The Two Values in IBC Proceedings
When a company enters the Corporate Insolvency Resolution Process (CIRP) under the IBC, IBBI regulations require two valuations of the assets:
1. Fair Value — the estimated amount for which an asset could be exchanged between knowledgeable, willing parties in an arm's length transaction
2. Liquidation Value — the estimated amount that could be realised by selling the asset in a forced sale scenario, typically at auction within a limited timeframe
Both values must be determined by two independent registered valuers, and the results are averaged.
Why Are Both Values Required?
The Resolution Professional (RP) uses these values to:
- ·Evaluate whether a resolution plan submitted by a potential acquirer offers reasonable value to creditors
- ·Set the liquidation value threshold — the minimum amount creditors must receive under a resolution plan (otherwise, liquidation is preferable)
- ·Inform the Committee of Creditors (CoC) in their decision-making
Key Differences in Methodology
Fair Value
The fair value assumes:
- ·The business or asset will continue to operate as a going concern (or will be sold in an orderly manner)
- ·Adequate time is available for marketing
- ·Potential buyers are informed and willing
- ·No unusual pressure on the seller
For immovable property, fair value is typically determined using comparable market transactions, income capitalisation, or the cost approach — similar to a standard market valuation.
Liquidation Value
The liquidation value assumes:
- ·A forced, time-bound sale
- ·Limited buyer pool (often only those attending an auction)
- ·No opportunity for extended marketing
- ·The seller (liquidator) has no negotiating leverage
Liquidation value is invariably lower than fair value — often by 20–40% depending on the asset type and market liquidity.
Practical Implications
For creditors, the liquidation value sets the floor. Any resolution plan must pay each class of creditor at least what they would receive in liquidation. This makes the liquidation value a critical number in plan negotiations.
For resolution applicants, the fair value sets an informal ceiling — plans significantly below fair value are likely to be rejected by the CoC.
Our Experience
RK Values has conducted IBC valuations for both immovable property and plant & machinery for resolution professionals across Hyderabad and Andhra Pradesh. Our reports comply with the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations and are prepared in the formats prescribed by the IBBI.
Contact us for confidential discussions about valuation requirements in ongoing CIRP matters.