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CS Professional · Corporate Restructuring, Valuation and Insolvency · Overview of Business Valuation

Gomti Engineering Ltd is financially distressed and a resolution applicant has submitted a plan. The committee of creditors wants to judge whether the offer is reasonable compared with what would be realised if the company were closed down and its assets sold. Which value is most relevant for this comparison?

Liquidation value is the relevant measure. It estimates what would be realised if the assets were sold off on closure, so creditors can test whether a resolution plan offers at least as much as they would receive in liquidation.

  1. ALiquidation valueCorrect
  2. BFace value of the shares
  3. CBook value of the promoters' holdings
  4. DMarket capitalisation on the last listing day

Explanation

Creditors compare the resolution plan's offer with what they would receive on liquidation, so liquidation value is the benchmark. Face value of shares and promoters' holdings do not measure the realisable value of assets for creditors, and market capitalisation reflects going-concern expectations rather than the closure scenario.

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