There is more cloud than silver lining, but Nortel could--like other businesses that filed Chapter 11--see bright days once again.

Recently I was able to get a little phone time with Wes Durow, Nortel's Vice President of Enterprise Marketing and Strategy. At first we struggled to find something meaningful to talk about ... the weather, fast cars, Super Bowl XLIII, the disquieting image of Allan Sulkin living "a life of leisure and debauchery"...but soon we settled on the topic of bankruptcy protection.Wes, not surprisingly, has been spending a lot of time speaking with customers. He says the main message he has needed to get across is the difference between Chapter 7 bankruptcy, which results in the liquidation of the filing company's assets, and Chapter 11 bankruptcy, which staves off creditors long enough for the filing company to reorganize. It's the latter that Nortel has filed, not that you can always tell this from some doom and gloom new reports.

There are in fact many companies that have filed for and emerged from Chapter 11. Pacific Gas & Electric is one, filing in 2001 and exiting nearly four years later. United Airlines successfully emerged from Chapter 11 in 2006, taking just over three years to do so. And Northwest was under bankruptcy protection for less than two years, completing the process in May 2007.

After the call with Wes I decided to look a little more closely into what Kmart went through when it filed for bankruptcy protection a few years back. Here's a rundown, compiled mainly from the company's website.

January 2002--Kmart files for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Kmart closes 283 stores. Chairman and CEO Chuck Conaway resigns; new executive management team appointed, including James Adamson as CEO. Kmart continues business operations, actively introducing new products such as "Joe Boxer" underwear and a line of Disney-themed children's clothes.

January 2003--Kmart completes review of store portfolio and distribution network; closes 316 stores and 1 distribution center. Further changes made to executive team; Julian Day appointed CEO. Kmart files proposed Plan of Reorganization, an amended version of which is approved by the court and distributed to creditors in February.

April 2003--Creditors approve Amended Joint Plan of Reorganization.

May 2003--Kmart emerges from Chapter 11 as Kmart Holding Corporation. June 2003--Common stock begins trading on NASDAQ. May 2004--Kmart Holding Corporation reports fourth consecutive fiscal quarter of year-over-year profitability and liquidity improvements.

October 2004--Kmart appoints Aylwin Lewis as President and CEO.

November 2004--Kmart announces plan to acquire rival Sears, Roebuck and Co. for $12 billion, making Kmart the United States' third largest retailer. March 2005--Sears acquisition completed. New company named Sears Holdings Corp. Sears chairman Alan J. Lacy appointed CEO of new Sears Holding.

Of course, there's no cookie-cutter approach to businesses emerging from Chapter 11. "It's not like planting corn and you know it will be knee-high by the Fourth of July," Wes pointed out. Success stories like Kmart's are in no way guaranteed..but neither are they unheard of.

The big question is what Nortel will look like post-Chapter 11. There's no way to say for certain. The workforce reductions and restructuring initiatives announced in November are still in progress, expected to be completed by the end of Q1. This includes Nortel separating its carrier and enterprise business units into self-sustaining organizations, each with its own marketing, sales and development departments.

A new round of reorganizations will certainly be in the works as the bankruptcy process moves forward. There's also talk about Nortel "narrowing its strategic focus," which hints at the spinoff of certain divisions. So is Nortel likely to be a very different company a year or two from now? Certainly. But it is not alone. Siemens Enterprise Communications is turning into a very different company following its sale to The Gores Group. And Avaya, which has reorganized and quietly rationalized certain parts of its product line following its going private, is also undergoing a noticeable transformation. Without meaning to sound like a tired, old presidential campaign ad, change is in the air everywhere.

I have no intention of painting a rosy picture on what is clearly a very serious situation for Nortel. There is, after all, more cloud than silver lining in the company's present position. But if Nortel customers are patient enough to let the bankruptcy process run its course and the right decisions are made in terms of reorganization, the company could--like other businesses that filed Chapter 11--see bright days once again.There is more cloud than silver lining, but Nortel could--like other businesses that filed Chapter 11--see bright days once again.