Once a company is admitted into Corporate Insolvency Resolution Process (CIRP), it is certain that either a Resolution plan will be submitted by a new investor for a definite amount or upon failure of the resolution, the assets of the Corporate Debtor will be sold by the liquidator for a particular amount. But what is that particular benchmark amount which should guide the decision-makers (Committee of Creditors or the Liquidator) to arrive at a decision?
Here comes the necessity of valuation reports to be done by professional valuers. The regulator IBBI, has shown dexterity in benchmarking the valuation processes, fixing eligibility criteria for the valuers, and maintaining a panel of Registered Valuers.
This write-up on valuations is intended to be understood by the common people, therefore the contents have been kept very lucid and simple for their understanding. The use of intricate methods used for valuation by professional valuers is being avoided.
The assets of the Corporate Debtor have been segregated into the following three categories for the purpose of valuation:
1. Land & buildings:
- Leasehold Land
The ownership of the land can be held in two ways. The first method is ‘Lease hold’ in which ‘Lessor’ gives his land to the ‘Lessee’ for industrial, commercial, or domestic use for a definite long-term period. The most common example under this category is State industrial bodies (UPSIDC, NOIDA, GNOIDA, RICCO) giving land to industrialists for setting up of manufacturing or service-oriented units or land given to real estate companies for developing housing projects. Another example is of State Housing Boards giving built-up flats or different sizes of plots for housing purposes to individual persons. In case of lease hold allotments, the land property will go back to the lessor after expiry of the lease period, subject to renewal/extension arrangement in the existing lease agreement. The consideration for lease rent may be upfront amount or periodic payments by the lessee to lessor.
- Freehold Land-
The possession and absolute legal ownership of the land parcel is transferred by the seller to buyer upon payment of consideration amount through an instrument known as ‘Conveyance Deed’ or ‘Registry’ in the common language.
- Building Structure
The building structure is put by the owner of the land after getting the master plan approved from the concerned authorities and, approval of other related authorities like Airport Authority, Environmental Department, etc.
- Arriving at Valuations
The valuation of the land parcel is done by benchmarking it with ‘Circle Rate’ fixed by the Government or the market determined rates as per transactions closed during last one year or so in that area.
Building Structures are valued on the cost of construction discounted by depreciation depending upon quality of construction and the age of building.
2.Plant & Machinery
- The valuers inspect the Plant & Machinery under valuation physically by visiting the plant or unit. Generally, the factors considered by valuers for valuation are Type of Plant/Machinery, Imported or indigenous, Category of supplier/vendor, remaining useful life, ageing or obsolescence etc.
3. Securities & Financial Assets (SFA)
- These are non-physical or book or soft assets as they are reflected in the Balance sheets of the Corporate Debtor. The financial assets included in this category are Intangible Assets, Cash & Cash Equivalents, Trade Receivable, Loan & Advances, Investments etc. While arriving at valuations, an assessment is made of the realisibility of such assets.
- The valuations are categorized or determined as Book Value, Market Value, Fair Value, Liquidation Value, Valuation for sale as going concerned, depending upon the process for which it is to be benchmarked.
At ASC Insolvency Services LLP, we are committed to providing complete assistance on valuations of assets of Corporate Debtor under IBC, 2016. Please connect with Deepak Maini (Insolvency Professional) at email@example.comApr, 19 2022
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