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What was the Enron Bankruptcy?

2016-10-11T15:59:00+00:00

The term 'Enron Bankruptcy' is included in the Accounting edition of the Financial Dictionary. Get yours now on amazon in ebook or paperback format. Read more here...

The Enron bankruptcy turned out to be among the largest corporate failures in American history. When the company filed for protection from its creditors, it showed assets amounting to $49.8 billion and debts that equaled $31.2 billion. These debt totals left out a number of items that were not properly listed on the company’s financial statements.

The Enron bankruptcy was subsequently massively eclipsed by Lehman Brothers and it’s over $600 billion in assets and bad debts when it filed. At the time Enron failed, it represented the seventh largest company in America by revenues. The failure cost around 20,000 employees their jobs and made worthless the company share retirement holdings of many employees and the stock holdings of countless investors.

The Enron corporation arose in 1985 because of a merger of Houston Natural Gas and InterNorth. The two were regional American corporations that were fairly small. Before the Enron bankruptcy happened, the company grew by 2001 to become the largest energy trader in the world which stood as among the biggest natural gas, electricity, paper and pulp, and communications companies on earth. It permanently changed the way that companies bought and sold electricity, energy, and natural gas. The company’s revenues for the year 2000 were almost $111 billion. Fortune had awarded the company the prestigious designation of “America’s Most Innovative Company” for six years in a row.

In the end of December 2001, the ugly truth emerged. The company had sustained its existence through cleverly disguised accounting fraud. This creatively orchestrated and systemic corruption became known as the Enron scandal. One of the major five accounting firms in the U.S., Arthur Andersen, became dissolved as a result of its complicit role in auditing the company books. Enron’s stock went from $90 per share to worthless in a period of under a year.

The scandal significantly rocked the business and political world. A great number of corporations around the U.S. had their business activities and accounting practices questioned as a result of the attention Enron brought to bear. It encouraged Congress to pass the Sarbanes-Oxley Act of 2002.

Before the company failed, Houston based Dynegy attempted to rescue it from imminent bankruptcy. Negotiations broke down as Dynegy backed out after uncovering the extent of the misrepresentations and deterioration of Enron. The company sued Dynegy for taking control of its largest and most lucrative natural gas pipeline when the deal collapsed. Enron also attempted to secure $1 billion in loans and the financial backstopping of JP Morgan Chase and Citibank, but this fell through as well.

The complexity of the company ensured that the Enron bankruptcy would be a long, drawn out process. Weil, Gotshal, & Manges served as bankruptcy attorneys for the company’s Southern District of New York court filing at the end of 2001. The bankruptcy did not end until November of 2004, nearly three years later. The court sanctioned a reorganization plan to distribute assets to creditors.

The new board of directors altered the company’s name from Enron. They changed it to Enron Creditors Recovery Corp. The main endeavors of the new outfit were restricted to regrouping and selling off assets and operations the company had held before it went into bankruptcy.

With pipelines and 12 business units, this process went on for another two years. It was not until September 7 in 2006 that the company sold its last energy business. Ashmore Energy International Limited (AEI) acquired Enron’s Prisma Energy International and ended the saga of one of America’s most spectacular business collapses.

The term 'Enron Bankruptcy' is included in the Accounting edition of the Financial Dictionary. You can get your copy on amazon in Kindle or Paperback version. See more details here.