INSOLVENCY AND BANKRUPTCY CODE: KEY ASPECTS

INSOLVENCY AND BANKRUPTCY CODE: KEY ASPECTS OF VALUATION PROCEDURES

Insolvency and Bankruptcy Code: Key Aspects of Valuation Procedures

The Insolvency and Bankruptcy Code (IBC) of India has revolutionized the resolution framework for distressed companies, emphasizing fair and transparent valuation procedures. Valuation plays a pivotal role in determining the worth of assets and liabilities during insolvency proceedings. Here are the key aspects of valuation procedures under the IBC:

Objective of Valuation

Valuation under the IBC aims to ascertain the fair value of assets and liabilities of the insolvent entity. The primary objective is to determine the liquidation value and the going concern value to aid in the resolution process.

Registered Valuers

The IBC mandates the involvement of registered valuers possessing expertise in valuation methodologies. These professionals assess various assets like immovable property, stocks, securities, and intellectual property to derive their fair values.

Valuation Methodologies

Market Value Approach

This method evaluates assets based on their market value, considering demand, supply, and comparable transactions. It’s particularly applicable for assets actively traded in the market.

Income Approach

The income generated by the assets determines their value using methods like the discounted cash flow (DCF) model. This approach is suitable for income-generating properties and businesses.

Cost Approach

This approach evaluates assets based on the cost required to replace or reproduce them. It’s relevant for unique assets or those without active markets.

Valuation in Resolution Process

During the Corporate Insolvency Resolution Process (CIRP), valuation becomes crucial. The resolution professional appoints valuers to assess and determine the fair value of assets and the enterprise.

Valuation Challenges

Time Constraints

Valuation needs to be conducted promptly, often within strict timelines, which can pose challenges in obtaining accurate and comprehensive assessments.

Subjectivity

Valuation involves subjective judgments and assumptions, leading to potential discrepancies in determining the true value of assets.

Asset Class Complexity

Valuing diverse assets like intellectual property, brand value, and intangible assets requires specialized expertise due to their intricate nature.

Judicial Oversight

The National Company Law Tribunal (NCLT) plays a crucial role in overseeing the valuation process to ensure fairness and accuracy. It intervenes in case of disputes or irregularities in the valuation report.

Conclusion

Valuation procedures within the Insolvency and Bankruptcy Code are pivotal in facilitating a transparent and fair resolution process. The involvement of registered valuers, adherence to different valuation methodologies, and judicial oversight contribute to ensuring a credible and just valuation framework.

Valuation under the IBC is a dynamic and evolving process aimed at striking a balance between the interests of creditors, debtors, and other stakeholders. Its effectiveness lies in continuous improvements and adaptations to meet the challenges posed by varying scenarios in insolvency resolution.