Regulatory Framework for Asset Valuation in Insolvency Resolution to Be Strengthened

September 8, 2023

The Union Ministry of Corporate Affairs has announced plans to strengthen the regulatory framework governing professionals who value the assets of distressed companies in the context of insolvency resolution. This step will ensure the accuracy and authenticity of valuation reports in insolvency proceedings.

Significance of the Role of Valuers

Valuers play a crucial role in insolvency resolution in India because the decision to salvage or liquidate an insolvent business relies heavily on the accurate valuation of its assets.
An accurate valuation ensures that the estimated value aligns with market conditions or realization, enhancing the chances of a successful resolution.
Valuation reports guide insolvency professionals, creditors, and the National Company Law Tribunal in determining the best course of action for distressed companies.
Ensuring the accuracy and authenticity of valuation reports is essential to make informed decisions about the future of defaulting companies and maximize the chances of successful resolution.

Regulatory Measures

India has implemented regulatory measures to uphold the quality of valuation exercises in bankruptcy cases.
The Insolvency and Bankruptcy Board of India (IBBI) mandates that every valuation exercise under the bankruptcy code must be conducted by a registered valuer.
Since February 1, 2019, appointing anyone other than a registered valuer for assessing the worth of an enterprise under the Code is illegal, and any fees paid in such cases are not considered part of the debt resolution or liquidation cost.
Prohibiting certain individuals from acting as valuers aims to maintain the sanctity of valuation reports.

Role in Broader Economic Objectives

India’s emphasis on improving bankruptcy resolution aligns with broader economic objectives of fostering economic growth and job creation.
Efficient bankruptcy resolution is vital for restoring financially distressed companies to financial health promptly.
This, in turn, contributes to the management of the economy by attracting fresh cycles of private investments, stimulating economic growth rates, and creating more jobs. Repairing the balance sheets of banks and private companies through the Insolvency and Bankruptcy Code (IBC) has been a significant step toward achieving these economic goals and ensuring the health of India’s financial system.

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