The Insolvency and Bankruptcy Code (IBC) of India was introduced in 2016 with the noble intention of streamlining debt resolution and making it easier for businesses in distress to either restructure or wind up efficiently. As an entrepreneur who has experienced the IBC process firsthand, I want to share insights that could help other business owners navigate this complex terrain.
What the IBC Was Meant to Do
Before IBC, India’s insolvency resolution process was fragmented across multiple laws and could take years or even decades to resolve. The IBC aimed to consolidate these under one framework, with a strict 180-day (extendable to 270-day) timeline for resolution. This was meant to protect the interests of creditors while giving viable businesses a chance to restructure.
The Reality for Entrepreneurs
The reality, however, has been more complex. One of the most controversial aspects of IBC has been its provisions regarding personal guarantors. When an entrepreneur provides a personal guarantee for a company loan — which is standard practice in India — the IBC allows creditors to initiate proceedings against the individual, not just the company. This has put countless entrepreneurs in a deeply personal and financial bind.
The stress of IBC proceedings extends beyond finances. The public nature of these proceedings, the stigma attached to insolvency, and the uncertainty about personal assets can take a severe toll on an entrepreneur’s mental and physical health. I have written about my own health journey during this period, and I know many other entrepreneurs face similar struggles.
What Needs to Change
India needs an IBC framework that better distinguishes between fraudulent promoters and entrepreneurs who took risks in good faith but faced unfavorable market conditions. Several recommendations that I and other industry leaders have advocated for include a clear separation of personal and business liability, a more compassionate framework for first-time defaulters, faster resolution processes that don’t drag entrepreneurs through years of uncertainty, and better support systems for entrepreneurs during resolution.
Lessons for Entrepreneurs
If you are an entrepreneur, understand the personal guarantee clauses in all your loan agreements before signing. Ensure your business maintains adequate documentation and governance. Have a contingency plan. And most importantly, know that business failure is not the end — many of the world’s most successful entrepreneurs have survived bankruptcy and come back stronger. The key is to learn, adapt, and keep moving forward.