Insolvency valuations

Valuations for insolvency practitioners

Insolvency valuations support key decisions in administrations, liquidation and bankruptcy engagements. In practice, insolvency practitioners must determine:

• the value of business interests
• recoverability for creditors
• outcomes under restructuring or enforcement

As a result, valuations must be robust, defensible and aligned with the legal framework.

Role of valuation in formal insolvency processes

Valuations arise in a range of insolvency contexts. For example, they support:

• asset realisation strategies
• recovery actions
• restructuring decisions
• assessment of related party transactions

Accordingly, valuation informs outcomes for both creditors and stakeholders.

Corporations Act and insolvency valuation requirements

Valuation work is often performed in the context of the Corporations Act 2001 (Cth). Relevant considerations include:

• duties to act in the interests of creditors
• identification of voidable or uncommercial transactions
• assessment of recoverable amounts
• evaluation of shareholder and unit holder interests

Therefore, valuation evidence must be capable of being tested in regulatory and legal settings.

Types of insolvency valuation engagements

Insolvency practitioners require valuations across several asset classes. Common engagements include:

• business and equity interests
• property and development assets
• related party loans and balances
• distressed or illiquid investments

The appropriate approach depends on the specific facts and purpose of the engagement.

Valuation approach in insolvency assignments

Valuation in insolvency engagements is purpose‑driven. Depending on the circumstances, this may involve:

• market value on a going concern basis
• liquidation or break‑up value
• income, market or cost approaches under IVS

Importantly, the approach must align with the legal context and the underlying economics.

Why insolvency valuations require judgement

Valuation work in insolvency differs from financial reporting. In particular:

• information is often incomplete
• related party transactions are more prevalent
• assumptions must reflect distressed conditions
• contractual constraints influence outcomes

Consequently, judgement must be clearly supported and documented.

Case study – bankruptcy valuation of private business

A valuation was prepared to assist a trustee in a bankruptcy matter. The business operated in engineering and project management. The engagement required:

• normalisation of earnings
• analysis of related party transactions
• assessment of working capital and funding
• application of a discounted cash flow approach

The analysis identified:

• reliance on a small number of key clients
• inconsistencies in financial information
• related party rent and loan arrangements

The valuation concluded a materially lower realisable value than suggested by the accounts. This outcome enabled the trustee to assess recoveries available to creditors.

Case study – receiver valuation of development interest

A valuation was prepared for a receiver of a 50% interest in a property development structure. The underlying value derived from development land. The engagement involved:

• look‑through valuation of underlying assets
• assessment of debt and related party balances
• analysis of shareholder agreements
• application of control and marketability discounts

The analysis identified:

• uncertainty in related party liabilities
• restrictions affecting transferability
• differences between contractual pricing and market value

Importantly,  contractual value may differ materially from market value under valuation standards. This distinction was critical in the insolvency context.

Why insolvency practitioners use Lotus Amity

Valuation engagements in insolvency require more than technical modelling. They require:

• a clearly defined purpose
• structured analysis of incomplete information
• transparent assumptions
• alignment with legal and regulatory requirements

In practice, Lotus Amity:

• applies International Valuation Standards
• structures reports for evidentiary use
• identifies and analyses related party transactions
• documents assumptions and limitations clearly

As a result, valuations are capable of being reviewed, challenged and relied upon.

A practical perspective

From a practical perspective, strong outcomes depend on alignment. Specifically:

• the purpose must be clearly defined
• the approach must reflect the insolvency scenario
• assumptions must be supportable
• conclusions must be transparent

When these elements align, valuations support:

• decision‑making by insolvency practitioners
• creditor outcomes
• compliance with regulatory expectations