India doesn’t need a better insolvency law; it needs a turnaround ecosystem

A decade after the Insolvency and Bankruptcy Code, India has largely settled one question: can creditors enforce their rights? The answer is yes, says Dinkar Venkatasubramanian, partner, EY, and vice-president, INSOL International. Here’s his thought on the issue:

The more important question now is whether viable businesses can be rescued before their value is destroyed.  That is not semantics.  It is the difference between an insolvency ecosystem and a turnaround ecosystem.

The first decade of the IBC was about dealing with failure.  The next must be about preventing avoidable failure.

India enters this phase from a position of strength.  Scheduled commercial banks’ gross non-performing asset ratio fell to a multi-decadal low of 1.8 per cent in March 2026.  The insolvency framework, although still imperfect, has fundamentally changed borrower behaviour and strengthened creditor confidence.

The IBC’s achievements are substantial.  By June 2026, 9,166 corporate insolvency resolution processes had been admitted and 7,301 closed.  Of these, 4,227 companies were rescued through resolution plans, settlements, withdrawals, appeals, or reviews, while 3,074 proceeded to liquidation.  Creditors have realised more than ₹4.35 lakh crore through approved resolution plans, equivalent to around 95 per cent of fair value and 167 per cent of liquidation value.

Yet these numbers also expose the next challenge.  India no longer faces a systemic corporate stress crisis.  It faces a financing, governance, and execution gap.

Banks are stronger and corporate balance sheets healthier.  But many transformational, capital-intensive, and special-situations opportunities still struggle to access flexible, long-duration capital.  Private credit has stepped into this gap, evolving from a niche asset class into a significant source of acquisition finance, growth capital, refinancing, and structured funding.

India’s private credit market deployed an estimated $12.4 billion across 166 transactions in 2025, a 35 per cent increase in value over the previous year. Domestic funds are becoming more prominent alongside global investors, adding speed, flexibility, and structuring capability to the market.

That is good news. But private credit is not a substitute for banking. It is a powerful complement.

India’s investment ambitions still require banks to lend confidently and at scale. Banks, in turn, will do so only when they believe enterprise value can be protected when stress inevitably emerges. That is where the next evolution of India’s restructuring framework must begin.

The uncomfortable truth is that most value destruction occurs long before insolvency starts.

The pattern is familiar.  A company misses a target.  Working capital tightens.  Suppliers shorten payment terms.  Customers begin looking elsewhere.  Key employees leave.  Promoters hope the problem is temporary.  Lenders extend limited support while awaiting more information.  Decisions are deferred.

Months pass. Value evaporates.

By the time the company enters formal insolvency, it has become what restructuring practitioners call a “melting ice cube”, losing customers, talent, liquidity, and market relevance with every passing week.  No court process can fully reverse that damage.

India must therefore stop treating insolvency as the primary response to corporate distress.  The real objective should be intervention before insolvency.

The lessons of the past decade are clear.  Successful resolutions depend not merely on the legal process, but on speed, liquidity, governance, and operational execution.  Cases that destroy value usually involve delay, uncertainty, inadequate funding or a failure to confront operational realities.

Turnaround is an operational challenge before it becomes a legal one.

India has built a strong ecosystem of insolvency professionals, lawyers, valuers, and restructuring advisers.  What remains underdeveloped is the role of the independent turnaround professional.

Globally, stressed companies frequently appoint chief restructuring officers or equivalent executives to stabilise operations, preserve cash and align stakeholders.  India should adopt this model more aggressively.

Not every distressed company needs to enter insolvency.  Many need an independent professional who can bridge the trust deficit between promoters and lenders, establish cash discipline, improve information flows, and execute a credible recovery plan.  An empowered CRO can impose in weeks the transparency and accountability that lender committees may struggle to achieve over several months.

Liquidity is equally critical.  Even the best turnaround plan is worthless if the business runs out of cash before it can be implemented.  This is the “valley of death” between recognising the problem and delivering the solution.

Although India’s insolvency framework recognises interim finance, the market for rescue capital remains shallow.  India needs deeper pools of bridge finance, turnaround funding, and debtor-in-possession-style capital, with clear priority, appropriate safeguards, and certainty of repayment.

Private credit funds are particularly well placed to provide such capital.  Their ability to assess complexity, move quickly and structure around risk makes them natural partners for otherwise viable businesses.  But investors will participate only if fresh money is adequately protected and the restructuring process is credible.

India should also expand the use of out-of-court restructuring.  Formal insolvency will remain essential where stakeholders cannot agree, or creditor rights must be enforced. But many companies are fundamentally viable and need only time, liquidity, operational intervention, and coordination.

The earlier stakeholders engage, the greater the value they preserve.  The longer they deny, delay or litigate, the less remains for everyone.

The final gap is governance.  Corporate distress rarely begins as a cash-flow crisis.  It usually begins with weak reporting, poor capital allocation, delayed recognition of problems or inadequate board oversight.  By the time liquidity disappears, the underlying weaknesses may have existed for years.

Boards, independent directors, and lenders must therefore act at the first signs of stress, not the last.  Early-warning systems, 13-week cash-flow forecasts, covenant monitoring, and faster decision-making can preserve more value than a subsequent insolvency proceeding.

India’s next restructuring reform is therefore as much about mindset and institutional capacity as legislation:

Recognise stress early. Engage early. Fund early. Restructure early.

The first decade of the IBC established creditor rights and created consequences for default.  The next must build the institutions, capital and professional capacity required to rescue viable enterprises before value disappears.

India has spent a decade building an insolvency regime.  It should spend the next building a turnaround economy.

That distinction will determine whether capital is merely recovered after failure or preserved before failure occurs.

The article was first published on LinkedIn. We are publishing it here with permission from the author.

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