US bankruptcies break records

" To have a really big bankruptcy, you have to both have a company take on a huge amount of debt and either be badly run or fraudulently run "
Andrew Hodge, Global Insight

The combination of massive accounting fraud and the free spending of the past decade has brought down a string of household names in the past year, including five of the 10 biggest collapses on record.

The 186 public companies that went bust had a massive $368bn (£230bn) in assets, dwarfing last year's record $259bn.

But many are still functioning, thanks to the US's Chapter 11 bankruptcy system which protects firms from their creditors while they restructure.

Scandal

Whereas 2001's corporate failures were predominantly the result of debt problems, accounting scandals were the most notorious feature of 2002's list.

Of the five biggest failures, four featured accounting trouble.

Topping the list was phone company WorldCom, whose $104bn in assets made it the most expensive collapse in history.

In comparison, Enron's bankruptcy recorded in December last year looks almost modest.

Conseco, Global Crossing - another telecoms firm - and cable company Adelphia Communications were all also in trouble over allegations that they fiddled the figures.

Only UAL, the parent of United Airlines, found itself in trouble solely for business reasons. More to come

The worst is not over yet either, observers fear.

And accounting fraud - WorldCom's accounted for more than $9bn of false profits on its balance sheet - is likely to remain the main theme.

"To have a really big bankruptcy, you have to both have a company take on a huge amount of debt and either be badly run or fraudulently run," said Andrew Hodge, US economist for the Global Insight forecasting group.

"There has to be something sufficiently attractive about the company that creditors foolishly or mistakenly extend huge amounts of credit."

Many believe that the telecoms and tech companies and airlines that dominated the past year's list will give way to power companies and retailers, if confidence among consumers finally cracks.

And franchise holders are also at risk, exemplified by the filing for bankruptcy in December of AmeriKing, one of Burger King's largest fast food franchise chains.