The Importance of Valuation in the IBC Process

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The Insolvency and Bankruptcy Code (IBC), 2016,
brought a significant change in how insolvency is
handled in India. One key part of this process is
getting the valuation of the corporate debtors
assets right. Accurate valuation is crucial for
ensuring that creditors get as much as possible
and that all stakeholders are treated
fairly.   Why Valuation Matters in
IBC    Maximizing Asset Value    A precise
valuation helps uncover the true worth of a
companys assets. This maximizes recovery for
creditors and can lead to a successful plan to
revive the company.    Helping the Resolution
Process    Knowing the exact value of assets is
vital for making informed decisions throughout
the insolvency process. It aids in evaluating
revival plans, negotiating debt settlements, and
ensuring fair distribution of liquidation
proceeds.    Ensuring Transparency and
Fairness    When valuations are done by qualified
professionals following recognized standards, it
ensures transparency and fairness for everyone
involved in the insolvency proceedings.    Key
Concepts in IBC Valuation  Fair Value vs.
Liquidation Value    Fair Value This is the
estimated price an asset would fetch in a regular
market transaction.    Liquidation Value This is
the amount expected from selling the assets
quickly, usually at a lower price, considering
the urgency of the sale. 
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Registered Valuers    The IBC requires that only
registered valuers, certified by the Insolvency
and Bankruptcy Board of India (IBBI), can conduct
these valuations. These values are well-trained
and possess the necessary qualifications and
expertise.    Valuation Standards    Registered
valuers must follow internationally accepted
valuation standards. This ensures their reports
are consistent, accurate, and reliable.      Metho
ds and Approaches in Insolvency Valuation    Fair
Value Method    This method considers the current
market conditions and the assets' state. It gives
a realistic estimate of value but might not
reflect the price in a distress sale
scenario.    Liquidation Value Method    This
approach estimates how much can be quickly
realized by selling the asset under distressed
conditions. It gives a conservative estimate
ensuring creditors get a minimum value but might
undervalue assets if not done correctly.    Compar
able Company Analysis (CCA)    This method
compares the companys assets with similar
companies that have been sold recently. It
provides a market-based benchmark but needs
reliable and current data on comparable
companies.  
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Challenges in Valuation under IBC    Disputes
and Discrepancies    Differences in valuation can
lead to legal disputes, delaying the resolution
process and reducing the overall value.    Impact
on Stakeholders    Inaccurate valuations can mean
lower recoveries for creditors, failed revival
attempts, and reputational damage to all parties
involved.        Conclusion     Valuation is a
critical part of the IBC process. By ensuring
valuations are accurate and done by qualified
professionals, the IBC promotes transparency and
fairness. These builds trust among stakeholders
and contributes to a healthier financial
environment, fostering a culture of business
revival in India.   
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