How did we help creditors estimate the realizable value of the plant & machinery assets?
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
The challenges we faced
- 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.
The questions that arouse
- 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?
The answers we wrote down
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 answered the question that arouse to us:
- 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.