The announcement represents the biggest retail bankruptcy in US history, but had been anticipated in the press over the last weeks.
Under the Chapter 11 filing, the company has protection from creditors until 2003, during which time it must restructure the business and find the means to pay its outstanding debts.
Kmart chief executive Chuck Conaway, said in a statement: ‘We are determined to complete our reorganisation as quickly and smoothly as possible, while taking full advantage of this chance to make a fresh start and reposition Kmart for the future.’
The company has secured a $2bn debt financing lifeline from Credit Suisse First Boston, Fleet Retail Finance Inc., General Electric Capital Corp. and J.P. Morgan Chase Bank.
Kmart has been on the slide since the early 1990s when it suffered heavy losses and closed down many stores. During this time it has lost ground to rivals retail giants Walmart (owners of British retailer Asda) and Target, in what is seen as an extremely competitive market.
It has assets valued at $17bn (£11.8bn), and employs more than 275,000 in more than 2,000 stores across the US, Guam and the Virgin Islands. At present no stores are to be closed down.
Kmart is audited by PricewaterhouseCoopers LLP.
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