WorldCom files for bankruptcy

By Alun Williams

Posted on 22 Jul 2002 at 16:57

Fallen telecoms giant seeks time alone to reorganise...

The stricken telecoms company WorldCom has formally applied to US courts for Chapter 11 bankruptcy. This is a form of legal protection, which provides a breathing space for companies to reorganise because creditors are prevented from seizing assets.

The application for bankruptcy, however, does not apply to WorldCom's non-US operations.

The BBC reports that the company has managed to organise $2bn in financing to keep it going through a restructuring process. 'We should have plenty of cash to make it,' said president and chief executive John Sidgmore. 'Our time frame to be through the bankruptcy process is nine to 12 months.'

Massive job cuts are expected.

Believed to be the largest insolvency case in history, the company was felled by an alleged £2.4bn accounting fraud. Following in the wake of the Enron scandal, the case further undermined investor confidence in the world's financial markets.

Specifically, the accounting practices of major corporations are now under the spotlight. Whereas the Enron case highlighted the potentially compromised relationship of auditors to their clients, the WorldCom case turns on the misallocation of revenues - the fraud relates to maintenance costs being misreported as a form of earnings.