Montreal-based Fusion Distribution III has been placed into bankruptcy protection and slashed its staffing levels as the company, which distributes several hundred labels, fights to survive.

Founded almost three decades ago by Jim West, Fusion distributes numerous labels, including West's own Justin Time Records, Secret City Records (managed by West's son Justin), as well as distributing French-language releases in the Quebec market for EMI Music Canada as part of a deal announced in July.

The company, which once employed more than 50, has seen that cut to a skeleton staff of 13. Six positions were cut last Friday, West says.

"There's no question that [Fusion] is in big trouble," West says. "It will be tough to reorganize."

Fusion has 30 days to try to restructure the business, West says. He says the deal with EMI, which saw a Fusion employee move into EMI's new Toronto offices, is also likely finished.

"We're operating on a very limited way," he says. "We've stopped selling product. I don't want to hurt anyone through this process."

West says that he, along with Justin Time Records, are the biggest creditors to Fusion, and are owed around $500,000 Canadian ($394,000).

"I think we're in a transition mode in the industry in Canada," he says. "The majors saw it first, but the indies are feeling it now. We are getting hit by all the problems."

West pointed to declining catalog sales as one of the most significant factors for Fusion's potential demise.