This article is the first in a series looking at how Insolvency Practitioners work and the specialist expertise they bring to bear when a company finds itself in financial difficulty or in a formal insolvency process. Here, we look at the central role of asset valuations: why it is essential to almost every insolvency process, how it works in practice and what happens when a valuation is disputed. We are grateful to Olivia Proudley, a Director of Proudley Associates Limited – a specialist in insolvency valuations – for her expert contribution to this article.
Why do asset valuations sit at the heart of every insolvency process?
When a company enters a formal insolvency process (whether that is Administration, a Creditors’ Voluntary Liquidation (CVL), or a Compulsory Liquidation) one of the first and most important questions the Insolvency Practitioner (IP) must ask is: what are the company’s assets actually worth? Not what they cost. Not what the balance sheet says. But what they would realistically fetch. See below for the different bases of value.
The answer to that question is key because it drives almost every decision that follows. It determines what creditors are likely to recover; shapes whether a business can be sold as a going concern or whether assets need to be realised piecemeal. For example, in a Pre-Pack Administration, where a business is sold, often to a connected party before creditors have had any formal involvement, the valuation is the foundation on which the entire transaction rests.
Get it wrong, and the consequences are potentially serious. Creditors may receive less than they should and directors may face scrutiny over transactions at undervalue. It is even possible that the Insolvency Practitioner’s own position may be compromised. For that reason, asset valuation is not a formality. It is a professional discipline, and one that requires specialist expertise.
Who carries out the valuation and why isn’t it the Insolvency Practitioner?
This is a point that surprises some directors. The Insolvency Practitioner does not carry out the valuation themselves. They appoint an independent specialist to do it.
The reason is straightforward: independence is everything. The IP has statutory duties to creditors and to the court. A valuation that could be perceived as influenced by the IP’s own interests, by the directors or by any connected party would undermine the integrity of the entire process. So, the valuer must be independent of the company, of the directors and of the IP firm itself.
For property assets, the benchmark is a RICS-qualified surveyor, a member of the Royal Institution of Chartered Surveyors, who operates under a defined methodology and can be held professionally accountable for their opinion of value. For plant, machinery, vehicles, stock, intellectual property, and other business assets, specialist insolvency asset valuers are appointed, many of whom also hold NAVA (National Association of Valuers and Auctioneers) membership.
Proudley Associates Limited, based in Christchurch and operating nationally, is a firm Antony Batty & Company works with regularly. Olivia Proudley brings particular expertise in insolvency asset valuations across a wide range of asset classes, from contractors’ plant and manufacturing machinery to retail stock, commercial vehicles and intellectual property including websites and licences.
What are the different bases of value?
One of the most important things a valuer establishes is not just what an asset is worth, but on what basis it is being valued. These are not interchangeable, and the difference can be substantial.
Going concern value assumes the business continues to trade. Assets valued on this basis, which include goodwill, customer relationships, specialist equipment in active use and work in progress, will typically be worth considerably more than if trading ceases.
Forced sale value reflects what assets would realistically achieve if they had to be sold quickly, often under time pressure and possibly at auction. This is almost always lower, sometimes dramatically so.
Open market value sits between the two: what a willing buyer would pay a willing seller, with neither party under particular pressure and with a reasonable period allowed for marketing.
The IP and the valuer need to be clear about which basis applies and why, because creditors, the Insolvency Service and, in certain circumstances, the courts will all scrutinise this. A valuation that uses the wrong basis, or fails to make its basis explicit, is one that can be challenged.
The evaluator: a distinct and specific role
Alongside the role of valuer, there is a separate and legally defined role that comes into play in Pre-Pack and certain post-pack Administration scenarios: the evaluator.
This role was created by the Administration (Restrictions on Disposal etc. to Connected Persons) Regulations 2021, which came into force on 30th April 2021. Under these regulations, where a substantial part of a company’s property is to be sold to a connected party (a director, shadow director, officer, or connected company) within the first eight weeks of an Administration, this cannot proceed without either the approval of creditors or an independent written opinion from an evaluator.
The evaluator’s role is distinct from that of the valuer. Where the valuer determines what the assets are worth, the evaluator forms an independent opinion on whether the proposed sale is appropriate and whether the deal is fair. They must be independent of both the company and the connected party purchaser, must hold appropriate professional indemnity insurance, and must have no conflict of interest. Crucially, any party that has advised the company in the twelve months prior to the Administration on restructuring or insolvency matters cannot be considered independent.
It is the responsibility of the connected party purchaser to obtain the evaluator’s report, but the administrator cannot proceed with the sale without it.
Proudley Associates provide evaluator services across a wide variety of business types, assets and property, and as members of RICS, NAVA Propertymark and the National Association of Estate Agents, they are bound by a strict code of ethics on independence and conflicts of interest.
When an asset valuation is challenged, how does a professional valuer handle it?
Valuation disputes do arise in insolvency and understanding how they are handled is important for anyone involved in the process, whether as a director, an accountant advising a client, or a creditor.
Olivia Proudley explains that disputes typically arise for one of two reasons:
“Usually, it’s one of two scenarios. Either I’m valuing assets for a sale to the director’s NewCo and they feel the valuation is too high, or I’m valuing for a sale to a third party and they feel it’s too low. In my experience, the former comes up more often than the latter.”
The first scenario, where a director buying back their own business feels the valuation is set too high, is a natural tension in phoenix sales. The second, where a director believes assets are being undervalued and sold too cheaply, is equally understandable. In both cases, the professional response is the same: listen carefully, consider the evidence, and be prepared to explain the reasoning clearly.
“I always approach it with an open mind,” Olivia says. “Valuation is an art, not a science. Directors can be a genuine source of useful information. Not everything that is relevant to a valuation will necessarily be visible in the accounts. I will always consider what they tell me and take into account any additional evidence they provide. If there is evidence to support a revision, I am prepared to revise. But if I’m not, I’ll use calm and reasoned advice to explain why.”
Taking it to market and when that isn’t possible
One practical solution to a disputed valuation is to test it against the market. If a director believes a valuation is too low, a proper marketing exercise will either confirm the valuation or produce competing offers that demonstrate higher value.
“Sometimes even suggesting this can resolve the issue,” Olivia notes, “particularly when it comes to phoenix sales, where the director may reconsider once they understand that a market process might produce other interested parties.”
It is not always possible to market a business or its assets openly, however. The risk of publicity can damage goodwill, unsettle staff, or cause customers to take their contracts elsewhere. In some cases, the timescale is simply too short to run an effective marketing campaign. Where those risks exist, the IP and valuer will consider them carefully before deciding on approach.
Where marketing is feasible, and where a director believes the valuation is too low, it remains the most transparent and effective way to test the figure and identify other potential buyers.
The evaluator’s position in a dispute: a harder line
When it comes to disputes involving an evaluator report, the position is somewhat different and more clear-cut.
“As an evaluator, it’s more black and white,” Olivia explains. “If I don’t agree with the valuation and/or the proposed sale, I don’t recommend it. And once I have made my decision, under the legislation it cannot simply be revised. A new report would need to be commissioned, and that would require a genuine change in circumstances or in the offer itself to change my opinion.”
This is why early dialogue between all parties, the connected party purchaser, the valuer, and the evaluator, can be so valuable. Issues that might otherwise derail a transaction at a late stage can often be identified and resolved much earlier if the relevant professionals are talking to each other before positions become fixed.
What is the valuer’s process for handling a disputed valuation?
For any challenge to a valuation to be taken seriously, it needs to engage with the substance of how the valuation was arrived at. Here, Olivia sets out how she approaches a formal dispute.
The starting point is understanding precisely what is being challenged: whether it is a factual error, a question about the comparable evidence used, the methodology applied, the assumptions made, or the interpretation of current market conditions. These are very different things, and the appropriate response to each is different.
Olivia then reviews the valuation thoroughly: inspection notes, calculations, measurements, comparable transactions, and compliance with the relevant standards. The reasoning must be fully documented, not just the conclusion.
Critically, she distinguishes between an error, which should be corrected, and a difference of opinion, which may be entirely legitimate but does not necessarily mean the original valuation was wrong. In a genuine difference of opinion, both positions can be professionally defensible.
Throughout the process, she remains open to new evidence but assesses it objectively, asking whether it was available at the valuation date and whether it would materially affect the outcome if it had been. Olivia points out that:
“The pressures in insolvency can come from several directions. Clients seeking a higher valuation, lenders seeking a lower one, buyers or sellers with vested interests. The valuer’s job is to hold the line and arrive at the right figure, not the convenient one.”
Detailed records are kept throughout: inspection records, photographs, comparable evidence, calculation sheets, and a full correspondence trail. In a disputed valuation, those records are everything.
Frequently asked questions about asset valuations in insolvency
Why doesn’t the Insolvency Practitioner carry out the valuation themselves?
Independence is a fundamental requirement. The IP has duties to creditors and the court, and a valuation that could be perceived as influenced by any interested party would undermine the integrity of the process. Independent specialists are appointed precisely to avoid any conflict of interest.
What is the difference between a valuer and an evaluator?
A valuer determines what assets are worth, using recognised methodologies and professional standards. An evaluator is a distinct role created by the 2021 Regulations; they provide an independent opinion on whether a proposed sale to a connected party in the first eight weeks of an Administration is appropriate. Both roles require independence, but they serve different purposes.
Can a director challenge asset valuations they disagree with?
Yes. A director can provide additional information or evidence that they believe is relevant, and a professional valuer will consider it with an open mind. If evidence supports a revision, the valuation may be revised. Where the valuer is not persuaded, they will explain their reasoning clearly. In some cases, taking the assets to market is the most practical way to test the figure.
What happens if the evaluator doesn’t recommend the sale?
The administrator cannot proceed with the connected party sale without either the evaluator’s approval or creditor consent. A new evaluator’s report would need to be commissioned if circumstances or the terms of the offer change materially.
What types of assets can be valued in an insolvency?
Almost any commercial asset: plant and machinery, manufacturing equipment, commercial vehicles, retail stock, catering equipment, office furniture and IT, intellectual property including websites and licences, and both commercial and residential property.
What should a director do if they are concerned about asset valuations?
Speak to the Insolvency Practitioner in the first instance. Raise any concerns early, provide any information that you believe is relevant to the valuation, and engage constructively with the process. Early dialogue is almost always more productive than a formal dispute at a later stage.
Talk to Antony Batty if your business is in financial difficulty
Antony Batty & Company are Licensed Insolvency Practitioners with offices in London, Bournemouth, Brentwood, Mill Hill, Salisbury and Thames Valley. If your company is facing financial difficulty, contact us for a free, confidential initial consultation.
