A Birmingham community arts project which ran up a deficit of at least £47,000 after financial issues such as VAT "slipped by the board" has gone into liquidation.
ArtSites, based at the mac in Edgbaston, was forced to shut after its backers decided it could not trade its way out of financial difficulty.
The not-for-profit firm and charity was founded as a joint venture between the mac and Birmingham City Council in 1998.
It became independent in 2001 and established a reputation for improving access to the arts among non-traditional audiences. But last year it discovered a £47,000 deficit.
Original plans to trade its way out of the debt were halted by the discovery of additional VAT liabilities, the extent of which is still not known.
As a result, the Arts Council West Midlands withdrew revenue funding from the organisation at the end of October. The council made a similar decision this month.
An Arts Council official said: "We are sorry that ArtSites has run into operational and financial difficulties in the middle of this financial year and that their board has taken the decision to put the organisation into liquidation".
A spokeswoman for Birmingham City Council confirmed it gave ArtSites an annual revenue grant of £35,500 administered quarterly.
The third quarter was not paid because of the issues surrounding the company's solvency.
"Enabling our residents to access arts activities in their neighbourhoods is a priority of Birmingham's cultural strategy and due to the current situation we will work with partners
over the coming months to develop an alternative model for delivery of the opportunities previously offered to communities through ArtSites," she added.
Most ArtSites staff left during the financial difficulties and the liquidation will result in the redundancy of one part-time administrator.
ArtSites chairman Claire Cochrane said it was deeply disappointing and upsetting that the charity's work could not be sustained.
She said: "From cross-generational projects to work with refugees and young, sociallyexcluded people, our access to the arts programme has had a significant, positive impact on the lives of hundreds of local residents.
"We hope that the organisations involved with the scheme will continue to develop the relationships they have built across the community and ensure that access to the arts remains available to all."
The organisation established community art sites across the city in Perry Bar, Castle Vale, Sparkhill, Kings, Perry Beeches, Great Barr, Sheldon, Rednal and Handsworth.
Projects included partnerships with City of Birmingham Symphony Orchestra and Birmingham Royal Ballet, as well as training and skills programmes.
Ms Cochrane added that some problems had arisen because the young ArtSites team had overstretched itself. She said: "One of its downfalls was that it was too passionate about what it was doing.
"The enthusiasm from our small team of young art workers to engage with communities meant some financial management - such as VAT - slipped by the board.
"But if you look at the record of the charity, a colossal amount had been achieved, so to close now and lose that is very upsetting."
The decisions made by the Arts Council and the council were disappointing, but under-standable, Ms Cochrane said.
"Liquidation means death. We had hoped that ArtSites could have gone into administration, but I think our funders weren't prepared to sustain us through that.
"I understand the decision. Arts funding is a very precious resource and the funders have tough decisions to make in order to maximise its benefit."
Simon Chandler, of accountants and business advisers Mazars, and Daniel French, of law firm Hammonds, have been appointed to handle the insolvency. While proceedings are ongoing, ArtSites will continue to be operated by its board of trustees, under the guidance of its professional advisers.