NEW NORMS FOR REGISTERED VALUERS

NEW NORMS FOR REGISTERED VALUERS TO SUBMIT VALUATION REPORT FOR CORPORATE DEBTOR AND FOR MSME COMPANIES

1. Registered valuer to submit valuation report for the Corporate Debtor (CD) as a whole.

1.1. Valuation under the Code focuses on determining notional value to nudge market to discover of value of such assets through competitive bids. Assets of the CD plays a critical role in the Corporate Insolvency Resolution Process (CIRP); hence, accurate valuation is a significant determinant of the outcome of the process. It helps maximize recoveries for creditors, facilitates informed decision-making throughout the resolution process, and ensures fairness for all stakeholders involved.

1.2. To determine the fair value and liquidation value of the CD, the regulations require the resolution professional (RP) to appoint two registered valuers (RVs). Both the RVs carryout the valuation process in accordance with internationally accepted valuation standards and submit an estimate of fair value and liquidation value to the RP.

1.3. Further, regulation 35(1)(b) provides that “if the two estimates of a value in an asset class are significantly different, or on receipt of a proposal to appoint a third registered valuer from the committee of creditors, the resolution professional may appoint a third registered valuer for an asset class for submitting an estimate of the value…” Where the two estimates in an asset class are significantly different, i.e., 25 per cent., the RP appoints a third RV for the asset Page 2 of 8 class. The average of the two closest estimates of a value is considered the fair value or liquidation value of the CD.

1.4. However, in accordance with the Companies (Registered Valuers and Valuation) Rules, 2017 (Valuation Rules), in discharge of his professional duty, the valuer, under Rule 8(2) of the Valuation Rules is empowered to obtain inputs for his valuation report or get a separate valuation for any asset class conducted from another registered valuer, if required. The provision is reproduced as under:

“(2) The registered valuer may obtain inputs for his valuation report or get a separate valuation for an asset class conducted from another registered valuer, in which case he shall fully disclose the details of the inputs and the particulars etc. of the other registered valuer in his report and the liabilities against the resultant valuation, irrespective of the nature of inputs or valuation by the other registered valuer, shall remain of the first mentioned registered valuer.”

1.5.Thus, while the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Process) Regulations, 2016 (CIRP Regulations) point towards appointment of separate registered valuer in each asset class, the Valuation Rules point toward valuation to be carried out by a single valuer as a whole. Due to inconsistency in the provisions of Valuation Rules and CIRP Regulations, divergent practices are being observed in the market. This apparent anomaly needs to be corrected and regulations are needed to be made consistent with the Valuation Rules. Hence with the approval of the proposal instead of possible appointment of six registered valuers (2x 3 asset class) two valuers may be appointed for the valuation of
the CD as a whole.

1.6. Proposal: In order to streamline the process and remove ambiguities around the present framework of appointment of valuers for the purpose of valuation of the CD and to align the regulations with the valuation rules, it is proposed that the CIRP Regulations may be amended to specify that the RP shall assign for carrying out the valuations of the CD as a whole to the RV. The RV may conduct the valuation as per rule 8(2) of the Valuation Rules taking inputs for other asset classes or get the valuation for an asset class conducted from another registered valuer, if required.

2. One valuation estimate for companies up to a certain asset size and for MSME companies.

2.1. Regulation 27 of the CIRP Regulations requires that the resolution professional shall, within seven days of his appointment but not later than forty seventh day from the insolvency commencement date, appoint two registered valuers to determine the fair value and the liquidation value of the corporate debtor in accordance with regulation 35. Even where an estimate of value is significantly different, then there is a requirement of appointment of a third valuer. The cost of appointment of such valuers is a part of insolvency resolution process cost.

2.2. The CIRPs of companies up to a certain asset size and MSMEs in particular are very cost sensitive owing to their size. Any measure to reduce to the CIRP cost and delay in the process will be certainly helpful in the resolution of those CDs. Provision of two or three valuation estimates escalates the CIRP cost substantially and may contribute to delay in the process.

2.3. Proposal: In view of the above, it is proposed that in the CIRP of CDs having asset size up to Rs. 1000 crore and in CIRP of CDs classified as MSME, as a default position, RP to appoint only one registered valuer for providing the estimates of the fair value and the liquidation value. However, keeping in view the complexities so involved, if CoC so decides to have two valuers, it has to record the reasons for the same before RP takes steps for such appointments.