The 10-year-old agency lost the Government's multi-million-pound digital media account to Sir Martin Sorrell's GroupM in February, which accounted for some £40m of billings, equating to 40% of the agency's total turnover.
Senior staff at i-level were informed last night, with one source admitting, "I've had better days."
The process is being handled by advisory and management firm Zolfo Cooper. The firm cited cash flow problems and the unavailability of further funding as reasons for the decision to take the company into administration.
A spokesman said: "This is a directors appointed administration, meaning we were approached in light of the financial situation.
"In this scenario, known as a trading administration, the company will continue to keep going in its current form while we gauge the health of the business and look for potential buyers."
The London-based agency currently employs in the region of 120 staff. About 15 staff left following the loss of the COI account, either to M4C, the vehicle created by Sorrell to lead the COI account, or other agencies.
Last September, i-level formed an alliance with Starcom MediaVest to pitch for the COI’s consolidated £250m-a-year business, the first time the Government’s media spend had been pooled together.
I-level's current client roster includes Procter & Gamble, The Sun, Orange, Fidelity, Macmillan and Renault. Last year, the agency picked up 14 new accounts, including Gala Coral.
Speaking to Media Week last month, Rust, who joined i-level as group chief financial officer in January 2008, said the agency needed to "raise the bar". "Unless we do that, we are dead," he said.
In 2008, private equity firm ECI Partners invested £45m in i-level, giving it a 60% stake. As Fintellect's Bob Willott points out in a comment piece for Brand Republic, 'the structure of the transaction included loading the group with £32 million of debt, much of which carried an interest coupon of 12%'.