Kodak’s place in the new world of bankruptcy
Rochester, New York-based Eastman Kodak Co. filed for Chapter 11 bankruptcy on January 19, 2012 with estimates of a full recovery sometime in the first half of 2013. The company has already racked up bankruptcy bills in excess of $125 million and counting, but in the new age of American buyouts, bailouts, and blowouts, these figures represent only modest sums. Lehman Brothers handed out over $850 million to discharge its bankruptcy bills, while Enron had accumulated well over a billion dollars in bankruptcy bills before all was said and done. Kodak has now joined the ranks of other floundering companies that have learned firsthand that bankruptcy is an expensive business.
Where the money’s going
Due to the complexity of the company and debt structure, a slew of accounting firms, actuarial services, and financial consultants have been invited to contribute to the restructuring efforts. There is a marked absence of Rochester firms involved in the bankruptcy process, but everyone from New Jersey bankruptcy attorneys to Alabama tax accountants to the financial wizards in Manhattan are getting a piece of the very expensive pie. A great slice of the billing is also coming from the legal services representing the interests of Kodak, creditors, retirees, and workers, all of which will ultimately be borne by Kodak. As an example, the firm representing Kodak had employees billing anywhere from $110 to $1,150 per hour for over 4000 hours, generating a whopping $3.9 million bill in the month of November alone. To top it off, a fee examiner is overseeing all these fees and has already billed over $225,000 for the process.
Where the money’s NOT going
Some argue that this money could be better used in stimulating in-house solutions such as paying off creditors directly, sharing dividends with shareholders, or shoring up production, marketing, and quality human resources in an effort to generate cash flow. Proponents of this argument include former and current employees who continue to feel the burn of bankruptcy: Retirees lost medical benefits and insurance coverage at the beginning of the year while workers see a pay freeze and massive lay-offs heralding the rise of Kodak from the ashes. However, others argue that in-house “solutions” are the cause of the current situation, and it’s only with the assistance of external advisors with better heads for business that the company can hope to recover.
The winners and losers
During the next few months of recovery, many more changes are sure to come. Unfortunately, while not all of them spell good news for those closest and most loyal to the Kodak brand, it is clear that someone is benefiting from the company’s current distress. Their example is but one of many that highlights the truth of American capitalism in the 21st century: for the fortunate few, bankruptcy is a booming business.
Image Credit: Thomas Hawk
- License: Creative Commons image source
Derek is a blogger for a new jersey bankruptcy attorney.