Why Did Enron Go Bankrupt

Formerly known as NYSE, Enron Corporation was a Houston based American energy company in Texas. Enron was a world’s leading natural gas, electricity, communications and pulp and paper company with revenues about USD:101 billion in 2000 on the record. Before it went bankrupt in 2001, Enron employed some 22000 staff.

A global business magazine, Fortune declare Enron as America’s Most Innovative Company for six consecutive financial years. Before the year 2001 folded, it surfaced out that its financial condition was being maintained considerably by systematic institutional, and creatively planned accounting embezzlement, famously dubbed as the “Enron scandal”. Since then Enron has emerged to be a popular symbol of deliberate corporate fraud.

Enron Bankruptcy Why Did Enron Go Bankrupt

Causes of bankruptcy:

Enron’s confused financial statements did not give a transparent picture of its financial dealing with shareholders and analysts. Moreover, its complicated business structure expanded out of accounting limits. It was high time that the company revised its accounting policies to distinctly display earnings and restructured the balance sheet to depict a favorable account of its performance.

The Enron scandal was a product of consistent attitudes and actions commenced years before and finally got out of bound. From 1997 until its bankruptcy, Enron’s accounting and financial transactions primarily focused on maintaining asset values inflated, income and reported cash flow up, and off the books liabilities.[15]

Majority of the issues that led to the bankruptcy of the company were the year long outcome of company’s executives, including Jeffrey Skilling, Lay, Andrew Fastow, and other executives. Lay, the last chairman of the company, approved of the policies of Skilling and Fastow without inquiring into details. Skilling always pressured Enron executives to figure out new ways to hide its debt. Fastow, another fellow among company’s last executives developed complex financing structures, often hid mention of significant company items on balance sheet, and exhibited confusing deals.

Enron bankruptcy also questioned the contemporary accounting policies of other such corporate throughout the United States and was a motivating factor in the establishment of the Sarbanes-Oxley Act of 2002. The incident also led to the dissolution of the accounting firm, Arthur Andersen, which proved a shock to the huge business world outside as well.

In late 2001, Enron filed a suit to protect bankruptcy with the Southern District of New York and requested for Weil, Gotshal & Manges to counsel bankruptcy. In pursuit of a plan of reorganization, duly approved by the court, it was declared, after a bankruptcy case witnessed in November 2004, one of the world’s most complex bankruptcy cases in U.S. history.

The new board of directors replaced the corporate name Enron with Enron Creditors Recovery Corp. and began working with reorganization and settlement of accounts of Enron before the bankruptcy took place.

Enron is reported to have sold Prisma Energy International Inc, its remaining business, to Ashmore Energy International Ltd on September 7, 2006.

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