Relevance of Valuations of Assets of Corporate Debtor under IBC, 2016 – Types of Valuations

By: Libord IRP Advisors Private Limited
MUMBAI, India - Nov. 8, 2023 - PRLog -- Once a company is admitted into the Corporate Insolvency Resolution Process (CIRP), it is certain that either a resolution plan will be submitted by a new investor for a definite amount, or upon the failure of the resolution, the assets of the Corporate Debtor will be sold by the liquidator for a particular amount.

This is where the necessity of valuation reports, done by professional valuers, comes into play. The regulator IBBI has shown expertise in benchmarking the valuation processes, fixing eligibility criteria for the valuers, and maintaining a panel of Registered Valuers.

This write-up on valuations is intended to be easily understood by the common people; therefore, the contents have been kept straightforward and simple for their understanding. The use of intricate methods used for valuation by professional valuers is being avoided.

The assets of the Corporate Debtor have been segregated into the following three categories for the purpose of valuation:

1. Land & Buildings:

Leasehold Land:
Land ownership can be held in two ways. The first method is 'Leasehold,' in which the 'Lessor' gives land to the 'Lessee' for industrial, commercial, or domestic use for a definite long-term period. A common example under this category is State industrial bodies (UPSIDC, NOIDA, GNOIDA, RICCO) leasing land to industrialists for setting up manufacturing or service-oriented units, or land given to real estate companies for developing housing projects.

Freehold Land: The possession and absolute legal ownership of the land parcel are transferred by the seller to the buyer upon payment of consideration through an instrument known as a 'Conveyance Deed' or 'Registry' in common language.

Building Structure: The building structure is erected by the owner of the land after getting the master plan approved by the concerned authorities and receiving approval from other related authorities like the Airport Authority, Environmental Department, etc.

Arriving at Valuations: The valuation of the land parcel is done by benchmarking it with the 'Circle Rate' fixed by the Government or the market-determined rates as per transactions closed during the last year or so in that area.

2. Plant & Machinery: Valuers inspect the Plant & Machinery under valuation physically by visiting the plant or unit. Generally, the factors considered by valuers for valuation are the Type of Plant/Machinery, whether it's imported or indigenous, the category of the supplier/vendor, remaining useful life, aging, or obsolescence, etc.

3. Securities & Financial Assets (SFA): These are non-physical or book or soft assets as they are reflected in the balance sheets of the Corporate Debtor.

4. General: Valuations are categorized or determined as Book Value, Market Value, Fair Value, Liquidation Value (, Valuation for sale as a going concern, depending on the process for which it is to be benchmarked.
Source:Libord IRP Advisors Private Limited
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