Enron filing was one of the biggest corporate bankruptcies in the U.S. history until it was eclipsed by WorldCom in 2002 and Lehman Bros in 2008. In addition to being the largest bankruptcy reorganization in American history at that time, Enron was attributed as the biggest audit failure.
Enron Corp, an American energy company based in Houston, Texas filed for Chapter 11 Bankruptcy on December 2, 2001 in the U.S. Bankruptcy Court for the Southern District of New York, when it became saddled with more than $15 billion in debt. Enron filed Chapter11 reorganization to enable it to preserve and enhance its liquidity, stabilize operations and restore relationships with business partners.
Enron was formed in 1985 following a merger between Houston Natural Gas and Omaha-based Inter North. It had employees close to 22,000 people and had revenues of nearly $101 billion in 2000, shortly before its downfall. Enron took advantage of the deregulation of the energy markets that allowed companies to place bets on future prices. By 1993, Enron set up a number of limited liability special purpose entities that allowed Enron to hide its liabilities while growing its stock price. These entities, along with other accounting loopholes and poor financial reporting, let Enron hide billions in debt from special deals and projects. At the end of 2001, it was revealed that its reported financial condition was sustained substantially by institutionalized, systematic, and creatively planned accounting fraud. Creative accounting allowed Enron to appear more powerful on paper than it actually was. The company had more than $38 billion in outstanding debts. In the following months, the U.S. Justice Department initiated a criminal investigation into Enron’s bankruptcy. In the end, Enron’s stock plunged from a high of $90 per share in mid 2000, to just $0.10 a little over a year later causing stock holders to lose some $11 billion.
Enron emerged from bankruptcy in November 2004, pursuant to a court-approved plan of reorganization. Once Enron’s Plan of Reorganization was approved by the U.S. Bankruptcy Court, the new board of directors changed Enron’s name to Enron Creditors Recovery Corp (ECRC) to reflect its sole mission: “to reorganize and liquidate certain of the operations and assets of the ‘pre-bankruptcy’ Enron for the benefit of creditors.”
Enron’s downfall will certainly be remembered as one of the most notorious scandals in the U.S. history