Chapter 11 Filed by Eastman Kodak
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A Recent Bankruptcy News Story
According to recent news sources, Eastman Kodak filed for bankruptcy protection last week. By filing, Kodak is seeking to increase its cash position in order to stay in business. In anticipation of filing the Chapter 11, Kodak borrowed $950 million from Citigroup this past Thursday to pay for operations during its reorganization plan. Bankruptcy came after numerous failures by Kodak within the digital photography industry, and because the company failed to sell its 1100 digital imaging patents purportedly valued in the billions of dollars. Kodak earlier stated if they could not sell the patents the company stood a real chance of running out of cash within a year.
Chapter 11 Defined
A Chapter 11 is a type of bankruptcy used to protect assets of a business, whether run as a sole proprietorship, partnership, or corporation. A Chapter 11 under the Bankruptcy Code permits an insolvent business to make a reorganization plan in order to become solvent again.
In most Chapter 11 cases, the debtor stays in control of the business operations as the debtor in possession, but the debtor is still subject to the oversight and jurisdiction of the bankruptcy court.
Like a Chapter 7 the assets in this type of bankruptcy can be liquidated, but the proceeds will be used to improve the solvency of the overall state of business. Like a Chapter 13 bankruptcy, the reorganization plan can be designed over a specific time span, but unlike a Chapter 13 where the debtor is the only one to propose a plan, a creditor or any interested party may propose a plan after 120 days have passed where the debtor has not proposed an approved plan.
The Confirmation Hearing
The confirmation hearing on a Chapter 11 reorganization plan is held and the bankruptcy court judge must approve the plan along with all of the creditors. If one class of creditors does not approve the plan, the plan may still be confirmed if the requirements of cram down are met. To be confirmed over the objection of a class of creditors, the plan cannot discriminate against that class of creditors and must be found fair and equitable to that particular class.
After the plan is confirmed, it identifies how debts are to be treated, how the operations of the business will be affected, and the duration of the plan.
Other Considerations Specific to a Chapter 11
- If the debts of the business exceed its assets, the rights of the owners are immediately ended and the ownership of the newly reorganized company is transferred to the creditors.
- The business filing a Chapter 11 is effectively operating under the protection of the court until it emerges. The court has great leeway in seeing to it that a company emerges solvent. The court can often forestall the rights of the creditors to ensure the company emerges.
- If a company filing a Chapter 11 publicly trades their stock, filing generally causes the stock to be delisted from its primary stock exchange, but many of the companies are successful at trading their stock in over the counter markets. Most Chapter 11 plans, when confirmed, tend to render the stock valueless.
Eastman Kodak stock closed on the market today with a price of $.533. Kodak was trading at almost $45 in July of 2003.
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- Bankruptcy Basics: Six Basic Types of Bankruptcies (betterbankruptcy.com)
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