After the implementation of the WHOA, the appraisers of the NTAB are regularly asked how to deal with asset valuation. In this article, we look at some of the aspects that may be involved in WHOA.
In a WHOA pathway, two scenarios are contrasted as follows:
- The expected proceeds in the event of bankruptcy, followed by a distribution to the various stakeholders.
- The WHOA scenario proposing an allocation to stakeholders classified into various classes.
When preparing for a WHOA process, the liquidation value and market value are usually requested. This provides insight into the minimum return in the event of liquidation (sale and/or auction) and a fair value if the business continues.
In general, this seems like a fine basis for contrasting the different scenarios were it not for the fact that the WHOA calls for a different valuation approach. And that is what the legislature anticipated, which is why it talks about the liquidation value in the WHOA.
So the liquidation value is somewhat different from the liquidation value. The liquidation value is based on the premise that all items, both movable and (semi-)immovable, will be monetized through the most appropriate method, through a sale and/or auction. But in liquidation and bankruptcy, this may well be different.
For example, for a chain of cafeterias with 20 locations, the liquidation value of the inventory is relatively low compared to the original investment. Therefore, a better scenario than total liquidation, with thus relatively low returns, can be imagined. Because even in the event of bankruptcy, it is realistic to expect that x number of branches could start to be sold to one or more restarts. These are willing to pay a higher amount than the liquidation value for the inventory and, in particular, building services. So the liquidation value here is not the same as the liquidation value.
Another example involves a large distribution center, built sometime in the past decade, completely furnished with standard-size racking. It is realistic here to expect that these racks will never be auctioned because a subsequent user of the property will always want to take over these racks for an amount higher than the liquidation value.
Thus, we know of many other real-life examples where a “liquidation value plus a little” is not sufficient to arrive at a liquidation value.
A good agreement in a WHOA process is a fair agreement that does justice to the interests of all involved. The principles, assumptions and expectations in the formation of a WHOA agreement will need to be transparent to all involved and also the Court.
NTAB has over 100 years of experience in the valuation and liquidation of a wide variety of assets, in insolvency scenarios as well as in relaunches, private sales and voluntary liquidations. This practical knowledge is of value in theoretically outlining the “what if scenarios” within WHOA.
