Working on valuation reports for companies undergoing insolvency proceedings, I took Law No. 85/2014 on insolvency prevention and insolvency procedures "for a pittance" and tried to understand as best as possible the place of valuation and the importance of its result within this procedure.

As authorized appraisers, we must comply with both the Property Valuation Standards (PVS) valid at the time of the valuation, and the legislation in force. Analyzing all the articles of Law No. 85 referring to valuation, I realized that the understanding etapei procedurale în care se află societatea este esențială.

After identifying the stage in the procedure, following discussions with the insolvency practitioner, we establish the type of value (market value and/or liquidation value) that we are going to estimate and the premise under which the value will be estimated. For example, according to SEV, liquidation value can be determined in two premises: orderly sale or forced sale.

According to the Asset Valuation Standards, the value premise or assumed use describes the conditions under which an asset is used. Depending on the situation, one or more value premises are used.

The differences between market value and liquidation value in a forced sale premise can be significant. Therefore, it is very important that the type and premises of value are discussed and agreed with the insolvency practitioner before the valuation begins.

The law requires the preparation of valuation reports during the insolvency procedure, at several stages. In this article, we have attempted to correlate the stages of the procedure with the usual requests for valuation reports that we receive from insolvency practitioners.

Observation stage

In observation stage, the judicial administrator analyzes the legal and patrimonial situation of the company to determine whether there are real prospects for saving the company, based on a reorganization plan, or, as the case may be, whether the company must be liquidated because it can no longer be revitalized.

At this stage (before voting on the reorganization plan), the assessment may consider:

• the evaluation of guarantees related to the beneficiary claims of a preferential cause, according to art. 103 of Law 85/2014;
• evaluation to substantiate the reorganization plan.
• evaluation for the purpose of simulating bankruptcy proceedings (Art. 133, paragraph 4, letter d).

The reorganization plan may provide, without limitation, together or separately:

1. a) operational and/or financial restructuring of the debtor;
2. b) corporate restructuring by changing the share capital structure;
3. c) restriction of activity through partial or total liquidation of the assets from the debtor's estate;

Depending on what the plan stipulates, we are required to produce evaluation reports with the aim of:

• business evaluation within the reorganization procedure;
• assessment for the preparation of the merger/division project proposed by the reorganization plan;

Bankruptcy stage

In bankruptcy stage, all operations of the procedure are directed towards lichidarea averii debitorului. Astfel, evaluarea poate fi solicitată pentru:

• liquidation of assets within the bankruptcy procedure;
• establishing the value of the assets attributed to the associations as a result of the completion of the liquidation procedure and coverage of the assets;

During the bankruptcy stage, the assets of the debtor's estate will be valued both in bulk and individuallyThe block valuation considers either the valuation of all assets in the debtor's estate or the valuation of functional subassemblies.

Typically, we are asked to evaluate assets both en bloc and individually, and report the estimated values ​​specifying the creditor for whom the asset is mortgaged.

In addition to the two stages presented above, we prepare evaluation reports at the request of the judicial administrator or liquidator and in other situations provided for by law – art. 5 paragraph 71, art. 39 paragraph 6, art. 123 paragraph 11 letters a) and b), art. 131 paragraph 2 letter b) point 2, art. 133 paragraph 5 letter G, art. 153. paragraph 3.

What we need to know about valuation in insolvency proceedings

Regardless of the stage of the procedure, there are several very important aspects for us, the authorized valuers, to produce a complete and useful valuation report for all participants in the insolvency procedure, aspects that must also be known by the requester of the valuation report (the insolvency practitioner, respectively the liquidator):

• To identify the assets subject to valuation, the appraiser will request from the administrator/judicial liquidator the inventory report of the assets of the insolvent company, with all related annexes, which will specify the assets subject to mortgages, pledges, seizures or other rights assimilated to mortgages.
• If the valuation is carried out for assets that are grouped into functional assemblies, the assets that form the functional assembly will be identified, and the valuation will be carried out both on a functional assembly and individually, depending on the purpose of the valuation. The grouping into functional assemblies can be done by the appraiser together with the insolvency practitioner and, possibly, together with other specialists (for example, in the case of complex technological lines, we call on specialists in the field in which the respective equipment operates).
• For the valuation of real estate, their identification is carried out both by analyzing accounting records and inventory results, as well as based on entries in the Land Register and field inspection.
• The appraiser must know whether an asset will sell individually assuming the other assets are available to the same buyer, or whether the item will sell individually assuming the other assets are not available to the same buyer.
• For the evaluation of unfinished real estate investments, the project documentation and the stage of execution are identified in the terms of reference.
• Machinery, equipment and installations intended to provide various services or utilities to a building are often integrated into the building and, once installed, cannot be separated from it. Such examples include installations for the supply of electricity, gas, heating, air conditioning or ventilation and equipment such as lifts. For this reason, if they are highlighted separately in the inventory lists, they will not be valued individually, their value being included in the value of the building of which they are part.
• For the valuation of intangible assets it is very important that they are clearly defined in terms of their type and the legal rights or interests in them.
• To evaluate inventories, the appraiser must identify the goods by categories of use (electrical materials, construction materials, fuels, etc.) and it would be very useful if the division into these categories were carried out at the time of inventory, thus shortening the time required to prepare the evaluation reports.
• A particularly complex and much discussed case in recent times is the evaluation of the debtor company's claims in the framework of insolvency proceedings. This involves, first of all, identifying and understanding the context that was the basis for the creditors' acceptance of this type of guarantee.

These are just a few of the very important issues that both the valuer and the person requesting the valuation should be aware of and should be established before the valuation work begins. Close collaboration between insolvency practitioners and valuers is needed to ensure that the terms of reference are correctly identified and the premises of the valuation are clearly established from the outset.

The evaluation standards specify the need to establish, based on a written contract, terms of reference that aim to ensure that all aspects are clearly established and agreed upon by both parties (evaluator and applicant for the evaluation report) before starting the evaluation activity.

It is obvious that knowing the premise in which the valuation is made (implicitly the stage the company is in within the insolvency procedure), as well as the type of value required for each stage (market value or liquidation value), increases the chances that the valuation reports will be appropriate for their use in making decisions within the insolvency procedure.

Within the insolvency procedure, the authorized valuer is one of the actors with a very important role, this role being fulfilled on the condition that he knows and understands very well the impact of the valuation result on the decisions that the parties involved must make for the respective companies.

Article written by Anuța Stan, published in the magazine Phoenix – Insolvency Magazine No. 65 (Jul-Sep 18) – https://www.unpir.ro/documents/phoenix/pdf/revista-phoenix-65.pdf