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Extended-form Case Study

Corporate bankruptcy: the case of Kodak

Published on December 31, 2015   21 min

Other Talks in the Series: Hot Topics

0:00
Hello, my name is Michael McDonald. This is a business case study developed for Henry Stewart Talks. Today we will be talking about corporate bankruptcy, and the case of Kodak.
0:12
Now, before we start talking about Kodak specifically, let's talk a little bit about bankruptcy. In general, there are three different types of stakeholders in a company. The first and most common are shareholders. These are investors who have purchased an equity stake in a company. The second group are bondholders or unsecured debtholders. These are investors who are owed an amount of money by the company, that we call principle, plus their owed interest on that principle, based on funds they've lent to the company. And then third are secured debtholders. These investors are also owed principle and interest by the company for an amount of money lent to that company, but their claims are backed by specific assets of the company. Now, as long as a company can pay all of the principle and interest that it owes to its bondholders, unsecured debtholders, and secured debtholders, that company can remain in business. The company does not actually have to pay anything to shareholders. Shareholders may or may not get a return on their investment. That all depends on how the business is faring. If shareholders don't earn a return, there's nothing they can do other than sell their shares in the company or vote to make changes to management. During the financial crisis in 2007 and 2008, many shareholders found that stocks fell so much that the price of those stocks was exactly the same as it had been 10 years earlier. In essence, it was like they had earned no return on their investment over a 10-year timeframe, in terms of capital appreciation. There is nothing those shareholders could do other than hold on to the stock and hope for better things in the future, or sell and invest in something else. They could not force the company into bankruptcy. In contrast, if bondholders or debtholders of any type do not get paid, they can force that company into bankruptcy.