumped by 27% to £163 million in the year to March 31.
The number of unique advertisers also fell to 190,000, down from 236,000 a year earlier.
But Hibu said revenues from digital services rose by a third to £174m after it grew its customer base by 35% to 443,000.
Losses for the year were £2bn after the company wrote-off the value of directory acquisitions made in recent years, including in the United States.
Chief executive Mike Pocock, who will remain with the company, said: “The proposed restructuring will allow Hibu to focus on consolidating its leading position in the provision of marketing solutions to our one million SME (small and medium-sized enterprise) customers.”
The restructuring, which is subject to the approval of 75% of lenders, should be completed by the final quarter of this year.
Trading in Hibu shares was suspended.