IBBI Pushes For Holistic Valuation Approach To Improve Insolvency Outcomes

New Delhi, Nov 17 (KNN) The Insolvency and Bankruptcy Board of India (IBBI) has proposed significant changes to valuation norms under the Insolvency and Bankruptcy Code (IBC) to address inconsistencies and prevent undervaluation of distressed companies, particularly those with substantial intangible assets.

In its discussion paper ‘Strengthening the Valuation Process under the Insolvency and Bankruptcy Code, 2016,’ the IBBI said current valuation methods often overlook the full commercial value of distressed companies, as valuers focus on individual asset classes rather than the business as a whole. 

This results in underestimation of key intangible assets such as brand value, intellectual property (IP), customer relationships and goodwill.

The IBBI has proposed adopting a single set of valuation standards for all IBC processes, aimed at improving consistency, reliability and professionalism across the valuation framework.

This includes corporate insolvency resolution process (CIRP), liquidation, fast-track insolvency and pre-packaged insolvency resolution process (PPIRP).

The paper also recommends moving from asset-specific assessments to a holistic valuation approach that captures the company’s overall economic value. It said the current definition of “fair value” has led to fragmented and incomplete evaluations.

Under present regulations, resolution professionals are required to appoint two valuers to determine fair value and liquidation value. The IBBI said this dual-valuer requirement increases costs and slows down the insolvency process, especially for smaller companies.

To ease the burden, the regulator has proposed allowing a single valuer, per asset class, for companies below a certain threshold. However, the committee of creditors (CoC) may still opt for two valuers in complex cases, provided reasons are recorded.

The proposed changes are expected to streamline valuation processes, reduce delays and ensure more accurate assessments of distressed assets under the IBC framework.

(KNN Bureau)