Eastman Kodak has agreed to transfer part of its business to the UK Kodak Pension Plan (KPP) to settle $2.8bn (£1.8bn) of claims made by the scheme.

If approved by the US Bankruptcy Court, the company would spin-off its Personalised Imaging and Document Imaging businesses to the KPP for cash and non-cash considerations worth $650m (£419m).

The proceeds would then be used to help the company emerge from Chapter 11 bankruptcy and for the growth of its Commercial Imaging business.

After the company filed for bankruptcy in January 2012, the trustees from the underfunded KPP lodged a claim last year against the company in the US to cover its deficit.

Even though Kodak said that the transaction provides the "best deal for the KPP", it admitted in a statement that the trustees concluded that the existing deficit is so large, the scheme cannot continue in its current form.

The scheme's members will be offered the chance to transfer to a new scheme which offers lower benefits, but still better than the compensation provided by the Pension Protection Fund (PPF), or they can stay with the remainder of the KPP when it transfers to the PPF.

The KPP is a defined benefit (DB) scheme which was closed to new members on 1 July 2006 and closed to future accrual on 31 March 2012. The plan has assets of around £1bn.

Steven Ross, KPP chairman, said, "KPP and Kodak have been working collaboratively since the beginning of the case, and this acquisition provides security for and delivers the greatest value to, the KPP members. Overall, this settlement gives the KPP members greatly improved future prospects whilst being good for Kodak's employees, its creditors and for UK businesses.

"The businesses that we are acquiring will deliver long-term cash flows to support the plan's obligations. The financial stability that KPP will provide for the Personalized Imaging and Document Imaging businesses will be beneficial to those businesses' employees, customers and partners."

Antonio Perez, Kodak chairman and chief executive officer, said: "The KPP transaction moves us past several key hurdles in our reorganization, resolving all potential claims worldwide, assuring continued operations outside of the United States, placing our Personalized Imaging and Document Imaging businesses with a new owner that recognizes their value and is focused on their growth and success, and providing the remaining liquidity we require to emerge from Chapter 11."

First published 30.04.2013

monique_simpson@wilmington.co.uk