Bearingpoint, which started life as KPMG Consulting, has filed for Chapter 11 bankruptcy protection. John Stokdyk reports.

The firm filed a voluntary Chapter 11 petition in the Southern District of New York as part of a pre-arranged restructuring plan with its lenders on 18 February. Operations outside of the US will not be affected, Bearingpoint said in a presspress statement [1].

The consultancy has been publicly wrestling with its multibillion dollar debt burden since October, when it engaged turnaround adviser AlixPartners to develop a rescue plan, according to blogger Francine McKenna [2], who used to work for Bearingpoint.

The options on the table included selling all or part of the company or a restructuring of its existing convertible debt for equity. In the abscene of any meaningful offers, Bearingpoint was forced to choose option 2. Under the new package, all the firm's existing equity will be cancelled "for no consideration" and its lenders bankers will receive preference shares in return for a new $402m facility.

Bearingpoint has laboured under some kind of corporate curse since it spun out of KPMG during the heady days of the dotcom boom. Its public offering in February 2001 raised $2bn. Most of the profits from the listing went to the accountancy wing, leaving the consultancy with thin cash resources to build its infrastructure. With internet start-ups luring away its people, KPMG lost $26.9m on a turnover of $2.37bn that year, but that didn't stop an an expansion programme that included the purchase of remnants of Andersen's consulting operation following that firm's demise.

In 2005, McKenna noted, Bearingpoint was the subject of SEC concern [3] over its financial reporting practices and stock option treatments.

"Bearingpoint have filled the rumour mill for some time (however), this is still quite a shock," analyst Richard Holway [4] told IT World. "With new projects on hold, management consultants, who often have as bad a reputation as bankers, are an easy first target for cost cutting. But this must set the alarm bells ringing in many a marbled hall right now."