Enron files for bankruptcy protectionT V Parasuram in Washington
Troubled United States energy giant Enron Corp said it has filed for Chapter 11 bankruptcy protection, few days after its proposed merger with Dynegy fell through.
In a statement in Washington, the Houston-based Enron said the company and its subsidiaries had filed petitions seeking reorganisation under Chapter 11 of the US Bankruptcy Code with the bankruptcy court of the southern district of New York on Sunday.
Chapter 11 protects a company against creditors while giving it a chance to solve its problems in the interim so as to avoid liquidation.
The corporation has also filed a lawsuit against would-be suitor Dynegy Inc for wrongful termination of a $8.4 billion proposed merger and sought at least $10 billion in damages.
Enron claimed that Dynegy 'has no right' to exercise an option to acquire its prized asset, the northern natural gas pipeline, as it 'can only be triggered by a valid termination' of the merger agreement.
Dynegy had argued that Enron had not told it all the facts during the negotiations for merger.
The Securities and Exchange Commission (SEC) is now investigating both the company and its auditors while the Congresss's and Senate's energy committees plan hearings.
Enron's auditors, Arthur Andersen LLP, who had certified that the company was in good health when it obviously was not, is under subpoena by the SEC.
The power major owned companies in India, China and the Philippines, a water company in Britain, pulp mills in Canada and gas pipelines across North and South America. It branched out to make it the leading middleman in nationwide sales of electricity and natural gas besides several other businesses.
Enron's loss of credibility in the market stemmed from revelations that its chief financial officer was running partnerships that allowed the company to keep half-a-billion dollars in debt off its books.
Dynegy had agreed to buy Enron on November 9 for about $23 billion. But when Enron's stock plummeted following the deal, Dynegy demanded a renegotiation of terms to lower the price.
And even that effort collapsed when Standard & Poor's Corp and Moody's Investors Service cut Enron's credit rating to junk status, exposing Enron to accelerated repayment of more than $3 billion in debt that it could not fully cover, according to the Post.
Many analysts now admit they really did not know what was going on at the company even as they recommended the stock to investors.
The media had earlier speculated that filing of bankruptcy proceedings would put the sale of Enron-owned Dabhol power project in India on a new holding pattern and lead to a distress sale with the asking price of $1 billion reduced to half-a-billion.
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