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Monday, 3 December, 2001, 05:08 GMT
Enron files for bankruptcy
Enron graphic
Energy giant Enron has announced that it has filed for bankruptcy protection as it struggles under the burden of a $16bn debt.

The company has applied to a New York court for what is known as Chapter 11 bankruptcy, which allows the energy trader to continue to operate while its creditors try to reorganise its finances.

Enron is also suing rival Dynegy Inc for breach of contract after it pulled out of a proposed $9bn merger deal, precipitating Enron's collapse - the biggest in US corporate history.

Correspondent say even if Enron continues operating, there will be a huge number of redundancies, running into possibly thousands.

The scale of the collapse of a firm which claimed $61.8bn (43.45bn) of assets at the end of September has shocked financiers worldwide, raising fears over Enron's creditors and investors.

The failure is being investigated by the Securities and Exchange Commission - America's financial watchdog - and a congressional panel.

Credit sought

In a statement after filing for bankruptcy, Enron said it was in active discussions with banks and financial institutions to secure credit for the continued operation of its wholesale energy trading business.

"While uncertainty during the past few weeks has severely impacted the market's confidence in Enron and its trading operations, we are taking the steps announced today to help preserve capital, stabilise our business and enhance our confidence to pay our creditors," Enron Chairman and Chief Executive Ken Lay said.

Changing fortunes

Enron's financial crisis was sparked six weeks ago, when a discrepancy in accounts prompted an investigation by US financial watchdogs and a collapse in the firm's share price.

Enron exposure
Abbey National: 115m
Canadian Imperial Bank: $215m
National Australia Bank: Aus$200m
Centrica: 30m
TotalFinaElf: $25m
Citigroup: $7-800m

Enron later admitted that profits between 1997 and 2001 were $600m lower than had been claimed.

While the loss of investor confidence threatened the company, a takeover bid from rival energy group Dynegy looked to have provided Enron with a lifeline.

But after Dynegy on Wednesday withdrew from the talks, and a downgrading of Enron bonds made $3.9bn of debt due repayable immediately, crisis again loomed large.

Enron shares, which topped $80 last year, lost a further 15 cents to 36 cents in the US on Thursday.

Global fears

Enron creditors throughout the world have been counting the cost of the firm's plight.

Four of Australia's biggest banks have announced liabilities of $50-$100m between them.

French bank Credit Lyonnais has admitted unsecured exposure of $250m, while Holland's ABN Amro was part of a syndicate that loaned $3bn to a project in India.

In the US, JP Morgan Chase said it had $500m of unsecured exposure.

But three senior US officials have escaped the Enron meltdown, selling their shares earlier this year to avoid conflict of interest problems.

The BBC's Stephen Evans
"The biggest bankruptcy in history"
Patrick Heren, industry expert
"It...was in the end let down by its own inability to control its overweening ambition"

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See also:

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