Registered Valuer - New Opportunity for CS Under Companies Act 2013

Who can be a Registered Valuer?

How many years post qualification experience is required for appointing to be a valuer?

What are the matters for which valuation is required under Companies Act 2013?

Can a MD appoint a Valuer? If not, who can appoint a valuer?

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Registered Valuer Under Companies Act 2013

Ragul Ramesh, PCS, Coimbatore

The Companies Act 2013 has introduced many new provisions & it has cast more responsibility on the professionals; one such new provision that has been introduced is Registered Valuer.

Why such Valuation is needed ?

Business valuations are required in varied situations such as court approved M&A, fresh issue of shares, transfer of shares etc.

Definition of Registered Valuer :

Registered Valuer means a person registered as a valuer under Chapter XVII of Companies act

EXPERT:

The definition of Expert under Section 2 (38) includes a valuer as an expert.

A Valuer can be -

Ø  A chartered accountant, company secretary or cost accountant who is in whole-time practice, or retired member of Indian Corporate Law Service or any Indian Citizen holding equivalent Indian or foreign qualification as the Ministry  of Corporate Affairs may by an order recognize.

Ø  A Merchant Banker registered with SEBI and having in its rolls- persons having qualifications as mentioned above to carry out valuation services

Ø  A member of the Institute of Engineers and who is in whole-time practice

Ø  A member of the Institute of Architects and who is in whole-time practice

Ø A person or entity possessing necessary competence and qualification as may be notified by the Central Government from time to time.

5 years of continuous post membership experience is mandatory in all the above cases.

In the case of merchant banker the valuation report shall be signed by the qualified person.

Appointment of registered valuer [Section 247(1)]:

The registered valuer needs to be appointed by the audit committee or in its absence, by the Board of Directors.

Duties of Registered Valuer [Section 247(2)]:

(a) make an impartial, true and fair valuation of any assets which may be required to be valued;

(b) exercise due diligence while performing the functions as valuer;

(c) make the valuation in accordance with such rules as may be prescribed; and

(d)  not undertake valuation of any assets in which he has a direct or indirect interest or becomes so interested –

1.     at any time during the valuation;

2.     at any time after the valuation.

What does valuation in companies Act 2013 include?

Chapter XVII of the Act 2013   covers valuation of any property, stock, shares, debentures, securities, goodwill or any other assets of the company as well as its net worth and liabilities.

Following are some of the Sections that requires valuation under the new Act:

Ø  Section 62(1)(c)– Further Issue of Shares

Ø  Section 192(2)– For Valuing Assets involved in Arrangement of Non Cash transactions involving Directors 

Ø  Section 230(2)(c)(v)– For Valuing Shares, Property and Assets of the company under a Scheme of Corporate Debt Restructuring 

Ø  Section 230(3)- Under a Scheme of Compromise/Arrangement, along with the notice of creditors/shareholders meeting, a copy of Valuation Report, if any shall be accompanied 

Ø  Section 232(2)(d)- The report of the expert with regard to valuation, if any would be circulated for meeting of creditors/members 

Ø  Section 232(3)(h)- Where under a Scheme of Compromise/Arrangement the transferor company is a listed company and the transferee company is an unlisted company, for exit opportunity to the shareholders of transferor company, valuation may be required to be made by the Tribunal 

Ø  Section 236(2) – For Valuing Equity Shares held by Minority Shareholders. 

Ø  Section 260(2)(c) – For preparing Valuation report in respect of Shares and Assets to arrive at the Reserve Price for Company Administrator 

Ø  Section 281(1) – For Valuing Assets for submission of report by Liquidator 

Ø  Section 305(2)(d) – For report on the Assets of the company for preparation of declaration of solvency under voluntary winding up 

Ø  Section 319(3)(b) – For Valuing the interest of any dissenting member of the transferor company who did not vote in favor of the special resolution, as may be required by the Company Liquidator 

FURTHER ISSUES OF SHARE CAPITAL (SECTION 62):

Where a company proposes to increase its subscribed capital by issue of further shares, such shares may be offered to any person if the price of such shares is determined by the valuation report of a registered valuer.

NON CASH TRANSACTIONS INVOLVING DIRECTORS (SECTION 192):

This is required to obtain a prior approval for some arrangement with directors is accorded by the company in general meeting. The notice for approval of the resolution shall include particulars of the arrangement along with the value of the assets involved duly calculated by a registered valuer.

COMPROMISE OR ARRANGEMENT (SECTION 230):

Where a compromise or arrangement is proposed, the company or any other person shall make an application before the Tribunal for calling of a meeting of members, class of members, creditors or class of creditors. The applicant shall disclose to the Tribunal all information including a valuation report in respect of the shares and the property and all assets, tangible and intangible, movable and immovable of the company by a registered valuer.

PURCHASING OF MINORITY SHARES (SECTION 236):

The acquirer, person or group of person shall offer to the minority shareholders for buying their shares at a price determined on the basis of valuation by a registered valuer.

The minority shareholder may also offer their share to majority shareholders at the price determined on the basis of valuation by a registered valuer.

SUBMISSION OF REPORT BY COMPANY LIQUIDATOR (SECTION 281):

Where the Tribunal has made a winding up order or appointed a Company Liquidator, the liquidator shall within sixty days from the order, submit to the Tribunal a reporting containing among other things the nature and details of the assets of the company including location and value. The valuation of the assets shall be obtained from registered valuers for this purpose.

DECLARATION OF SOLVENCY (SECTION 281):

Where it is proposed to wind up a company voluntary, majority of its directors shall make a declaration verified by an affidavit to the effect that they have made a full inquiry into the affairs of the company and they have formed an opinion that the company has no debt or it will be able to pay its debts in full from the proceeds of assets sold in voluntary winding up.

The declaration shall, among other things, accompanied by a report of the valuation of the assets of the company prepared by a registered valuer.

Methods of valuation:

 (a) Asset approach;

 (b) Income approach;

 (c) Market approach

Points to be noted while drafting a report on valuation :

 (a)Nature of the business and the History of the Enterprise from its inception;

 (b) Economic outlook in general and outlook of the specific industry in particular;

(c) Book value of the stock and the financial condition of the business;

(d) Earning capacity of the company;

(e) Dividend –paying capacity of the company;

(f) Goodwill or other intangible value;

(g) Sales of the stock and the size of the block of stock to be valued

(h) Market prices of stock of corporations engaged in the same or a similar line of business;

(i) Contingent liabilities or substantial legal issues, within India or abroad, impacting the business;

(j) Nature of instrument proposed to be issued, and nature of transaction contemplated by the parties.

Penalties:

If a valuer contravenes any of the provisions, he shall be punishable with fine which shall not be less than twenty five thousand rupees but which may extend to one lakh rupees.

If the valuer has contravened such provisions with the intention to defraud the company or its members, he shall be punishable with imprisonment upto  one year and with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.

Conclusion:

          In the era of globalization, the concept of valuation has gained prominence, ICSI has realized this and has introduced a Certificate course on this concept. It will go a long way in reinforcing professional standards and provide greater scope for professionals in their practice.