Have you ever wondered what valuation under IBC really means or why it’s so important during insolvency proceedings? You’re not alone. Under the Insolvency and Bankruptcy Code (IBC), 2016, valuation involves estimating both fair and liquidation values of a debtor’s assets to guide decision-making in the insolvency resolution process.
This valuation is not just about numbers—it directly influences how much creditors may recover and guides investors or resolution applicants in assessing the viability of taking over distressed assets. Accurate valuation is crucial to ensure transparency, fairness, and optimal resolution outcomes for all stakeholders involved.
The process is a part of the Corporate Insolvency Resolution Process (CIRP) and is regulated by the guidelines set by the Insolvency and Bankruptcy Board of India (IBBI).. Registered valuers, appointed by the resolution professional, play a key role in assessing the asset values in a structured and compliant manner.
Regulatory Framework and Process of Valuation under IBC
Valuation under IBC is a structured process guided by legal provisions and regulatory oversight. This ensures that the valuation exercise is objective, transparent, and in the best interest of creditors, stakeholders, and the insolvency resolution process as a whole.
Legal Basis: IBC 2016 and IBBI Valuation Guidelines
The Insolvency and Bankruptcy Code, 2016 (IBC) and guidelines issued by the Insolvency and Bankruptcy Board of India (IBBI) form the foundation for conducting valuations in insolvency cases. As per IBBI norms, two registered valuers must be appointed to independently determine the asset values.
Valuers are required to estimate:
- Fair value is the anticipated amount an asset would fetch in a well-structured deal between informed and willing parties in the market.
- Liquidation value represents the estimated proceeds from selling assets separately during the winding-up of a business.
These two values play a crucial role in shaping the resolution plan and expectations of creditors.
Read more : Business Valuation 7: Essential Concepts and Terminologies Explained
Appointment of Registered Valuers
During the Corporate Insolvency Resolution Process (CIRP), the Resolution Professional (RP) is responsible for appointing two IBBI-registered valuers within seven days of their appointment.
Valuers must possess the necessary qualifications, maintain objectivity, and have no vested interests in the outcome. Their reports serve as critical documents for:
- Evaluating resolution plans
- Calculating haircut percentages
- Supporting litigation or appeals, if any
Rakesh Narula & Co. is a highly respected firm in the valuation industry, known for its trusted expertise across various asset classes, including plant & machinery and land & building and financial securities.
Steps in the Valuation Process
Valuation under the IBC generally follows a series of structured steps:
- Asset Classification
Assets are categorized based on their nature, typically as tangible (like machinery and buildings) or intangible (such as brands and goodwill). - Site Visit & Data Collection
Certified valuation professionals physically examine the company’s location, assess its assets, check documentation, and ensure all information is correct. - Application of Valuation Methods
Depending on the nature of the assets, valuers apply one or a combination of the following methods.:- Market Approach
- Cost Approach
- Income Approach
These steps ensure consistency and objectivity, which are essential when multiple stakeholders rely on valuation reports for financial and legal decisions.
Key Valuation Methods Used in IBC Cases
When a company undergoes insolvency under the IBC, determining the right value of its assets is crucial. Valuers use three primary methods, depending on the nature of assets and availability of financial data. Each method serves a specific purpose and can directly impact outcomes like bank valuation, resolution planning, and asset restructuring.
Market Approach
- This method involves evaluating an asset by comparing it to similar assets that have recently been sold in the open market.
- It is commonly used for real estate, equipment, and securities where active market data is available.
- Best suited when reliable transaction data exists and assets are not unique or highly customized.
Cost Approach
- Calculates the asset’s worth by estimating the replacement or reproduction cost and then deducting depreciation.
- Best suited for assessing the worth of custom-built equipment or recently developed properties.
- Often used when market comparables are not available or assets are not frequently traded.
Income Approach
- This approach evaluates an asset’s worth by discounting its anticipated future income to reflect its current value.
- Most suitable for income-generating businesses, especially during bank valuation or investment assessments.
- Requires reliable financial forecasts and appropriate discounting techniques.
✅ Valuers often apply a combination of these methods to arrive at fair and liquidation values, ensuring a balanced and justifiable estimate as required under the IBC.
Read more : Valuation of Goodwill in Mergers and Acquisitions: Approaches, Challenges, and Best Practices
Common Challenges in Valuation Under IBC
Valuation under the Insolvency and Bankruptcy Code (IBC) is a critical step in the corporate resolution process—but it’s not without challenges. Inaccurate or inconsistent valuations can lead to disputes, delays in the resolution process, and even rejection of resolution plans. Understanding these challenges helps businesses and professionals better prepare for compliance and fair outcomes.
Here are several major obstacles frequently faced during the valuation process governed by the IBC:
Inconsistent Asset Documentation
Many companies under insolvency struggle with outdated or incomplete asset records. Missing invoices, inaccurate inventory data, or lack of proper asset tagging can make it difficult for registered valuers to assess true value. This directly affects both fair value and liquidation value calculations.
Lack of Cooperation from Management
During CIRP, company management may be uncooperative—either due to fear of scrutiny or lack of understanding of the process. This hinders site visits, delays data sharing, and results in a less reliable valuation report.
Subjectivity in Assumptions and Data
Valuation, especially using the income approach, involves judgment-based estimates like projected cash flows, discount rates, and market conditions. When such assumptions are not supported by solid data, it can lead to valuation gaps and disagreements among stakeholders.
Leading Valuation Providers and Tips for Selecting the Best Fit
When it comes to insolvency proceedings under the IBC, choosing the right valuation firm can significantly impact the resolution process. The best valuation firms not only ensure compliance with IBBI guidelines but also bring domain expertise, transparency, and timely execution—making them a key asset for resolution professionals and financial institutions.
Key factors to consider when choosing a valuation partner for IBC-related assignments include:
- Certified by IBBI to conduct valuations across all three asset classes: Plant & Machinery, Land & Building, and Financial Securities.
- Track record in handling CIRP and liquidation assignments
- PAN-India presence to conduct valuations across locations
- A group of credentialed valuation experts possessing deep sector-specific experience.
- Established processes and documentation standards that comply with regulatory requirements.
RNC Valuecon LLP : A Distinguished Expert in Valuation Services Aligned with IBC Regulations
RNC Valuecon LLP (RNC) is widely recognized among the best valuation firms for IBC-related assignments. With over 30 years of experience, RNC has supported some of the largest insolvency cases in India, including IL&FS, Reliance Communications, and Suzlon.
They offer:
- Full-spectrum valuation services across asset types
- Registered Valuer Entity status with IBBI
- Well-established operations across major commercial cities such as Mumbai, Delhi, Ahmedabad, and Gurugram.
- Industry-specific valuation expertise in sectors like manufacturing, infrastructure, telecom, and pharmaceuticals
Whether you’re a resolution professional, financial institution, or creditor committee member, working with valuation experts in Mumbai like RNC ensures accuracy, speed, and regulatory alignment—all critical for successful resolution under IBC.
Case Examples: Impact of Accurate Valuation in Insolvency
Accurate valuation can make or break the outcome of an insolvency resolution process. When asset values are estimated precisely, it builds trust among creditors, attracts serious resolution applicants, and ensures equitable recovery for stakeholders. Let’s look at real-world cases where valuations played a pivotal role under the Insolvency and Bankruptcy Code (IBC).
IL&FS Group Resolution
One of India’s largest insolvency cases, IL&FS, involved over 85 group companies and massive inter-company debt. A detailed and accurate valuation helped categorize viable entities and plan their revival, while others were guided into liquidation. The process enabled informed decision-making for financial creditors and led to a structured resolution path.
Reliance Communications
In the insolvency proceedings of Reliance Communications Ltd., accurate valuation reports helped assess assets worth thousands of crores across telecom infrastructure, real estate, and subsidiaries. This transparency was vital in evaluating competing resolution plans and determining fair recovery for lenders.
Conclusion
Understanding valuation under IBC is not just a regulatory formality—it’s a strategic necessity in insolvency resolution. From determining fair and liquidation values to influencing creditor recovery and guiding resolution plans, accurate valuation plays a decisive role in every stage of CIRP.
Whether you’re a resolution professional, investor, or creditor, working with experienced valuation firms can make all the difference. RNC Valuecon LLP, with decades of domain expertise and IBBI-registered professionals, is one of the most trusted names in IBC valuation across India.
Need expert valuation support? Contact RNC Valuecon LLP or explore their valuation services to get started.
FAQs on Valuation Under IBC :
1. How is valuation done under IBC in India?
Valuation under IBC is done by two IBBI-registered valuers appointed by the resolution professional. They independently assess the fair and liquidation values using prescribed methods like market, cost, or income approaches.
2. What is the difference between fair value and liquidation value?
Fair value is the estimated price in a regular market scenario, while liquidation value refers to the estimated amount receivable if the assets are sold off under distressed conditions.
3.What are the eligibility requirements to become a registered valuer under the IBC?
A registered valuer must be qualified, certified under IBBI, and registered in one of the three asset classes: land & building, plant & machinery, or securities & financial assets.
4. Is valuation mandatory in all insolvency cases under IBC?
Yes, as per IBBI regulations, valuation is mandatory in all corporate insolvency resolution processes (CIRP) to determine asset values for plan evaluation and stakeholder decisions.
5. Why is accurate valuation important during insolvency?
Accurate valuation ensures fair treatment of stakeholders, supports better resolution planning, avoids disputes, and is vital for regulatory compliance and transparency under IBC.