Statutory Framework Under Regulation 35 of IBBI (CIRP) Regulations, 2016
Under the Insolvency and Bankruptcy Code (IBC), 2016, the determination of Fair Value and Liquidation Value forms the quantitative cornerstone upon which the Committee of Creditors (CoC) evaluates Resolution Plans and considers Section 30(2) compliance. As an IBBI Registered Valuer, conducting an appraisal in a distressed insolvency environment requires uncompromising adherence to statutory standards and ground realities.
Fair Value Definition & Interpretation
As per Regulation 2(1)(hb) of the CIRP Regulations, "Fair Value" means the estimated realizable value of the assets of the corporate debtor, if they were to be exchanged on the insolvency commencement date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.
Liquidation Value Definition
Under Regulation 2(1)(k), "Liquidation Value" is the estimated realizable value of the assets of the corporate debtor if the corporate debtor were to be liquidated on the insolvency commencement date. This explicitly factors in:
- Orderly vs. Forced liquidation timelines.
- Distress sale discounts reflecting statutory encumbrances and title issues.
- Realizable proceeds net of dismantling, transportation, and statutory dues.
"A Registered Valuer must independently inspect physical immovable properties and industrial machinery. Relying solely on book values or historical balances violates IBBI guidelines and invites judicial scrutiny before NCLT benches."
— Sekh Tarik Anowar, Registered Valuer (IBBI)
Practical Valuation Methodologies for Stressed Assets
- Immovable Property (Land & Buildings): Applying both the Direct Comparison Method (Guideline/Circle Rate vs. actual registered deeds) and the Land & Building Method (Depreciated Replacement Cost method based on CPWD/PWD plinth area rates).
- Plant & Machinery (P&M): Utilizing the Market Approach where secondary machinery markets exist, and the Depreciated Replacement Cost (DRC) approach considering physical deterioration, functional obsolescence, and technological obsolescence.
- Securities & Financial Assets: Reconciling book value with expected realization from trade receivables and subsidiary investments.