New Delhi: The Ministry of Corporate Affairs, in its monthly update, has said that it will continue to bolster the regulatory guidelines for professionals tasked with valuing the assets of struggling companies. The ministry emphasized the crucial role of accurate valuations in determining whether an insolvent business should be revived or liquidated.
The ministry also said that any wrong outcome of debt resolution–salvaging a company with no chance of survival or liquidating a potentially viable one–has disastrous consequences for the economy.
“Given the importance of the profession in insolvency resolution process, the ministry of corporate affairs will only further strengthen the regulatory regime pertaining to the regulation and development of the registered valuers profession,” the ministry said.
It also explained that Insolvency and Bankruptcy Board of India (IBBI) requires every valuation exercise made under bankruptcy code has to be done by a registered valuer. Also, from 1 February 2019, appointing any person other than a registered valuer for assessing the worth of an enterprise under the Code is made illegal and any fee paid in such cases will not be taken as the debt resolution or liquidation cost.
The ministry’s update explained, citing regulations, that certain persons are prohibited from acing as valuers. These include relatives of resolution professionals overseeing the corporate turnaround process, relatives of the company in distress, auditors of the bankrupt business and partners or directors of the entity which the resolution professional is part of. The idea is to ensure the sanctity of the valuation report which helps creditors, investors and the tribunal to decide the on the best possible course of action about the future of the defaulting company.
“An accurate valuation holds absolute importance because a valuation report guides the actions of the insolvency professionals, committee of creditors and the National Company Law Tribunal and because the registered valuer endeavours to estimate a value, which is authentic and close to market conditions or realisation,” the update said.
The authorities have been trying to improve the outcome of bankruptcy resolution so that creditors are able to nurse back companies in distress to financial health as quickly as possible. This is a vital part of the government’s management of the economy. Policy makers are hoping for a fresh cycle of private investments to stimulate economic growth rate and to add more jobs as the balance sheets of banks and private companies have been repaired to a large extent under the IBC.
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Updated: 07 Sep 2023, 08:16 PM IST