The Isle of Skye music festival has been cancelled this year after organisers racked up a reported £500,000 in debts, it emerged last night.

The event, which had been voted the UK's most fan-friendly two years ago, launched in the summer of 2005 and attracted some of Britain's biggest bands to Ashaig airstrip near Broadford.

It has emerged, however, that some musicians and suppliers have still to be paid for their work at last year's event.

Festival organisers had spent large amounts of money in order to attract bands such as Kasabian, Primal Scream and KT Tunstall.

But crowds were lower than anticipated, leaving the festival with a significant shortfall. Organisers had expected 8000 people a day to turn up, but the event averaged just over 5000.

Administrators have now been called in.

Organisers confirmed that the festival would not go ahead this year but said that measures were being taken to stage the event again next year "with a view to honouring the event's commitment to its existing creditors".

John Gilbertson, the festival director, who has been a long-time champion of the need for a live music event on Skye, said: "Our intention at present is to start a phoenix company which will allow us to hopefully stage the event again in 2009.

"This will enable us to raise funds which we will put towards paying off existing creditors.

"We take our responsibilities seriously and this is currently our principle priority."