Strategic Performance Management and Business Valuation · Laws and Compliance in Business Valuation

Valuation under the Insolvency and Bankruptcy Code

Updated 11 October 2026

Under the Insolvency and Bankruptcy Code, two registered valuers value the corporate debtor's assets during the resolution process. Each gives a fair value (estimated realisable value in an orderly sale) and a liquidation value (estimated realisable value if the debtor were liquidated). The resolution professional uses these to assess resolution plans.

Understand Valuation under Insolvency and Bankruptcy Code

The Insolvency and Bankruptcy Code, 2016 (IBC) gives creditors a time-bound way to rescue a failing company or, if rescue fails, to sell it off. Value matters at every step. Creditors must decide whether a bidder's offer is better than what they would get in a closure.

The resolution professional (RP) runs the corporate insolvency resolution process (CIRP) after the adjudicating authority admits the case. Under the CIRP Regulations framed by the IBBI, the RP appoints two registered valuers to determine the fair value and the liquidation value of the corporate debtor. The valuers must be registered with the IBBI for the relevant asset class, and they must be independent of the debtor, the RP and the creditors. The valuers work independently, and each gives their own report.

Fair value is the estimated realisable value of the assets if they were sold on the insolvency commencement date in an orderly transaction, between a willing buyer and a willing seller, each acting with knowledge. Liquidation value is the estimated realisable value of the assets if the corporate debtor were to be liquidated on that date. A forced, quick sale usually brings less, so liquidation value is normally lower than fair value.

The dates above apply to CIRP. If the debtor goes into liquidation, valuation at that stage is done under the Liquidation Process Regulations, and the valuation date is the liquidation commencement date.

Under Regulation 35 of the CIRP Regulations, the figure used for each of fair value and liquidation value is the average of the two valuers' estimates. If the estimates differ materially, the RP appoints a third valuer, and the average of the two closest estimates is then taken. These figures are shared in confidence with committee of creditors (CoC) members, who must keep them confidential. They are used to evaluate resolution plans, not published.

The liquidation value also feeds into a minimum-payment test. Section 30(2)(b) sets the floor separately for two classes:

Operational creditors must get not less than the higher of (a) the amount they would receive if the liquidation value were distributed under the Section 53 waterfall and (b) the amount they would receive if the resolution plan amount were distributed under the Section 53 waterfall.
Dissenting financial creditors must get not less than the amount they would receive if the resolution plan amount were distributed under the Section 53 waterfall. The liquidation-value limb does not apply to them.

Note what the floor is. The valuation figure is the pool that goes through the waterfall. The floor for each creditor is that creditor's own entitlement from the waterfall (often nil for operational creditors, because secured creditors and others rank ahead), not the liquidation value as a whole. So a valuation shapes who gets paid and how much. Exam answers should connect the valuation to this decision.

Key rules to remember

Fair value (IBC meaning): Fair value = estimated realisable value of assets in an orderly transaction between a willing buyer and a willing seller, each acting with knowledge, on the insolvency commencement date; Assumes an orderly transaction with reasonable time to market the assets.
Liquidation value (IBC meaning): Liquidation value = estimated realisable value of assets if the corporate debtor were liquidated on the insolvency commencement date; Reflects a distress or closure sale. Usually lower than fair value.
Number and averaging of valuers: Value used = average of the estimates of the two registered valuers; Under Regulation 35 of the CIRP Regulations, if estimates differ materially, a third valuer is appointed and the average of the two closest estimates is taken.
Valuation date: Valuation date (CIRP) = insolvency commencement date; Both values are struck as at this date, not the date of the plan or bid. For the liquidation stage, the Liquidation Process Regulations use the liquidation commencement date.
Comparison for plan evaluation: Operational creditor floor = higher of (a) its entitlement if the liquidation value were distributed under the Section 53 waterfall and (b) its entitlement if the plan amount were distributed under the Section 53 waterfall. Dissenting financial creditor floor = its entitlement if the plan amount were distributed under the Section 53 waterfall.; Section 30(2)(b) test. The valuation figure feeds the waterfall; the floor is each creditor's waterfall entitlement (often nil for operational creditors), not the liquidation value itself.

How to solve Valuation under Insolvency and Bankruptcy Code questions

Use this method for any question on IBC valuation, whether it is theory, a case scenario or a small numerical.

1Identify the stage: CIRP, liquidation or voluntary liquidation. Each has its own valuation rule.
2State who values: two registered valuers appointed by the RP, registered with the IBBI for the right asset class, and independent of the debtor and creditors.
3Fix the valuation date as the insolvency commencement date and the basis (fair value or liquidation value).
4Define the basis in one line each: orderly sale between willing parties for fair value, and sale on liquidation for liquidation value.
5Apply any numbers: take the average of the two valuers' estimates, or the two closest if a third valuer is used.
6Link the result to its use: evaluating resolution plans and testing minimum payments to creditors.
7Add the confidentiality point: valuation reports go to CoC members, who must keep them confidential.
8Close with a clear conclusion or recommendation tied to the case facts.

Quickest way: Four-line IBC valuation answer

When to use it: Use it for 2-mark MCQs and for short-answer questions where time is tight.

Who: two registered valuers, appointed by the RP.
What: fair value and liquidation value, as at the insolvency commencement date.
How: average of the two estimates for each; third valuer if there is a material gap, and then the average of the two closest estimates.
Why: the CoC evaluates resolution plans against these values. The liquidation value feeds the Section 53 waterfall for the operational creditors' floor (higher of the liquidation-value and plan-amount waterfall entitlements). Dissenting financial creditors get at least their entitlement if the plan amount were distributed under Section 53.

Common mistakes in Valuation under Insolvency and Bankruptcy Code

Treating fair value and liquidation value as the same figure.
Both are realisable-value estimates, so they sound alike.
Fix: Remember the sale context: orderly sale with time gives fair value; closure sale gives liquidation value, normally lower.
Saying the CoC or the debtor appoints the valuers.
Students link the CoC with every major decision in CIRP.
Fix: The RP appoints the valuers. The CoC receives the reports and uses them.
Using the plan approval date or the bid date as the valuation date.
Students think value should be current at decision time.
Fix: Both values are as at the insolvency commencement date.
Averaging all three estimates when a third valuer is used.
Students assume more valuers means a plain average of all.
Fix: Take the average of the two closest estimates, as Regulation 35 of the CIRP Regulations provides.
Assuming any valuer, such as a chartered accountant in practice, can value under IBC.
Confusion with other valuation roles.
Fix: The valuer must be registered with the IBBI for the relevant asset class and be independent.
Publishing or sharing the valuation widely.
Students assume transparency is required.
Fix: The values are shared with CoC members on a confidential basis and not made public.

Worked examples

Example 1

In the CIRP of Kaveri Textiles Ltd, the RP appointed two registered valuers. For the plant and machinery, Valuer 1 estimated a fair value of ₹48,00,000 and a liquidation value of ₹30,00,000. Valuer 2 estimated a fair value of ₹52,00,000 and a liquidation value of ₹34,00,000. Find the fair value and liquidation value to be used for this asset class.

Show the solution

Both valuers are registered and independent, and the estimates do not differ materially, so no third valuer is needed.
Fair value = (₹48,00,000 + ₹52,00,000) ÷ 2 = ₹1,00,00,000 ÷ 2 = ₹50,00,000.
Liquidation value = (₹30,00,000 + ₹34,00,000) ÷ 2 = ₹64,00,000 ÷ 2 = ₹32,00,000.
Check: liquidation value is below fair value, as expected for a closure sale.

Answer: Fair value is ₹50,00,000 and liquidation value is ₹32,00,000.

Example 2

Explain to the committee of creditors of Sagar Pharma Ltd why the RP obtained both a fair value and a liquidation value, and how the committee should use them. The RP's averaged figures for the whole corporate debtor are a fair value of ₹50 crore and a liquidation value of ₹32 crore. A bidder offers ₹40 crore for the whole business. No class-wise distribution of either amount is given.

Show the solution

Fair value shows what the assets could fetch in an orderly sale on the insolvency commencement date. Liquidation value shows what they would fetch if the company were closed down.
The bid of ₹40 crore exceeds the liquidation value of ₹32 crore by ₹8 crore (₹40 crore - ₹32 crore). It is below the fair value of ₹50 crore by ₹10 crore (₹50 crore - ₹40 crore).
The CoC is not bound to seek more than the bid, but in exercising its commercial wisdom it may negotiate for a better offer, since the bid is below fair value.
For operational creditors, the Section 30(2)(b) floor is the higher of (a) their entitlement if ₹32 crore were distributed under the Section 53 waterfall and (b) their entitlement if ₹40 crore were distributed under the Section 53 waterfall. For dissenting financial creditors, the floor is their entitlement if ₹40 crore were distributed under the Section 53 waterfall. Because the ranking of claims and the amounts owed to each class are not given, none of these entitlements can be computed here.
So the totals alone do not show whether any class is paid enough. To reach a conclusion, the CoC needs the class-wise waterfall distribution of both ₹32 crore and ₹40 crore and the plan's proposed payment to each class.
Remind members that the valuation reports are confidential and must not be disclosed outside the CoC.

Answer: The bid of ₹40 crore is ₹8 crore above liquidation value and ₹10 crore below fair value, so the CoC may negotiate in its commercial wisdom. Whether the plan meets the Section 30(2)(b) floor cannot be concluded without the class-wise Section 53 distribution of ₹32 crore and ₹40 crore. Operational creditors need the higher of the two entitlements, and dissenting financial creditors need at least their entitlement on the ₹40 crore distribution.

Exam tips

Write the two definitions in a short sentence each. Examiners look for the difference in sale context.
In case scenarios, name the RP as the appointing person and the CoC as the user of the report.
Show the averaging step in numerical questions, even if the numbers are simple.
Say that liquidation value is normally lower than fair value, not always, in case a scenario shows a surprise.
Cite Regulation 35 of the CIRP Regulations for the two-valuer averaging and third-valuer rule, and mention that the reports are kept confidential by CoC members.
When you discuss Section 30(2)(b), treat the two classes separately: operational creditors get the higher-of test, dissenting financial creditors get the plan-amount waterfall entitlement.

Practice questions from Laws and Compliance in Business Valuation

Valuation under Insolvency and Bankruptcy Code: frequently asked questions

What is the difference between fair value and liquidation value under IBC?

Fair value is the estimated realisable value of assets in an orderly sale between willing, informed parties. Liquidation value is the estimated realisable value if the corporate debtor were liquidated. Liquidation value is normally lower.

Who appoints the registered valuers in CIRP?

The resolution professional appoints two registered valuers. They must be registered with the IBBI for the relevant asset class and be independent of the debtor and the creditors.

Why are the valuation reports kept confidential?

They show the creditors what the assets are worth, which could weaken the negotiating position if bidders saw them. So they go only to CoC members, who must keep them confidential.

What date is used for valuation under IBC?

The insolvency commencement date. Both fair value and liquidation value are estimated as at that date.