Valuation of Intangible Assets in Insolvency Proceedings

In the contemporary knowledge based economy, intangible assets, particularly Intellectual Property (IP), have transcended their traditional role to become primary drivers of corporate value and competitive advantage. For many enterprises, these assets now hold more value than their tangible counterparts, acting as a cornerstone for success and growth. IP encompasses legally protected creations of the mind such as patents, trademarks, trade secrets and copyrights, including proprietary technology, software, and brand recognition. Their economic significant is profound, driving innovation, entrepreneurship, and overall economic development.

The IBC 2016 (the Code) represents transformative legislative reforms in India’s corporate regime by introducing a time bound resolution, enhancing creditor autonomy, and mandating value maximization. However, in its practical implementation, the valuation ecosystem under IBC is predominantly attuned to tangible assets like land, buildings, and plant and machinery while largely ignoring the rising economic significance of intangible assets, particularly IP. The problem is not just of omission, but of systematic incapacity, lack of regulatory clarity, absence of market infrastructure, and insufficient professional expertise has all contributed to the undervaluation or outright neglect of IP during the Corporate Insolvency Resolution Process (CIRP). This blog critically examines these challenges, contextualizes them within comparative global practice, and outlines a roadmap to unlock the latent value of intangible assets within IBC proceedings.

Keywords: Intellectual Property, Insolvency Law, Valuation, IBC 2016, Intangible Assets, Bankruptcy.

LEGAL FRAMEWORK AND STATUTORY GAPS

Intangible assets are non- physical assets with economic value, including IP. The Code does not make a categorical distinction between tangible and intangible assets. Nevertheless, Section 18 of the code allows the Interim Resolution Professional (IRP) to take control of assets of the corporate debtor, which includes intangible assets listed in the balance sheet. Further Section 20 of the Code mandates that the Resolution Professional (RP) must preserve and protect value of the property of the corporate debtor. Read together, these sections can be interpreted as encompassing IP. However, this statutory latitude is undermined by the IBBI (Valuation) Rules, 2017, which only identify three asset classes i.e., land and building, plant and machinery, and securities or financial assets. There is no provision which explicitly recognizes intangibles such as trademarks, patents, or copyrights, thereby creating ambiguity over their treatment in insolvency proceedings.

Valuation is a cornerstone of proceedings under the Code, as it informs resolution plans and ensures equitable distribution to creditors. Intangible assets, often classified as “Not Readily Realizable Assets” (NRRA) under Regulation 37A of the IBBI (Liquidation Process) Regulations, 2016, require specialized valuation approaches due to their unique characteristics.

These legal vacuums leaves us wondering who is qualified to value IP under the Code, the methodology that should be used, and how the enforceability of IP rights is factored into valuation of assets under the Code. Without specific guidance, these critical aspects are left to the discretion of professionals and tribunals, resulting in inconsistency and undervaluation.

NATURE OF IP AND VALUATION CHALLENGES & METHODS

Intellectual property assets are inherently more complex to value than tangible ones. Their worth is derived from exclusivity, legal protection, market relevance, and future income potential rather than physical substance. The key types of IP encountered in insolvency proceedings include patents, trademarks, industrial designs, and trade secrets.

IP valuation in CIRP is challenged by poor visibility. Many forms of IP, particularly internally developed ones, are not capitalized or disclosed in financial statements, making them invisible to RPs unless proactively identified. Further, the distressed condition of the corporate debtor complicates valuation data on cash flows and marketability essential for income-based methods is often unreliable or unavailable.

The most commonly used methods for valuation of IP is represented in tabular format below,

Valuation method	Description	Applicability
Income Approach	Estimates future cash flows attributable to the asset, discounted to present value. Methods include Relief from Royalty, Multi-Period Earnings Method, and With and Without Method.	Suitable for patents, trademarks, and customer relationships with identifiable income streams.
Market Approach	Uses market prices of comparable assets or royalty rates.	Challenging due to limited comparable date for unique intangibles.
Cost Approach	Calculates the cost to reproduce or replace the asset, including R&D. legal, and marketing expenses.	Used for assets without income streams or market comparable though less reliable due to lack of correlation with economic value.

The Income Approach can be seen to be particularly relevant in IBC proceedings, as it aligns with the goal of maximizing asset value by focusing on future economic benefits.

PROFESSIONAL AND INSTITUTIONAL BOTTLENECKS

India’s valuation ecosystem is not designed for IP. The IBBI does not maintain a separate cadre of IP valuers, and the existing pool of registered valuers often lacks legal or technical knowledge of IP regimes. Valuing a pharmaceutical patent, for instance, demands an understanding of both IP laws and pharma economics, skills unlikely to be found in conventional finance or engineering backgrounds.

The lack of infrastructure also impedes effective monetization. Unlike jurisdictions such as the U.S. or UK, India lacks a functional IP exchange or market registry. In practice, IP is frequently bundled with tangible assets in resolution plans or disposed of at fire-sale prices in liquidation, with little regard for its standalone value.

Judicial interventions have occasionally highlighted the relevance of IP. In Somesh Choudhary v Knight Riders Private Limited & Anr, the NCLAT held that trademarks and copyrights are operational debt and part of the liquidation estate and must be dealt with accordingly. However, the ruling did not provide clarity on the valuation, transfer, or ring-fencing of such assets-an omission reflective of the broader regulatory vacuum.

GLOBAL COMPARISONS AND BEST PRACTICES

Insolvency regimes in developed economies offer valuable lessons. In the U.S., Chapter 11 proceedings treat IP as a high-value class of assets. The case of Nortel Networks is the biggest illustration, where the company’s tangible assets were modestly valued, its patent portfolio fetched over $4.5 billion in an auction involving major tech players. The success was enabled by dedicated IP valuation teams, transparent patent registries, and an active secondary market.

Similarly, the United Kingdom’s insolvency regime explicitly protects IP under administration proceedings. The UK Intellectual Property Office (UKIPO) supports pre-insolvency IP audits and maintains registries that facilitate accurate valuation and transfer.

These jurisdictions benefit from the integration of legal, financial, and technological expertise. Patent analytics tools, machine-learning-based market forecasting, and centralized licensing platforms enhance the visibility and tradability of IP. In contrast, India’s insolvency process is largely manual and reactive, lacking the technological sophistication to evaluate intangible assets comprehensively.

WHAT CAN BE DONE?

Unlocking the value of IP in insolvency requires structural reforms across regulatory, institutional, and market dimensions.

First, the IBBI (Valuation) Rules, 2017 must be amended to recognize “intangible assets” as a standalone category. This would enable the registration of specialized valuers with backgrounds in IP law, technology, and market analytics.

Second, every CIRP should mandate a preliminary IP audit, preferably in collaboration with the Indian Patent Office and Copyright Office. This will ensure early identification and documentation of all proprietary assets.

Third, the creation of a National IP Exchange a centralized platform for valuation, listing, and transaction of IP-should be prioritized. Such an exchange would increase price transparency and attract strategic investors who might be more interested in the IP than the physical assets.

Fourth, capacity-building is essential. Dedicated IP valuation programs should be developed in partnership with IBBI, top law schools, and valuation bodies. These should include certification programs covering international standards like IVS (International Valuation Standards), IP licensing, and sector-specific valuation approaches.

Lastly, judicial training programs must sensitize NCLT and NCLAT members on the economic relevance of IP in CIRP. A more informed judiciary can issue orders that safeguard the commercial integrity of IP during insolvency.

As India carves its path toward becoming a knowledge-driven economy, its insolvency regime must keep pace with the evolving nature of business assets. Intellectual property can no longer be treated as a marginal consideration-it lies at the very heart of corporate worth, influencing everything from investment flows to industrial competitiveness. Yet, the Insolvency and Bankruptcy Code, in its present form, remains structurally under-equipped to address this shift. It offers only a rudimentary framework that overlooks the distinct complexities and opportunities associated with intangible assets.

To bridge this gap, there is an urgent need to introduce targeted valuation standards, cultivate a cadre of professionals skilled in IP assessment, and establish institutional mechanisms that can support the transparent identification and monetization of such assets. Drawing from international models and aligning domestic policy with global norms will be essential. Without such reforms, the IBC’s promise of value maximization will remain unfulfilled-particularly in cases where a company’s true worth lies not in its factories or inventory, but in its patents, trademarks, or proprietary technology.

Author: Saptadip Nandi Chowdhury, in case of any queries please contact/write back to us via email to [email protected] or at Khurana & Khurana, Advocates and IP Attorney.

REFERENCE(S)

• Insolvency and Bankruptcy Code, No. 31 of 2016, Acts of Parliament, 2016 (India).
• The Insolvency and Bankruptcy Board of India (Valuation) Rules, 2017, Gazette of India, Extraordinary, Part III, Sec. 4 (India).
• World Intellectual Property Organization, Understanding Intellectual Property, WIPO.int, https://www.wipo.int/about-ip/en/ (last visited June 5, 2025).
• Int’l Valuation Standards Council, International Valuation Standards (2022).
• Susan Chaplinsky & Greg Niehaus, Intellectual Property Valuation and Corporate Reorganization, 23 J. Applied Corp. Fin. 75 (2011).
• Company Appeal (AT) (Insolvency) No. 501 of 2021.
• S. Bankruptcy Code, 11 U.S.C. §§ 101-1532 (2020).
• UK Intellectual Property Office, IP Audit Scheme, GOV.UK, https://www.gov.uk/government/publications/intellectual-property-audits (last visited June 5, 2025).
• Deloitte, Unlocking Value from Intangibles in M&A, Deloitte.com https://www2.deloitte.com/global/en/pages/finance/articles/intangibles-valuation.html (last visited June 5, 2025).
• PwC, Valuation of Intellectual Property, PwC.com, https://www.pwc.com/gx/en/services/advisory/des/assets/pwc-valuingep pdf (last visited June 5, 2025).