valuation
Valuation plays a crucial role in resolving insolvency cases in India under the Insolvency and Bankruptcy Code (IBC), 2016. It assists in establishing the accurate value of a distressed company's assets, facilitating informed decisions by creditors, investors, and resolution professionals throughout the insolvency process.
Fair Value: Represents the worth of assets if the company continues to function as a going concern.
Liquidation Value: Indicates the estimated worth of assets in the event of liquidation, which is generally lower than the fair value.
A registered valuer, accredited by the Insolvency and Bankruptcy Board of India (IBBI), is responsible for executing the valuation process. This ensures an impartial and independent evaluation of the company’s assets and liabilities.
Asset Identification: Recognition of both tangible and intangible assets.
Valuation Methods: Various approaches, including:
Report Preparation: The valuer compiles a comprehensive report, which plays a vital role for the Committee of Creditors (CoC) during the Corporate Insolvency Resolution Process (CIRP).
The valuation process is vital for the CoC, assisting them in deciding the most suitable course of action, whether it involves restructuring the company or pursuing liquidation. It guarantees an equitable distribution of assets among creditors.
There are several challenges that can arise during the valuation process:
Subjectivity: Valuations may be influenced by the valuer's assumptions and estimates.
Data Availability: In some situations, there may be insufficient data for effective comparison.
Time Sensitivity: Delays can occur in completing the valuation, potentially impacting the insolvency process.
In summary, valuation under the IBC is essential for ensuring fairness and transparency within the insolvency resolution framework. It provides a solid foundation for informed decision-making, ultimately supporting equitable outcomes for both creditors and distressed companies.