The government plans to revise valuation norms under the Insolvency and Bankruptcy Code (IBC) to ensure intangible assets are fully captured in assessments of distressed companies, while giving the Insolvency and Bankruptcy Board of India (IBBI) greater authority over how valuation reports are prepared.
In a discussion paper, the IBBI said the move aims to “address concerns relating to inconsistencies, lack of uniformity, and other related issues in the conduct of valuations under the IBC, 2016”.
The paper said that, in order to promote consistency, reliability, and professionalism in the valuation ecosystem, it is proposing a single set of harmonised valuation standards to be adopted across all types of valuations conducted under the code, including those for processes such as the corporate insolvency resolution process (CIRP), liquidation, fast-track proceedings, and the pre-packaged insolvency resolution process (PPIRP).
Further, the paper highlighted shortcomings in the current definition of “fair value,” saying registered valuers frequently deliver asset-class-specific estimates that fail to capture the corporate debtor’s unified worth. That approach often leads to undervaluation of intangible assets such as brand value, intellectual property, customer relationships and goodwill, as well as the overall going-concern value of the business.
To fix this, the IBBI is pushing a shift from asset-specific assessments to a “holistic valuation” method that better reflects the debtor’s commercial and economic value.
Under existing rules, resolution professionals must appoint two valuers to determine fair value and liquidation value. But the dual-valuer system increases costs and slows the insolvency process, particularly for smaller companies. The IBBI has proposed allowing resolution professionals to appoint a single valuer—per asset class—when dealing with companies below a specified threshold.
“However, keeping in view the company specific issues or complexities involved with particular debtor, if the committee of creditors (CoC) is of the opinion that two valuations are required, it may decide to have two RVs, after recording the reasons for the same,” the paper said.