Valuation and Bankruptcy: Hire the Best Expert for the Job

Valuation can play an essential role in the bankruptcy process. Yet not every valuation expert is qualified to work on bankruptcy matters. Whether they are working on the debtor or creditor side, attorneys need to understand how valuators can contribute and ensure that their experts are qualified for the job.

Major Issues

Valuation professionals can provide extensive services in bankruptcy matters. Generally, a newly engaged valuator starts appraising the debtor business, ownership interests and tangible and intangible assets. From there, the expert might provide independent opinions on such matters as financial fairness, reasonably equivalent value and sale price, as well as on the viability of a reorganization plan. Or a valuator might project expected financial results under various restructuring alternatives and evaluate whether Chapter 7 or 11 is the best route.

Other services might include:

  • Solvency and insolvency analyses;
  • Evaluation of adequate protection;
  • Determination of secure claims;
  • Asset sale opportunities;
  • Quantification of income tax and financial accounting effects;
  • Forensic accounting; and
  • General litigation support services.

You should discuss and define the scope of the matter with your valuator prior to the start of the engagement.

Three Important Qualifications

When retaining a valuator for bankruptcy matters, look for the following qualifications:

Familiarity with relevant language. Valuators speak their own language, and the terms they use may have very specific meanings. “Orderly liquidation,” for example, is different from “forced liquidation.” Failure to use such terms carefully can cause confusion and, worse, produce unwanted consequences for clients. Valuation experts also must be careful and comfortable with the complex language of bankruptcy.

Tax and accounting knowledge. Valuation experts do not necessarily possess income tax and financial accounting expertise, especially when it comes to the latest changes. But taxes and accounting issues can significantly affect bankruptcy transactions — and final values. So valuators should understand the applicable tax and accounting principles when reviewing debtor financial statements.

Experience valuing different types of assets. In bankruptcy, valuators are asked to value many types of assets. Your valuator should be familiar with the relevant considerations for valuing real estate, tangible personal property and different kinds of intangible assets, such as securities, intellectual property, permits and licenses.

Time Well Spent

It may take time to investigate a valuator’s qualifications, background and experience, but it is

time well spent. A valuator who is well versed in bankruptcy matters can help your client emerge from the process in the best possible financial position.