Beyond Resolution: How is the IBC reshaping corporate India?

In this Leading Questions piece, Daizy Chawla explains how the Insolvency & Bankruptcy Code, 2016 has transformed Indian corporate governance and credit culture by making insolvency a core boardroom concern.

Question: Has the IBC changed boardroom behavior and corporate governance beyond insolvency proceedings?

Answer: Yes. The IBC has raised insolvency risk to a critical boardroom concern, converting it from a mere courtroom matter into a core corporate governance issue. Ignoring early signs of financial distress can trigger CIRP under Section 7 or Section 9 of the I&B Code, 2016, resulting in transfer of control from the board to a Resolution Professional.

Section 29A of the I&B Code, 2016 reinforces this discipline by prohibiting defaulting promoters and connected ineligible persons from reclaiming control through a Resolution Plan. As a result, Boards are now expected to check early warning signs of financial stress, support oversight on all such events which can worsen the debt situation, and proactively engage with lenders to discuss restructuring strategies before distress worsens.

Question: How has the Code influenced lender-borrower relationships and credit discipline in India?

Answer: The I&B Code, 2016 has fundamentally reshaped lender-borrower dynamics by replacing informal delays with structured legal discipline. Financial creditors can start proceedings under Section 7 once debt and default are proved. This deterrent compels Corporate Debtor to prioritize early engagement and payment discipline rather than treating missed payments as routine. It is important to mention that CIRP also affects lenders, as they must await completion of the process during which asset values typically erode due to prolonged litigation and procedural complexities, often resulting in significant haircuts. In essence, the Code has transformed India’s credit culture by empowering lenders while requiring them to pursue recovery through a collective, value-maximizing framework to have their balance sheets also in good condition.

Question: Are companies today taking earlier restructuring decisions because of the IBC, rather than waiting for financial distress to worsen?

Answer: The threat of CIRP, loss of board control, and promoter disqualification under Section 29A has encouraged many companies to act earlier by exploring refinancing, asset sales, settlements, or lender-led restructuring before distress deepens. As mentioned above, the Creditors also had to face significant haircuts. The pre strategy therefore is beneficial for both the lenders and borrowers. For MSMEs, the pre-packaged insolvency route under Section 54C similarly promotes early restructuring. The success though depends on effective borrower-creditor coordination.

Question: How do you see technology, data analytics, and digital processes transforming insolvency resolution over the next few years?

Answer: The technology like in another case, play a key role, but for I&B Code, it is premature to predict its full impact. Currently, both lenders and corporate debtors use the I&B Code 2016 as a recovery tool or a means to resist recovery, rather than to achieve its stated objective of value maximization. For technology and data analytics to meaningfully transform insolvency resolution, stakeholders must first accept the Code’s underlying purpose. Further, digital processes can certainly enhance transparency, streamline claim verification, and improve monitoring, but their effectiveness depends on accurate data, trained professionals, and a genuine commitment to resolution rather than litigation-driven delay.

Question: As the IBC matures, what should businesses, lenders, and policymakers collectively focus on to strengthen the ecosystem?

Answer: As the IBC matures, stakeholders must collectively prioritize speed without sacrificing integrity. Businesses should develop robust early warning systems while maintaining clean records, board-level oversight, and proactive lender engagement before defaults occur. Lenders should improve documentation quality, coordinate effectively through the committee of creditors, and support resolution plans that are legally sound and practically implementable. Policymakers should focus on strengthening judicial capacity, enhancing digital reporting infrastructure, refining valuation standards, and ensuring effective implementation of approved resolution plans. A coordinated approach across all three groups will be essential to building a resilient insolvency ecosystem.

Daizy Chawla is a Senior Partner at S&A Law Offices.