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Guidelines onUse of Caveats,Limitations andDisclaimers
INSOLVENCY ANDBANKRUPTCY BOARD OF INDIA
B y :G a g a n G h a iF C A , A C M A , C V A , F I V 9 8 9 9 5 2 2 6 3 5g a g a n @ c r e s t v a l u a t i o n s . c o m
Page No. 1
Overview of Guidelines
Short Title &Commencement
Background Objective Adherence
These Guidelines shallcome into force on orafter 1st October, 2020
The Rules (Rule 7(m) andRule (8) (1)) notifiedunder the CompaniesAct, 2013 designates IBBI.
These Rules provides aComprehensiveframework, set standardsof professional conductand performance for thevaluation profession.
This Rule aims to ensurethat a valuation reportdoes not carry adisclaimer, which has thepotential to dilute theresponsibility of the RV
These Guidelinesprovide guidance to theRVs in the use ofCaveats, Limitations, andDisclaimers in theinterest of credibility ofthe valuation reports.
An RV shall preparevaluations reports underrule 8.
An RVO shall monitoradherence to theseGuidelines throughscrutiny of the valuationreports
Page No. 2
CAVEATS
Caveats are warnings or cautions to theclient/user of services
Any caveats, limiting condition or otherdisclaimers to the report must be clearly statedwith appropriate specificity
Page No. 3
LIMITATIONS
Limitation is a restriction on the scope of theRV‟s work including inspection orinvestigation of the data available for analysisthat may be present and known to the RV atthe outset of the valuation engagement or thatmay arise during the course of a valuationassignment.
Page No. 4
DISCLAIMER
A disclaimer is a statement intended to specifyor delimit the scope of rights and obligationsthat may be exercised and enforced by partiesin a legally recognized relationship.
It is a statement denying responsibilityintended to prevent civil liability arising forparticular acts or omissions
Page No. 5
Need for Caveats, Limitation and Disclaimers
Guidance Note on Caveats, Limitation, and Disclaimers
When Valuation is required?
Contents of a Valuation Report
Procedures for preparation of Valuation Report
Illustrative Caveats, Limitations and Disclaimers in a Valuation
Report
Illustrative Limitations in a Valuation Report specific of Tangible
Assets
Illustrative Caveats, Limitations and Disclaimers in a Valuation
Report not to be used
Key Topics forDiscussion
Page No. 6
Collab Space Central Pitch Deck
Need for Caveats,Limitations andDisclaimers
Page No. 7
Sometimes different RVs arrive at different estimates of value for the same asset. While this may be possible
when the purposes of valuation are different, such variance is often observed even when the purposes as also
the circumstances in which the valuation is undertaken are the same.
A limitation arises if the RV is unable to obtain sufficient information and explanations considered necessary
for the purpose of the valuation.
The valuation reports should be capable of being tested through the crucible of legal evidence in judicial
proceedings.
Need for Caveats, Limitations and Disclaimers
A disclaimer is required in a valuation report to mitigate the potential risk of the RV.
Page No. 8
Disclaimer protects therights of a RV by
cautioning and dissuadingothers.
Disclaimer limits theliability of a RV since it
serves both as a warningand a way to mitigate risk.
Disclaimer protects the RVfrom incurring liability or
limits the liability of the RVfrom the actions of the
company
Guidance Note on Caveats,Limitations andDisclaimers
Page No. 9
Guidance Note on Caveats, Limitations and Disclaimers
In the recent past there has been public concern on valuation and its impact on a company‟s shareholders,
creditors and other stakeholders.
Regulators have also been raising questions on the valuations submitted in the context of transactions.
Banks and financial institutions are concerned at the sharp dip in valuation of the assets of the borrower.
The Adjudicating Authority has on several occasions raised concern about the sharp difference between the
valuations arrived at by two different RVs or the variation between the amount offered by a successful
resolution applicant and the amount stated in the valuation report.
In the preparation of a valuation report, the RV shall not disclaim liability for his expertise or deny his duty of
“due care”.
Significant inputs provided to the RV by the management/owners should be considered, investigated and /or
corroborated.
Page No. 10
Guidance Note on Caveats, Limitations and Disclaimers
The following points may be considered while providing disclaimers in a valuation report. An RV may:
However, a disclaimer will not, by itself, be able to exclude an RV‟s liability in respect of negligence in
performance of his duties.
Identify therights he/she
wants toprotect
Identify theareas where
he/she mightbe subject to
liability
Clarify that thecontents of the
valuation reportpertain to
specific use bythe company
Caution thereader of the
potentialrisks
Page No. 11
When Valuation is
Required?
Page No. 12
3Regulatory
Compliance
1Acquisition, Disposal,
Merger, Amalgamation
4Fund Mobilisation
2Internal Decision
making/Corporate
Governance
5Disputes
6Borrowing and lending
decisions
7Insolvency and
Bankruptcy
proceedings.
Page No. 13
Contents of a Valuation
Report
Page No. 14
Contents of a Valuation Report
Background Information of theasset being valued
Purpose of valuation andappointing authority
Bases of Value
Identity of the RV and anyother experts involved in thevaluation
Premise of Value Intended Users of the Valuation
Date of appointment, valuationdate and date of report
Disclosure of RV interest orconflict, if any
Inspections and /orinvestigations undertaken
Page No. 15
Contents of a Valuation Report
Business interest, ownershipcharacteristics
Nature and sources ofinformation
Significant Assumptions, if any
Procedures adopted in carryingout the valuation and valuationstandards followed
Restrictions on use of report, ifany
Major factors that were takeninto account during valuation
Conclusion Caveats, limitations anddisclaimers.
Page No. 16
Procedures involved in
preparation of a Valuation
Report
Page No. 17
Procedures Involved in Preparation of a Valuation Report
Review of past financials
Review and analysis of financial projections
Industry analysis
SWOT analysis
Comparison with similar transactions
Comparison with other similar listed companies
Page No. 18
Procedures Involved in Preparation of a Valuation Report
Discussions with the management
Review of principal agreements/documents etc
Site visit
Any assumption made for internal condition must be stated like in case ofdesktop valuation, a RV must state that the basis of the report is photographs
and documents provided and secondary research only
Process of site identification, i.e., self-identified or with the help of clientsrepresentative or client itself
Page No. 19
Illustrative Caveats,
Limitations and Disclaimers
in a Valuation Report
Page No. 20
Illustrative Caveats, Limitations and Disclaimers in a Valuation Report
Restriction on use ofValuation Report
Responsibilityof RV
Achievability of theforecast results
Post Valuation DateEvents
Accuracy ofInformation
Range of ValueEstimate
Page No. 21
Compliance withrelevant laws
Illustrative Caveats, Limitations and Disclaimers in a Valuation Report
No procedure performed tocorroborate information takenfrom reliable external sources
Multiple factorsaffecting the Valuation
Report
Unavailability ofinformation as on
Valuation Date
Reliance on the representations ofthe owners/clients, their
management and other thirdparties
No Responsibility to the ActualPrice of the subject asset if sold or
transferred/ exchanged
Page No. 22
Illustrative Limitations in aValuation Report specific toTangible Assets
Page No. 23
Illustrative Limitations in a Valuation Report specific to Tangible Assets
Title deeds of properties
Legal and other issues
Sketch plans and photographs
Latent defects affecting the Value
RVs observations are not a warranty
Page No. 24
Hazardous conditions/material
Illustrative Limitations in a Valuation Report specific to Tangible Assets
Accuracy of architectural plans
RVs observations are not a warranty
Validity of permits and licenses
Continuation of subject business
Page No. 25
Independent Third Party
Valuation assumptions made
Illustrative Caveats,Limitations, and Disclaimersin a Valuation Report Not tobe used
Page No. 26
Illustrative Caveats, Limitations, and Disclaimers in a Valuation Report Not to beused
Business Plan/forecasts receivedfrom client (Giving Disclaimer without applying test of reasonabilityand due diligence)
Physical Verification(Giving Disclaimer that tangible assets are not physicallyverified)
Market Related Data(Giving Disclaimer without testing appropriateness)
Page No. 27
Illustrative Caveats, Limitations, and Disclaimers in a Valuation Report Not to beused
Historical Analysis(Giving Disclaimer that no histrical analysis are done)
One Approach(Giving Valuation conclusion based on only oneapproach)
Another Expert(Giving Disclaimer for work done by any other expert)
Page No. 28
Get In Touch With Us
crestadvisorsgroup.comValuation firm since 2004 with its techno commercial
team articulating solutions to complex situations PAN
INDIA have executed more than 300 IBC Cases
Phone NumberGagan Ghai
9899522635
Email [email protected]
Page No. 29
