Valuation Under the IBC Is Set for an Overhaul—Here’s What Will Change

The Insolvency and Bankruptcy Board of India (IBBI) has released a Discussion Paper on Strengthening the Valuation Process under the IBC. The IBBI's proposed overhaul of valuation standards under the Insolvency and Bankruptcy Code seeks to eliminate inconsistencies, enhance transparency, and reduce subjectivity in valuation outcomes. Key reforms include introducing a unified valuation standard, redefining the appointment structure of valuers, and expanding valuation scope to intangible and synergy values. These reforms aim to strengthen market confidence, improve CoC decision-making, and bring valuation practices closer to global norms. However, proportionality remains essential—larger insolvencies require deeper analytical structures, while MSMEs should not be burdened with disproportionate compliance costs. Stakeholder feedback remains critical to fine-tuning these reforms.

This blog analyses the changes suggested in the IBBI discussion paper on valuation, comparing the current position with proposed reforms, along with recommended improvements.

Clause	Current	Proposed in Discussion Paper	Author's Suggestions
Valuation Standard	Valuers use internationally accepted valuation standards (for CIRP) or Companies Act rules (for liquidation), resulting in inconsistency.	A single, Board-specified valuation standard for all IBC processes.	Release draft standard for public comments; provide industry-specific annexures to avoid forced-fit methods.
Appointment Structure	RP appoints two enterprise-level valuers; third valuer optional on divergence.	One valuer per asset-class + Coordinator Valuer; third set mandatory if divergence ≥ 25%.	Allow skipping asset-class break-up and appointing one enterprise valuer for small companies; define Coordinator Valuer’s role, deliverables, and liability- for instance, liability allocation between asset-valuers and the coordinator if fair value is materially wrong? Further, does the coordinator have veto/override powers?
Intangible & Synergy Valuation	Intangibles not consistently valued; synergies rarely captured.	Explicit valuation of intangibles, synergies, and going-concern value; scenario analysis mandated.	Intangible valuation carries high subjectivity; synergy value may be speculative and vary across bidders. Therefore, provide guidance notes, include sample disclosures, sample methodologies, and case-study to guide valuers (especially in case of disputed assets).
Divergence Threshold	No quantitative definition of valuation divergence.	25% divergence triggers third set of valuations.	A graduated threshold: lower for SMEs, higher for large enterprises, or allow CoC to adjust with clear rules.
Single Valuer	No such provision.	Single valuer allowed for debtors with turnover ≤ ₹500 crore. CoC has the option to request second valuer.	Permit CoC (by majority vote) to demand a second valuer.
Valuation Methodologies	Approach for valuing specialised or unique assets (ports, mines, pharma IP) varies widely.	Asset-class–specific valuation methodologies to be notified separately.	Constitute expert panels to draft sector methodologies; update every 3 years based on market data.

Other Suggestions:

• Define timeline for: (i) methodology meeting; (ii) individual valuations; (iii) aggregation by Coordinator; (iv) divergence check; (v) third set (if needed); (vi) final report.
• Accountability: Clarify liability of Coordinator vs. individual valuers if aggregate value is materially wrong.
• Dispute Resolution Mechanism: Introduce a streamlined valuation arbitration panel under IBBI to handle methodology disputes.

Further, based on the above, here are some recommended clauses to include in engagement letters between the RP and Registered Valuers:

• Role Definition & Coordination: (i) Coordinator Valuer to deliver AFV, integrated working papers, and reconciliation of assumptions; (ii) coordination meetings; (iii) site visits evidence required (geo-tagging/ logs); (iv) Mandatory annexures for data validation, management inputs, and third-party confirmations; (v) RPs should insist on audit-style documentation including source tagging and evidence referencing.
• Standards to be Applied: State that valuation will follow Board-specified standards; If the Board standard is not yet notified, include a fallback or “bridge” standard (or commit to adopt it once notified).
• Methodology Explanation: Require presentation to CoC on valuation approach, assumptions, and key parameters, with formal deliverables (slides, sensitivity models, written assumptions).