The German state of Hesse, where Holzmann is based, said an insolvency filing must now proceed for the company, one of the world's largest construction firms and one that helped rebuild Germany after World War II. The company's fate has hung in the balance since November 15, when it announced it had discovered DM 2.4 billion in potential losses ($1.27 billion).

The latest talks failed despite high-level political support for saving the 150-year-old company. Hesse state Governor Roland Koch called the emergency meeting of creditors here Monday evening after Sunday's round of bank talks broke down. The city of Frankfurt offered 150 million marks to the effort to save Holzmann. German Chancellor Gerhard Schroeder sent his state minister, Hans Martin Bury, to mediate at Monday's talks, saying everything possible should be done to save the 28,000 jobs at Holzmann and thousands more at subcontracters.

After the talks broke down, Hesse state government spokesman Dirk Metz told journalists that the banks didn't trust Holzmann's proposed several-billion-mark bailout plan and were concerned that the company could require further injections of funds within half a year. "There's no way to avoid opening the insolvency process tomorrow," Metz said.

Koch said the court insolvency proceedings should be aimed at finding a way for Holzmann to go on as a whole and for work to continue at its 1,200 construction sites.

The 11th-hour rescue attempt came after a day of protests through the snowy streets of Frankfurt by hundreds of the firm's workers, who fear they are about to be out of work, and angry accusations by politicians and rival banks on the lack of a rescue plan.

"One or two of the banks were obviously thinking more about their own business than securing this firm and the jobs involved," Chancellor Schroeder said. "I find that very regrettable."

The previous meeting of the firm's 20 core creditors ended early Monday after 14 hours of discussions, without an agreement on the company's proposed DM 4.3 billion bailout plan.

Holzmann has lost DM 1.3 billion in the past four years because of a real-estate market collapse, primarily in eastern Germany. The company blamed the bulk of its problems on previous management, charging it with "massive breaches of duty" and knowingly entering bad real-estate deals. The Frankfurt state prosecutor is investigating the allegations.

Traditionally, banks, most notably Deutsche Bank AG, have played a central role in maintaining the status quo in corporate Germany, playing the multiple roles of shareholder, creditor and, in many cases, manager. But the impasse in the bailout talks suggests that banks are no longer as eager to play the role of corporate overseer.

"This clumsy, tightly woven network of cross-shareholdings and personal ties is breaking up right now, no doubt about it," said Theodor Baums, a professor of business law at the University of Osnabrueck.

"Maybe they thought that they didn't want to pour any more money down the drain." Bankruptcy filings are becoming increasingly common in Germany as the country's traditional social-welfare economy cedes ground to market forces. Since 1991, the number of firms that have begun bankruptcy proceedings more than doubled to 8,963 as of last year, according to the Federal Statistics Office. But most of those firms have been small: Only 1.8 per cent of them have required a bailout of more than DM 10 million.

The Holzmann case is unusual because the company is an integral part of the German landscape, with 18,000 workers in Germany alone. After the company files, the court will appoint a bankruptcy administraor to oversee Holzmann's daily operations. The company is expected to have about a month to come up with a restructuring plan, which would likely entail eliminating 10 per cent of its work force and selling non-core assets.

Though it would be difficult to find a buyer for its beleaguered domestic franchises, its US subsidiaries, such as Lockwood Greene Engineers Inc. of South Carolina, are far more attractive, analysts said. A new German bankruptcy law, which took effect in January, allows an insolvent company to restructure and re-emerge in a fashion similar to the US Chapter 11 bankruptcy proceedings.

-- The Wall Street Journal