Valuations for Different Purposes

Liquidation value visà- vis Realizable value

The worth of an asset determined when a seller is under extreme pressure to sell is what is commonly meant by the term "liquidation value."

According to Regulation 35 of the CIRP Regulations, which defines the term "liquidation value," the value is to be a notional value and should be determined by taking into account a fictitious scenario in which the Corporate Debtor were to be liquidated on the date that insolvency commencement. This has already been mentioned.

In other words, if the Corporate Debtor were to be liquidated on the insolvency commencement date, it would be an estimated value determined by registered valuers.

This is a common term for arriving at liquidation and is related to the idea of "vertical comparability" under Chapter 11 of the United States Bankruptcy Code.

It is noted that the term "realisable value" is used in the definition of the term "liquidation value," suggesting that liquidation value is the notional realisable value determined at the time of the corporate debtor's liquidation in accordance with the rules of the Code.

Due to the aforementioned, it may be appropriate to take into account the process for realising assets during the corporate debtor's liquidation, which is more specifically described in Chapter III of the Code and is read in conjunction with the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. (Liquidation Process Regulations).

According to Regulations 32, 33, and Schedule 1 of the Liquidation Process Regulations, a liquidator appointed in accordance with the Code may sell the assets either on a stand-alone basis or sell them in combination with other assets.

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.

It becomes clear from this that identifying an asset is essential for assessing its liquidation value. Ordinarily, the notional reserve price at which an asset would be sold in an auction would be the liquidation value of that asset.

However, the value of an asset may be established on the basis of a private sale if its nature is perishable or such that, if sold immediately, its worth may drastically decline.

It should be noted that the approach to be used for arriving at the aforementioned valuations must follow generally accepted valuation standards after a physical inspection of the Corporate Debtor's assets.

Court cases

Global Art Businesss is often requested to do valuations for worldwide museums, collectors, household and employer collections, insurance plan businesses and different parties. Among these are valuations for present tax when works of artwork are donated to museums, insurance plan valuations for works which are loaned to overseas exhibitions, insurance plan valuations for non-public collections and companies, and valuations of insurance plan damage. We are of route very discrete about these valuations, however might also point out some examples, such as the valuation for the proprietors of the drawing of 'The Crucifixion', attributed to an artist working in the circle of Jan van Eyck, which used to be offered to Museum Boymans van Beuningen in Rotterdam in 2013.