Skip to main content

An Ambitious Manufacturing Company Became Insolvent Due To Economic Sanctions

By November 22, 2022Case Studies3 min read
Manufacturing Company Became Insolvent Due To Economic Sanctions

How did we help creditors value its plant & machinery assets?

Introduction

A Company was looking forward to creating its name in Iran & other middle east countries through its product from its dedicated manufacturing facility.

However, it started suffering losses after the receiving country suffered economic sanctions.

The company struggled to stay afloat & could not service its debts. It became a Non-performing asset account with the banks & other financial institutions.

The Situation

  • The major plant & machinery were specific to its nature & was set up only for manufacturing the specific end-product.
  • The creditors wanted to carry out an insolvency resolution process & hence appointed us to estimate the realizable value of the plant & machinery assets.
  • The company was in a shutdown condition since 2012 and all the machines were in a poor condition.
  • The valuation procedure included site visits, fetching quotations, and collecting other relevant data on the machines for estimating the value of the assets & submission of the report.

Complications/The challenges we faced

  • We were provided only with the list of machines that were installed at the site.
  • No additional info was provided by the company or any of the financial institutions.
  • Collecting relevant price data & employing the right valuation process required a lot of effort & creativity for delivering a satisfactory result.

The questions we asked

  • How to arrive at the valuation of all the assets in the limited time of 1 week?
  • How to get all the quotations for machines & depict the weight of the machines?
  • What assumptions are to be taken if we can’t fetch the quotations from the market or we can’t depict the weight of these machines?
  • Will the scrap value suffice the need of the financial institutions?

What we did

After several discussions held internally, we managed to conduct the exercise & provide the valuation in a limited time while ensuring that the interest of the lender is safeguarded.

Our answers

  • We decided to conduct the valuation through the Cost approach by getting the CAPEX cost of the same capacity plant
  • By the virtue of all the known vendors in the market, we got the weight of each machine through their general specifications written in the manuals.
  • The assumptions adopted while valuing the scrap value of the plant & machinery have correctively sufficed the need of the financial institutions.

Also Read, Valuation of Steel Plant