Administrator Andrew Sheridan said it was "pretty tough" news to break.
"There were a lot of tears. A lot of men - international rugby players - bawling their eyes out," Sheridan said.
"What struck me was it's such a tight-knit family - it was like losing a family member. You could see the emotion."
Dallaglio, who played his club rugby for Wasps throughout his entire first class rugby career, made his first team debut in September 1993 when the game was still amateur.
Since then he has gone on to win almost every accolade the game has to offer.
He became captain of Wasps in 1995 at the age of 23, went on to win his first England cap in the same year and was appointed captain of his country in 1997.
Dallaglio won a total of 85 caps for England – 22 as captain – World Cup winners medals in both Sevens and fifteens, and was selected for three British Lions tours and the Barbarians.
The number 8 said in a tweet: "I'm heartbroken. My thoughts are with all those who have lost their jobs and the fans of our great club."
JOIN THE RUCK:
Matt Dawson snubs Dallaglio from his dream England XV
England legend Matt Dawson has selected his all-time England XV for the RFU.
A number of big names miss out, with Mike Tindall, Neil Back and Lawrence Dallaglio among the absentees.
Read on to see Matt Dawson’s all-time England XV.
Matt Dawson’s all-time England XV:
BACK-THREE:
15. Jason Robinson
14. Rory Underwood
11. Ben Cohen
CENTRES:
13. Jeremy Guscott
12. Manu Tuilagi
Manu Tuilagi of England during the Autumn Nations Match between England and Tonga at Twickenham Stoop on 6 November 2021. Photo: Tom Sandberg/PPAUK
HALFBACKS:
10. Jonny Wilkinson
9. Dikie Jeeps
FRONT-ROW:
1. Gary Pearce
2. Steve Thompson
3. Jason Leonard
SECOND-ROW:
4. Maro Itoje
5. Martin Johnson
Maro Itoje of the Saracens during the Gallagher Premiership Rugby Match between Bath Rugby and Saracens at the Recreation Ground on 17 Oct. Photo: Steve Haag/PPAUK