In CIRP under IBC 2016, liquidation value is the distressed, time-bound realisation floor — no resolution plan can offer creditors less. Fair value is the estimated open-market realisation including synergies (as redefined by IBBI in 2026) — used by resolution applicants to structure bids. Both are mandatory, independently determined by two IBBI-registered valuers, and averaged before being presented to the Committee of Creditors.
In every Corporate Insolvency Resolution Process, two numbers determine whether a business gets revived or wound up, whether creditors accept a haircut or hold out, and whether the NCLT approves a resolution plan. Those two numbers are the liquidation value and the fair value.
The difference between them — in real Indian CIRP cases, anywhere from 20% to 60% — is the distress discount. Understanding how each is calculated, how the 2026 IBBI amendments changed their definitions, and exactly how they’re used in CoC decision-making is not academic. It is the difference between accepting the right resolution plan and leaving money on the table.
Side by Side: Liquidation Value vs Fair Value
THE FLOOR
Liquidation Value
The estimated net amount realisable from selling all assets of the corporate debtor separately, in a distressed, time-bound scenario, on the insolvency commencement date.
- Assumes forced, piecemeal asset sale
- Time-constrained — reflects urgency discount
- No goodwill or going-concern premium
- Net of disposal costs and taxes
- Legally the minimum creditors must receive
THE BENCHMARK
Fair Value
The estimated amount realisable in an arm’s-length transaction in an open, active market with adequate time — including underlying synergies (as redefined by IBBI in 2026).
- Assumes orderly, willing-buyer-willing-seller scenario
- Adequate market exposure time assumed
- Includes synergies and intangibles (2026 change)
- Guides resolution applicant bid structuring
- Used as resolution plan value benchmark
🔵 2026 IBBI Amendment — Fair Value Redefined: The IBBI CIRP Amendment Regulations 2026 (Feb 25, 2026) revised fair value to include the underlying synergies of the corporate debtor — aligning with Ind AS 103 treatment. IBBI Circular IBBI/RV/93/2026 (April 1, 2026) mandates IVS compliance for all IBC valuations from that date. Fair values will generally be higher under the new definition.
A Worked Example: Why the Gap Is Decisive
Rajdhani Textiles Pvt. Ltd. — Illustrative CIRP Scenario
MANUFACTURING SECTOR · ALL FIGURES IN ₹ CRORE · ILLUSTRATIVE ONLY
Liquidation Value (average of 2 valuers)
₹38 crore
Fair Value (average of 2 valuers)
₹62 crore
Distress discount (gap)
₹24 crore (39%)
Total admitted financial creditor claims
₹120 crore
Resolution Plan offer (accepted by CoC)
₹55 crore
Plan above liquidation floor? (₹55cr vs ₹38cr)
✓ Yes — legally compliant
Effective haircut for financial creditors
54% (₹65cr haircut on ₹120cr claim)
The ₹38 crore liquidation floor means any plan below that cannot legally be approved — regardless of CoC majority. Plan A’s ₹55 crore clears the bar but still represents a 54% haircut, which the CoC must weigh against the alternative of liquidation yielding only ₹38 crore.
How Each Value Is Calculated Under IVS (Post April 2026)
| Approach | Method | Used for | Notes (Post-IVS) |
|---|---|---|---|
| Income Approach | Discounted Cash Flow (DCF) | Fair Value | Going-concern projections. Reflects synergies per 2026 IBBI amendment. Not used for liquidation. |
| Market Approach | Comparable transactions / multiples | Both | For fair value: orderly market multiples. For liquidation: distressed-sale comparables with forced-sale discount. |
| Cost / Asset Approach | Depreciated Replacement Cost / NAV | Liquidation Value | Primary for plant and land. Liquidation version applies 20–40% forced-sale adjustment on DRC for industrial assets. |
| Liquidation Adjustments | Disposal costs, debt priority, time discount | Liquidation Value | Net of: auction costs, transaction taxes, secured creditor priority. Remainder = liquidation value for unsecured creditors. |
Who Uses Which Value - and How
USES BOTH
Committee of Creditors
Compares plan offers against fair value benchmark. Must ensure dissenting creditors receive at least liquidation value. Both numbers frame the vote.
USES FAIR VALUE
Resolution Applicants
Structures bids based on fair value. Bids near liquidation value test CoC tolerance; bids near fair value signal competitive intent. The gap is the negotiating space.
USES LIQUIDATION VALUE
NCLT / NCLAT
Verifies no dissenting creditor receives less than liquidation value. Plans that breach Section 30(2)(b) are rejected — regardless of CoC approval.
USES BOTH
Banks & Financial Creditors
Uses fair value to assess haircut reasonableness. Uses liquidation value to quantify worst-case outcome vs the resolution offer.
USES LIQUIDATION VALUE
Liquidator (if CIRP fails)
Uses the liquidation value report to set auction reserve prices and guide asset disposal strategy under Section 33 liquidation.
USES FAIR VALUE
Resolution Professional
Includes fair value in the Information Memorandum shared with prospective resolution applicants to set competitive bid expectations.
The 25% Rule: When a Third Valuer Must Be Appointed
When Two Valuers Disagree Significantly
Threshold: (Valuer A − Valuer B) ÷ Valuer A ≥ 0.25 Example: Valuer A Fair Value = ₹100 crore Valuer B Fair Value = ₹70 crore Difference = (100 − 70) ÷ 100 = 30% → TRIGGERS 25% RULE → RP appoints third set of valuers. → Final value = average of TWO CLOSEST estimates. Valuer C = ₹92 crore (closest to A) Final Fair Value = (100 + 92) ÷ 2 = ₹96 crore Valuer B’s ₹70 crore is excluded.
The CoC cannot evaluate or vote on resolution plans until the third-valuer process is complete. Presenting divergent reports without triggering this rule is a procedural error that can invalidate CoC decisions.
The Legal Anchor: Section 30(2)(b) IBC
Section 30(2)(b) IBC: The payment to financial creditors who do not vote in favour of the resolution plan shall not be less than the amount to be paid in accordance with Section 53 (the waterfall) in the event of liquidation of the corporate debtor. In plain terms: dissenting creditors must receive at least the liquidation value of their claim. This is non-negotiable.
The NCLT verifies this before approving any resolution plan. A plan that fails the liquidation value test cannot be approved — regardless of how high the CoC voting majority was. This is why the accuracy of the liquidation value report is not a compliance formality; it is the legal foundation of the entire resolution outcome.
Industry-Wise: How Big Is the Distress Discount in Indian CIRPs?
| Sector | Typical LV as % of FV | Key driver of distress discount |
|---|---|---|
| Manufacturing (metals) | 50–65% | Specialised plant with limited secondary market; inventory and raw material time-sensitivity |
| Real estate / construction | 55–75% | Incomplete projects; legal encumbrances; buyer distress-risk perception |
| Textile / garments | 45–60% | Machinery age and specialisation; inventory obsolescence; working capital depletion |
| Power / infrastructure | 60–80% | Long-gestation assets; PPA termination risk; regulatory dependencies |
| IT services / SaaS | 20–40% | Asset-light; primary value in contracts and IP (which may survive); smaller distress discount |
Frequently Asked Questions
1. What is the difference between liquidation value and fair value in CIRP?
Liquidation value is the estimated distressed-sale realisation from selling all assets separately on the insolvency commencement date — the legal floor for creditor recovery. Fair value is the estimated open-market realisation under normal conditions including synergies (2026 amendment). Fair value is always higher than liquidation value.
2. Can a resolution plan be approved if it offers less than the liquidation value?
No. Under Section 30(2)(b) of the IBC, every dissenting financial creditor must receive at least the liquidation value of their claim. The NCLT will reject any plan that fails this — regardless of CoC voting majority. It is a non-negotiable statutory minimum.
3. How is fair value calculated in CIRP under the 2026 IBBI amendment?
Fair value now includes the underlying synergies of the corporate debtor per the IBBI CIRP Amendment Regulations 2026 (February 25, 2026). It is calculated using the Income Approach (DCF), Market Approach (comparable transactions), and Cost Approach where relevant. All reports must follow IVS per IBBI Circular IBBI/RV/93/2026 from April 1, 2026.
4. What happens when estimates differ by more than 25%?
The RP must appoint a third set of registered valuers. The final value is the average of the two closest estimates — the outlier is excluded. CoC meetings and resolution plan evaluation cannot proceed until the third-valuer process concludes.
5. Who determines liquidation value and fair value in CIRP?
Two independent IBBI-registered valuers, appointed separately by the Resolution Professional under Regulation 27. Both must hold valid IBBI registration for the relevant asset class, declare independence from the CD and all creditors, and submit reports independently within 45 days. The RP then calculates and presents the averages to CoC.
Need Fair Value and Liquidation Value for a CIRP?
RNC Valuecon: IBBI registered across all 3 asset classes · IVS-compliant · 45-day delivery · Accepted by NCLT, banks, and CoC across India
Related Reading
About the author:
Sahil Narula
Sahil Narula is the Managing Partner at RNC Valuecon LLP and a Registered Valuer with IBBI. He brings over a decade of experience in Valuation Services, Corporate Finance, and Advisory, having led numerous complex assignments under the Insolvency & Bankruptcy Code, 2016, Mergers & Acquisitions, Insurance, and Financial Reporting.
He is a regular speaker at national forums (ASSOCHAM, CII, ICAI, IBBI, Legal Era) and currently serves as Co-Chairman of ASSOCHAM’s National Council on Insolvency & Valuations and a member of CII’s Task Force on Insolvency & Bankruptcy.
🤝Connect with Sahil on LinkedIn.