‘Uniform norms needed to value bankrupt cos’ assets’

New Delhi: Uniform standards are needed to value assets of companies facing bankruptcy proceedings to ensure credibility and usefulness of the valuation reports given by professionals for debt resolution under the Insolvency and Bankruptcy Code (IBC), Insolvency and Bankruptcy Board of India (IBBI) chairperson Ravi Mital said in the bankruptcy regulator’s latest quarterly review.

The IBC currently doesn’t prescribe an uniform valuation standard but valuation can be done only by registered valuers who follow internationally accepted valuation standards after physically verifying the assets.

There are two globally followed valuation standards from two independent agencies—International Valuation Standards Council (IVSC), a not-for-profit entity, and the Royal Institution of Chartered Surveyors (RICS), a professional body.

The rules notified under the Companies Act state that valuation standards are to be notified by the government and pending its notification, internationally accepted valuation standards adopted by any registered valuers organisations (RVO) need to be followed, Mital explained in the quarterly update. RVOs are entities recognized by IBBI.

“To achieve successful insolvency resolutions, it is imperative to enhance the effectiveness, reliability and usefulness of the valuation procedure under the IBC. This can be accomplished by implementing a well-structured and comprehensive standards framework for valuations,” Mittal said, highlighting that standardized valuations will enable well informed decisions and instil confidence in the debt resolution process while maximizing value for all.

Given that different valuers may chose varied methods and assumptions for valuation, the assets available for restructuring and turning around an insolvent business may be valued differently, causing delays.

IBBI has been trying to expedite the outcome of bankruptcy resolution by reducing delays in admitting cases in tribunals and streamlining the procedures so that bidding for fresh investments into distressed assets is done efficiently.

In June, the regulator proposed a new voting method allowing creditors to rank their preferences of bids from investors instead of merely voting in favour or against bids.

In the June quarter, 76 more cases involving ₹10,220 crore of allegedly questionable past transactions of insolvent companies have been taken to tribunals by resolution professionals appointed by creditors.

So far, 947 such ‘voidable’ transactions worth ₹2.95 trillion have been questioned by resolution professionals, of which 200 transactions worth ₹44,871 have been dealt with by the tribunals, and over ₹5,200 crore have been recovered, IBBI data showed.

Official data showed that 238 more cases were admitted in tribunals for debt resolution in the June quarter, while 198 cases were resolved, including via settlement with creditors. At the end of June, of the more than 6,800 cases of failed businesses admitted into tribunals since IBC came into force in 2016, over 2,000 cases are pending.

Cleaning up the balance sheets of banks and companies has been a priority for the government. The government is pinning hopes on cleaner balance sheets of businesses and lenders for a fresh cycle of private investment.