Nineteen months ago, Eastman Kodak filed for Chapter 11 bankruptcy. This week, a Manhattan judge has approved the bankruptcy. The process could be completed by September 3. Kodak might never look the same, however. For one thing, it will no longer sell products directly to consumers.
This currently beleaguered company has a distinguished and prominent history. In 1900, it came out with the Brownie box camera, practically introducing amateur photography to the world. Since then, overseas businesses and the advent of digital cameras have overtaken this company. Over the past couple of decades, the company has not been able to adapt. The company's current stock is being cancelled. Investors will lose out big time, as they are likely to get back only 4 to 5 cents on the dollar. Still, this is better than the flat zero many investors get after a Chapter 11 bankruptcy. The bankruptcy is also sad news for many former employees, who will see their retirement and health care disappear.
Part of Kodak's debt includes $3 billion of pension owed to former employees from the U.K. While Kodak itself will no longer be selling prints or cameras to consumers, a U.K. pension fund will take over the businesses for Document Imaging and Personalized Imaging. The name of this new business is still to be determined, but the name "Kodak" might be retained. As for Kodak itself, it will continue to offer the B2B digital printing to businesses, and it will produce film for motion pictures. It will no longer directly sell to individual consumers.
Chapter 11 bankruptcy is a reorganization bankruptcy for businesses. General Motors, United Airlines, and other big companies have had to file for this protection before. Small businesses may also be able to have this protection. A benefit of Chapter 11 is that the business can continue running; it does not have to close its doors because of debt. The debtor can still run the business, unless a trustee chooses to take over in such cases as fraud or incompetence. Many matters remain in the hands of the bankruptcy court, however.
The court has to okay any sales (such as Kodak selling off some of its intellectual property), and a bankruptcy court has to allow any new contracts, new leases, etc. A bankruptcy court will also take into account any objections to the bankruptcy from creditors, stockholders, etc. Kodak's bankruptcy overrode hundreds of objections. In most cases, the debtor has an exclusivity period, four months during which the debtor comes up with a plan for restructuring finances. Usually, if creditors and other parties disagree with the plan, what will happen is that they will ask for the bankruptcy to be dismissed or ask for Chapter 7 bankruptcy. These parties might instead vote no on the plan and come up with an alternative course of action.
For a judge to approve the bankruptcy, he or she must determine that the reorganization plan will actually work, that the plan was proposed in good faith, and that it promotes the interests of the creditors. To be approved, a plan must also be deemed "fair and equitable". It can take six to twenty-four months for Chapter 11 bankruptcy to finish. Based on most studies, only ten to fifteen percent of Chapter 11 bankruptcy cases were actually able to achieve this restructuring. Many such claims are dismissed, or they turn into Chapter 7 bankruptcy proceedings.
Even though the financial picture for Kodak is currently bleak, it has pulled off Chapter 11 bankruptcy. It may further be able to achieve some sort of turnaround. Once freed from debt, it may be able to re-launch the company into the 21st century.