BVWire reports on a session at the recent AICPA Forensic & Valuation Services Conference 2013 in Las Vegas conducted by Robert Reilly (Willamette Management Associates), who discussed current issues in bankruptcy valuations. The issues are:
- There is no bankruptcy code definition (or standard) of the term “value”;
- The use of hindsight in the valuation is discouraged;
- The valuation analyst’s reliance on management-prepared financial projections is often questioned;
- The analyst’s selection of valuation variables is often questioned;
- Current interest rates may be considered reasonably low;
- The reasonableness of the analyst’s due diligence is often questioned;
- Consider all of the income tax effects on the debtor value;
- Use of industry valuation rules of thumb is often questioned;
- Performing the cash flow test within a solvency analysis; and
- Use of the market approach in an inactive market is often questioned.
Reilly, along with Dr. Israel Shaked, are the authors of A Practical Guide to Bankruptcy Valuation.