IBBI issues guidelines for conducting valuation under the Insolvency and Bankruptcy code, 2016: standardised reporting framework and introduction of coordinating valuer mechanism

Key Highlights of the Guidelines:

1. Comprehensive Documentation and Reporting Requirements: The guidelines prescribe minimum standards for valuation documentation and require registered valuers to maintain detailed records of communications, methodologies considered, assumptions adopted, professional judgments exercised, valuation risks identified and quality control procedures undertaken. Valuation reports must contain prescribed disclosures relating to valuation methodology, data sources, assumptions, inspections, limitations, conflicts of interest and the rationale underlying the values determined.

2. Standardised Valuation Report Formats Across Asset Classes: IBBI has prescribed detailed valuation report templates for different asset classes, namely land and buildings, plant and machinery, and securities or financial assets. The prescribed formats require uniform disclosures regarding sources of information, valuation approaches adopted, valuation standards followed, data inputs considered, and fair value and liquidation value assessments. This is intended to promote consistency and comparability across valuation reports prepared under the Code.

3. Detailed Framework for Valuation of Receivables: The guidelines specifically prescribe parameters that must be considered while valuing receivables, including the nature of the receivable, credit profile of debtors, ageing analysis, legal enforceability, historical recovery trends, related party status, and macroeconomic and industry-specific considerations relevant to recoverability.

4. Enhanced Disclosure Obligations for Registered Valuers: Valuers are now required to disclose sources of information, basis and premise of valuation, valuation standards followed, applicable discounts and premiums, inspections undertaken, sustainability and functional considerations, and any significant assumptions or limitations affecting the valuation exercise. Valuation reports must also provide specific reasons where any asset has been excluded from valuation or assigned a nil value.

5. Introduction of Valuation Report Identification Number (VRIN): The guidelines mandate inclusion of a Valuation Report Identification Number (VRIN) generated from the website of the authority. The VRIN is required to be disclosed in valuation reports and included on each page of the report, thereby creating a standardised identification mechanism for valuation assignments. 

6. Requirement to Engage with the Committee of Creditors: Registered valuers are required to provide details of meetings held with members of the Committee of Creditors (CoC) to explain the valuation methodology being adopted before arriving at valuation estimates. This requirement seeks to increase transparency and facilitate an informed understanding of the valuation process by stakeholders.

7. Introduction of Coordinating Valuer Framework: A significant feature of the guidelines is the introduction of a coordinating valuer mechanism for determination of the fair value of the corporate debtor as a whole. The coordinating valuer is to be designated by the insolvency professional, in consultation with the CoC, from amongst the registered valuers appointed for the different asset classes. The coordinating valuer is required to integrate individual asset-class valuations and assess the fair value of the corporate debtor on a holistic basis.

8. Recognition of Synergies and Intangible Assets: The coordinating valuer is required to evaluate the integrated value of the business rather than merely aggregating individual asset values. In doing so, the coordinating valuer must consider business synergies, future cash flows, industry outlook, operational integration, and intangible assets such as brand value, customer relationships, licences, intellectual property, distribution networks and goodwill.

9. Fair Value Determination Based on Integrated Enterprise Value: The guidelines recognise that the fair value of a corporate debtor may exceed the sum of individual asset values due to synergistic benefits arising from integrated business operations. Accordingly, the coordinating valuer is required to assess a synergistic value adjustment while determining the overall fair value of the corporate debtor as a going concern.

10. Coordinating Valuation Report and Professional Responsibilities: The coordinating valuer is required to prepare a dedicated Coordinating Valuation Report containing details of valuation methodologies, assumptions adopted, treatment of tangible and intangible assets, basis for integration of valuation outputs, assessment of business synergies and the final estimate of the fair value of the corporate debtor. The guidelines also emphasise independence, objectivity, confidentiality and adherence to valuation standards while undertaking the assignment.