India: Valuation Of Assets Under The Insolvency And Bankruptcy Code, 2016: Understanding The Term 'Liquidation Value'

Valuation of assets is one of the core features of the corporate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016 (Code). However, there are various clarifications that are yet to be provided by the Insolvency and Bankruptcy Board of India (Board) in relation to provisions pertaining to valuation of assets as provided under the Code and the Regulations. One of the prominent controversies in relation to valuation of assets is the lack of clarity surrounding interpretation of the term 'liquidation value' under the Code.

The term "liquidation value" is defined under Regulation 35(1) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution for Corporate Persons) Regulations, 2016 (CIRP Regulations) as 'the estimated realizable value of assets of the corporate debtor if the corporate debtor were to be liquidated on the insolvency commencement date'. Regulation 35(2) of the CIRP Regulations prescribes the method for determining liquidation value. From a bare reading of the said definition, it emerges that liquidation value is the notional realizable value that assets of the corporate debtor would fetch, should the corporate debtor be liquidated on the insolvency commencement date (and not the value that may be actually realized under a resolution plan). However, the ambiguity arises with respect to determining "estimated realizable value" in the context of the insolvency resolution process as opposed to valuation in an out-and-out liquidation of assets. Typically, a valuation report often comprises more than one sale value for an asset based on valuation under different scenarios. For instance, a valuation report may provide for a fair market value, realizable value and distressed sale value of an asset. The multitude of jargon and terminology in valuation only adds to the already difficult task that registered valuers (appointed under the Code) and the insolvency professional discharging his/her function as an interim resolution professional (IRP)/resolution professional (RP) face in determining character of asset value that should be considered as liquidation value for purposes of Regulation 35 read with Regulations 36 and 38 of the CIRP Regulations. The determination of 'liquidation value' of assets is an extremely crucial exercise, keeping in view its practical implication on the resolution plan, claims of creditors and prospective investors.


One of the most important pieces of information that forms part of the Information Memorandum1 is liquidation value. The purpose of having to provide for a liquidation value as part of the Information Memorandum during the corporate insolvency resolution process is in turn to enable compliance with provisions of Regulation 38 of the CIRP Regulations which requires identification (and subsequently payment) of specific sources of funds for payment of dues of operational creditors and dissenting financial creditors at liquidation value in priority to recovery of dues of other financial creditors who approve the resolution plan. In the event a resolution plan is reached and approved, operational creditors and dissenting financial creditors will have to be paid at this "notional" liquidation value in Regulation 35(1) since the corporate debtor would not actually go into liquidation.

Duty of an IRP/RPvis-ŕ-vis the liquidation value of the corporate debtor

One of the key tasks of an IRP/RP is to appoint two registered valuers (as per Regulation 27 of the CIRP Regulations), who in turn will determine liquidation value (as per Regulation 35 of the CIRP Regulations) of the corporate debtor and submit the same to the IRP/RP. The registered valuers are required to provide an estimate of liquidation value "computed in accordance with internationally accepted valuation standards, after physical verification of the inventory, and fixed assets of the corporate debtor."2

It is incumbent upon the IRP/RP to observe if there is a significant difference between the two estimates of liquidation value submitted to him/her, in which case, the IRP/RP may appoint a third registered valuer who will submit an estimate of the liquidation value computed in the same fashion as the two valuers first appointed. Thereafter, the IRP/RP will have to consider average of the two closest estimates as liquidation value.

Pursuant to this, the IRP/RP is required to note the said liquidation value of the corporate debtor as well as the liquidation value due to an operational creditor (arrived as per the waterfall mechanism under section 53 of the Code) in the Information Memorandum prepared in terms of Regulation 36 of the CIRP Regulations.

Thus, it is to be noted that the duty of determination of liquidation value is based on the registered valuer and the duty of the IRP/RP in this regard is summarized herein below:

(a) Appointment of two registered valuers (as per Regulation 27);

(b) Observing any discrepancy in the two values submitted by the registered valuers and subject thereto, appointing a third valuer to provide another estimate of the liquidation value, so that the estimate of the two closest values may be taken as the liquidation value (as per Regulation 35(2));

(c) Incorporating the said liquidation value (as provided by the registered valuers) in the Information Memorandum (as per Regulation 36).

(d) Ensuring that every resolution plan identifies sources of funds, and provides for making payment of claims of operational creditors at liquidation value in priority to financial creditors and within 30 days of its approval (Regulation 38(1)(b) of the CIRP Regulations); and

(e) Ensuring that every resolution plan identifies sources of funds to make payment of claims of the dissenting financial creditors at liquidation value in priority to recovery by other financial creditors who approve the resolution plan (Regulation 38(1)(c) of the CIRP Regulations).

Liquidation value visŕ- vis Realizable value

The term 'Liquidation value' as generally understood is the value of an asset which is arrived at when a seller is under extreme compulsion to sell. As mentioned earlier, Regulation 35 of the CIRP Regulations, which defines the term 'liquidation value' specifies that the said value is to be a notional value, which should be arrived at considering a hypothetical scenario of liquidation of the Corporate Debtor on the date of insolvency commencement. In other words, it will be an estimated value calculated by registered valuers if the Corporate Debtor were to be liquidated on the insolvency commencement date. This is similar to the concept of "vertical comparison" under Chapter 11 of the United Stated Bankruptcy Code, and an accepted definition for arriving at liquidation value under English insolvency laws.

It is observed that the definition of the term 'liquidation value' uses the term "realizable value", thereby indicating that liquidation value is the notional realizable value arrived at the time of liquidation of the Corporate Debtor, in terms of provisions of the Code. In view of the aforesaid, it may be pertinent to consider the procedure to realize assets during liquidation of the Corporate Debtor, as more particularly provided under Chapter III of the Code, read with the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 (Liquidation Process Regulations). In this regard, Regulations 32, 33 and Schedule 1 of the Liquidation Process Regulations, provide that a liquidator appointed as per the Code, may sell the assets either on a stand-alone basis or sell the assets in a slump sale /a set of assets collectively /the assets in parcels. However, it is stated that the mode of sale shall ordinarily be through auction, unless,

(1) the asset is perishable; or

(2) likely to deteriorate in value significantly if not sold immediately; or

(3) is fetching a better price than the reserved price of a failed auction; or

(4) has the permission of the Adjudicating Authority, in which case the liquidator shall sell the assets by means of a private sale.

The Schedule I to the Liquidation Process Regulations, under part (1) item (4), specifies that for the purposes of auction, the reserve price would be the value of the asset determined by the registered valuers in terms of Regulation 35.

Thus, it becomes evident that identification of an asset plays a crucial role in determining liquidation value. In ordinary circumstances, the liquidation value of an asset is likely to be the notional reserve price at which such an asset would be sold in an auction. However, if the nature of the asset is perishable or such that its value may depreciate significantly if not sold immediately, then the value of such an asset may be determined on the basis of a private sale. It may be stated herein that the methodology to be adopted for determining the aforesaid values is to be as per internationally accepted valuation standards, after physical verification of assets of the Corporate Debtor.


Valuation is a quintessential part of the corporate insolvency resolution process, and a proper understanding of liquidation value is crucial to protect the interest of stakeholders and to formulate a compliant resolution plan. Any errors in determining liquidation value in the corporate insolvency resolution process can have farreaching consequences, including the effect of undermining of reversing any resolution plan that may be approved on the basis of an incorrect liquidation value. In fact, a case of allegedly incorrect determination of liquidation value under the CIRP of Hotel Gaudavan Private Limited has already resulted in a criminal complaint against officers of a private securitization company and the resolution professional3. It is therefore crucial for insolvency professionals, and more importantly, for registered valuers, to have a correct understanding of the definition of liquidation value under the Code read with CIRP Regulations. While one expects the understanding of valuers and a customization of valuation methods to more accurately determine liquidation value in the corporate insolvency resolution process, any clarification on liquidation value under the CIRP Regulations and the Code by the Board or the Adjudicating Authority would be a welcome move that would help bring about consensus on this much debated issue.


1 Refer to Regulation 36 of the CIRP Regulations

2 Refer to Regulation 36(2)(a) of the CIRP Regulations 3

Originally published in Legal Era |, September 2017

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.