James, I cannot confitm that this fixes the issue.

Manually creating  it with mkdir /var/log/upstart and doing telinit u
still panicked the kernel.

Then I put mkdir  /var/log/upstart into /etc/rc.local and it still
panicked after a reboot.

Is it that the creation happens too late?

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https://bugs.launchpad.net/bugs/1120660

Title:
  Kernel Panic when running 'sudo dpkg --configure -a'  ?

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