Garage Walls - No Sheetrock + Panels

Hey guys - thanks in advance for any responses. So far this forum has been really, really helpful. I posted a while ago about my Garage Overhaul project and I've made some progress with some of the pegboard and some of the outlets / wiring.

My older posts w/ pics can be seen here:

https://www.houserepairtalk.com/threads/garage-overhaul-seeking-advice.23486/
https://www.houserepairtalk.com/threads/lazy-wiring-vs-safe-wiring.28220/

So progress is slowly being made. The next thing I'd like to do is work on the back wall (see attached images), and the wall with the garage doors on it. The house wall has 3/4" sheet rock on it which I think I need to keep to stay up to code - but these walls are covered in pressed board (wood chips?) about 1/2" thick and painted, and bare by the garage doors respectively.

I'd like to add some wood paneling on the back wall to make it more presentable, but I'm not sure if I should install that over the wood chip board stuff or remove it and then install straight over the studs to cover the insulation. I don't plan to add sheet rock on these walls unless it is absolutely necessary - so that's what I'm asking - what is the best way forward here?

Do I leave what's up already and install paneling over the top of it, or remove this wood chip board and install the wood paneling straight to the studs on the back wall to keep the insulation in place? This will have a smaller profile and not stick out as far...

Next will be the ceiling and new lights / fans, but I'll probably hire someone to redo the sagging sheet rock unless there are any other suggestions?

Whaddya think?
Thanks!

If the garage is attached to the house the ceiling and common wall need to be drywalled and filled to seal any leaks between the tow.
After that you can do what ever you want. If you don't have any good reason to take other panels down just go over them.

nealtw said:

If the garage is attached to the house the ceiling and common wall need to be drywalled and filled to seal any leaks between the tow.
After that you can do what ever you want. If you don't have any good reason to take other panels down just go over them.

Click to expand...

Ok cool - it is attached so I'll plan on the common wall and ceiling being drywalled. The only reason to take the panels down would be to avoid overlapping I guess. I think I have to take a few down to replace the electrical boxes on this back wall.