You Can't Reorganize a Broken Business Model: Talking Chapter 11 with Judge Michael B. Kaplan
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For decades, Chapter 11 carried the reputation of being a place where companies reorganized, reset, and survived. But as Hon. Michael B. Kaplan of the District of New Jersey explains in his conversation with Drew McManigle on Reviving Giants, too many modern restructurings focus on extending time rather than fixing the business itself.
The result is a growing number of cases where balance sheets are rearranged while operational problems remain untouched.
“An extended runway is only good if you're going to use that period of time to address...the operational issues,” Judge Kaplan says.
That distinction matters more than ever.
Rearranging Debt Isn’t the Same as Restructuring a Business
Judge Kaplan points to the rise of liability management exercises and pre-bankruptcy financial engineering as examples of a broader shift in the market.
Many distressed companies now attempt to buy time through debt exchanges, lender negotiations, or complex capital restructurings before ever filing Chapter 11. Sometimes those efforts work. Often, they do not.
Nobody truly addressed the operational issues, Kaplan explains. “Is it competition? Is it opening new markets? Is it changing brands? Something more than just COVID, interest rates,” or tariffs.
That critique reflects a growing frustration across the restructuring world.
Macroeconomic explanations may contribute to distress, but they rarely explain everything. Companies fail because business models weaken, costs become unsustainable, leadership misses market shifts, or debt loads overwhelm operating performance.
Judge Kaplan describes many Chapter 11 debtors as “an over-levered carcass left” by the time they reach court.
The implication is difficult but important: if management never fixes the underlying business, no amount of financial engineering is likely to create a durable outcome.
The Cases Are Moving Faster — Not Necessarily Better
Another concern Judge Kaplan raises is speed.
Large Chapter 11 cases increasingly arrive with compressed milestones, accelerated sale timelines, and financing conditions that pressure parties to move extraordinarily quickly.
“I’ve been in the practice for about 30 years — on the bench about 20 years. At the outset, you used to say Chapter 11s were 18 months – on average, two years,” he says. “An 18-month Chapter 11 now is looked upon as a death knell.”
Today, many debtors attempt to complete restructurings in 60 to 90 days — or less.
There are practical reasons for that shift. Professional fees are expensive. Liquidity evaporates quickly. Lenders often impose strict deadlines tied to financing.
But speed also creates risk.
Compressed timelines can reduce the opportunity to market assets properly, negotiate thoughtfully, or fully evaluate operational alternatives before critical decisions are made.
Judge Kaplan acknowledges the pressure courts face in those situations.
“I am loath to be the one to gamble,” he says, referring to decisions that could cost jobs, vendors, and entire businesses if financing disappears.
Some Businesses Need to Be Let Go
One of the most candid moments in the conversation comes when Judge Kaplan discusses Rite Aid’s second bankruptcy filing.
The case ultimately became a liquidation despite the company’s historic brand recognition and its role serving millions of pharmacy customers.
“It was very difficult for me in the second Rite Aid filing to know that it was a liquidation,” he says.
But sentiment for this brand that stood for decades could not overcome reality.
“It just couldn't address the debt. And frankly, it couldn't sustain itself in a world of e-commerce and competition from CVS and Walgreens.”
That observation extends beyond retail.
Every restructuring professional eventually confronts the same uncomfortable truth: not every company survives. Some businesses can be stabilized. Some can be sold. Some need smaller footprints. And some simply no longer work in the modern market.
The challenge is recognizing the difference early enough to preserve value where possible.
Takeaways for Leaders
- Financial restructuring alone rarely fixes a broken business model
- Speed in Chapter 11 can preserve liquidity — but also limit strategic options
- Operational problems must be identified honestly and early
- Market shifts, competition, and leverage matter more than convenient narratives
- Sometimes preserving value means accepting that a business cannot continue as-is
Listen to the Full Episode
Reviving Giants is presented by MACCO Group and hosted by Drew McManigle, a veteran turnaround professional who brings decades of in-the-trenches restructuring experience to each conversation.
To hear the full discussion with Judge Michael B. Kaplan, listen on the Reviving Giants podcast page and wherever you get your podcasts.
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TL;DR
Judge Michael B. Kaplan argues that too many modern Chapter 11 cases focus on extending runway instead of fixing operational problems. Financial engineering may buy time, but durable restructurings still require confronting the underlying business reality.
