China's Suntech reached its zenith as the world's largest solar panel producer, but has plunged to the nadir of financial distress in just a year, highlighting the woes of the industry it shaped.

The New York-listed company on Wednesday said its main subsidiary was facing bankruptcy and would be reorganised if the court accepted a petition by Chinese banks.

Oversupply as Chinese producers flooded the global market and trade disputes over alleged Chinese dumping caused a sudden and spectacular reversal of fortunes for Suntech, which last week defaulted on repayments for a $541 million bond issue.

The board ousted the company's renowned founder just days ago, after 12 years in which he led it from nothing to world market domination and then to the edge of ruin, leaving it scrambling to secure new funding and hold creditors at bay.

The global solar industry has been burned by the economic slowdown in Europe and the United States, together with weak prices blamed on Chinese companies which sought to build market share by undercutting competitors.

The European Union and United States last year targeted Suntech and other Chinese solar panel and cell makers, accusing them of selling their products at below cost and receiving "unfair" government subsidies.

Suntech, a private sector company, denied the allegations but made no secret of its aim to keep prices at rock bottom, which it said made solar energy available to more people.

Analysts said Suntech's business model, deliberately pushing down prices to capture larger market share despite narrower profit margins, contained the seeds of its own destruction.

"What (Suntech) has done is increase supply to the market so much, that they really almost can't sell anything at a profit now," said Ben Cavender, associate principal of China Market Research Group (CMR) in Shanghai.

Suntech, headquartered in China's eastern city of Wuxi, recorded a net loss of $1.0 billion in 2011, from a profit of $237 million in 2010, according to company filings. The firm has yet to report financial results for 2012.

Once an investors' darling, its New York-listed shares have plunged from a high of $90.00 in early 2008. They closed down 7.81 percent at $0.59 in New York on Tuesday.

"It is going to be difficult for them going forward," Cavender added. "You might end up seeing a very different company down the road."

Suntech said earlier this month it would shut a manufacturing plant in the United States in a bid to "rationalise" production capacity.

Analysts said Suntech faced a problem common to Chinese private firms, growing rapidly in the country's economic boom but becoming unwieldy and unmanageable as it turned into a vast corporation.

"Suntech, as a private firm, went too fast in its expansion," said Liu Wenping, a partner in Shanghai-based solar investment consulting firm Sapphire Capital.

"The founder, with the role of scientist-entrepreneur, didn't have the experience to manage such a big company with tens of thousands of workers."

Suntech's founder Shi Zhengrong -- listed as one of China's richest people by the independent Hurun Report last year, worth $476 million -- was ousted as chairman earlier this month. He called the move "misconceived and unlawful" in a statement, vowing further action.

The debt default and bankruptcy could cause foreign investors to sour further on China, after a string of accounting scandals involving Chinese firms listed in the United States and other overseas markets, analysts said.

US equipment giant Caterpillar recently revealed that it had found fake accounts at a Chinese firm it acquired for more than $650 million last year, in another cautionary tale for foreign investors in the hugely promising market.

"Looking at a Chinese company as a potential investment, you really have to be a little more cautious... and decide whether the investment looks as good as it does on paper," said Cavender of CMR.