Emergence Plan

DEFINITION of 'Emergence Plan'

A company’s formal strategy for exiting Chapter 11 bankruptcy in a way that leaves the company stronger than it was before declaring bankruptcy. Also called a reorganization plan, an emergence plan is a lengthy legal document filed with the bankruptcy court, which then approves or rejects the plan after a hearing. Both publicly and privately held companies may create emergence plans.

BREAKING DOWN 'Emergence Plan'


An emergence plan describes what lines of business the company will pursue, its strategies for attracting more customers, how it will improve operations and cut costs, and its projected revenues. In addition to stating a projected bankruptcy exit date and projected valuation at the time of exit, an emergence plan describes how the company will repay those to whom it owes money, such as suppliers, as well as who will sit on the company’s new board. The plan also projects the company’s valuation for the years immediately subsequent to its emergence from Chapter 11.
 
When Eastman Kodak filed for Chapter 11 bankruptcy, it developed an emergence plan. Kodak’s emergence plan described how the company would focus on its strongest business - commercial digital printing - and how it would sell its less-profitable business lines such as digital cameras and photo printing, as well as some of its patents to raise additional funds for its recovery.
 
A company’s emergence plan will not necessarily benefit its existing shareholders. For example, under one version of Kodak’s emergence plan, existing investors faced the prospect of having their shares canceled. However, second-lien noteholders and unsecured creditors were to be repaid in new Kodak shares, except for smaller creditors, which were to be repaid in cash. Employees who were laid off to save costs also suffered, as did suppliers with whom Kodak renegotiated its contracts to save money.
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