IBBI Proposes Holistic Valuation Framework To Boost Recovery From Insolvency Cases

New Delhi, Jun 17 (KNN) Distressed companies undergoing insolvency proceedings could receive higher valuations under a new mechanism proposed by the Insolvency and Bankruptcy Board of India (IBBI), which seeks to broaden the basis for assessing enterprise value.

IBBI Proposes Holistic Approach To Corporate Valuation

Under a circular issued by the regulator, valuers will be required to consider synergistic value and intangible assets while determining the worth of companies undergoing resolution under the Insolvency and Bankruptcy Code (IBC). 

The move marks a shift from a predominantly asset-based approach towards a more comprehensive assessment of a company's value, reported Financial Express.

Coordinating Valuer To Integrate Assessments

A key feature of the framework is the introduction of a ‘coordinating valuer’, who will integrate asset-specific valuations prepared by other valuers to arrive at the fair value of a corporate debtor. 

According to IBBI, the mechanism is intended to capture the holistic value of a business, facilitate informed decision-making by the Committee of Creditors (CoC), and enhance transparency and confidence in the valuation process.

Intangible Assets And Synergies To Be Recognised

The revised norms require valuers to account for intangible assets such as brand value, trademarks, copyrights, patents, proprietary technology, licences, regulatory approvals, customer relationships, contracts, distribution networks and goodwill. 

Additional value arising from integrated operations, market position, operational efficiencies and future earnings potential will also be considered.

The regulator has further prescribed standardised reporting formats for valuation reports across various asset classes, including land and buildings, plant and machinery, and securities or financial assets, with the aim of improving consistency and reducing disputes.

Experts Say Reforms Could Strengthen IBC Outcomes

Experts said the changes could strengthen the insolvency resolution framework by enabling more realistic valuations of stressed assets. 

Sourasubha Ghosh, Partner, CMS INDUSLAW, said the move addresses the limitations of an asset-centric valuation approach and aligns with the IBC's objective of maximising value through business revival. He added that the changes could help reduce litigation arising from valuation disputes during the corporate insolvency resolution process.

Amit Amlani, Executive Director, Nexdigm, said the proposal was a positive development, although competitive bidding mechanisms under the IBC already play an important role in determining enterprise value through market-led price discovery.

New Framework Builds On Global Valuation Standards

Valuation has remained one of the most contested aspects of the IBC framework, with bidders, lenders and promoters frequently challenging assumptions underlying valuation reports, often leading to prolonged litigation before tribunals and appellate forums.

The latest circular builds on IBBI's decision earlier this year to adopt the internationally recognised International Valuation Standards (IVS) for valuations conducted under the IBC. 

While the IVS provides guidance on valuation methodologies, the new framework lays down the reporting and integration process for arriving at a fair value for corporate debtors.

(KNN Bureau)