Telecommunications giant WorldCom — faced with a mountain of debt and a growing scandal over accounting irregularities that caused the company’s stock to collapse — filed on Sunday for bankruptcy protection in the largest corporate failure in US history.
The Clinton, Mississippi-based company filed in US District Court for the southern district of New York for protection under Chapter 11 of the bankruptcy code, which allows it to continue operating while it works out a plan to pay its debts, according to court records.
”Chapter 11 enables us to create the greatest possible value for our creditors, preserve jobs for our employees, continue to deliver top-quality service to our customers and maintain our role in America’s national security,” said John Sidgmore, president and chief executive officer of WorldCom, in a statement late on Sunday.
”We will use this time under reorganisation to regain our financial health and focus, while operating with the highest integrity. We will emerge from Chapter 11 as quickly as possible and with our competitive spirit intact,” Sidgmore said.
Sidgmore has planned a press conference on Monday at 9am (1300 GMT) at a New York hotel to discuss the bankruptcy filing.
WorldCom, the nation’s second-largest long-distance telephone service provider, admitted in late June it had improperly accounted for $3,9-billion in operating expenses over more than a year to hide losses.
Phone and Internet service to the company’s more than 20 million customers is expected to continue uninterrupted, officials said. The filing, which followed a meeting of company directors, would far eclipse the December 2001 collapse of energy trading giant Enron.
In the bankruptcy petition, WorldCom listed assets of $107-billion as of March 31, against debts of $41-billion.
By comparison, Enron listed $63,4-billion dollars in assets when it sought bankruptcy protection in December, sinking in a morass of accounting scandals.
Proper accounting would have forced WorldCom to report a net loss in 2001 and for the first quarter of 2002, the company admitted in late June.
Instead, WorldCom claimed $1,4-billion in profit in 2001 and $130-million in profit for the first quarter of 2002.
Final numbers for those five quarters are awaiting another audit. The company intends to restructure its debt, sell off non-core assets and focus on key businesses, the Wall Street Journal reported in its online edition.
Sidgmore warned earlier that his company’s survival is in the public interest and a matter of ”national security,” noting that his company ”plays an important role in America’s telecommunications infrastructure,” with some 20-million telephone customers, and is the largest Internet carrier in the world.
The ripple effect of WorldCom’s demise ”would put many other telecom companies in jeopardy” and result in a further depression of telecom industry assets, he wrote in an opinion piece in early July.
The company, which emerged from obscurity in the southern US state of Mississippi in 1997 with the $37-billion takeover of long-distance provider MCI, became one of the major success stories of the 1990s economic boom.
WorldCom’s public woes began with the April 30 resignation of chief executive Bernie Ebbers as the company sank under a mountain of debt and faced a government inquiry into its finances.
Federal regulators were already investigating the firm’s accounting practices, especially the way in which it covered $360-million in loans to Ebbers for stock margin calls.
The US Securities and Exchange Commission filed fraud charges June 26 against WorldCom, a day after the company announced officials had misrepresented $3,8-billions of dollars in expenses for 2001 and the first quarter of this year.
The news sent the company’s stock price plummeting to as low as six cents a share, leading to its delisting from the Nasdaq exchange.
Earlier this month, congressional investigators revealed WorldCom executives had repeatedly brushed off warnings about shady accounting practices.
WorldCom representative Brad Burns said that the company hopes to struggle back to its feet after reorganising.
”Our time frame is to be through the bankruptcy process in nine to 12 months,” Burns said. – Sapa-AFP