Liquidation Valuation under IBC

By CA V. Viswanathan — FCA, ACS, CFE, IBBI Registered Valuer (IBBI/RV/03/2019/12333). Updated for FY 2025-26.

Liquidation Value under the Insolvency and Bankruptcy Code 2016 is the estimated realisable value of the assets of the Corporate Debtor if the company were to be liquidated on the insolvency commencement date. Under Regulation 35 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations 2016, this value must be determined by two IBBI Registered Valuers for each class of asset (Land & Buildings, Plant & Machinery, Securities & Financial Assets), with the Resolution Professional taking the average. Liquidation Value sets the floor for Resolution Plan acceptance and benchmarks the liquidation-vs-resolution decision.

Why Liquidation Value Matters

Under Section 30(2)(b) of IBC, every Resolution Plan must provide for payment of liquidation value to dissenting financial creditors (creditors who voted against the Plan). Liquidation Value is therefore the de facto floor below which no Plan is approvable for dissenting creditors. It also benchmarks the CoC's commercial judgment — a Resolution Plan offering significantly more than Liquidation Value should be preferred over liquidation; a Plan offering only marginally more should be carefully scrutinised against operational risk of execution. Errors in Liquidation Value can invalidate Plan approvals and trigger NCLAT/Supreme Court challenges.

Methodology — Distressed Sale Assumption

Unlike Fair Value (which assumes orderly transaction between willing parties), Liquidation Value assumes distressed sale within a constrained timeline (typically 6-12 months for the liquidator to complete asset disposal). This drives down value materially: (a) Land & Buildings — discount from market value of 20-50% depending on location, marketability, and special-purpose nature; (b) Plant & Machinery — heavily discounted to scrap or used-equipment value; specialised machinery often near scrap; (c) Inventory — discounted to clearance pricing, especially for finished goods with limited buyer universe; (d) Receivables — discounted for collection risk in distress; (e) Investments — quoted securities at market, unquoted at heavy discount; (f) Intangibles — typically nil unless the IP has standalone value (brand, licences); (g) Going-concern premium — explicitly excluded.

Two-Valuer Requirement and Reconciliation

Regulation 35 mandates two valuers per asset class. Where the two valuations differ by more than 25%, the RP must invite a third valuer. Even where within 25%, the RP must scrutinise both reports for methodology consistency, assumption alignment, and document the basis for the average value reported to CoC. The two valuers cannot be from the same firm or affiliated firms. Independent challenge of valuation assumptions (e.g., an unrealistic 6-month sale assumption for a 200-acre industrial land parcel) is a key value-protection role of the RP.

Asset Class Specifics

(a) Land & Buildings — IBBI Registered Valuer for Land & Buildings; methodology typically Sales Comparison adjusted for distressed-sale discount; for industrial land, special-use discount may exceed 40%. (b) Plant & Machinery — IBBI Registered Valuer for Plant & Machinery; methodology Cost Approach (depreciated replacement cost) for general-purpose equipment, distressed-Sales Comparison or Scrap Value for specialised. (c) Securities & Financial Assets — IBBI Registered Valuer for Securities & Financial Assets; quoted securities at market price (with block-size discount for thinly-traded), unquoted equity at distressed-Sales Comparison or NAV-based, debt instruments at workout-recovery percentage. Virtual Auditor's CA V. Viswanathan holds Securities & Financial Assets registration (IBBI/RV/03/2019/12333) and we coordinate Land & Buildings and Plant & Machinery valuations through partner valuers.

Section 53 Waterfall — Where Value Goes

If liquidation occurs, sale proceeds are distributed in the order specified in Section 53 of IBC: (1) Insolvency resolution process and liquidation costs; (2) Workmen's dues for 24 months and secured creditors who relinquished security; (3) Wages for 12 months for non-workmen employees; (4) Financial debts owed to unsecured creditors; (5) Government dues and secured creditors with security NOT relinquished, ranking equal; (6) Remaining debts to secured creditors; (7) Preference shareholders; (8) Equity shareholders. This waterfall makes the recovery very different across creditor classes — operational creditors (other than employees) typically recover little or nothing in liquidation.

Engagement Fees

Liquidation valuation engagement: ₹3-15 lakhs per asset class depending on complexity, geography, and asset type. Comprehensive engagement covering all three asset classes: ₹10-40 lakhs. Larger CIRPs with multi-state operations and complex asset bases: ₹20 lakh-1 crore. Fees are paid as CIRP costs and approved by CoC. We provide fixed-fee quotes after a free 30-minute scoping call with the RP.

How Virtual Auditor Delivers This

Virtual Auditor's CA-CS-IBBI Valuer team handles liquidation valuation under ibc as an integrated engagement — no hand-offs between firms, single point of accountability, fixed-fee transparency. CA V. Viswanathan (FCA, ACS, CFE, IBBI RV) personally reviews every engagement deliverable. Offices in Chennai, Bangalore, and Mumbai serve clients across India. Free 30-minute scoping consultation available — no obligation.

Get Started — Free Consultation

Call +91 99622 60333 or email support@virtualauditor.in to schedule a free 30-minute consultation with CA V. Viswanathan. No obligation. We will give you a clear scope, timeline, and fixed-fee quote within 24 hours of the call.