Jim Davies and Mike Thornton share their views on the results of the recent INSOL International Survey: Valuation’s role in restructuring and insolvency
Valuation sits at the heart of restructuring and insolvency (R&I) processes. As the recent INSOL International survey highlights, it is not merely a technical exercise, it is a critical determinant of asset distribution, the feasibility of reorganisation plans, and the overall success of restructuring or liquidation efforts.
With 161 global respondents (primarily lawyers, insolvency practitioners (IPs), and accountants) the survey offers a valuable snapshot of current practices and challenges in the field.
FRP’s Perspective
FRP is a leading provider of independent valuations in R&I transactions, having conducted formal valuations for several restructuring plans, as well as numerous enforcements and asset disposals. The themes highlighted in the INSOL survey closely align with the practical challenges and valuation considerations we routinely encounter.
You must approach every contentious valuation as if it will end up in court. Restructuring plan valuations now need to be CPR 35 compliant, whilst enforcement valuation opinions may face subsequent legal challenge and a clawback situation is often in litigation by the time the valuer is appointed.
Survey respondents identified three primary scenarios where valuation is essential:
Asset disposal/distribution (74.3%)
Restructuring plan proceedings (69.3%)
Foreclosure of security rights (52.5%)
These responses reflect our mandates. Restructuring Plans almost always require a formal valuation to assess the “relevant alternative” — often the central battleground in court. We’ve seen a wave of share pledge enforcements recently, having provided formal valuations in around 10 such transactions in the past year. Anecdotal evidence suggests a shift from the “amend and extend” approach of 2022–2023, towards lenders taking action.
We are also engaged in clawback cases involving alleged transactions at undervalue, often already in litigation. Conversely, we provide valuations of companies, non-core assets, or intellectual property to support directors and IPs in sale or disposal decisions, offering protection against future challenge or litigation.
Methodologies: A multi-lens approach
According to the survey, the Discounted Cash Flow (DCF) method was the most commonly used (65.4%), followed by asset-based approaches (54.5%) and multiples (34.6%). A robust valuation should incorporate multiple methodologies: each has its strengths and limitations, and their relevance varies by industry and context. In R&I valuation exercises, we often conduct two valuations:
Going concern valuation – Based on the business plan operating cash flows, assuming continuity and often following a turnaround period
Distressed valuation – Reflecting commercial realities such as financial or operational distress, limited buyer pools, and skewed negotiating power, as exist at the relevant date
Both use the same core methodologies but require adaptation to reflect the specific circumstances. The latter often examines the potentially different routes to realising value in a distressed disposal (e.g. a break-up sale, pre-pack sale or liquidation, as opposed to a full business sale). A defendable valuation must factor in different approaches and conclude based on the full suite of relevant analysis.
Key discussion points in restructuring valuation
Respondents highlighted four main areas of contention:
Forecasting future cash flows (59.4%)
Turnaround/business plan inputs (55.5%)
Discount rate (43.6%)
Distribution of value (48.5%)
Forecasting and business plans are intertwined. Management’s insights are invaluable, but their projections must be critically assessed for realism: i.e. what version of the business plan reflects a fair expectation of how the business is likely to perform given its current challenges and opportunities, the market it operates in and management’s track record of forecasting. In distressed or “forced seller” scenarios, a more risk-adjusted perspective may be appropriate.
The discount rate must reflect execution risk, sector volatility and capital structure. In a similar vein to how early stage investors require high rates of return on high-risk investments, distressed investors require an attractive return on capital given the delivery risk in turnaround plans, and potentially going concern risk if a company is close to the brink.
Independence and integrity
The survey revealed that 51% of respondents believe some valuers tailor their reports to support clients, compromising independence. In contentious contexts, valuers must approach each case with the mindset that they may be cross examined on their work, and will owe a primary duty of care to the court: this means forming a commercially considered, robust, and defensible opinion of value. While client input is valuable, professional scepticism and independent challenge are essential.
Consultant, Mike Thornton says:
The valuer will typically respect that management knows the business well, however independent challenge is essential such that a balanced assessment of market value is reached, taking into account all relevant circumstances.
Resolving valuation disputes
Survey respondents suggested several mechanisms:
Experts jointly outlining areas of agreement/disagreement (33%)
Subpoenaing experts for cross-examination (26%)
Final-offer arbitration (23%)
Appointing a mediator (18%)
These responses suggest a desired shift toward litigation-style processes in R&I, and it would be helpful to also incorporate the views of judges and barristers. The time-sensitive nature of R&I cases makes such approaches challenging, however valuation experts with litigation experience are well-placed to adapt to this evolving landscape.
Market Testing: A useful but limited tool
While 80.2% of respondents see value in market testing, only 30.2% believe it should be mandatory. In practice, genuine market testing is often unfeasible due to time constraints or strategic behaviour by potential buyers. However, prior sale or refinancing efforts can provide valuable context.
Valuers are brought in when genuine market testing is not deemed possible or attempts have not resulted in a transaction. Non-binding offers are not definitive indicators of value unless transactions complete. Nonetheless, valuers should consider any genuine efforts to sell or refinance in the lead-up to the process.
Improving valuation reports
Respondents cited several challenges:
Lack of narrative to support financial conclusions (52.5%)
Apparent randomness in figures (40.6%)
Inconsistency in reporting (38.6%)
Clear, well-reasoned explanations are essential. Part 35 compliance helps, but costs and time pressures remain barriers. A compelling valuation must explain the approaches, analysis, and reasoning in a way that is accessible to non-specialists, including judges and lawyers.
Quality of valuations: A mixed picture
The average quality rating for R&I valuations was 5.63 out of 10, with responses ranging from 1 to 10. Criticisms included:
“Valuations are too theoretical.”
“Significant biases exist.”
“Disconnected from commercial reality.”
However, many respondents praised the professionalism and rigour of valuers in high-value cases. Providing effective valuations in R&I requires technical knowledge, commercial acumen, experience in distressed scenarios, and the courage to defend conclusions under scrutiny.
Straightforward advice based on robust analysis from experts you can trust
