New business valuation rules soon: IBBI’s Sahoo
Planned norms will apply in both bankruptcy cases and corporate M&A transactions
New Delhi: India will soon lay down the ground rules for professionals to assess the value of businesses, including those slipping into bankruptcy, according to Insolvency and Bankruptcy Board of India (IBBI) chairperson M.S. Sahoo.
The new valuation rules will apply to corporate transactions like mergers and acquisitions as well as the assets of companies responsible for over ₹8.3 trillion of bad debts, Sahoo said in an interview.
The idea is to have a foolproof valuation of a business, including its financial assets, land, buildings, plant and machinery, while India tries to enforce a massive clean-up of toxic assets in the banking sector that has crippled the ability of state-run banks to finance new projects and support economic growth.
A foolproof and standardized valuation system could avoid disputes among various parties when businesses are auctioned under a court-monitored bankruptcy procedure to a new investor willing to turn around the business or liquidate it if revival is not feasible.
The process of auctioning failed businesses under the bankruptcy code, which became operational by the end of 2016, has been beset by disputes among various stakeholders.
The proposed valuation rules are being drawn up by an expert panel with members from the Central Board of Direct Taxes (CBDT), the Securities and Exchange Board of India, the Reserve Bank of India, the ministry of corporate affairs and professional regulators, Institute of Chartered Accountants of India, Institute of Company Secretaries of India and Institute of Cost Accountants of India, said Sahoo. Till the rules are ready, valuers are advised to follow global best practices.
The move is significant as the right valuation of assets and quick decision-making are key to turning around businesses in distress, the overarching aim of the bankruptcy code.
“Operation of the bankruptcy code has surpassed all expectations. We have achieved what is possible to achieve under the code,” said Sahoo.
The code that forces promoters of defaulting firms to repay the dues to lenders in order to win back their companies is prompting many to pay up and has helped India move up 30 places to join the top 100 countries in the World Bank’s ease of doing business ranking for 2018.
The latest move to bring in standard valuation norms follows the government decision last year to allow only registered practitioners to carry out the valuation of businesses from 1 October 2018, aimed at streamlining this discipline. At present, valuations are conducted by a variety of professionals from diverse disciplines, including civil engineers, architects, lawyers and merchant banks.
Manoj Kumar, partner at law firm Corporate Professionals, said there was a huge demand for registered valuers to meet the needs of the industry.
Expectedly, however, the introduction of registration requirements has upset associations of valuers from these professions. Pan India Valuers Federation, a platform of state associations of valuation professionals, said earlier this month that state associations have taken legal action against this.
Pressing on with its plans, however, the IBBI on Thursday registered the first batch of 16 valuers.
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