New valuation rules seek fairer outcomes in bankruptcy cases

What Happened

• The Insolvency and Bankruptcy Board of India (IBBI) issued a circular on June 15, 2026 — "Guidelines for Conducting Valuation Under the Insolvency and Bankruptcy Code, 2016" — prescribing standardised valuation procedures for companies undergoing insolvency resolution.
• The circular mandates that all valuations under the IBC must conform to International Valuation Standards (IVS), as issued by the International Valuation Standards Council (IVSC), effective April 1, 2026 (Circular No. IBBI/RV/93/2026).
• New receivables valuation methodology requires registered valuers to consider credit risk, ageing of receivables, counterparty profile, and prevailing economic conditions — replacing ad hoc approaches that had led to disputed valuations in Committee of Creditors (CoC) proceedings.
• The guidelines prescribe standardised documentation requirements, report formats, and the duties and independence standards of registered valuers — addressing a key gap in the CIRP process where inconsistent valuations had complicated resolution plan negotiations.
• The IBBI also amended the definition of "fair value" in CIRP regulations: it now represents the estimated realizable value of the corporate debtor including tangible and intangible assets and underlying synergies, as on the insolvency commencement date.
• Disclosure requirements for receivables (trade receivables, inter-corporate receivables, and contract receivables) are now codified, improving transparency for CoC decision-making.

Static Topic Bridges

Insolvency and Bankruptcy Code (IBC) 2016

The IBC, enacted on May 28, 2016, replaced a fragmented pre-existing framework of multiple laws (Sick Industrial Companies Act 1985 / SICA, the Companies Act provisions on winding-up, the Presidency Towns Insolvency Act, the Provincial Insolvency Act) and consolidated India's insolvency and bankruptcy law under a single, time-bound framework.

Key objectives: 1. Maximise the value of assets of insolvent entities 2. Promote entrepreneurship and availability of credit 3. Balance interests of all stakeholders (financial creditors, operational creditors, employees) 4. Resolve insolvency in a time-bound manner

Key institutional actors:

Corporate Insolvency Resolution Process (CIRP) — Timeline

Step 1 — Application: A financial creditor (bank, bond holder), operational creditor (supplier, employee), or the corporate debtor itself files an application with NCLT to initiate CIRP. Default threshold: ₹1 crore (revised from ₹1 lakh in 2020 to reduce frivolous filings).

Step 2 — NCLT Admission: NCLT admits the application and declares "Insolvency Commencement Date" (ICD). A moratorium is imposed — no suits, debt recovery, or enforcement of security interest during CIRP.

Step 3 — Interim Resolution Professional (IRP): Appointed by NCLT (or suggested by applicant); takes over management of the corporate debtor.

Step 4 — CoC Formation: IRP constitutes the CoC of all financial creditors within 30 days of ICD.

Step 5 — Resolution Professional (RP): CoC appoints RP (may confirm IRP). RP manages company, invites resolution plans from eligible applicants (Resolution Applicants).

Step 6 — Valuation: RP appoints two registered valuers to provide Fair Value and Liquidation Value of the corporate debtor's assets — the floor for evaluating resolution plans.

Step 7 — Resolution Plan: Successful resolution applicant submits a plan; CoC approves with ≥66% vote; NCLT approves if plan meets IBC requirements.

CIRP Timeline: - Standard period: 180 days from ICD - One-time extension: Up to 90 days additional (requires ≥66% CoC vote + NCLT approval) - Maximum period including litigation exclusions: 330 days from ICD (after Supreme Court ruling in Essar Steel case, 2019) - Beyond 330 days: Company must go to liquidation

Pre-IBC vs Post-IBC Insolvency Framework

Pre-IBC (before 2016) — key problems: - Multiple laws governed different types of debtors (companies, individuals, partnerships) with no unified framework - BIFR (Board for Industrial and Financial Reconstruction) under SICA 1985: Long-drawn process, average case resolution took 4-5 years; became a tool for debt avoidance - High Non-Performing Asset (NPA) burden on banks due to slow resolution - Creditors had little practical control; debtors retained management during proceedings - No time-bound exit through liquidation

Post-IBC achievements (as of 2026): - Over 7,500 CIRP cases admitted; ~3,000+ resolved through resolution plans or liquidation - Recovery rate for financial creditors improved to approximately 32-36 cents per dollar (vs near-zero under BIFR) - Haircuts (creditor losses) remain substantial but recovery timelines have shortened - Pre-packaged insolvency for MSMEs (introduced 2021) — faster, less disruptive process - Ongoing criticism: Average CIRP time still exceeds 330-day statutory maximum in many cases

International Valuation Standards (IVS) — What They Prescribe

IVS, issued by the IVSC (London-based), are globally accepted standards for asset valuation. Key IVS principles relevant to insolvency: - Independence: Valuers must be free from conflicts of interest - Transparency: All assumptions must be disclosed - Materiality: All factors that significantly affect value must be considered - Three valuation approaches: Market approach (comparable transactions), Income approach (DCF), Cost approach (replacement cost)

For receivables (now specifically mandated by IBBI): - Consider credit risk of counterparty (probability of default) - Ageing analysis: Older receivables are discounted more steeply - Economic conditions: Macro factors affecting recoverability

Key Facts & Data

• IBBI circular date: June 15, 2026 — Guidelines for Conducting Valuation Under IBC 2016
• IVS mandate circular: IBBI/RV/93/2026 (April 1, 2026) — International Valuation Standards for all IBC valuations
• IBC enacted: May 28, 2016
• CIRP standard period: 180 days; extendable by 90 days (once); maximum 330 days
• Default threshold for CIRP filing: ₹1 crore
• Adjudicating Authority: NCLT (National Company Law Tribunal)
• Appellate body: NCLAT; Supreme Court is final appellate authority
• CoC approval threshold: ≥66% vote by value of financial debt
• Registered Valuers: Regulated and registered by IBBI; must now comply with IVS
• Fair value definition (revised): Estimated realizable value of corporate debtor including tangible, intangible assets and synergies, as on insolvency commencement date
• New receivables criteria: Credit risk + ageing analysis + economic conditions (mandatory)
• IBBI established: October 1, 2016 under IBC 2016; headquartered in New Delhi