Valuation Under the Insolvency and Bankruptcy Code (IBC), 2016: A Simplified Overview

Valuation under the Insolvency and Bankruptcy Code (IBC), 2016, plays a key role in resolving insolvency cases in India. It helps determine the true worth of a distressed company’s assets, aiding creditors, investors, and resolution professionals in making informed decisions during the insolvency process.

Valuation Types:

Fair Value: The value of assets if the company continues to operate (as a going concern).
Liquidation Value: The value of assets in case of liquidation, typically lower than fair value.

Valuer's Role:

A registered valuer, certified by the Insolvency and Bankruptcy Board of India (IBBI), conducts the valuation process, ensuring an unbiased and independent assessment of assets and liabilities.

Valuation Process:

Asset Identification: Identifying both tangible and intangible assets.
Valuation Methods: Approaches like Discounted Cash Flow (DCF), Market Approach, and Income Approach are used to assess value.
Report Preparation: The valuer prepares a report, which is then used by the Committee of Creditors (CoC) during the Corporate Insolvency Resolution Process (CIRP).
Importance in CIRP: The valuation helps the CoC decide on the best course of action—whether restructuring the company or opting for liquidation. It ensures a fair distribution of assets among creditors.

Challenges:

Subjectivity in valuation due to assumptions and estimates.
Lack of Data for comparison in some cases.
Time Sensitivity: Delays may occur in the valuation process.

In essence, valuation under the IBC ensures fairness and transparency in the insolvency resolution process, providing a foundation for informed decision-making and helping achieve equitable outcomes for creditors and distressed companies.