A Textile Polyester Yarn Factory Became Insolvency Due To Various Factors

A Company having its textile polyester yarn factory in a western Indian state started suffering losses & became insolvent. The company struggled to stay afloat & could not service its debts & became a Non-performing asset account with the banks & other financial institutions.

• The major plant & machinery were specific to the nature of business & due to changes in customer preferences & the type of yarn produced on these machines, the machines also tended towards becoming obsolete.
• The creditors wanted to carry out an insolvency resolution process & hence appointed us.
• The financial institutions provided us with the list of machines that are installed.
• The valuation procedure included a site visit, fetching of quotations, & collecting other relevant data of the machines for estimating the value of the assets & submission of the report in 5 days

• We were provided only with the list of yarn manufacturing machines.
• No additional information 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.

• How to arrive at the Plant & machinery assets valuation in a limited time of 25 days?
• How to get all the quotations for machines as major machines have become obsolete in the market?
• What assumptions are to be taken if we cannot fetch the quotations from the market?

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

• We decided to conduct the valuation through the Cost approach by market price method.
• We got different quotations from different vendors for second-hand machinery & considered them as fair value for the same machine.
• The assumptions adopted while valuing the plant & machinery assets which are not specific in nature & form a part of Utilities have correctively sufficed the need of the financial institutions.

Also Read, Valuation of a partially-constructed Thermal Power Plant

1. What are common reasons for insolvency in textile manufacturing?

Textile manufacturers may face insolvency due to rising raw material costs, fluctuating demand, operational inefficiencies, debt burden, and poor financial planning.

2. How does polyester yarn market volatility impact factory sustainability?

Market volatility affects polyester yarn prices, making it difficult for factories to maintain stable margins, which can lead to cash flow issues and financial instability.

3. What role does valuation play in insolvency cases?

Accurate asset valuation is crucial during insolvency for recovery planning, creditor settlements, and guiding legal proceedings under frameworks like IBC in India.

4.  Who can conduct valuation for insolvent textile factories?

Valuations for insolvent units should be performed by Registered Valuers accredited by authorities like the Insolvency and Bankruptcy Board of India (IBBI), ensuring compliance and acceptance in legal processes.

5. How can textile businesses prevent insolvency?

Textile businesses can avoid insolvency by maintaining lean inventory, diversifying markets, managing debt carefully, investing in process efficiency, and conducting periodic business valuation reviews.