The scandal-hit telecoms giant, WorldCom, has applied for bankruptcy protection in the largest case of insolvency in US corporate history. The company, which has 85,000 employees and operates in 65 countries, has buckled under the pressure of massive scandal over a 3.85 billion U.S. dollarsaccounting fraud which made the company look profitable when it was not.

The application to the courts for so-called Chapter 11 bankruptcy prevents creditors from seizing the company's remaining assets while it works out a restructuring programme.

It intends to keep operating during the reorganisation, and says the bankruptcy will not apply to its international operations.
The company is reported to have lined up about 2bn U.S. dollarsto keep it going through the period.

The BBC's Greg Pannell in Washingtomn says that although this news was not unexpected, it is unlikely to go down well with the already shaky markets when they open on Monday.

FRAUDULENT TIMES

The revelations over fraud at WorldCom followed similar scandals at a string of American companies, including the energy giant Enron, which filed for bankruptcy last year.

WorldCom's bankruptcy is twice the size of Enron's, which was until now America's biggest banruptcy.

WorldCom has been charged with fraud after admitting hiding 1.2bn U.S. dollars in losses by falsely accounting for expenses worth 3.85bn. U.S. dollars.

The scandals at WorldCom and other US firms have severely rocked investor confidence in the US financial markets.

Analysts say WorldCom's decision to file for bankruptcy will mean that shares held by investors, which have crashed to just a few cents since the scandal broke, are now likely to be worth nothing.

Another concern is whether holders of WorldCom's 30bn U.S. dollars in bonds will be able to swap their debt for shares in the restructured firm, usually a key demand under these circumstances.

HUMILATION

WorldCom had hoped to avoid bankruptcy entirely, arguing that the frauds were the work of individuals and not indicative of any deeper sickness in the firm.

But a collapse in confidence in the company as a whole has cut down its financial options.

Bankruptcy is seen as an utter humiliation for a firm that was valued at 175bn U.S. dollars at its height in 1999.

The main question facing investigators and investors is whether the accounting fraud was an aberration, or a sign of a diseased company.

If the former, then shareholders should hope to salvage something from the current situation

PHOTO CAPTION

WorldCom headquarters in Clinton, Mississippi, pictured in this June 28, 2002 file photo. Photo by Reuters
- Jul 21 7:20 PM ET