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Kodak to Exit Bankruptcy, Refocus Its Business

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By Aditi Mukherji, JD on August 21, 2013 11:28 AM

A judge has approved Kodak's bankruptcy exit strategy. The once towering photography giant is now slated to become a much smaller digital imaging company that will focus on commercial and packaging printing.

Kodak filed for bankruptcy last year after struggling for years with digital photography competitors and growing debt.

But what does a Chapter 11 bankruptcy exit plan entail and how does it work?

Chapter 11 Reorganization Plan

A Chapter 11 bankruptcy is about reorganization and focuses on trimming costs and seeking new sources of revenue or income, while temporarily holding creditors at bay.

That's different from a Chapter 7 bankruptcy, which involves straight liquidation -- closing a business and selling assets to pay off creditors.

In this case, Kodak slimmed down by cutting costs, shedding large parts of its operations and selling patents while in bankruptcy, reports The Financial Times.

The ultimate goal of filing for Chapter 11 bankruptcy protection is to become profitable. To achieve this goal, the debtor's first move is to renegotiate leases and contracts and either have debts discharged or partially repay them.

Here, Kodak is planning to turn a profit by shifting its focus from consumer markets to corporate customers. The new company's corporate plan will include a range of niche endeavors including selling film to the movie industry and manufacturing labeling equipment.

Confirmation and Discharge

If a business's reorganization plan is reasonable, prepared in good faith and in compliance with the law, the court typically will confirm it.

Once the plan is confirmed, debts that existed before the confirmation date (but not directly addressed in the plan) are discharged. At that point, the debtor is required to repay creditors in accordance to the respective agreements and operate in compliance with the terms of the reorganization plan.

Discharging Kodak's debts was a particularly somber aspect of Kodak's bankruptcy process. It will leave many pensioners without their promised retirement and health care benefits, and will leave the company's creditors with only a fraction of what they were owed, reports NPR.

Rest assured, Kodak executives will be getting hefty cash and stock bonuses when the company exits from bankruptcy protection...

Though far from a perfect process, Chapter 11 gave this iconic American company a way to find its place in the digital age.

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