German retail group Arcandor, which has over 50,000 employees in Germany, said on Tuesday that it would not improve its rejected application for state aid and would instead file for insolvency.

"Arcandor AG today filed with the Essen District Court to open insolvency proceedings due to threatening illiquidity," a statement issued by the group said.

The announcement came a day after the German government refused to grant the group's request for 437 million euros ($603 million) in emergency funding and state guarantees of 650 million euros to help the company obtain badly needed bank refinancing.

Retailer hoped till the last

On Monday, Berlin gave Arcandor a last chance to file an improved application for state aid. German economics minister, Karl-Theodor zu Guttenberg called on the company's owners to make "significant contributions" in order to qualify for emergency credit from the taxpayer.

Arcandor, which owns the Karstadt store chain and holds a majority stake in travel operator Thomas Cook, had hoped for state support to tide it over while it merges its Karstadt department stores with the Kaufhof chain operated by the rival company Metro AG.

Arcandor's highest-profile brand in Germany, high-street department store giant Karstadt, has been struggling to maintain its market share for years now, with fashion chains, discount stores and shopping malls eating into its revenue.

Both the German government and the European Union had already talked down the prospect of a bailout, pointing out that the firm was in trouble even before the current recession began.

Earlier on Monday Chancellor Angela Merkel said it was up to shareholders to lend the ailing company money in order to save it, adding that they needed a "permanent solution, and not a stop-gap to tide them over "for the next two to six months."

nk/dpa/ap

Editor: Sonia Phalnikar