O & Y Filing Halts Construction at Key Project : Real estate: Bankruptcy protection move stops work at London’s Canary Wharf, Europe’s largest commercial development.

Construction at Canary Wharf, Europe’s largest commercial development, shut down Thursday after the project’s owners, Olympia & York Developments Ltd., sought to protect its holdings in the 71-acre development under British bankruptcy laws.

The developer, owned by the secretive Reichmann brothers of Toronto, filed for bankruptcy protection May 14 for most of its Canadian assets, a move that did not directly affect properties in the United States or Britain.

But the filings Thursday in Britain could cloud the future of Olympia & York’s U.S. holdings. Financial analysts in Toronto said much of the O & Y empire has been put under some form of legal protection from creditors.

But reflecting the firm’s obsessively private nature and the continuing confusion about its finances, experts were reluctant to estimate more precisely the value of its legally protected assets or the total worth of the embattled O & Y holdings.

The Reichmanns have extensive commercial buildings in Toronto and New York; those holdings have made O & Y one of the world’s largest real estate firms.

The collapse of Canary Wharf dealt a severe blow to the ravaged commercial property market in London.

Prime Minister John Major, traveling in Eastern Europe, ruled out any government intervention.

Major also appeared to reject any government rescue for the new Jubilee subway line, designed to connect Canary Wharf and the London Docklands redevelopment area to “The City” financial center.

Canary Wharf--whose plans called for the construction of 26 office buildings, including Britain’s tallest tower--was launched in the Docklands in the 1980s, when financial firms competed vigorously for limited space in The City. But by the time Canary Wharf was ready for tenants, a recession had hit and sufficient commercial space in The City had been created to satisfy demand.

Further, the O & Y empire began to struggle with declining values of many of its properties, leading to its inability to pay off hefty bank loans it had undertaken for long-range funding for the Canary Wharf project.

The Thursday morning announcement of Canary Wharf’s financial failure came only three days after the news that another major London property firm, Mountleigh, went into receivership.

It was unclear Thursday whether Major’s government would go ahead with plans to move 2,000 civil servants into new offices into the Docklands area, where office vacancy rates have been soaring and rents have been plummeting.

American Express, which was transferring its main London offices from The City to Canary Wharf, said it also was “closely monitoring” developments and would not rule out canceling its move.

It was uncertain whether Texaco, another large American tenant, would move into the project now that work on its final stages has been interrupted.

Financial sources said that after a long meeting Wednesday, two British banks (Barclays and Lloyds) and four Canadian institutions (including Canadian Imperial Bank of Commerce, Royal Bank of Canada and Bank of Nova Scotia) voted to put O & Y’s Canary Wharf into administration.

Citibank of the United States, Credit Suisse of Switzerland and Credit Lyonnais of France wanted to provide the project with enough money to keep it going. But they were outvoted, experts said.

Twelve international banks now face losses of up to half of their $2 billion and more in loans for the project. O & Y was reportedly seeking $900 million to meet the project’s long-term requirements; it was said to need $36 million to pay current obligations. But the banks declined to make more loans and insisted on appointing administrators--the accounting firm of Ernst & Young.

Times staff writer Mary Williams Walsh in Toronto contributed to this report.