IBBI Overhauls the Valuation Framework, Enhances Disclosure Requirements, and Addresses Non-Claiming Allottees under the CIRP Regulations

The key implications of the amendments are as follows:

1. Revised Definition of Fair Value [Regulation 2(hb)]: The definition of “fair value” has been substituted to mean the estimated realizable value of the corporate debtor or its assets if exchanged on the insolvency commencement date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing, where the parties had acted knowledgeably, prudently, and without compulsion. An Explanation has been added clarifying that the estimated realizable value shall be computed after accounting for the total value of all assets, including tangible and intangible assets, along with their underlying synergies, marking a significant departure from a purely asset-by-asset approach.

2. Timeline for Appointment of Valuers [Regulation 27(1)]: The Resolution Professional (RP) is now required to appoint two sets of registered valuers within seven days of appointment, but not later than the forty-seventh day from the insolvency commencement date.

3. Overhaul of the Valuation Process [Regulation 35(1)]: Regulation 35(1) has been comprehensively substituted, introducing the following key changes to the valuation mechanism:

• • • Asset-class based valuation with coordinating valuers: Each set of registered valuers must now comprise one registered valuer per asset class of the corporate debtor, as defined under the Companies (Registered Valuers and Valuation) Rules, 2017. Within each set, the RP, in consultation with the Committee of Creditors (CoC), must designate one valuer as the coordinating valuer, responsible for computing the fair value of the corporate debtor as a whole by aggregating individual asset valuations within their set along with underlying synergies.

• • • Pre-valuation methodology meeting: Before commencing the valuation exercise, the RP must facilitate a meeting between the registered valuers, including the coordinating valuers, and the CoC members, at which the valuers explain the methodology they propose to adopt, introducing a layer of transparency and stakeholder engagement into the process.

• • • Board-notified valuation standards: Each registered valuer must compute fair value and liquidation value in accordance with valuation standards notified by the Insolvency and Bankruptcy Board of India (IBBI) through circular, replacing the earlier reference to the Companies (Registered Valuers and Valuation) Rules, 2017.

• • • Third set of valuers: The RP may appoint a third set of registered valuers where the two estimates of fair value or liquidation value are “significantly different”, defined as a difference of 25% or more, or where the CoC proposes such appointment with written reasons. Where a third set is appointed, the average of the two closest estimates shall be taken as the fair value and liquidation value respectively.

• • • Determination of fair and liquidation value: The average of the two closest estimates of fair value submitted by the coordinating valuers shall be the fair value of the corporate debtor, and the average of the two closest estimates of liquidation value submitted by the registered valuers in each asset class shall be the liquidation value.

4. Standardised Valuation Reports [New Regulation 35(1A)]: A new sub-regulation has been inserted requiring registered valuers to prepare valuation reports and maintain documentation in the format notified by the IBBI through circular.

5. Enhanced Disclosures in the Information Memorandum [Regulation 36(2)]: Three new clauses have been inserted after Regulation 36(2)(a), requiring the RP to include the following additional disclosures in the Information Memorandum:

• • • Details of receivables of the corporate debtor, including trade receivables, inter-corporate receivables, and receivables arising under contracts – clause (aa);
    • Details of joint development agreements and similar collaboration or co-development arrangements, including the rights, obligations, and interests of the corporate debtor thereunder – clause (ab); and
    • Details of assets under attachment by enforcement agencies, including particulars of the attached assets, the attaching authority, and the status of the proceedings – clause (ac).

Additionally, a new clause (ja) has been inserted after Regulation 36(2)(j), requiring disclosure of details of allottees in real estate projects who have not submitted their claims but whose claims are reflected in the corporate debtor’s books of accounts or in the records of the relevant Real Estate Regulatory Authority under the Real Estate (Regulation and Development) Act, 2016.

6. Treatment of Non-Claiming Allottees [New Regulation 38A]: A new Regulation 38A has been inserted specifically addressing real estate insolvencies, providing that where the Information Memorandum includes details of allottees who have not submitted their claims, the resolution plan must provide for the treatment of such allottees. This addresses a long-standing gap in the framework and ensures that the interests of homebuyers who may have been unable to participate in the claims process are not disregarded in the resolution plan.

These amendments are likely to significantly increase the compliance and documentation obligations on resolution professionals and registered valuers. RPs will now be required to facilitate pre-valuation methodology meetings with the CoC, ensure that valuers are appointed on an asset-class basis with designated coordinating valuers, and include substantially expanded disclosures in the Information Memorandum. Registered valuers, on their part, must align their reporting practices with the Board-notified valuation standards and documentation formats once issued.