The collapse of the parent company comes a month after the administrators of state-owned Icelandic bank, Landsbanki pushed the UK arm into administration, enabling it to seize control of holdings in Hamleys and other retailers.
The latest news comes after chairman and founder, Jón Ásgeir Jóhannesson, attempted to buy more time to restructure the firm’s $1.3bn (£940m) debts, but a Reykjavik court refused to extend its standstill agreement.
Its liquidation will mean that stakes in retailers including Hamleys will effectively fall into Icelandic state ownership.
Johannesdottir commented: "The management and employees of Baugur have been working hard to save the company's assets in co-operation with its creditors since the collapse of the Icelandic banking system in October 2008. The board of directors would like to express gratitude to the employees and everyone else the company has had the pleasure of working with in recent years."