Rupert Murdoch's UK newspaper group considered closing the News of the World a month before the Guardian disclosed it had targeted missing girl Milly Dowler, the phone hacking trial heard today.

In an email to chief executive Rebekah Brooks, News International's head of corporate affairs Simon Greenberg suggested the NoW brand had become too "toxic" and that its closure would assist Mr Murdoch's £7bn bid for BSkyB.The plan was considered in June 2011 after an increasingly "paranoid" atmosphere gripped NI's London HQ, fuelled by leaks of internal information and the rising number of arrests in the police's phone hacking inquiry, the Old Bailey heard.

On 9 June 2011, four weeks before the Milly Dowler story which eventually closed the NoW appeared on 4 July, Mr Greenberg wrote to Mrs Brooks: "This is why we should consider the shutdown option."

Is the brand too toxic for itself and for the company? I believe it is."

Mr Greenberg, who now works for NI's parent company News Corp in the US, said the issue was "important" to help Rubicon, News Corp's codeword for its bid to buy the remaining 61 per cent of shares in BSkyB, Britain's biggest commercial broadcaster.

Asked about the memo, Mrs Brooks said the plan to close the NoW had been considered for a while, adding that its removal from NI's national newspapers would reduce the "plurality issues" hindering the takeover.

She told the court: "I think Simon Greenberg, [NI general manager] Will Lewis had discussed it before as a possibility as the level of civil liabilities was growing."

Referring to her request to have her office swept for bugs in early 2011, Mrs Brooks said: "The level of paranoia was quite high about secrecy and privacy."

Everything seemed to leak in one form or another, and [it] got worse as Operation Weeting continued. At the time we didn't know there was a police officer in there leaking to the Guardian."

It was like we couldn't keep anything contained."

She added that an un-named News International journalist had told her that "a person in the Labour Party" (whom she did not name) had been receiving leaks of details of her emails.

In answer to her counsel Jonathan Laidlaw QC, Mrs Brooks revealed she sought independent legal advice about the possibility of her being arrested.

She consulted the law firm Hickman & Rose in April, after the Met officer in charge of Weeting, DAC Sue Akers, suggested she be withdrawn from the company's "confidentiality club" about the inquiry, she told the court.

Mrs Brooks, chief executive of News International between 2009 and July 2011, denies conspiracies to hack, commit misconduct in public office and pervert the course of justice.

The case continues.