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Handling Business Failures, Donald Trump vs V.G. Siddhartha

Siddhartha

The business failure of VG Siddhartha, the dynamic founder of Café Coffee Day and his tragic demise, continue to shock India. It brings into focus the pathetic plight of a failed Indian entrepreneur, which VGS perceived himself to be. He worked hard all his life, fought his battles and quit after not being able to take it anymore. He saw himself at a deadend and the system gave him no solution to pull himself out of the mess. As per his letter, after 37 years of hard work, his failures were numerous, though we would not really think so. He said that he failed to set up a profitable business model, failed to meet his payment deadlines and buy out the overbearing PE investors and he clearly failed to handle the tax authorities. As per us, he failed to have the unending tenacity to handle such a situation, and succumbed to his business failures.

It is worth comparing the business failure of VGS, with the numerous business failures of Donald Trump, now the most successful and powerful person in the world. He filed for bankruptcy through his companies six times, starting with the bankruptcy of his famous Atlantic City Casino called Taj Mahal in 1991. It was a $1.2 bn bankruptcy where he had also given personal guarantees, but he came out unscathed. Thereafter he filed for bankruptcy on five more occasions, emerging only more stronger each time and today he is the President of USA. He carries no stigma or taint of those bankruptcies whatsoever. When Hillary Clinton tried to shame him of his bankruptcies to say that he was unfit to lead USA, he batted no eyelid and said that he had filed for bankruptcy as per the laws of USA, to protect his company, employees and family and that the greatest of American businessmen do the same. He confidently retorted that he had never been personally bankrupt and that the bankruptcies were due to business failures and not due to personal failures. It is clear that Trump lost nothing out of his bankruptcies. It was his creditors and lenders who lost and he only bounced back each time and he carries no social, business or political stigma at all.

Business failures are a routine phenomena and such failures far out weigh and out number the successes. There is a huge difference in the way USA treats failures and bankruptcies and the way India does. In America, a bankrupt person or his company can voluntarily file for it at a bankruptcy court. He is at once granted protection by the government and no action can now be taken against him and no judicial proceeding can be initiated for collection of any debt due by him, that was incurred prior to the filing of such bankruptcy petition. The court takes charge of his estate, appoints a trustee and distributes the proceeds to the creditors, as per their rights and claims. A viable business and an honest entrepreneur is thus protected, such that there is no creditor run on the business, when it is facing a cash crunch. It was in such a manner that even General Motors, the autogiant was declared bankrupt in 2009, and so was United Airlines in 2002 and today they are running and profitable enterprises, with no stigma of the past.

India does not have any such bankruptcy laws and the law and the system tends to equate a business failure, with a business fraud, even though they are entirely different. While a fraud is an intentional and deliberate planned action to cheat and a dupe the system, wherein the promoters fraudulently siphon away money and cheat the various stakeholders, of the entity as has happened in cases like Bhushan Steel, Alok Industries, Nirav Modi, Sterling Biotech etc., a bonafide business failure on the other hand is totally unintentional or deliberate. It is caused due to circumstances entirely beyond the promoter’s control, which would be due to economic downturns, inability to raise funds, inability to withstand competition, change in laws etc. There is no siphoning of funds by the promoters here. While frauds must be heavily punished and not spared, genuine business failures need to be handled differently, protecting the failed entrepreneur and trying to revive a viable business, with no taint that sticks to him.

It looks like VGS was a victim of a system that did not differentiate between business fraud and failures and it thus despite his financial crisis, it gave him no option to revive himself and bounce back. The FM, reacting to the VGS tragedy said in the Parliament that business failures should not be a taboo or looked down upon. On the contrary she says that we must give an honourable exit or resolution to the problem. That is in her hands to initiate suitable reforms, so that the system supports genuine and viable business failures, with no stigma or taint.

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