Thought Leadership

ABI Journal Article: Bankruptcy and Business Valuation in the Current Environment

This article was published in the October 2020 edition of the American Bankruptcy Institute (ABI) Journal. The ABI has graciously granted permission to reprint it here.

By:  Daniel R. Van Vleet, ASA

Even in the best of times, the valuation of a company involved in a bankruptcy can present its own set of challenges. In the current environment, COVID-19 has fundamentally altered the social, finanical and economic fabric of our society. Stay-at-home orders, social distancing, high unemployment, remote business operations, civil disorder, urban flight and the classification of essential vs. non-essential businesses has impacted different sectors of the economy in material and disparate ways. As one might expect, these changes have also affected the way that business valuations are conducted.

The income and market approaches are business valuation approaches that are often used in bankruptcy matters to determine solvency/insolvency and plan feasibility. Given the current environment, the mechanical application of these approaches might produce indications of value that lack credibility and reliability. This article will address valuation issues associated with the current environment and provide suggested modifications to the traditional application of business valuation approaches.

Click here to read the full article [pdf].