The Letterkenny-based clothing firm, Gaeltex, has laid-off its 85 employees and plans to go into voluntary liquidation.

The locally-owned children's wear manufacturer has been in the town for more than 30 years. It supplied several large retail chains, including Dunnes Stores.

Workers were asked to attend a meeting yesterday morning by the company's board and were informed of the decision to seek the appointment of a liquidator.

A creditor's meeting has been scheduled, subject to confirmation, for September 8th in Letterkenny.

Unions at the factory have expressed disappointment that the company did not seek to have an examiner appointed.

Mr Des Courtney, SIPTU official based in Donegal said: "We are very disappointed, but we accept the company was having serious problems".

None of the company's board members were available for comment last night. Sources said the main reason behind the company's problems was competition from "cheap imports".

Despite yesterday's announcement, some industry sources were still hopeful last night that, post liquidation, there may be a possibility of rescuing part of the Gaeltex business and perhaps saving up to half the jobs.

The majority of the workers at the plant are women involved in sewing. They had been asked to take a drop in wages in recent months.

A spokesman for the Department of Enterprise and Employment said there was now a "severe cost problems" in the clothing industry in the Republic.

Several firms in the textile industry have gone out of business over the last six weeks, including the Klopman company in Co Kerry, which closed with the loss of 1,000 jobs last week.