IBC Valuation Under Regulation 35: Liquidation vs Going Concern

The Legal Framework: IBC Sections and IBBI Regulations

Understanding the complete legal architecture of IBC valuation requires examining multiple interlocking provisions of the Insolvency and Bankruptcy Code, 2016 and the IBBI CIRP Regulations. This section maps every relevant provision.

IBC Section 25(2)(e): RP’s Duty to Obtain Valuation

Section 25(2)(e) of the IBC imposes a statutory duty on the Resolution Professional to obtain a valuation of the corporate debtor’s assets from registered valuers as specified by the Board (IBBI). This is not discretionary — the RP must obtain valuations as part of the resolution process. Failure to appoint valuers and obtain valuations is a procedural irregularity that can vitiate the CIRP proceedings.

The section works in conjunction with Section 25(2)(d), which requires the RP to determine the value of claims admitted — the valuation provides the context for evaluating whether a resolution plan adequately addresses those claims.

IBC Section 30(2)(b): The Liquidation Value Floor

This is arguably the most consequential provision linking valuation to resolution outcomes. Section 30(2)(b) mandates that the resolution plan must provide for payment to each dissenting financial creditor of an amount that is not less than the amount such creditor would have received if the corporate debtor were to be liquidated under Section 33.

In practical terms, this means the liquidation value determined under Regulation 35 becomes the absolute floor for the resolution plan. If the plan offers less than the liquidation value to dissenting financial creditors, the Adjudicating Authority (NCLT) must reject it. The Supreme Court in Essar Steel India Ltd. v. Satish Kumar Gupta (2019) affirmed this principle, holding that dissenting financial creditors cannot receive less than the liquidation value.

IBC Section 35: Liquidation Proceedings Valuation

Section 35 applies when the CIRP fails and the corporate debtor enters liquidation. Section 35(1)(a) authorises the Liquidator to take possession of all assets, property, effects, and actionable claims of the corporate debtor. The Liquidator must determine the realisable value through Registered Valuers — this is a separate valuation from the Regulation 35 CIRP valuation, though the methodology overlaps.

Section 35(1)(f) requires the Liquidator to sell the assets by public auction or private contract, with the Regulation 35 liquidation value serving as a reference benchmark (not necessarily the reserve price, which is determined separately).

IBBI CIRP Regulation 35: The Valuation Process

Regulation 35 is the procedural heart of IBC valuation. Its provisions are as follows:

Regulation 35(1): The Resolution Professional shall, within seven days of his appointment but not later than forty-seventh day from the insolvency commencement date, appoint two registered valuers to determine the fair value and the liquidation value in accordance with Regulation 35.

Regulation 35(1A): If the estimates of fair value or liquidation value by the two valuers differ beyond a percentage as may be specified, the RP may appoint a third registered valuer.

Regulation 35(2): The fair value and liquidation value shall be computed as the average of the two estimates received under sub-regulation (1). Where a third valuer has been appointed, the final value shall be the average of all three estimates, or as may be specified.

Regulation 35(3): The fair value and liquidation value shall be submitted to the RP in confidential reports, and the RP shall keep the valuations confidential until approval of the resolution plan.

Regulation 35(4): The RP may share the fair value and liquidation value with members of the Committee of Creditors after receiving a confidentiality undertaking from each member.

Regulation 27: Information Memorandum

Regulation 27 requires the RP to prepare an Information Memorandum containing all relevant information about the corporate debtor that enables prospective resolution applicants to formulate their plans. While the Regulation 35 valuations themselves are confidential, the IM contains the financial and operational data that underpins those valuations — audited financial statements, asset registers, debt structure, workforce details, order book, and contract obligations.

Companies (Registered Valuers and Valuation) Rules, 2017

The eligibility, registration, conduct, and discipline of Registered Valuers are governed by these rules, notified under Section 247 of the Companies Act, 2013. Key provisions relevant to IBC valuations:

• Rule 3: Eligibility for registration — minimum qualifications, experience requirements, and examination by Registered Valuers Organisations (RVOs).
• Rule 4: Registration process — application to RVO, examination, and recommendation to IBBI.
• Rule 8: Conduct and duties — independence, confidentiality, professional competence, and disclosure of conflicts of interest.
• Rule 11: Disciplinary proceedings — IBBI can suspend or cancel registration for misconduct or incompetence.
• Asset classes: Securities or Financial Assets (SFA), Land and Building (L&B), Plant and Machinery (P&M). IBC valuations typically require SFA valuers, though L&B and P&M valuers may be needed for asset-heavy corporate debtors.

Fair Value Determination: Methodology and Approach

Fair value under Regulation 35 is the going-concern value — what the corporate debtor’s assets and business are worth as an operating entity, assuming continuity of operations. This is fundamentally different from liquidation value, which assumes cessation of business and forced disposal of assets.

Step 1: Understanding the Corporate Debtor’s Business

Before selecting a valuation methodology, the Registered Valuer must develop a thorough understanding of the corporate debtor’s business model, industry dynamics, competitive position, asset base, and the factors that led to insolvency. This involves:

• Reviewing the Information Memorandum prepared by the RP under Regulation 27.
• Analysing audited financial statements for the preceding 3-5 years (or whatever is available — many CIRP companies have delayed or incomplete audits).
• Site visits to manufacturing facilities, offices, and warehouses to assess asset condition.
• Management discussions with the RP and existing management team (where available) to understand operational issues, order pipeline, customer relationships, and key contracts.
• Industry analysis — sector outlook, competitive dynamics, regulatory environment, and market conditions affecting the corporate debtor’s business.
• Claims analysis — understanding the quantum of admitted claims (financial creditors, operational creditors, workmen) as these affect the distributable value.

Step 2: Selecting the Appropriate Methodology

The choice of valuation method for fair value determination depends on the corporate debtor’s business profile. The most commonly used approaches in IBC fair value determinations are:

Income Approach: DCF Valuation

The Discounted Cash Flow method is the primary income approach used for fair value determination. For IBC valuations, the DCF application has specific nuances:

• Projection basis: Unlike a standard DCF where management provides projections, CIRP companies often lack reliable management teams. The valuer must construct projections based on historical performance (pre-stress period), industry benchmarks, and normalised operating assumptions. The projections should reflect what a hypothetical willing buyer could achieve with the existing asset base and business platform — not what the prior promoter achieved (which led to insolvency).
• Normalisation adjustments: CIRP companies typically have distorted financials — high interest costs from NPL debt, related-party transactions at non-arm’s length prices, diversion of funds, inflated costs, and revenue suppression. The valuer must normalise for these distortions to arrive at sustainable cash flows.
• WACC computation: The discount rate for a CIRP company reflects higher risk than a healthy peer. Company-specific risk premiums (CSRPs) of 3-8% above sector WACC are common, reflecting operational uncertainty, management transition risk, and the stigma of insolvency. India-specific WACC inputs include the 10-year G-sec yield (~7%) as risk-free rate and Damodaran’s India equity risk premium (~8%).
• Terminal value: Terminal growth rates for CIRP companies are typically conservative — at or below India’s nominal GDP growth (10-11%) — reflecting the uncertainty of long-term operations. Exit multiple approaches are preferred where comparable data exists.

Market Approach: Comparable Company and Transaction Analysis

The market approach provides a useful cross-check for the DCF conclusion:

• Comparable Company Analysis (CCA): Identifies listed peers and derives EV/EBITDA, EV/Revenue, or P/B multiples. For CIRP companies, the key challenge is selecting appropriate comparables — a healthy listed peer does not carry the operational and reputational risks of a company in insolvency. Adjustments for distress, size, and illiquidity are essential.
• Comparable Transaction Analysis (CTA): Analyses past CIRP resolution transactions in similar sectors. The growing body of IBC resolution data (available from IBBI’s website and MCA filings) provides an increasingly useful dataset. However, each CIRP is unique — asset condition, location, claims quantum, and competitive dynamics vary significantly.

Asset Approach: Adjusted Net Asset Value

The NAV approach restates all assets at fair market value (not book value or forced-sale value) and deducts all liabilities at settlement value. For fair value purposes, assets are valued assuming orderly sale over a reasonable marketing period — not forced liquidation. This approach is particularly relevant for:

• Real estate companies where land and building values drive enterprise value.
• Asset-heavy manufacturing companies with significant plant and machinery.
• Investment holding companies with portfolios of listed/unlisted investments.
• Companies where the going-concern premium is minimal (i.e., the business has limited operational value beyond its assets).

Step 3: Reconciliation and Conclusion

Where multiple methods are applied, the valuer must reconcile the results and arrive at a single fair value estimate. The reconciliation should consider:

• The reliability and appropriateness of each method for the specific corporate debtor.
• The quality and availability of data for each method.
• The consistency of assumptions across methods.
• Any specific factors that favour one method over another (e.g., strong asset base favours NAV; strong operating business favours DCF).

Liquidation Value Determination: Methodology and Approach

Liquidation value under Regulation 35 assumes that the corporate debtor ceases operations and its assets are sold individually (not as a going concern) under forced-sale conditions. This is the worst-case scenario for creditors and represents the floor value below which no resolution plan can go (for dissenting financial creditors under Section 30(2)(b)).

Liquidation Value Framework

The liquidation value computation follows a specific framework:

Gross Realisable Value of Assets (Forced Sale)

Each asset class is valued at its estimated realisable value under forced-sale conditions, applying appropriate liquidation discounts:

Asset Class	Fair Value Basis	Typical Liquidation Discount	Liquidation Value Basis
Land	Market value (circle rate or higher)	20-40%	Forced-sale value; encumbrances reduce value further
Building / Factory	Replacement cost less depreciation	30-50%	Limited buyers for specialised facilities
Plant & Machinery (general purpose)	Depreciated replacement cost	40-60%	Second-hand market, condition-dependent
Plant & Machinery (specialised)	Depreciated replacement cost	60-80%	Very limited buyer pool; may have scrap value only
Inventory — Finished Goods	Net realisable value	20-40%	Bulk disposal; brand/quality concerns
Inventory — Raw Materials	Current market price	10-30%	Commodity materials retain value; specialised inputs lose value
Inventory — Work in Progress	Material cost + conversion cost	50-80%	Incomplete products have limited market; completion cost deducted
Trade Receivables	Book value less provisions	30-60%	Age analysis; debtor quality; litigation risk
Listed Investments	Market price	5-15%	Bulk sale discount; impact cost for large holdings
Unlisted Investments	DCF or NAV	40-70%	Illiquidity; no ready market; information asymmetry
Intangible Assets (brand, IP, licences)	Income approach / cost approach	50-90%	Transferability issues; brand damage from insolvency
Vehicles	Second-hand market value	15-30%	Active secondary market reduces discount
Goodwill	N/A in liquidation	100%	Goodwill ceases to exist in liquidation; value is zero

Less: Priority Deductions Under Section 53

The liquidation value available for distribution follows the waterfall mechanism under Section 53 of the IBC. The following amounts are deducted before computing distributable value to financial creditors:

1. Insolvency resolution process costs — RP fees, legal fees, valuation fees, other CIRP expenses incurred under Section 5(13).
2. Workmen’s dues for 24 months preceding the liquidation commencement date, and debts owed to a secured creditor (pari passu, in proportion to their respective debts).
3. Employee wages (other than workmen) for 12 months preceding the liquidation commencement date.
4. Financial debts owed to unsecured creditors.
5. Government dues — taxes, cesses, and amounts owed to government authorities (central, state, or local) for a period of two years preceding the liquidation commencement date.
6. Remaining debts and dues.
7. Preference shareholders.
8. Equity shareholders or partners.

The liquidation value for any specific creditor class is therefore not the gross liquidation value but the net amount available after satisfying all prior-ranking claims.

Liquidation Value: Asset-by-Asset Approach

Unlike fair value (which considers the business holistically), liquidation value requires asset-by-asset assessment:

Land and Building

Land valuation in liquidation requires consideration of circle rates/ready reckoner rates, comparable sale transactions in the vicinity, encumbrances (mortgages, charge holders), litigation risk (title disputes, land acquisition proceedings), environmental liabilities, and applicable stamp duty. Building valuation uses the depreciated replacement cost method, with adjustments for physical condition, functional obsolescence, and economic obsolescence. Specialised industrial buildings in remote locations attract deeper discounts (40-50%) than commercial properties in urban areas (20-30%). Where land is the most valuable asset — as in many real estate CIRP cases — the valuer must obtain independent L&B valuation from a Registered Valuer in the Land and Building asset class.

Plant and Machinery

P&M valuation requires physical inspection by a Registered Valuer in the Plant and Machinery asset class. Key factors include age and condition, maintenance history, technological obsolescence, availability of spare parts, installation and commissioning costs (which are sunk and not recoverable in liquidation), and the existence of a secondary market for the specific machinery type. General-purpose machinery (CNC machines, industrial compressors, boilers) retains 40-60% of replacement cost. Specialised, custom-built machinery may retain only scrap value (5-15% of replacement cost).

Inventory

Inventory in a CIRP company requires careful physical verification — records may be unreliable, pilferage may have occurred during the pre-CIRP distress period, and quality degradation is common (particularly for perishable goods, chemicals, and products with shelf life). Finished goods are valued at estimated selling price less selling expenses and an additional liquidation discount. Raw materials are valued at current commodity market prices less disposal costs. Work-in-progress is the most difficult — the cost to complete must be assessed against the selling price of the finished product, and if uneconomical, WIP may have only scrap value.

Receivables

Trade receivables require detailed age analysis and debtor-by-debtor assessment. In CIRP situations, receivable recovery is typically lower than normal because: (a) customers may dispute quality or delivery when the supplier is in insolvency; (b) the CIRP company has limited bargaining power to pursue collections; (c) contra claims and set-off demands from debtors increase during insolvency; (d) inter-company receivables (from related parties) are often irrecoverable. A detailed provisioning matrix based on age, debtor credit quality, and dispute status is essential.

Intangible Assets

The treatment of intangible assets differs dramatically between fair value and liquidation value. In a going-concern scenario, brand value, customer relationships, and technology can be significant value drivers. In liquidation, these intangibles lose most or all of their value because: (a) brand value is damaged by the insolvency stigma; (b) customer relationships are personal and non-transferable in asset-by-asset liquidation; (c) technology may have limited standalone value without the operating business; (d) licences and approvals may not be transferable. However, certain intangibles — patents, trademarks, domain names, software code — may retain value and can be sold separately.

The Valuation Gap: Fair Value vs Liquidation Value

The difference between fair value and liquidation value is not merely academic — it is the quantified economic argument for resolution over liquidation. The larger the gap, the stronger the case for preserving the business as a going concern through a resolution plan.

Typical Valuation Gaps by Industry

Industry / Sector	Typical Fair Value to Liquidation Ratio	Key Driver of Gap
IT / Software Services	5-15x	Minimal tangible assets; value is in workforce, customer contracts, IP
Manufacturing (general)	2-4x	P&M and land retain value; going-concern premium from operations
Real Estate / Construction	1.5-3x	Land value is the anchor; development rights and approvals add going-concern premium
Infrastructure / Power	1.5-2.5x	Project-specific assets; long-term concessions/PPAs drive going-concern value
Retail / Hospitality	3-6x	Brand value, location premium, customer goodwill lost in liquidation
Pharmaceuticals	2-5x	ANDA/DMF approvals, WHO certifications non-transferable in piecemeal sale
Steel / Metals	1.5-2.5x	Heavy asset base retains value; mine linkages and captive power add premium

What the Gap Tells the CoC

The valuation gap serves multiple strategic functions for the Committee of Creditors:

• Resolution plan benchmarking: A resolution plan offering INR 300 Cr against fair value of INR 500 Cr and liquidation value of INR 150 Cr means the plan captures 60% of fair value and offers a 100% premium over liquidation — this is a reasonable recovery for creditors.
• Negotiation leverage: A wide gap gives the CoC leverage to negotiate higher offers from resolution applicants — the argument being that the business is worth significantly more as a going concern.
• Liquidation decision: A narrow gap (fair value only 1.2-1.5x liquidation value) may indicate that liquidation is not significantly value-destructive, and the CoC may consider liquidation if resolution plans are inadequate.
• Dissenting creditor protection: The liquidation value floor under Section 30(2)(b) ensures that dissenting creditors are no worse off than under liquidation.

Procedural Requirements: Appointment, Timelines, and Confidentiality

Appointment of Registered Valuers

The Resolution Professional must appoint two Registered Valuers under Regulation 35(1). The appointment process involves:

1. Identifying eligible valuers: The valuer must be registered with IBBI under the Companies (Registered Valuers and Valuation) Rules, 2017, in the relevant asset class. For corporate debtor valuations, the Securities or Financial Assets (SFA) asset class is typically required. If the corporate debtor has significant land/building or plant/machinery assets, separate valuers in the L&B and P&M asset classes may also be needed.
2. Independence verification: The valuer must be independent of the corporate debtor, the RP, the CoC members, and the resolution applicants. Rule 8 of the Companies (Registered Valuers and Valuation) Rules specifies the independence requirements — no direct or indirect interest in the subject matter, no relationship with parties that could compromise objectivity.
3. Fee negotiation: The RP negotiates the valuation fee, which forms part of the CIRP costs under Section 5(13). Fees are typically based on the complexity of the corporate debtor’s asset base, the number of locations, and the timeframe.
4. Engagement letter: A formal engagement letter specifying scope, methodology, timeline, fee, and confidentiality obligations.

Timeline Requirements

The CIRP operates under strict statutory timelines:

• Valuer appointment: Within 7 days of RP appointment, but not later than the 47th day from the insolvency commencement date.
• Valuation submission: The valuation must be completed within the timeframe agreed with the RP, but must be available before the RP invites resolution plans (which must happen before the 75th day from the insolvency commencement date, per Regulation 36A).
• Overall CIRP timeline: 180 days from the insolvency commencement date, extendable to 330 days by the Adjudicating Authority. The valuation must be completed well before this deadline to allow time for resolution plan evaluation.
• In practice: Most Regulation 35 valuations are completed within 3-6 weeks from the date of appointment, depending on the corporate debtor’s complexity.

Confidentiality Obligations

Regulation 35(3) imposes strict confidentiality on the Regulation 35 valuations. The rationale is commercial — if resolution applicants knew the liquidation value (the floor), they would anchor their bids to the floor rather than the fair value. The confidentiality framework includes:

• The valuation reports are submitted to the RP in sealed confidential reports.
• The RP may share the values with CoC members only after obtaining confidentiality undertakings from each member.
• CoC members cannot disclose the values to resolution applicants, their advisors, or any third party.
• The values are disclosed publicly only after the resolution plan is approved by the NCLT.
• Breach of confidentiality can result in disciplinary action against the RP and the CoC member.

Challenges in IBC Valuation: Practical Issues

IBC valuations are among the most challenging assignments for a Registered Valuer. Based on our experience at Virtual Auditor across multiple CIRP engagements, the key challenges include:

Challenge 1: Incomplete or Unreliable Financial Records

Many companies entering CIRP have delayed or incomplete audits, missing books of accounts, and unreliable financial records. The preceding management may have engaged in round-tripping, related-party transactions at non-arm’s length prices, diversion of funds, or outright fraud. The Registered Valuer cannot simply rely on book values — independent verification of asset existence, condition, and value is essential.

Our approach: We conduct independent physical verification of assets, cross-reference financial records with GST returns, bank statements, and MCA filings. Where records are incomplete, we clearly state the limitations in our valuation report and indicate the assumptions made to fill data gaps. Forensic accounting skills are invaluable in identifying fabricated or manipulated financial data.

Challenge 2: Operational Disruption During CIRP

During CIRP, the corporate debtor often experiences operational disruption — key employees leave, suppliers demand cash-on-delivery, customers shift to competitors, and maintenance of assets is deferred. The valuer must determine fair value as of the valuation date, which is during this disruption. Should the valuer reflect current disrupted operations or normalised operations?

Our approach: Fair value should reflect what a willing buyer would pay for the business in its current state, considering the potential to restore normal operations. This means normalising for temporary CIRP disruptions (which a resolution applicant would expect to resolve) but not normalising for structural issues (which pre-date the CIRP and reflect genuine business challenges).

Challenge 3: Valuing Contingent Liabilities and Claims

CIRP companies often have significant contingent liabilities — pending litigations, tax demands under dispute, environmental liabilities, product warranty claims, and guarantees issued for group companies. These contingent liabilities may or may not materialise, but they affect the value available to creditors.

Our approach: We assess each contingent liability using a probability-weighted expected value approach — estimating the likelihood of materialisation and the probable quantum. High-probability contingent liabilities are deducted from both fair value and liquidation value. Low-probability contingent liabilities are disclosed as sensitivity items.

Challenge 4: Valuing Group Company Structures

Many CIRP companies are part of larger business groups with significant inter-company transactions, cross-holdings, and shared assets (common brands, shared infrastructure, centralised services). Separating the corporate debtor’s standalone value from group synergies and inter-company dependencies is critical but complex.

Our approach: We value the corporate debtor on a standalone basis, treating all inter-company transactions at arm’s length equivalents. Cross-holdings in group companies are valued independently (using NAV or DCF as appropriate). Shared assets are allocated based on usage proportions. This approach aligns with the IBC’s entity-specific treatment of insolvency — each corporate debtor is a separate legal entity with its own CIRP proceedings.

Challenge 5: Compressed Timelines

The CIRP timeline is compressed — the valuer must complete a comprehensive fair value and liquidation value assessment within 3-6 weeks, covering potentially dozens of asset categories across multiple locations. This is significantly less time than a typical M&A due diligence or valuation engagement, which may take 2-3 months.

Our approach: We deploy a multi-disciplinary team comprising SFA valuers, L&B valuers (for real estate assets), P&M valuers (for plant and machinery), and financial analysts. Our AI-powered valuation engine automates comparable company screening, WACC computation, and sensitivity analysis, freeing the team to focus on site visits, management discussions, and professional judgement calls.

NCLT and NCLAT Jurisprudence on Regulation 35 Valuation

The body of judicial and quasi-judicial precedent on Regulation 35 valuations has grown significantly since the IBC’s enactment in 2016. Key principles established by the NCLT, NCLAT, and Supreme Court include:

Liquidation Value as Mandatory Floor

The Supreme Court in Essar Steel India Ltd. v. Satish Kumar Gupta (2019) held that under Section 30(2)(b), dissenting financial creditors must receive at least the amount they would receive under liquidation. This elevates the Regulation 35 liquidation value from a mere reference number to a legally enforceable floor. The NCLAT has set aside multiple resolution plans where the proposed distribution to dissenting financial creditors fell below the liquidation value.

Valuer’s Independence and Competence

The NCLT has emphasised that the Registered Valuer must be independent and competent. In cases where parties have alleged that the valuer had a conflict of interest or lacked relevant expertise, the NCLT has directed replacement of the valuer and fresh valuation. The Companies (Registered Valuers and Valuation) Rules, 2017 provide the framework for independence — Rule 8 specifies that the valuer must not have any direct or indirect interest in the corporate debtor or any party connected with the CIRP.

Methodology Disclosure and Reasonableness

The NCLT and NCLAT have held that the valuation report must disclose the methodology used and the key assumptions. While the Adjudicating Authority does not sit in appeal over the valuer’s professional judgement (i.e., it does not substitute its own valuation), it does examine whether the methodology is reasonable and whether the assumptions are supported by evidence. Reports that use unreasonable assumptions or fail to consider material facts have been set aside.

Averaging of Two Valuations

Regulation 35(2) provides that the final fair value and liquidation value shall be the average of the two valuers’ estimates. The NCLT has upheld this averaging mechanism even where one valuer’s estimate is significantly different from the other’s — the averaging is a regulatory safeguard against individual valuer bias. Where the divergence is extreme, Regulation 35(1A) permits appointment of a third valuer.

Valuation Date and Subsequent Events

The NCLT has addressed the issue of whether the Regulation 35 valuation should be updated to reflect events occurring after the initial valuation date but before the resolution plan is approved. The general principle is that the valuation is a point-in-time assessment and need not be updated for subsequent events unless there is a material change in the corporate debtor’s circumstances. However, in cases involving significant delays in CIRP (approaching the 330-day limit), the CoC may request updated valuations.

The Registered Valuer’s Report: Structure and Contents

A Regulation 35 valuation report must comply with the Companies (Registered Valuers and Valuation) Rules, 2017 and ICAI Valuation Standards. The essential components include:

Executive Summary

The executive summary presents the concluded fair value and liquidation value, the valuation date, the purpose of the engagement, and the key assumptions. This section is typically the most-read part of the report by the CoC and the NCLT.

Scope and Limitations

A clear statement of the engagement scope — what was valued, what was not valued, and any limitations on the valuation (data unavailability, access restrictions, time constraints). The ICAI Valuation Standards require explicit disclosure of limitations.

Corporate Debtor Overview

Background information on the corporate debtor — business description, industry, history, organisational structure, key assets, key contracts, workforce, and the events leading to insolvency. This section contextualises the valuation for the reader.

Economic and Industry Analysis

Macro-economic factors affecting the valuation — GDP growth, interest rates, inflation, sector-specific trends, regulatory changes, competitive dynamics. This section supports the assumptions used in the DCF and market approach.

Financial Analysis

Analysis of historical financial performance — revenue trends, profitability, cash flows, asset utilisation, debt structure, working capital cycle. Normalisation adjustments are documented and explained.

Valuation Methodology

Detailed description of the methods used for both fair value and liquidation value, with rationale for method selection. Each method’s application is documented step-by-step with all assumptions clearly stated.

Fair Value Conclusion

The concluded fair value with sensitivity analysis showing how the value changes with variations in key assumptions (discount rate, growth rate, margins). The sensitivity analysis demonstrates the robustness of the conclusion and informs the CoC about the range of plausible values.

Liquidation Value Conclusion

The concluded liquidation value with asset-by-asset breakdown, liquidation discounts applied, and priority deductions under Section 53. A waterfall analysis showing the distributable amount to each creditor class is essential for the CoC’s evaluation.

Appendices

Supporting schedules — asset registers, comparable company data, comparable transaction data, DCF model, WACC computation, site visit photographs, and the valuer’s credentials (including IBBI registration number).

Coordination Between SFA, L&B, and P&M Valuers

Many CIRP companies have assets spanning all three asset classes — Securities or Financial Assets, Land and Building, and Plant and Machinery. A single valuer registered in only one asset class cannot value the entire corporate debtor alone. The resolution typically involves:

Lead Valuer (SFA)

The SFA-registered valuer typically serves as the lead valuer, responsible for the overall enterprise valuation (fair value and liquidation value), financial asset valuation, the DCF model, market approach, and reconciliation of values. The SFA valuer integrates the L&B and P&M valuations into the overall valuation framework.

L&B Valuer

The Land and Building valuer independently assesses all real estate assets — land, factory buildings, office premises, warehouses, residential properties. The L&B valuer provides both fair value (orderly sale) and liquidation value (forced sale) for each real estate asset. This valuation feeds into the SFA valuer’s overall NAV computation and liquidation value determination.

P&M Valuer

The Plant and Machinery valuer inspects and values all manufacturing equipment, vehicles, furniture, and other physical assets. Each item is assessed for fair market value and forced-sale value, considering age, condition, technological relevance, and secondary market availability. The P&M valuation is particularly critical for manufacturing companies where plant and machinery constitute a significant portion of total assets.

Integration

The lead SFA valuer integrates the L&B and P&M valuations into the overall Regulation 35 report, ensuring consistency of assumptions (e.g., the same valuation date, same economic assumptions) and avoiding double-counting (e.g., a factory building valued by the L&B valuer should not also be included in the SFA valuer’s NAV computation).

Pricing: IBC Regulation 35 Valuation

At Virtual Auditor, our IBC valuation fees reflect the complexity and urgency of CIRP engagements:

Engagement Complexity	Typical Asset Base	Indicative Fee Range (SFA Valuation)
Small CIRP — single location, limited asset types	Up to INR 50 Cr	INR 75,000 – 1,50,000
Medium CIRP — multiple locations, diverse assets	INR 50-250 Cr	INR 1,50,000 – 3,00,000
Large CIRP — complex group structure, multiple entities	INR 250-1,000 Cr	INR 3,00,000 – 7,50,000
Mega CIRP — national presence, extensive asset base	Above INR 1,000 Cr	INR 7,50,000 – 20,00,000

L&B and P&M valuations are quoted separately by the respective specialist valuers. CIRP valuation fees are part of the insolvency resolution process costs under Section 5(13) and are given first priority in the Section 53 waterfall. Contact us for a detailed fee proposal for your CIRP engagement.

Liquidation Proceedings Valuation: Section 35 of the IBC

When the CIRP fails — either because no resolution plan is received, or the CoC does not approve any plan, or the NCLT rejects the approved plan — the corporate debtor enters liquidation proceedings under Section 33 of the IBC. The Liquidator must then obtain fresh valuations under Section 35.

How Section 35 Liquidation Valuation Differs from Regulation 35

While Regulation 35 requires both fair value and liquidation value (to enable resolution plan evaluation), Section 35 liquidation proceedings require only liquidation value — because the business is no longer being preserved as a going concern. However, there are important nuances:

• Going concern sale under Section 35(1)(f): The Liquidator may sell the corporate debtor as a going concern if it yields higher realisable value than piecemeal liquidation. In such cases, a going-concern valuation (similar to fair value) may be obtained to set the reserve price for the going-concern sale. The IBBI (Liquidation Process) Regulations, 2016, Regulation 32 permits sale as a going concern.
• Updated asset condition: By the time the company enters liquidation (after an unsuccessful CIRP of up to 330 days), asset conditions may have further deteriorated. The liquidation valuation must reflect the current condition at the time of liquidation, not the condition at the Regulation 35 valuation date.
• Stakeholders’ consultation: The Liquidator must form a Stakeholders’ Consultation Committee under Section 35(1)(i) and share the valuation with stakeholders to facilitate transparency in the liquidation process.

Reserve Price Determination

The Liquidator uses the liquidation valuation to determine the reserve price for asset auctions. Under IBBI (Liquidation Process) Regulations, the Liquidator may sell assets through auction, private sale, or a combination. The reserve price is typically set at or near the liquidation value, though the Liquidator has discretion to adjust based on market response. If assets do not sell at the initial reserve price, the Liquidator may reduce the reserve and re-auction — a process that can be repeated until the assets are sold or the Liquidator determines that further attempts are unlikely to yield any recovery.

Common Pitfalls in Regulation 35 Valuation Reports

Based on our review of valuation reports in NCLT proceedings and our own practice experience, these are the most frequent pitfalls we have observed:

Pitfall 1: Relying Solely on Book Values

Some valuation reports simply adopt book values from the latest audited balance sheet without restating assets at fair market value. This is fundamentally incorrect for both fair value and liquidation value — book values reflect historical cost less accounting depreciation, not current market reality. Land purchased 20 years ago at INR 50 lakh may be worth INR 10 Cr today; machinery may be worth less than its book value due to technological obsolescence.

Pitfall 2: Ignoring Inter-Company Transactions and Related-Party Balances

CIRP companies often have significant inter-company receivables, loans to related parties, and guarantees issued for group companies. Treating these at face value without assessing recoverability overstates both fair value and liquidation value. Related-party receivables in particular require rigorous assessment — many are irrecoverable.

Pitfall 3: Using Generic Liquidation Discounts

Applying a blanket 30% or 40% liquidation discount to all asset classes is lazy and indefensible. Liquidation discounts must be asset-specific — land in a prime urban location attracts a much lower discount than specialised machinery in a remote industrial estate. The valuer must justify each discount with reference to market data, secondary market conditions, and asset-specific factors.

Pitfall 4: Failing to Account for CIRP Costs and Priority Claims

Liquidation value must be presented net of all priority deductions under Section 53. Some reports present gross realisable value without deducting CIRP costs, workmen’s dues, and other priority claims — giving the CoC an inflated picture of what creditors would receive in liquidation. The Section 53 waterfall must be explicitly modelled.

Pitfall 5: Inadequate Sensitivity Analysis

A fair value presented as a single point estimate without sensitivity analysis provides the CoC with a false sense of precision. Given the uncertainties inherent in valuing a distressed business, the report should present a range of values under different scenarios (optimistic, base, pessimistic) and identify the key variables that drive value sensitivity.

Virtual Auditor’s IBC Valuation Practice

Our IBC valuation practice brings together the technical rigour of an IBBI Registered Valuer, the analytical capabilities of our AI-powered valuation engine, and the practical experience of 100+ valuation engagements. Key differentiators:

• Multi-disciplinary team: SFA, L&B, and P&M expertise under one roof, enabling coordinated and consistent valuations.
• AI-powered analytics: Automated comparable screening, WACC calibration, and sensitivity analysis — reducing turnaround time without compromising quality.
• NCLT-tested methodology: Our valuation reports follow a structured format that addresses the specific requirements of NCLT scrutiny and CoC deliberations.
• Forensic capability: Our forensic accounting background enables us to identify financial irregularities, related-party transactions, and asset diversion that may affect valuation.
• Pan-India coverage: With offices in Chennai, Bangalore, and Mumbai, we can conduct site visits and coordinate with local stakeholders across India.

Every IBC valuation report is signed by CA V. Viswanathan (IBBI/RV/03/2019/12333), a Fellow Chartered Accountant, Associate Company Secretary, and Certified Fraud Examiner with 14+ years of professional experience.

Frequently Asked Questions

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