Executives at Enron worked feverishly yesterday to put the company into bankruptcy rather than liquidation so that it might have a chance of recovery in the future.

In London, more than 1,100 staff were made redundant at the group's British headquarters as the effects of the crisis spread.

The collapse of the world's single biggest energy-trading company has meanwhile raised fundamental questions about the United States's experiment in deregulation of the US energy sector.

Designed to supply cheaper energy and more reliable electricity and gas supplies to consumers, the effects have been disastrous.

California has suffered blackouts and steeper electricity bills since it became the first state to deregulate energy.

Now the company which used deregulation to create a complex network of global energy trades, becoming on the way a darling of Wall Street - the self-described "world's leading company" - lies in ruins.

As a result, the power industry faces the worst of all possible worlds, a return to government restrictions along with volatility in supplies and prices, according to the Wall Street Journal.

The collapse of Enron is being attributed by some analysts to the increasingly complex nature of its finances, along with much-criticised accounting methods, an over-abundance of investment and venture funds, analysts' hype, and investor naivety - in short many of the ingredients of the dotcom crash.

Under bankruptcy protection, Enron could continue operating while reducing its crippling debt burden and restructuring as a smaller, viable company.

However, given the rapid meltdown in its business and Enron's complex finances, analysts believe a reorganisation will be difficult to achieve, and creditors could get more satisfaction from a sale of its component parts under a liquidation auction.

The Houston-based company is seeking to file for Chapter 11 bankruptcy proceedings early next week to seek temporary protection from creditors owed as much as $17 billion (€19 billion), according to reports from inside company headquarters.

The bankruptcy process has already begun outside the US, with PricewaterhouseCoopers in London being appointed administrator for Enron's European energy-trading business.

The largest collapse in world corporate history is not expected to generate anything like the panic over the disintegration of three years ago of Long Term Capital Management.

Shares, bonds and the dollar all rose on Friday on growing optimism that the US would return to growth next year. Nor will power supplies in the US or Europe be affected.

The biggest UK power market manager, Elexon, said yesterday that two units of Enron had defaulted in England and Wales on their electricity balancing mechanism.

Elexon said on its website that Enron Capital and Trade Resources and Enron Gas Petrochemicals Trading Ltd had defaulted. Enron pioneered power trading in Europe, where it had 300 partners in the gas and electricity markets.

An Enron spokeswoman said the company was looking at a number of options in the US but would not say if those included filing for bankruptcy.

Enron recently disclosed mounting losses and an attempted merger with a smaller rival, Dynergy, fell through on Wednesday when its debts were relegated to junk-bond status.

Its energy trading deals were unwound and business slumped as fears grew that it did not have financial backing for its trading positions.

The company's liabilities are estimated at close to $40 billion, including $13 billion in debt.

Many assets, including gas pipelines, have been pledged as collateral against loans. The best hope of the company recovering quickly is if it can secure new loans - possibly as much as $3 billion - to finance its operations during the bankruptcy process.

American banks JP Morgan Chase, Canada's Imperial Bank of Commerce, Australia's NAB, Dutch ABN Amro, French Credit Lyonnais and Britain's Abbey National are among Enron's biggest creditors.

Many energy traders in the US are also exposed. About 25 companies around the world are reportedly owed more than $6 billion, including $3 billion in loans to a syndicate financing Enron's Indian Dabhol power project.

In Japan, where Enron has five outstanding bond issues, the yen came under pressure over concerns that Enron debt could cause problems for Japanese banks. Enron shares opened lower yesterday, falling to 28 cents on the New York Stock Exchange. Just over a year ago they were worth $90.560.

In Washington, Republican House Energy and Commerce Committee chairman Billy Tauzin will hold an inquiry into the Enron collapse early in next year.

"One is expecting they will announce selective redundancies but certain people will have to stay to help out the administrators," he said.