What’s Wrong with This Picture?

Polaroid's passage through Chapter 11 exposes how bankruptcy can give debtors too much power.

While most issues still in the appeals process relate to pro-debtor rulings in the bankruptcy court, a number of questions about the bankruptcy process itself will go unanswered. They include: How can a debtor’s sealed financial documents and valuations be verified when contested? What checks can prevent the debtor — sometimes more interested in controlling the process than in winning top dollar — from abusing its authority to decide who gets access to proprietary information? Should judges place so much faith in asset sales as a way to maximize estate value? In short, how can the process, while granting corporate debtors protection from creditors, still hold those debtors to a high degree of public scrutiny and accountability?

As a private company now, Polaroid is no longer required to file financial reports with the government. But Jarrett and others from the once-great camera concern see a liquidation ahead. “OEP knows that it’s worth so much more as a break-apart for them,” he says. “People on the inside that I’ve talked to say the situation is very bad.”

Former CFO O’Neill, while more optimistic, is hedging his bets. “They’ve got great assets and opportunities,” he says. “They will either run it well and succeed, or run it poorly and fail.”

Sadly, LoPucki’s research indicates the odds are on failure. Of the companies that emerge reorganized in Delaware bankruptcy court, he reports, 54 percent fail within five years, either by refiling, distress-merging, or liquidating, compared with an 18 percent failure rate for all other district bankruptcy courts combined.

Kris Frieswick is a staff writer at CFO.

The Next Corporate-Reform Drive?

If bankruptcy reform catches on this year in Washington, D.C., Polaroid Corp. could well be the rallying cry.

Although Sen. Charles Grassley’s bankruptcy bill died in Congress last fall, the Iowa Republican is expected to pursue legislation again this year. The bill focused mainly on consumer bankruptcies, but sought also to reduce the ability of companies to stay in the driver’s seat, limiting the debtor’s exclusive reorganization period to 18 months.

At least three government agencies are reported to be conducting investigations into the Polaroid case, which certainly contains fodder for legislative debate.

One congressman sure to be active in reforms is Massachusetts Democrat William Delahunt. At one point, the congressional delegation for Polaroid’s home state wrote to buyer One Equity Partners, requesting that it retain the Polaroid pension plan. The letter went unanswered. Delahunt’s own legislation last session, which also failed, would have required companies to file where they are headquartered. —K.F.

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