A valuation in an NCLT scheme is ordinarily a fair value valuation, determined on a going-concern basis. But where the company is in financial distress, the question arises whether the valuation should reflect the distress, and the NCLT has examined the distinction between the fair value and the distress value.
The Fair Value
The fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It assumes a willing buyer and a willing seller, and it is not a forced-sale value.
The Distress Value
The distress value reflects the circumstances of a forced sale or a liquidation, and it is typically lower than the fair value. The distress value is relevant where the company is in liquidation or where the scheme is a rescue of a distressed business.
The NCLT’s Approach
The NCLT examines the valuation in the context of the scheme. Where the scheme is a going-concern restructuring, the fair value is appropriate. Where the scheme involves the sale of the assets in a liquidation, the distress value may be appropriate. The Tribunal will reject a valuation that is not consistent with the scheme’s purpose.
A technically sound valuation states the standard of value, explains the assumptions, and is consistent with the scheme’s purpose.
Call to Action
Anuj Desai & Associates advises companies on the valuation in distressed schemes—from the fair value and the distress value to the NCLT scrutiny and the defence of the valuation. If your scheme involves a distressed business, we can help you structure the valuation.
📧 office@anujdesaiassociates.com
📞 9619456656
🌐 https://anujdesaiassociates.com
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