Valuation is one of the key pillars in corporate events both for going concern entity as well as companies going to be liquidated. Logically, price/value of CD is discovered from the valuation reports. Unless the value is known, the potential resolution applicant/bidder is not able to decide about the bid. In order to avoid the information asymmetry among IP, COC, RA and valuers, it is proposed to make the “fair value” disclosure as part of Information Memorandum. This will help the potential RA/Bidder to get better insight into CD’s worth. This is a welcome move.
Another more significant and onerous expectation from the valuer’s profession is proposed under Regulation 35 (1)(a) of CIRP Regulations. This sub-regulation is the corner stone of the profession. Under this, two valuers are appointed by RP to determine the fair value and the liquidation value. These valuers submit their reports to the RP.
Proposed Changes:
A. As per the proposed amendment in Regulation 35 (1)(a) of CIRP Regulations, the two registered valuers shall give an estimate of the fair value and the liquidation value.
B. The Registered Valuers shall explain the methodology to the COC before giving estimates to the RP.
Dangers/consequences of the changes:
1) The concept of “estimate” is brought into the work of valuation through this amendment. Please note that the fair value is derived based on certain established valuation standards, approaches, and certain assumptions/premises. Valuation is not conjecture driven. It is based on logic, standards, situations, and rules. It is true that each valuer will have different perspectives, fair value will differ. But the use of the word “estimate” trivialises the profession.
2) More serious is the requirement of a valuer being asked to be present before the COC and explain the methodology.
This will have major consequences:
a) Valuers will be exposed to the pulls and pressures of the COC members. The fees of non-obliging valuers will be at stake. This will ultimately lead to compromise in the quality of work and independence of valuers.
b) Even at present, the valuers are not paid their fees for years together. Adding to this will be the cost of travel/stay for attending the COC meeting, in case of out of station/some other states.
Conclusion:
The proposed changes in the valuation landscape pose both opportunities and challenges. While increased transparency in fair value disclosure is a positive development, the introduction of “estimates” and the obligation to explain methodologies to the COC raise concerns about the independence and quality of valuations. It is crucial for regulators and the government to take these issues into account and ensure the protection and growth of the valuers’ profession. In the ever-evolving world of corporate finance, finding the right balance is key to the continued success of the valuation profession. For those in need of valuation and compliance support, expert guidance is advisable to navigate these changes effectively.
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In case you have any concern or need any support in valuation/compliance, you may like to contact us. Abhinarayan Mishra, FCA, FCS, LL.B; IP, RV; Managing Partner; SAM Law Associates LLP; +9910744992, ca.abhimishra@gmail.com
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