EAST PROVIDENCE –– The Colibri Group, one of the region’s best-known jewelry makers, unexpectedly shut down yesterday, laying off its 280 employees and preparing to sell all remaining jewelry, gold and silver to pay creditors.

The abrupt decision brought a sudden end to a nationally known producer of clocks, jewelry and cigarette lighters that had operated for 81 years.

“The Colibri Group is simply out of money,” Timothy P. Gallogly, the company’s general counsel, said.

Colibri’s owners, New York-based Founders Private Equity SBIC, yesterday in Superior Court, Providence, successfully asked Judge Michael A. Silverstein to appoint a receiver to sell the company’s assets to repay creditors. Colibri owes about $14 million to HSBC Bank and a similar amount to Sovereign Bank, according to the receiver, attorney Allan M. Shine.

Starved of credit and beset by rapidly falling sales, Colibri had spent months pleading with lenders for loans and trying to arrange a merger. Those discussions continued through Wednesday.

But employees were surprised by the closure. Some found out late Wednesday through a company e-mail or phone call. Others, however, did not learn until they reported to work yesterday at the East Providence headquarters or the manufacturing plant in Providence. (The distribution complex in North Smithfield is not regularly staffed.)

Colibri’s corporate partners also had not expected the closure.

Businesses that sell Colibri’s jewelry tried to call the company yesterday and visited its locked headquarters. “We were just as surprised as the employees,” Jeffrey S. Brenner, a lawyer for Colibri lender HSBC, told Silverstein.

Employees, including 250 in Rhode Island and 30 salesmen nationwide, will be paid through yesterday.

The layoffs worsen the state’s already dismal unemployment rate. As of November, unemployment in Rhode Island had reached 9.3 percent, one of the worst figures in the country. Bankruptcies and layoffs have starved the state of tax revenue and nearly emptied the public fund for unemployed residents.

“The current economic conditions and credit market are such that Colibri cannot sustain its current operations,” James E. Fleet, the company’s president and chief executive officer, told employees in a note posted in the darkened entryway of the Fairmount Avenue headquarters.

Even before the economic downturn, Rhode Island’s manufacturing sector was disappearing, the state’s rivers lined by shuttered mills. The high labor costs and competition from foreign firms did not spare the state’s historic jewelry industry. By 2006, only 7,500 people at 1,000 firms still worked in the industry, according to the state Economic Development Corporation.

But Colibri, powered by prized brands such as Seth Thomas and Movado, remained profitable.

In 2003, Colibri acquired a New Jersey jewelry company. Two years later, owner Fred Levinger, of Providence, sold the company to three private-equity firms. At the time, it had 500 employees and reported $100 million in annual sales.

Steep, recent declines in consumer spending, however, quickly eroded revenue. In 2007, Colibri’s $80 million in sales did not come close to covering expenses, resulting in a $10-million loss, Shine said. Last year, company sales dropped to $64 million and loses again totaled $10 million.

“Before that, the company was doing quite well,” Shine said yesterday in an interview at Superior Court. “The business deteriorated. The major economic downturn has impacted the business very unfavorably.”

As the nation’s housing market collapsed and stocks slumped, demand for Colibri’s $1,500 cufflinks and $100 cigarette lighters dried up.

“It’s an easy purchase to defer when you’re tightening your belt,” Gallogly said. “We tried our best. We just weren’t able to get through this.”

A year ago, Colibri hired Phoenix Management Services, a crisis management consultancy, to rescue the foundering business. But sales did not recover and merger negotiations fell apart when potential partners could not find capital to invest. (Colibri declined to disclose the companies it approached.)

Fleet, who attended the court hearing yesterday alongside lawyers for HBSC and Colibri’s landlords, declined to comment.

To control costs, Colibri made temporary layoffs last month. Product designer Kelly Fusaro, 43, of Providence, lost her job. But she said she was sure she would return in the new year.

“Our customers aren’t ordering because no one is buying,” Fusaro said. “It’s really sad.”

bgedan@projo.com