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1-25-12 Kodak Retirees: How Could Kodak's Chapter 11 Bankruptcy Proceeding Affect You?

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January 25, 2012

Robert W. Croessmann
Gordon S. Dickens

Many of our clients, both current and former Kodak employees, as well as vendors who do business with Kodak, have asked us how Kodak’s Chapter 11 Bankruptcy Proceeding will affect them.

Although each client’s situation may be different and the actual answer to that question may not be known until the bankruptcy is concluded, set forth below are some general guidelines and information which can assist you in evaluating your situation and potential options.

This information is not intended to provide you with any specific legal advice.  Should you desire legal counsel with regard to your particular circumstance, you may contact one of our attorneys who will be pleased to assist you.

Woods Oviatt Gilman LLP
700 Crossroads Building
2 State Street
Rochester, NY 14614
 (585) 987-2800


GENERAL KODAK BANKRUPTCY INFORMATION

1. What affect will the Kodak bankruptcy have on its operations?

Kodak and its United States subsidiaries have filed petitions under Chapter 11 of the Bankruptcy Code. In Chapter 11, a company is permitted to continue operations under the supervision of a Creditors’ Committee and the Bankruptcy Court while it attempts to reorganize. The company is benefitted by the automatic stay, which generally prohibits action by creditors to collect their pre-bankruptcy claims. In most Chapter 11 cases, the debtor continues to operate as a “debtor-in-possession,” although it is possible to have a trustee appointed to assume responsibility for operations. If the company is not progressing toward a reorganization and settlement of its debts within a reasonable time, operations could cease, and the company could be forced to liquidate. Reorganization generally includes sale of non-essential assets to fund expenses of the case and dividends to creditors.


2. Approximately how long will the Kodak bankruptcy take?

Many companies that file Chapter 11 have a sale of assets arranged prior to filing. They file Chapter 11 to clear title to the assets, which can be difficult or impossible for a debt-laden company outside of bankruptcy. These are referred to as “pre-packaged cases.” Pre-packaged Chapter 11 cases are often completed in six months or less. Kodak’s Chapter 11 is not a pre-packaged case. Kodak has stated that its reorganization is largely dependent upon the sale or license of its intellectual property and that it expects to emerge from Chapter 11 in 2013. Other companies, most notably Nortel Networks, have successfully used the proceeds of sale of intellectual property to fund a dividend to creditors. Some companies that have stayed in Chapter 11 too long have been unable to cover the expense of a Chapter 11 case, resulting in liquidation.

INFORMATION FOR KODAK RETIREES

3. Will Kodak’s bankruptcy affect retiree health benefits?

Because Kodak has already cut back its retiree health benefits, we have assumed that the plan document allows Kodak to do so. If that is true, the bankruptcy will not affect Kodak’s right to further cut back retiree health benefits in the future.  Obviously, Kodak will be under more pressure to discontinue those benefits in bankruptcy. A copy of the plan document should be requested by any retiree who is faced with this issue.


4. How will Kodak’s bankruptcy affect retirement plans?

Kodak’s defined benefit plan (“KRIP”) is not fully funded according to the Pension Benefit Guaranty Corporation  (“PBGC”) web site.  However, most defined benefit plans are in a similar situation.  If Kodak cannot continue to make contributions or if the PBGC decides the plan is in trouble, PBGC could take over the plan.  In that case, the PBGC would only pay the benefit guaranteed by law. 

The 401(k) plan balance (“SIP”) as of the date of bankruptcy is fully protected.  Future employer contributions could be cut. 

All non-qualified benefits, including without limitation, excess benefit plans (“KERIP” and “KURIP”) and non-qualified deferred compensation, are unfunded and subject to the claims of the general creditors of the company.  Accordingly, the participants in those plans are general unsecured creditors with respect to their benefits. 

Because of the complexity of Kodak’s qualified and non-qualified retirement benefits, this information is general in nature, and each participant should seek advice with respect to their specific situation.

5. Does the Kodak bankruptcy affect severance payments and benefits I may be receiving or might receive should I be laid off in the future?

Involuntarily laid off employees currently receive a severance benefit under Kodak’s Severance Plan.  The severance payments generally equals one and a half (1½) weeks of pay for every year of service.  Provided the Severance Plan is covered under Kodak’s ERISA Pension Plan, these payments are generally protected.

However, going forward Kodak could elect to modify its Severance Plan.  Therefore, although under the current plan Kodak employees who are involuntarily terminated are eligible for a severance benefit, there is no guaranty that benefit will continue in the future.

6. What action should I take as a result of the Kodak bankruptcy?

Stay informed.  Bankruptcy proceedings can be a long and frustrating process.  Many of the consequences of the Kodak bankruptcy will be outside of your control.  However, if you are required to make decisions which could affect your rights in the Bankruptcy proceeding, you may want to obtain legal counsel to assist you.


Take control of those matters under your control.  You may want to be proactive by meeting with your financial advisor to evaluate your personal financial situation and plan.  You should also consider updating your estate plan to make sure that it meets your current needs and objectives (i.e. Wills, Trusts, Powers of Attorney, Living Wills and Health Care Proxies, estate tax planning, protection of assets from potential long term nursing home costs, etc.).



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Phone: 585.987.2822
Fax: 585.454.3968
Email: kbeauchamp at woodsoviatt dot com


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