tag:theconversation.com,2011:/us/topics/voluntary-administration-7092/articlesVoluntary Administration – The Conversation2023-11-12T17:59:31Ztag:theconversation.com,2011:article/2168112023-11-12T17:59:31Z2023-11-12T17:59:31ZNZ workers have few protections if their employer goes bust – fixing the Companies Act would help<p>When independent supermarket startup Supie <a href="https://www.1news.co.nz/2023/10/30/plenty-of-tears-after-supie-employees-let-go-without-pay/">went bust</a> last month, the company’s 120 employees were told they wouldn’t be paid for their last two weeks of work, or receive any of their owed annual leave pay. </p>
<p>The subsequent <a href="https://www.stuff.co.nz/business/133202256/supie-staff-told-they-may-not-receive-pay-as-company-goes-into-administration">appointment of voluntary administrators</a> again highlighted New Zealand’s limited protection for employees when their employer becomes insolvent. </p>
<p>Supie’s employees are not the first, nor will they be the last, to lose out when their employer goes under. In 2019, staff at restaurant chain Wagamama were <a href="https://www.stuff.co.nz/business/114913504/staff-struggling-to-get-what-they-are-owed-from-failed-restaurant-chain-wagamama">owed NZ$50,000</a> when the company went into liquidation. </p>
<p>In both cases, the wages were eventually paid out by someone outside the company. In the case of Wagamama, <a href="https://www.stuff.co.nz/business/115259950/workers-get-pay-out-from-wagamama-franchise-owners-in-the-united-kingdom">by the franchise head office</a> in the United Kingdom. Supie staff received their wages from an <a href="https://www.1news.co.nz/2023/11/01/supie-workers-to-receive-final-paycheque-after-anonymous-donation/">anonymous donor</a>.</p>
<p>While the loss of money for any creditor is difficult, the double impact of losing wages as well as a job is particularly hard for employees. </p>
<p>So, what is it in New Zealand’s current legislation that puts employees in this difficult situation? And what can be done to protect staff when businesses fail? </p>
<h2>The current pecking order</h2>
<p>In terms of corporate insolvencies, there are three options: <a href="https://companies-register.companiesoffice.govt.nz/help-centre/when-your-company-fails/what-happens-during-voluntary-administration/">voluntary administration</a>, <a href="https://companies-register.companiesoffice.govt.nz/help-centre/when-your-company-fails/what-happens-during-receivership/">receivership</a> and <a href="https://companies-register.companiesoffice.govt.nz/help-centre/when-your-company-fails/what-happens-during-liquidation/">liquidation</a>. </p>
<p>Liquidations are the most common form of corporate insolvency process. When this happens, the company ceases to trade and a liquidator is appointed.</p>
<p>Under the <a href="https://www.legislation.govt.nz/act/public/1993/0105/latest/DLM319570.html">Companies Act 1993</a>, the liquidator’s role is to sell the company assets to repay unsecured creditors. In practice, only those assets not under a prior legal claim by one or more of the company’s creditors (for example, collateral used to secure a bank loan) are available to the liquidator to sell. </p>
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Read more:
<a href="https://theconversation.com/failed-nz-businesses-leave-a-trail-of-destruction-here-are-3-things-inland-revenue-could-do-to-minimise-damage-210370">Failed NZ businesses leave a trail of destruction. Here are 3 things Inland Revenue could do to minimise damage</a>
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<p>Once a liquidator has sold the company’s remaining assets, the Companies Act sets the order in which the debts are to be paid. </p>
<p>Preferential claims are to be paid before the claims of other unsecured creditors. Employees are considered preferential creditors.</p>
<p>There are five classes of preferential creditors in the Companies Act. Costs relating to the liquidation, including the liquidators’ fees, are ranked first, followed by the payment of unpaid wages and specified other amounts owed to employees. </p>
<p>Accordingly, amounts owed to employees are paid out after liquidation costs have been sorted – and only if there is any money left from the failed business. There is also a cap on what each employee can claim – currently set at $25,480 –regardless of what they are owed.</p>
<p>In practice, this means there is no guarantee employees will receive their unpaid wages when a business fails. </p>
<p>It all depends on whether there is enough money after secured creditors have accessed the assets used as collateral and the liquidator has paid their own fees. And this is often not the case.</p>
<p>Liquidators can take company directors to court for breaching their duties, such as recklessly trading. But this sort of action takes time, and there is no guarantee it will increase the amount of money available to unpaid staff. It took a decade for liquidators to <a href="https://www.nzherald.co.nz/business/mainzeal-supreme-court-judgment-directors-of-failed-firm-including-former-pm-jenny-shipley-to-pay-nearly-40m-plus-interest/NX5Y5JG5PJHWZDDRWVBWKHYUNE/">secure a final judgement</a> against the four directors of failed construction company Mainzeal. </p>
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<h2>Law changes could protect workers</h2>
<p>New Zealand’s approach to protecting workers compares badly to other countries, where government schemes bolster the protections for unpaid employee debts. Such schemes operate alongside the preferential creditor rules in corporate law. </p>
<p>For example, in the <a href="https://www.legislation.gov.au/Details/C2019C00216">Australian Corporations Act 2001</a>, unpaid wages, superannuation contributions and certain other payments owed to employees are classed as preferential debts. </p>
<p>However, there is also a nationally-funded scheme that operates as a safety net for employees, which allows them to claim up to 13 weeks of unpaid wages, annual leave and other entitlements.</p>
<p>After the scheme makes a payment to employees, it then takes the employees’ place as a preferential creditor in the liquidation. A similar scheme operates in the UK. </p>
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Read more:
<a href="https://theconversation.com/why-is-new-zealands-labour-government-trying-to-push-through-a-two-tier-benefit-system-165615">Why is New Zealand's Labour government trying to push through a two-tier benefit system?</a>
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<p>Other options adopted in some countries include granting employee claims (capped or uncapped) “super-priority” status, which means they are paid before secured and other unsecured debts. </p>
<p>The previous New Zealand government, with support from Business New Zealand and the Council of Trade Unions, proposed introducing a <a href="https://www.stuff.co.nz/national/explained/129936463/what-the-proposed-income-insurance-scheme-would-mean-for-you">social insurance scheme</a>. </p>
<p>This would have paid up to seven months of wages at 80% of salary for most workers, funded through employee and employer contributions. But Labour eventually put the policy on ice, and the National Party has <a href="https://www.national.org.nz/government_must_dump_fatally_flawed_jobs_tax">opposed such a scheme</a>.</p>
<p>Because the government doesn’t collect the data, it is hard to say how many employees receive all or part of the amounts owing to them as preferential creditors when the company they work for fails.</p>
<p>But what is clear is that the current approach of labelling New Zealand workers privileged creditors does not guarantee they will see any money if their employers go into liquidation. The situation would be improved if New Zealand followed the best overseas examples.</p><img src="https://counter.theconversation.com/content/216811/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Trish Keeper does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Laid-off Supie staff were paid by an anonymous donor – but many employees never get what they’re owed when a company fails. New Zealand should follow overseas examples to better protect workers.Trish Keeper, Associate professor in Commercial Law, School of Accounting and Commercial Law, Te Herenga Waka — Victoria University of WellingtonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1468332020-09-28T00:48:58Z2020-09-28T00:48:58ZWe’re facing an insolvency tsunami. With luck, these changes will avert the worst of it<figure><img src="https://images.theconversation.com/files/360151/original/file-20200927-24-bx6l1q.jpg?ixlib=rb-1.1.0&rect=554%2C198%2C2600%2C1379&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Supamotion/Shutterstock</span></span></figcaption></figure><p>Ahead of the budget, the government has announced new rules that will allow small businesses at risk of collapse to continue to work out their problems instead of appointing an administrator.</p>
<p>They are needed because of an avalanche of insolvencies awaiting the end of an effective moratorium on bankruptcies (a so-called “regulatory shield”) that expires at the <a href="https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/media-releases/extension-temporary-relief-financially-distressed">end of December</a>.</p>
<p>Since it was introduced in March the number of companies entering external administration has been unusually low compared to earlier years (at a time of unusually bad conditions) suggesting a buildup of zombie companies waiting to die.</p>
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<p><strong>Number of companies entering external administration</strong></p>
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<a href="https://images.theconversation.com/files/360148/original/file-20200927-18-82272w.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/360148/original/file-20200927-18-82272w.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/360148/original/file-20200927-18-82272w.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=307&fit=crop&dpr=1 600w, https://images.theconversation.com/files/360148/original/file-20200927-18-82272w.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=307&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/360148/original/file-20200927-18-82272w.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=307&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/360148/original/file-20200927-18-82272w.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=386&fit=crop&dpr=1 754w, https://images.theconversation.com/files/360148/original/file-20200927-18-82272w.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=386&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/360148/original/file-20200927-18-82272w.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=386&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Twelve months to each week (red) versus previous twelve months.</span>
<span class="attribution"><a class="source" href="https://asic.gov.au/regulatory-resources/find-a-document/statistics/insolvency-statistics/insolvency-statistics-series-1b-notification-of-companies-entering-external-administration-weekly-update/">ASIC</a></span>
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<p>The new rules will allow insolvent small businesses with liabilities of less than A$1 million to keep trading under the eye of a <a href="https://ministers.treasury.gov.au/sites/ministers.treasury.gov.au/files/2020-09/Insolvency-Reforms-fact-sheet.pdf">small business restructuring practitioner</a> for 20 days while they develop a restructuring plan to put to creditors rather than surrender control to an external administrator.</p>
<p>If half the creditors by value endorse the plan it will be approved and the business can continue under its present ownership with assistance from the restructuring practitioner. If not, it can be put out of its life quickly under a proposed simplified liquidation process.</p>
<h2>Existing laws give directors little leeway</h2>
<p>Under the current insolvent trading law, directors are expected to immediately stop the trading when they know or have reasonable grounds to suspect the company is insolvent. Directors who “give it a go” and try to trade their way out of financial difficulty face severe legal consequences: personal liability, a fine of up to <a href="https://www.asic.gov.au/about-asic/asic-investigations-and-enforcement/fines-and-penalties/">$1.11 million per offence</a> or a prison sentence of up to 15 years in extreme cases.</p>
<p>The only way to avoid these penalties is to quickly place the company in the hands of the administrator who temporarily manages the business until the company’s creditors make a decision on the company’s fate.</p>
<p>Its a regime not particularly suited to small businesses. </p>
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<a href="https://theconversation.com/australia-needs-new-insolvency-laws-to-encourage-small-businesses-84776">Australia needs new insolvency laws to encourage small businesses</a>
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<p>The proposed new rules can be seen as a tacit admission of the failure to the “<a href="https://www.bdo.com.au/en-au/accounting-news/accounting-news-may-2018/safe-harbour-insolvency-reforms">safe harbour</a>” law reform of 2017. Applicable to all companies irrespective of size, it protects directors from personal liability for debts incurred by an insolvent company if they took a course of action “reasonably likely to lead to a better outcome” for the company and its creditors than administration or liquidation.</p>
<p>Anecdotal evidence suggests it is largely shunned by small businesses in part because of its uncapped cost. The fees of small business restructuring practitioners will be capped.</p>
<h2>The new laws will create breathing space</h2>
<p>The new rules are based on <a href="https://www.investopedia.com/terms/c/chapter11.asp">Chapter 11</a> of the United States Bankruptcy Code, with important differences.</p>
<p>The US law applies to all Companies, not just to those with debts of less than $1 million. And it gives the court an oversight role.</p>
<p>The absence of judicial supervision in what’s proposed for Australia is a double-edged sword. Court involvement generally means delays and high costs.</p>
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Read more:
<a href="https://theconversation.com/government-will-reform-insolvency-system-to-improve-distressed-small-businesses-survival-chances-146774">Government will reform insolvency system to improve distressed small businesses' survival chances</a>
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<p>On the other hand, it provides a valuable check against abuses – such as the deliberate liquidation and rebirth of “<a href="https://www.dissolve.com.au/information-centre/what-is-a-phoenix-company/">phoenix companies</a>” in order to avoid paying debts.</p>
<p>In Australia, that’ll be the role of the small business restructuring practitioner.</p>
<h2>It’s not yet clear how they’ll work</h2>
<p>It won’t be a panacea for small businesses. They will be required to lodge any outstanding tax returns and pay any employee entitlements before a plan can be put to creditors.</p>
<p>In the current circumstances many small businsses will not be able to comply.</p>
<p>There’s much we don’t yet know about what’s proposed. The government’s briefing says time and cost savings will be achieved through “<a href="https://ministers.treasury.gov.au/sites/ministers.treasury.gov.au/files/2020-09/Insolvency-Reforms-fact-sheet.pdf">reduced investigative requirements</a>”. It is unclear to what the extent the liquidator’s wide investigative powers into reasons for business failures will be curtailed. </p>
<p>The changes are likely to have profound implications for many stakeholders, including creditors, employees and the general community. </p>
<p>It is important that the government consults properly before the new rules are put to parliament in time for their introduction on January 1.</p><img src="https://counter.theconversation.com/content/146833/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Anil Hargovan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The new rules will allow insolvent small businesses to keep trading rather than go straight into administration.Anil Hargovan, Associate Professor, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/794362017-06-15T04:01:29Z2017-06-15T04:01:29ZTen Network has a hard road back to viability<p>With Ten Network <a href="http://www.asx.com.au/asxpdf/20170614/pdf/43jxwxg71wfdt9.pdf">in voluntary administration</a>, efforts are under way to <a href="https://images.tenplay.com.au/%7E/media/Corporate%20Site%20Media/Files/Media%20Releases/2017/Network%20Ten%20-%20Media%20Release%20From%20KordaMentha.pdf">restructure the company</a>. But having <a href="http://www.asx.com.au/asxpdf/20170427/pdf/43hs04614yfz8m.pdf">lost A$231.2 million</a> in the half-year ending February 2017, it will take a lot to make Ten a viable business.</p>
<p>In the short term, Ten has to focus on reducing costs by renegotiating contracts with its suppliers. Over the long term, Ten has to contend with <a href="http://www.roymorgan.com/findings/6646-decline-and-change-commercial-television-viewing-audiences-december-2015-201601290251">changing demographics</a> and <a href="http://users.tpg.com.au/ceasa/publication.html">falling television advertising</a>. The company has to receive more revenue from the content it already has, and the best way to do that may be through a tie-up with Foxtel.</p>
<h2>How to make Ten viable</h2>
<p>Entering voluntary administration provides an opportunity to reorganise Ten and renegotiate contracts. <a href="https://theconversation.com/the-federal-budget-doesnt-do-enough-to-save-free-to-air-tv-77309">Changing media ownership laws</a> would doubtless make this easier, by allowing some of the major shareholders to take the company private. </p>
<p>In the short term, Ten should aim to reduce expenses, aiming for annual savings of A$80 million. In a <a href="http://www.asx.com.au/asxpdf/20170614/pdf/43jxwxg71wfdt9.pdf">release to the ASX</a>, Ten talks about renegotiating contracts with the studios it buys content off, notably CBS and 20th Century Fox. Ten had already identified these cost reductions, but entering voluntary administration will give the company a stronger bargaining position. </p>
<p>However, these negotiations are just the beginning of content changes. Ten will need to produce content more cheaply and aligned to a changing target demographic. As younger viewers <a href="http://www.roymorgan.com/findings/6646-decline-and-change-commercial-television-viewing-audiences-december-2015-201601290251">moved away from traditional television</a>, Ten’s programming <a href="http://www.oztam.com.au//documents/2017/OzTAM-20170528-EMetFTARankSumCons.pdf">has suffered</a>. Voluntary administration will give Ten more power to renegotiate contracts with domestic suppliers too. </p>
<p>Longer term, Ten needs to protect and expand its revenues. With <a href="http://users.tpg.com.au/ceasa/publication.html">television advertising declining</a>, Ten needs to reach more viewers so that it can maximise the revenue from the content it has. Distributing content through more channels, such as realising the full potential of streaming, would enable more efficient use of content and increase the potential audience. </p>
<p>But developing these channels by itself might not be a viable option as Ten has neither time nor financial resources. This is why it makes sense to tie up with Foxtel, already a major shareholder and a big player online. </p>
<p>A common theme to these strategies is that Ten needs to compete more effectively for content and advertising revenues. This means that regulatory constraints <a href="https://theconversation.com/the-federal-budget-doesnt-do-enough-to-save-free-to-air-tv-77309">must be removed</a> if it is to fight for long-term financial sustainability. </p>
<h1>Overcoming financial hurdles</h1>
<p>A major contributor to Ten’s recent half-year loss was a one-off impairment charge – the company <a href="http://www.asx.com.au/asxpdf/201em70427/pdf/43hs04614yfz8m.pdf">wrote down A$214.5 million</a> from the value of its television licences.</p>
<p>But, even allowing for this one-off item, there was still a substantial loss and the financial pressures have been building for some time. Much of this pressure stems from a decline in revenues from <a href="https://images.tenplay.com.au/%7E/media/Corporate%20Site%20Media/Files/Results/2011/TNHL%20Full%20Financials%202011.pdf">A$998 million in 2011</a> to only <a href="https://images.tenplay.com.au/%7E/media/Corporate%20Site%20Media/Files/Results/2016/TNHL%20Full%20Financial%20Report%202016_Final%20for%20Website.pdf">A$689 million in 2016</a>. The <a href="https://images.tenplay.com.au/%7E/media/Corporate%20Site%20Media/Files/Results/2016/TNHL%20Full%20Financial%20Report%202016_Final%20for%20Website.pdf">2016 annual report</a> even notes a structural change in advertising as a risk facing the company. </p>
<p>Over this same period Ten has been working to reduce operating costs, but obviously this has been difficult. The financial reports do not give exact breakdowns of costs, but we do know that content contracts with CBS and 20th Century Fox are <a href="http://www.asx.com.au/asxpdf/20170427/pdf/43hs0yk9bh2szq.pdf">substantial and need to be reduced</a>.</p>
<p>If there is one thing we can be certain of, it is that there must be substantial change in the business for Ten to recover. </p>
<p>Further contributing to Ten’s woes are loan facilities that expire in December. This includes borrowing that amounted to A$73.8 million at the end of February and which needs to be repaid in the short term. </p>
<p>Unless Ten can negotiate an extension to its loan facility at the Commonwealth Bank, the solvency of the business becomes doubtful. Failure to get backing for a new loan to replace the current one in December is <a href="https://www.theguardian.com/media/2017/jun/13/tens-future-in-doubt-after-lachlan-murdoch-and-bruce-gordon-refuse-to-guarantee-debt">reportedly</a> one of the reasons Ten decided to go into voluntary administration.</p>
<p>Previously, major shareholders had provided guarantees for Ten’s banking facilities, but this is difficult to justify given the state of the business. Regardless, it would not resolve the underlying issues. For Ten to be viable, it needs to get a handle on costs and reach more viewers with the content it has.</p><img src="https://counter.theconversation.com/content/79436/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Wells does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>For Ten to be a viable business it needs to make hard decisions to cut costs and reach more viewers.Peter Wells, Professor, Accounting Discipline Group, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/794202017-06-14T12:34:43Z2017-06-14T12:34:43ZTen Network’s problems are history repeating<p>Reporters at the Ten Network relayed the news of their employer’s <a href="http://www.asx.com.au/asxpdf/20170614/pdf/43jxwxg71wfdt9.pdf">voluntary administration</a>, during a staff meeting. The network was looking to refinance to the tune of A$250 million, after its existing finance was due to expire on December 23.</p>
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<p>But Ten’s directors said they were left no choice but to appoint administrators from KordaMentha to try to recapitalise or sell the business. Lachlan Murdoch, who owns a 7.7% share of Ten (via his private investment fund Illyria), and Bruce Gordon, who owns 14.96% (via Birketu), are <a href="http://www.asx.com.au/asxpdf/20170614/pdf/43jy0d773pglxh.pdf">now teaming up to offer</a> a rescue package to restructure the network, though the details are still to be sorted out.</p>
<p>This will see the two shareholders treated as an association rather than a merged entity to <a href="http://www.abc.net.au/news/2017-06-14/ten-enters-volutary-administration/8617078">prevent</a> triggering a compulsory acquisition provision or a breach of the existing two-out-of-three cross-media ownership rule.</p>
<p>While this all may appear to be contemporary issues for the company, Ten has faced many hurdles during its lifespan of little over 50 years. </p>
<h2>Ten has been in trouble before</h2>
<p>The network began in the 1960s, originally named the Independent Television Network, before promptly being renamed the 0-10 Network. The network’s Melbourne-based station (ATV-0) began its official broadcast on August 1 1964, with other metro stations starting the year after.</p>
<p>Ken Inglis argues in his book, <a href="https://books.google.com.au/books?id=KWfSljNdE4oC&pg=PR4&lpg=PR4&dq=Whose+ABC?:+the+Australian+Broadcasting+Corporation&source=bl&ots=KTLKY29iKa&sig=8GVLX8kr-eFqA4HAafu-TfJ2pFQ&hl=en&sa=X&ved=0ahUKEwjY1Iqws7zUAhULV7wKHdi8DR4Q6AEIPjAF#v=onepage&q=Whitlam%E2%80%99s%20people%20had%20thought%20about%20giving&f=false">Whose ABC?</a>, that Ten struggled during its early establishment and that the Whitlam government made attempts to buy the network to use it as a second channel for the ABC. </p>
<p>But the network debuted popular shows during this time, such as <a href="http://www.imdb.com/title/tt0068114/">Number 96</a>, and its high ratings pushed the price higher than the government was willing to pay.</p>
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<figcaption><span class="caption">Remembering Number 96.</span></figcaption>
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<p>Ten also faced a crisis after Frank Lowy bought the network from Rupert Murdoch. Murdoch was forced to sell due to changes to the media ownership laws in 1987, which prohibited a media company owning both a newspaper and television station in the same city.</p>
<p><a href="https://www.allenandunwin.com/browse/books/academic-professional/communication-studies/The-Media-in-Australia-Stuart-Cunningham-Graeme-Turner-9781864482737">Lowy said that</a> “TV was like any other business”, although he quickly found out it was not. Lowy asked Ian Gow, who had previously worked at the Nine Network, to run the network. <a href="https://currencyhouse.org.au/node/138">According to Gow</a>, Lowy had “bought the worst house in the best street and [wanted] to renovate”.</p>
<p>Despite the initiatives Gow implemented, including selling off the Adelaide, Perth and Canberra stations, the network was forced into receivership in September 1990. Communications corporation CanWest Global <a href="https://images.tenplay.com.au/%7E/media/Corporate%20Site%20Media/Files/Corporate%20Governance%20Documents/Prospectus.pdf">bought</a> 57.5% of Network Ten from Westpac Bank for A$275 million and then re-established a capital city network in 1995.</p>
<p>During 1999 Ten formed a joint venture with Village Roadshow Limited, Village Ten Online (VTO). Network Ten <a href="https://images.tenplay.com.au/%7E/media/Corporate%20Site%20Media/Files/Annual%20Reports/2001_Annual_Review.pdf">argued</a> this was a “strategically defensive move” to develop and market <a href="http://admin.villageroadshow.com.au/upload/Document/SCAPE_Rel1.pdf">content for the next generation</a>. Ten stated in its 1999 annual report that the joint venture planned to produce a series of websites targeted specifically at the under-40s market. </p>
<p>The first major announcement of the venture was Scape.com, which was launched in October 2000. The CEO of Ten Ventures, Peter O'Connell, <a href="http://admin.villageroadshow.com.au/upload/Document/SCAPE_Rel1.pdf">described</a> Scape as:</p>
<blockquote>
<p>An exciting new presence on the Internet, with all the necessary attributes to appeal to increasing numbers of online service users. </p>
</blockquote>
<p>But in March of the following year, less than six months from its launch, Village Roadshow and Network Ten released a joint press release <a href="https://www.google.com.au/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0ahUKEwjMhqiyhr3UAhWEw7wKHVggDIAQFggoMAA&url=http%3A%2F%2Fvillageroadshow.com.au%2F-%2Fmedia%2FVRL-Corporate-Media-Library%2FDocuments%2FASX-Announcements%2F2001%2FMarch%2FScape_to_Cease_Ops.pdf&usg=AFQjCNGU4a-00RcHI1NtVy0sfcLj99M0uQ&sig2=yq6o_gMotCnnmOGlXhFNqw&cad=rja">stating</a> that Scape had been placed in voluntary administration and ceased operation. Both companies had contributed A$22 million to the joint venture.</p>
<h2>Ten’s future</h2>
<p>Ten’s future is unclear and this will not only impact the network, but some of its key stakeholders. </p>
<p>This recent announcement will affect Bruce Gordon, who holds a 14.96% share in Ten and also owns WIN Television, in two ways. The first is due to his financial stake in the network, which could expose his investment companies to liability. Secondly, WIN Television is the <a href="https://theconversation.com/television-agreement-a-win-for-network-ten-59817">regional affiliate of Ten</a>. Any changes to Ten or its programming would impact WIN and its regional stations across Australia that rely heavily on Ten’s programming.</p>
<p>Foxtel is another major shareholder that could be affected by any changes made to Ten. Any restructure or sale could impact the recent approach by both Foxel and Ten to partner in programming including GoggleBox, Common Sense, A-League and V8 Supercars. This approach could be used as part of the negotiations for the upcoming <a href="https://theconversation.com/chasing-the-audience-is-it-over-and-out-for-cricket-on-free-to-air-tv-76792">Cricket Australia media rights</a>. Ten holds the rights for the Big Bash League and, while it would not like to lose these rights, a partnership with Fox Sports could allow it still to gain access to some games.</p>
<p>What is clear is that Ten will have to attempt to break the traditional broadcast model and rethink what a television network is in the current media landscape. If it can achieve this it could potentially place the network in a strong position to compete not only with other local television broadcasters, but also with <a href="https://theconversation.com/the-battle-for-audiences-as-free-tv-viewing-continues-its-decline-58051">new media players</a> that are stealing their ad revenue and audience share.</p><img src="https://counter.theconversation.com/content/79420/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Marc C-Scott is a board member of C31 Melbourne (Community Television Station).</span></em></p>Ten Network has been placed in voluntary administration, after major shareholders refused to guarantee another loan.Marc C-Scott, Lecturer in Screen Media, Victoria UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/574142016-04-07T20:07:14Z2016-04-07T20:07:14ZA grim future for Arrium, Ford and Queensland Nickel workers?<figure><img src="https://images.theconversation.com/files/117809/original/image-20160407-10027-1cjbzqy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Whyalla Steelworks, where workers might lose their jobs as operator Arrium goes into voluntary administration.</span> <span class="attribution"><span class="source">Wayne Thomas/Flickr</span>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span></figcaption></figure><p>The <a href="http://www.oecd.org/employment/back-to-work-australia-9789264253476-en.htm">OECD</a> report Back to Work Australia makes some grim predictions for workers who lose their jobs. That is the potential threat facing some 7,000 Arrium employees, those at Queensland Nickel and Caterpillar in Tasmania, and next year, workers in Ford’s plants in Geelong and Broadmeadows, Victoria.</p>
<p>The report was released just before the announcement that mining and materials company <a href="http://www.afr.com/business/manufacturing/focus-now-moves-to-arrium-breakup-20160406-go0cp0">Arrium is going into voluntary administration</a>. The company operates the Whyalla Steelworks in South Australia, a state hit hard by the <a href="https://theconversation.com/moving-on-holden-closure-shows-we-need-a-new-growth-agenda-21360">closure of Holden’s vehicle manufacturing plant</a>.</p>
<p>The OECD report says Australia faces a high incidence of job loss due to plant downsizing or closure (at 2.3% of the workforce per year). Based on analysis of data from the <a href="https://www.melbourneinstitute.com/hilda/">Household, Income and Labour Dynamics in Australia (HILDA) Survey</a>, the OECD suggests that 30% of those who lost their jobs in recent years were still unemployed after 12 months and another third had moved into to less well-paid and less secure employment. </p>
<p>Surprisingly the OECD sees this as suggesting Australia’s “flexible” labour markets are “rather successful at providing new jobs relatively quickly”. However, HILDA data is unlikely to capture the outcomes of workers in concentrated large-scale closures, so this may underestimate the magnitude of the problem. </p>
<p>The OECD also notes that Australia’s spending on labour market programs is weak by international standards, at a modest 0.01% of GDP (compared to say Denmark’s at 0.98%). It finds that social stigma makes job seekers unwilling to access employment services, that the <a href="https://www.employment.gov.au/jobactive">jobactive</a> framework discourages training and that the payment system to providers rewards short-term placements that lead to labour market churning. </p>
<p>The report questions the utility of targeted labour adjustment programs such as the Structural Adjustment Fund that assisted South Australia’s<a href="https://theconversation.com/mitsubishis-silver-lining-for-holden-workers-21425"> Mitsubishi</a> workforce in 2004. After reviewing these programs the OECD concludes that in Australia labour adjustment programs:</p>
<blockquote>
<p>“coverage is arguably inequitable and potentially wasteful as it provides automatic access to employment services to all displaced workers in a particular sector or region, irrespective of whether the worker needs help, while excluding other displaced workers who have an equal or greater need for such services merely because they were employed in different sectors or regions.” </p>
</blockquote>
<p>The OECD recommends that Australia move away from targeted assistance programs for large-scale closures towards a universal approach covering all sectors of the economy, with the intensity of intervention “varying according to the workers’ needs”. </p>
<p>This recommendation underplays the benefits of targeted labour adjustment assistance. If a plant closure releases hundreds or thousands of workers with similar skills into a small local labour market, the competition for work is concentrated and intense. Many workers will be forced to accept jobs in new occupations – often with a loss of pay, seniority and skill. Some will have to retrain or relocate to places where there are more opportunities. </p>
<p><a href="https://theconversation.com/moving-for-work-not-the-panacea-the-government-seeks-29745">Relocation</a> is not an option for everyone. Programs need to be targeted to local circumstances. </p>
<p>If job losses eventuate in isolated Whyalla, there will a greater demand for relocation assistance than, say, for Ford workers in Geelong, where workers can potentially access the greater Melbourne labour market. In addition, local labour adjustment programs make it possible for local organisations to contribute to revitalisation efforts. </p>
<p>Payments are made to people undertaking retraining help to maintain the demand for services in affected regional economies. Targeted assistance is not wasteful because the workers who do not need assistance do not access assistance. </p>
<p>There are economy-wide benefits from labour adjustment programs. Less skilled workers tend to search for work in their local area, while highly skilled workers might look to national or global opportunities. </p>
<p>How successful their search is depends on individual skills and attributes, household responsibilities, and the play of wider processes of labour supply and demand. Because there are so few suitable job opportunities for them, the workers whose careers are most damaged by large-scale closures are likely to be highly skilled and specialised workers with long tenure with one employer. The value of these workers’ skills to the economy warrants investment in preserving their skill base. </p>
<p>The OECD recommends establishing local pilot schemes for intensive employment services, increasing employers’ responsibilities in retrenchment by demanding longer notice periods and mandatory Centrelink notification, and instituting policies that encourage firms to limit dismissals during temporary downturns. It also advocates better research follow-up of retrenched workers’ outcomes. </p>
<p>These are all positive steps. Sadly, however, the OECD does not suggest offering employer incentives to stimulate demand for the labour of retrenched and other jobless workers.</p><img src="https://counter.theconversation.com/content/57414/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sally Weller's labour market research has been funded by the Australian Research Council and the Victorian Government</span></em></p>The outlook is not good for those who may lose their jobs as a result of mining company Arrium going into voluntary administration, according to the latest OECD report.Sally Weller, Australian Research Council Future Fellow, Monash UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/424742015-07-01T20:12:21Z2015-07-01T20:12:21ZIs it time to reform the cornerstone of Australia’s insolvency regime?<figure><img src="https://images.theconversation.com/files/86954/original/image-20150701-25059-bv7nfa.jpg?ixlib=rb-1.1.0&rect=1227%2C933%2C6397%2C4444&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Voluntary administration has been the widely-used step in efforts to prevent a company being dissolved.</span> <span class="attribution"><span class="source">Image sourced from www.shutterstock.com</span></span></figcaption></figure><p>The last time Australia had a comprehensive evidence-based review into our corporate insolvency laws was in 1993, chaired by the late Ron Harmer. Among the most notable reforms of that landmark review was the ground-breaking creation of voluntary administration, which allowed companies at risk of insolvency to continue trading in the hands of appointed overseers. </p>
<p>Since then, there have been other reports covering various aspects of insolvency law, including a <a href="http://www.aph.gov.au/binaries/senate/committee/corporations_ctte/completed_inquiries/2002-04/ail/report/ail.pdf">Parliamentary Joint Committee in 2004</a>; the <a href="http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/Completed_inquiries/2008-10/liquidators_09/index">Senate Inquiry into Administrators and Liquidators</a> in 2010, and David Murray’s 2014 Financial System Inquiry.</p>
<p>Public submissions have just closed on the latest draft report by the Productivity Commission, which floats a number of suggestions that have gained currency in insolvency circles, particularly drawing on <a href="http://www.arita.com.au/in-practice/arita-submissions">submissions</a> of the Australian Restructuring Insolvency and Turnaround Association (ARITA). The theme is that the current law needs to do more to facilitate restructuring.</p>
<p>The report contains much useful data and confirms that the bulk of Australian businesses are small. Notwithstanding this, the report doesn’t examine the debate about whether one size fits all and its suggestions regarding restructuring largely focus on the “big end of town”. </p>
<h2>Reforming voluntary administration</h2>
<p>While Harmer gave us a “state of the art” rescue procedure in voluntary administration, (which was later adapted by the British) it can be argued it is too expensive and is a sledgehammer for most small companies, so a simpler breathing-space for them might be a useful addition to the menu of procedures. </p>
<p>The Report rightly rejects the need, raised by the Murray Inquiry, for importation of the expensive <a href="http://www.investopedia.com/terms/c/chapter11.asp">US Chapter 11</a> bankruptcy provisions. But it does recommend one welcome adoption from the US, the outlawing of “ipso facto” clauses, where contracts provide for automatic termination on insolvency. </p>
<p>This prevents companies from trading during insolvency, as it can affect leased goods, premises and key supplies. This impediment to rescue could easily be removed. We have long had the prohibition in our Bankruptcy Act, so why not in the Corporations Act too?</p>
<p>In the 1993 reforms, directors’ liability for insolvent trading was deliberately linked to voluntary administration, the latter designed to maximise chances of the company surviving, or if not, a better outcome than on liquidation. If directors allow the company to incur debts once they knew or should have known it was insolvent, they will be personally liable; but if they appoint an administrator, they have a partial defence. But it is said fear of liability means directors are triggering voluntary administration too early, and since it is an insolvency procedure, the attendant stigma leads to value destruction. </p>
<h2>Safe harbour for directors</h2>
<p>There has been a call for a “business judgment” defence; a “safe harbour” if directors act in good faith and call in an independent restructuring expert. The Federal government took this up following the 2008 financial crisis, but an then-incoming Minister David Bradbury dropped it on 2011, citing lack of evidence of any problem.</p>
<p>The PC has picked up the ball once again, and adds ARITA’s suggestion of “pre-positioned” sales, with safeguards if related parties are involved. However, the PC envisages the “safe harbour” as a positive duty, not a defence. </p>
<p>It does not discuss how this would interact with the other duties in the Corporations Act. Also, it is not a “business judgment”, since the directors would be relying on the adviser. Will the “independent restructuring advisers” be regulated, and need qualifications? And how would small companies afford them? </p>
<h2>Too early - or too late</h2>
<p>Lastly, the report fails to mention the more likely driver for triggering voluntary administration too early - namely the Australian Taxation Office’s Director Penalty Notice regime, which also links director liability to voluntary administration or liquidation. </p>
<p>Paradoxically, it is also said that voluntary administration is often used too late. Thus, the report recommends it should be available if the company may become insolvent in future; that may be beneficial, but then it says voluntary administration should not be available if the company is insolvent. </p>
<p>This would be a backward step, and overlooks the difficulty of deciding whether a company is technically insolvent. Further, it removes the flexibility of voluntary administration. Granted, the report cites evidence that very few voluntary administrations lead to survival - but it does not follow that we should prevent it being used to try a rescue. </p>
<h2>Bankruptcy discharges</h2>
<p>The report also touches upon schemes of arrangement, a costly court-driven rescue procedure. It proposes a “panel” could replace the court for some aspects, but generally fails to consider how schemes relate to voluntary administration and informal rescue.</p>
<p>On receivership, it recommends extending the duty of care of receivers when disposing of assets. It then makes an “information request” asking whether there is evidence of any problem! As for exit, the report takes up ARITA’s suggestion of a streamlined procedure for small liquidations. This is laudable, though the main issue will be funding it. Another welcome suggestion is that directors should all have an identification number, aimed at reducing “phoenix” activity, but with wider monitoring advantages.</p>
<p>Lastly, to encourage enterprise through “fresh start”, it suggests Australia should follow the UK and reduce the automatic bankruptcy discharge period from three years to one. This has merit, but since most bankruptcy (78%) is consumer related, it needs more thought about the impact on all stakeholders.</p>
<p>Keeping the public discussion going on these reform ideas is welcome. But the draft report lacks holistic analysis and there is a danger that piecemeal changes could have unintended consequences. It seems time we had another “Harmer”.</p><img src="https://counter.theconversation.com/content/42474/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>David Brown does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Voluntary administration was considered a state-of-the-art rescue procedure for struggling companies in 1993. But is is time for another wide-ranging review of our insolvency laws?David Brown, Co-Director, Bankruptcy and Insolvency Scholarship Unit, University of AdelaideLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/178252013-09-11T04:18:32Z2013-09-11T04:18:32ZKodak’s survival not a black and white issue<figure><img src="https://images.theconversation.com/files/30974/original/4ctkdvzd-1378699503.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Kodak shareholders have reason to celebrate, with the camera manufacturer bouncing out of bankruptcy</span> <span class="attribution"><span class="source">Sourced from AAP images</span></span></figcaption></figure><p><em>“Kodachrome, it gives the nice bright colours, it gives the dreams of summer, it makes you think all the world’s a sunny day.” (Paul Simon, Kodachrome, 1973, from ‘There Goes Rhymin Simon.)</em></p>
<p>Eighteen months ago, the only colour Eastman Kodak (better known simply as Kodak) was seeing was red. Kodak filed for Chapter 11, the notorious “rescue” procedure used for many US airlines, defendants in tort litigation and more recently motor manufacturers such as General Motors. Billy Crystal was making jokes about the “Chapter 11 theatre” as Kodak was forced to withdraw its sponsorship of the Oscar venue. Last week, however, Kodak “emerged” from bankruptcy after a court confirmed its rescue plan.</p>
<p>A pioneer and worldwide household name in film and printing, Kodak is often credited with bringing photography to the masses with its Instamatic camera. But the digitisation of photography, mobile phones and photo-sharing applications such as Instagram took its toll, as well as increased competition from giant competitors such as Fuji and Hewlett-Packard. </p>
<p>Kodak did develop a range of other products, as well as pioneering new technologies such as touch-sensor modules which will revolutionise the way mobile devices operate. But ironically, while one of its key assets was its patents, the cost of litigating their infringements was also one reason for Kodak’s financial problems.</p>
<p>Kodak has now emerged relatively speedily from bankruptcy. However, this doesn’t come with a guarantee of success or solvency. While it has taken full advantage of the opportunity to streamline its business, restructure its balance sheet and cut costs, people are printing less these days. So, it will still prove to be a tough future environment.</p>
<h2>The benefits of bankruptcy</h2>
<p>Nevertheless, we should consider the limited purpose of Chapter 11, and compare it to the closest Australian equivalent, Voluntary Administration (VA).(Incidentally, VA celebrated its 20th anniversary this year, and at Adelaide Law School we held an international seminar to commemorate this). One of the key differences between VA and Chapter 11, apart from the debtor in the US staying in control rather than an outside expert coming in to run the business, is that Chapter 11 can be triggered before a company is in the red. The culture there is to encourage debtors to be rehabilitated and try again, and the sooner that is attempted, the better. </p>
<p>Under our VA system, a company has to be insolvent, or on the brink. One of the major criticisms here is that companies are pushed into VA too early, when a rescue might have been achievable without the inevitable loss of value. Another reason this happens is because of the impact on directors of insolvent trading laws, and the risk of personal liability to the ATO if directors don’t appoint an administrator. Regardless, Government committees have decided against having a Chapter 11 procedure here. It is very expensive and court-driven, so certainly not suitable for smaller companies (which are the majority).</p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/30988/original/2ws9cx2y-1378704583.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/30988/original/2ws9cx2y-1378704583.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=800&fit=crop&dpr=1 600w, https://images.theconversation.com/files/30988/original/2ws9cx2y-1378704583.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=800&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/30988/original/2ws9cx2y-1378704583.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=800&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/30988/original/2ws9cx2y-1378704583.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1005&fit=crop&dpr=1 754w, https://images.theconversation.com/files/30988/original/2ws9cx2y-1378704583.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1005&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/30988/original/2ws9cx2y-1378704583.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1005&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Kodak are being forced to make drastic changes to keep up with fierce competition.</span>
<span class="attribution"><span class="source">Sourced from Michael Woods via Flickr</span></span>
</figcaption>
</figure>
<p>Returning to Kodak, the purpose of Chapter 11 (and VA) is to provide a “breathing space” during which no action can be taken against the debtor, so it can try to negotiate a restructuring plan without distraction or further cash-bleeding. The debtor also has power to reject contracts and force suppliers to continue supplying. </p>
<p>In contrast to VA, “ipso facto” clauses, which trigger termination of contracts, are void. The terms of a “turnaround” are negotiable, since Chapter 11 is just an umbrella for the parties to negotiate in the shadow of the rights which bankruptcy and contract law would give them on a liquidation. </p>
<p>The idea of Chapter 11 is to maximise value for creditors and shareholders, so that they are better off than in liquidation. Businesses, jobs and community interests might be preserved which would otherwise fail. Everybody loses on insolvency; shareholders come last and get nothing. </p>
<p>So if Chapter 11 can bring about a better outcome, that could be measured a success. True, the business may eventually fail, and even enter Chapter 11 again, but does this mean the original procedure was a “failure”? Besides, though many companies entering Chapter 11 or VA do go into liquidation, these umbrella procedures might still produce better outcomes due to in-built advantages of the procedure. That’s particularly true in the US, where Chapter 11 doesn’t carry the stigma of insolvency.</p>
<h2>The Kodak plan</h2>
<p>The plan confirmed for Kodak contains some pretty common restructuring elements, but one unusual feature.</p>
<p>The Kodak plan focuses its business on commercial printing. In terms of recapitalising its balance sheet, as well as shedding costs and selling many patents to competitor Brother Inc., it has had to deal with pension liabilities in the US and the UK. Chapter 11 has been used to deal with escalating and unaffordable long-term liabilities under retirement plans. Existing shareholders in Kodak will get nothing. Unsecured creditors, including US retirees, will take a cut and get some new equity plus some cash back. </p>
<p>The new Kodak will be owned mostly by its creditors. The unusual aspect of the deal is that the camera film business, with which Kodak is perhaps most associated, has been handed over to the UK pensioners to compensate them somewhat for their claims. They are apparently going to try to run the business for a while to salvage some or all of their entitlements.</p>
<p>So Kodak and its great name has survived for now. Jobs will be preserved that might have been lost and creditors, including pensioners, will salvage something. Its existing lenders are prepared to lend further funds, and investors or traders will pick up some of the distressed debt if they feel the new Kodak has a strong future. If things go well, new shareholders might even make a profit.</p>
<p>While a company may emerge from Chapter 11 with different owners and products, these days businesses, especially where technology is central, have to move with the times to keep up with the competition. Some tech-based companies have nothing behind them but their name, a few key boffins and some licences and patents. Re-inventing themselves while preserving core skills and brand identification is vital and will become more so, as the nature of assets evolves.</p>
<p>Although procedures like Chapter 11 and VA can’t guarantee survival, it’s important to remember: that’s not their purpose. They provide an opportunity, backed by law and majority voting, to achieve a more constructive outcome than the alternative, i.e the point of no return. Kodak is a perfect example of why it’s worth a try. It might not be back on a roll, but we may not have seen the last ‘Kodak moment’!</p><img src="https://counter.theconversation.com/content/17825/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>David Brown does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>“Kodachrome, it gives the nice bright colours, it gives the dreams of summer, it makes you think all the world’s a sunny day.” (Paul Simon, Kodachrome, 1973, from ‘There Goes Rhymin Simon.) Eighteen months…David Brown, Co-Director, Bankruptcy and Insolvency Scholarship Unit , University of AdelaideLicensed as Creative Commons – attribution, no derivatives.