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FINANCIAL REHABILITATION AND INSOLVENCY ACT OF 2010
Transcript of FINANCIAL REHABILITATION AND INSOLVENCY ACT OF 2010
Use, Preservation and Disposal of Assets and Treatment of Assets and Claims after Commencement Date
ADMINISTRATION OF PROCEEDINGS
DETERMINATION OF CLAIMS
FINANCIAL REHABILITATION AND INSOLVENCY ACT OF 2010
Majority of Partners
Majority of the Board of Directors and authorized by stockholders representing at least 2/3 of outstanding capital stock
Majority of the Board of Directors and authorized by stockholders representing at least 2/3 of its members
VIABILITY OF REHABILITATION
1. Identification of the debtor, its principal activities and its addresses
2. Statement of the fact of and the cause of the debtor's insolvency
3. Specific relief sought
5. Other information that may be required
6. Schedule of debtor's debts and liabilities including a list of creditors
7. Inventory of all its assets
8. Rehabilitation plan
9. Name of at least 3 nominees to the position of rehabilitation receiver
10. Other documents required to be filed
Circumstances necessary to initiate Involuntary Proceedings
CREDITOR/S WHOSE CLAIM OR AGGREGATE CLAIM IS
At least 1M pesos*
At least 25% of the subscribed capital stock or partners' contribution*
whichever is higher
i. there is n genuine issue of fact on law on the claim/s of the petitioner/s, and that the due and demandable payments thereon have not been made for at least 60 days or that the debtor has failed generally to meet its liabilities as they fall due
ii. a creditor, other than the petitioner/s, has initiated foreclosure proceedings against the debtor that will prevent the debtor from paying its debts as they become due or will render it insolvent
1. Identification of the debtor its principal activities and its address
2. The circumstances sufficient to support a petition to initiate involuntary rehabilitation proceedings
3. Specific relief sought
4. A rehabilitation plan
5. Names of at least 3 nominees to the position of rehabilitation receiver
6. Other information required to be filed
7. Other documents required to be filed with the petition
REGISTRY OF CLAIMS
all claims or demands of whatever nature or character against the debtor or its property, whether for money or otherwise, liquidated or unliquidated, fixed or contingent, mature or unmatured, disputed or undisputed
including but not limited to:
all claims of the government
claims against directors and officers of the debtor arising from acts done in the discharge of their functions falling within the cope of their authority
shall it be established?
Within 20 days from its assumption into the office, the rehabilitation receiver shall establish a preliminary registry of claims.
The rehabilitation receiver
The rehabilitation receiver shall make the registry available for public inspection and provide publication notice to the debtor, creditors, and stakeholder on where and when they may inspect it. All claims included in the registry of claims must be duly supported by their personal capacities.
Within 30 days from the expiration of the period to establish registry of claims
Submit a challenge to claim/s to the court, serving a certified copy on the rehabilitation receiver and the creditor holding the challenged claim.
Upon expiration of the 30 day period, the rehabilitation receiver shall submit to the court the registry of claims which shall include undisputed claims that have not been subject to challenge.
Any decision of the rehabilitation receiver regarding a claim may be appealed to the court.
DECLARATION OF POLICY
NATURE OF PROCEEDINGS
1.To encourage debtors, both juridical and natural persons, and their creditors to collectively and realistically resolve and adjust competing claims and property rights.
2.To ensure a timely, fair, transparent, effective and efficient rehabilitation or liquidation of debtors.
3.To ensure or maintain certainly and predictability in commercial affairs, preserve and maximize the value of the assets of these debtors, recognize creditor rights and respect priority of claims, and ensure equitable treatment of creditors who are similarly situated.
4.When rehabilitation is not feasible, to facilitate a speedy and orderly liquidation of these debtor's assets and the settlement of their obligations.
1. In Rem
2. Insurance Companies
3. Nat’l and Local Gov’t Agencies or units
NOTE: Gov’t financial institutions OTHER than banks and GOCC shall be covered by this Act.
Designation of Courts and Promulgation of Procedural Rules
Substantive and Procedural Consolidation
Liability of Individual Debtor, Owner of a Sole Proprietorship, Partners in a Partnership, or Directors and Officers
Authorization to Exchange Debt for Equity
GR: Each Juridical entity is considered separate and cannot be comingled or aggregated with those of another.
XPN: The other entity is a related enterprise that is owned directly and indirectly by same interests.
Commingling or Aggregation of Assets and Liabilities may only be allowed:
1. there was commingling in fact of assets and liabilities of the debtor and the related enterprise prior to the commencement of the proceedings;
2. the debtor and the related enterprise have common creditors and it will be more convenient to treat them together rather than separately;
3. the related enterprise voluntarily accedes to join the debtor as party petitioner and to commingle its assets and liabilities with the debtor's; and
4.the consolidation of assets and liabilities of the debtor and the related enterprise is beneficial to all concerned and promotes the objectives of rehabilitation.
Shall be liable for double the value of the property sold, embezzled or disposed of or double the amount of the transaction involved, whichever is higher to be recovered for benefit of the debtor and the creditors, if they, having notice of the commencement of the proceedings, or having reason to believe that proceedings are about to be commenced, or in contemplation of the proceedings, willfully commit the following acts:
Dispose or cause to be disposed of any property of the debtor other than in the ordinary course of business or authorize or approve any transaction in fraud of creditors or in a manner grossly disadvantageous to the debtor and/or creditors.
Conceal or authorize or approve the concealment, from the creditors, or embezzles or misappropriates, any property of the debtor.
ACTION ON THE PETITION AND COMMENCEMENT OF PROCEEDINGS
5 DAYS FROM FILING
Sufficient in form
Deficient in form
Court may give the Petitioners a reasonable time in which within to amend or supplement the Petition to make the petition in proper order
Commencement Proceedings and Issuance of Commencement Order
Effectivity and Duration (Sec. 21)
Shall be for the effective for the duration of the rehabilitation proceedings for as long as there is a substantial likelihood that the debtor will be successfully rehabilitated.
The Order may appoint rehabilitation receiver, and include stay or suspension Order which shall:
Receiver will be vested with the following:
1. Right to Review and Obtain Records to which the debtor’s management directors have access, including bank accounts;
2. Prohibit or otherwise serve as legal basis in rendering null and void the results of any extrajudicial activity or process to seize property, sell encumbered property, or otherwise attempt to collection or enforce a claim against the debtor after commencement date;
3. Serve as legal basis for rendering null and void any setoff after the commencement date of any debt owed to the debtor by any of the debtors creditors;
4. Serve as legal basis for rendering null and void the perfection of any lien against the debtor’s property after the commencement date;
5. Consolidate the resolution of all legal proceedings by and against the debtor to the court. The court may allow the continuation of cases on other courts where the debtor had initiated suit.*
* NOTE: Attempts to seek of other resource against the debtor outside these proceedings shall be sufficient to support a finding of INDIRECT CONTEMPT OF COURT.
1. Propose Rehabilitation Plan complies with the minimum contents prescribed by this Act.
2. There is sufficient monitoring by the rehabilitation receiver if the debtors business for protection of the creditors;
3. Debtor has met with its creditors to the extent reasonably possible in attempts to reach a consensus on the proposed rehabilitation plan.
4. Rehabilitation receiver submits a report
1. Debtor from selling, encumbering, transferring or disposing in any manner any of its properties except in the ordinary course of business
2. Debtor from making any payment of its liabilities outstanding as of the commencement date except as may be provided herein.
1. All actions or proceedings, in court or otherwise, for the enforcement of claims against the debtor
2. All actions to enforce any judgment, attachment or other provisional remedies against the debtor.
Exception to the Stay or Suspension Order (Sec 18)
Cases already pending in SC as in commencement date, Provided that any final and executory judgment arising from such appeal shall be referred to the court for appropriate action;
Subject to the discretion of the court, cases pending or filed in specialized court or quasi-judicial agency which upon determination by the court is capable of resolving the claim more quickly, fairly, and efficiently than the court;
Enforcement of claims against sureties and other persons solidarily liable with the debtor, and third party accommodation mortgagors as well as issues of letters of credit, unless the property subject of the third party or accommodation mortgage is necessary for the rehabilitation of the debtor as determined by the court upon recommendation by the rehabilitation receiver;
Any form of action of customers or clients of a securities market participant to recover or otherwise claim moneys and securities entrusted to the latter in the ordinary course of the latter's business as well as any action of such securities market participant or the appropriate regulatory agency or self-regulatory organization to pay or settle such claims or liabilities;
The clearing and settlement of financial transactions through the facilities of a clearing agency or similar entities duly authorized, registered and/or recognized by the appropriate regulatory agency like the Bangko Sentral ng Pilipinas (BSP) and the SEC as well as any form of actions of such agencies or entities to reimburse themselves for any transactions settled for the debtor;
Any criminal action against individual debtor or owner, partner, director or officer of a debtor shall not be affected by any proceeding commend under this Act.
TAX AND FEES IMPLICATION
until the approval of the Rehabilitation Plan or dismissal of the Petition, whichever is Earlier, the imposition of all taxes and fees, including penalties, interests and charges thereof, due to the Nat'l gov't or to LGU's shall be considered waived, in furtherance of the objectives of rehabilitation.
What happens in Initial Hearing?
a. the creditors who have made timely and proper filing of their notice of claims;
b. hear and determine any objection to the qualifications of the appointment of the rehabilitation receiver and, if necessary appoint a new one in accordance with this Act;
c. direct the creditors to comment on the petition and the Rehabilitation Plan, and to submit the same to the court and to the rehabilitation receiver within a period of not more than twenty (20) days; and
d. direct the rehabilitation receiver to evaluate the financial condition of the debtor and to prepare and submit to the court within forty (40) days from initial hearing the report provided in Section 24 hereof.
Petition Given Due Course
the court shall direct the rehabilitation receiver to review, revise and/or recommend action on the Rehabilitation Plan and submit the same or a new one to the court within a period of not more than 90 days.
The court may refer any dispute relating to the Rehabilitation Plan or the rehabilitation proceedings pending before it to arbitration or other modes of dispute resolution, as provided for under Republic Act No. 9285, Or the Alternative Dispute Resolution Act of 2004, should it determine that such mode will resolve the dispute more quickly, fairly and efficiently than the court.
Application of Stay or Suspension Order to Government Financial Institutions. – Sec. 20
Provisions concerning the effects of the Commencement Order and the Stay or Suspension Order on the suspension of rights to foreclose or otherwise pursue legal remedies shall apply to government financial institutions, notwithstanding provisions in their charter or other laws to the contrary
Effect of Failure to File Notice of Claim (Sec. 23)
shall not be entitled to participate in the rehabilitation proceedings but shall be entitled to receive distributions arising therefrom.
Giving Due Course to or Dismissal of Petition, or Conversion of Proceedings (Sec. 25)
GIVE DUE COURSE IF:
i. the debtor is insolvent; and
ii. there is a substantial likelihood for the debtor to be successfully rehabilitated;
Convert the proceedings into one for the liquidation of the debtor upon a finding that:
i. the debtor is insolvent; and
ii. there is no substantial likelihood for the debtor to be successfully rehabilitated as determined in accordance with the rules to be promulgated by the Supreme Court
i. debtor is not insolvent;
ii. the petition is a sham filing intended only to delay the enforcement of the rights of the creditor/s or of any group of creditors;
iii. the petition, the Rehabilitation Plan and the attachments thereto contain any materially false or misleading statements; or
iv. the debtor has committed acts of misrepresentation or in fraud of its creditor/s or a group of creditors;
Ordinary course of business of debtor
Necessary to finance the administrative expenses of rehabilitation proceedings.
Authorized by court
Upon application of receiver
Involves an unencumbered property of the debtor outside the ordinary course of business
Showing that the property, by its nature or because of other circumstance:
2. costly to maintain,
3. susceptible to devaluation or
4. otherwise in jeopardy
Sale or Disposal of Encumbered Property of the Debtor and Assets of Third Parties Held by Debtor
a. Authorized by the Court
b. there is a security interest
c. upon application of the rehabilitation receiver
d. with the consent of the affected owners of the property, or secured creditor/s in the case of encumbered property of the debtor
e. notice and hearing To determine:
2. Presence of substitute lien or ownership right*
*Sale or disposal of property under this section shall not give rise to any criminal liability
Assets of Debtor Held by Third Parties
GR: third parties who have in their possession or control property of the debtor shall not transfer, conveyor otherwise dispose of the same to persons other than the debtor
EXCEPTION: upon prior approval of the rehabilitation receiver.*
*Rehabilitation receiver may also:
a. demand the surrender or the transfer of the possession or control of such property - subject to payment of the claims secured by any possessory lien/s;
b. allow retention of possession or control - if such an arrangement would preserve or increase the value of the property in question or the total value of the assets of the debtor; or
c. undertake any other disposition of the property as may be beneficial for the rehabilitation of the debtor - after notice and hearing, and approval of the court.
Rescission or Nullity of Sale, Payment, Transfer or Conveyance of Assets
What: Not in the ordinary course of the business of the debtor
When: after the commencement date -PROVIDED, That the unencumbered property may be sold, encumbered or otherwise disposed of upon order of the court after notice and hearing if:
a. in the interest of administering the debtor and facilitating the preparation and implementation of a Rehabilitation Plan
b. to provide a substitute lien, mortgage or pledge of property
c. for payments made to meet administrative expenses
d. for payments to victims of quasi delicts upon a showing that the claim is valid and the debtor has insurance to reimburse the debtor for the payments made
e. for payments made to repurchase property of the debtor that is auctioned off in a judicial or extrajudicial sale under. This Act
f. for payments made to reclaim property of the debtor held pursuant to a possessory lien.
TREATMENT OF CONTRACTS:
GR: all valid and subbsisting contracts of the debtor with creditors and other third parties as at the commencement date shall continue in force PROVIDED, there is confirmation within 90 days following the commencement of proceedings, with consent of the rehabilitation receiver.
EXCEPTION: Cancelled by virtue of a final judgment of a court
a. prior to the issuance of the Commencement Order
b. at anytime thereafter
NOTE: Contractual obligations of the debtor arising or performed during this period, and afterwards for confirmed contracts, shall be considered administrative expenses. Contracts not confirmed within the required deadline shall be considered terminated. Claims for actual damages as a result of the election to terminate a contract shall be considered a pre-commencement claim against the debtor.
TREATMENT OF EMPLOYEES CLAIMS:
a. Administrative Expense
1. Claims for salary and separation pay for work performed after the commencement date
2. Compensation of employees required to carry on the business
b. Pre-commencement claim - Claims of separation pay for months worked prior to the commencement date
Assets Subject to Rapid Obsolescence, Depreciation and Diminution of Value
a. application of a secured creditor holding a lien against or holder of an ownership interest in property held by the debtor
b. Property is subject to potentially rapid obsolescence, depreciation or diminution in value
c. after notice and hearing, COURT may order the debtor or rehabilitation receiver to take reasonable steps necessary to prevent the depreciation.
HOWEVER, If depreciation cannot be avoided and such depreciation is jeopardizing the security or property interest of the secured creditor or owner, the court shall:
a. allow foreclosure upon by the secured creditor according to the agreement
b. order the conveyance of a lien Provided, proceeds of the sale will be distributed in accordance with the order prescribed under the rules of concurrence and preference of credits;
c. order the conveyance on the residual funds from the sale of encumbered property during the proceedings d. allow the sale or disposition of the property Provided. That the sale or disposition will maximize the value of the property
Post-commencement Interest Rehabilitation Plan
b. Term of Interest
- Whether Secured or Unsecured
MAY ENTER INTO:
With the approval of the court upon the recommendation of the rehabilitation receiver
In order to enhance debtor’s rehabilitation
a. enter into credit arrangements
b. enter into credit arrangements, secured by mortgages (encumbered or not)
c. other obligations as may be essential for its rehabilitation.
Any transaction occurring prior to commencement date:
a. entered into by the debtor
b. involving its funds or assets
RESCINDED OR NULLIFIED
a. rehabilitation receiver
b. any creditor,
- with conformity
- without conformity
- If leave of court is granted, the rehabilitation receiver shall assign and transfer to the creditor all rights, title and interest in the chose in action or subject matter of the proceeding, including any document in support thereof.
- Any benefit derived from a proceeding, to the extent of his claim and the costs, belongs exclusively to the creditor instituting the proceeding, the surplus belongs to the estate .
- Benefit derived from the proceeding instituted by the rehabilitation receiver (or liquidator) for the benefit of the creditors within time stated by the court, belongs to the estate.
a. executed with intent to defraud
b. constitute undue preference of creditors.
a. unreasonably inadequate consideration + executed within ninety (90) days prior to the commencement date;
b. accelerated payment of a claim to a creditor within ninety (90) days prior to the commencement date
c. security or additional security executed within ninety (90) days prior to the commencement date;
d. where a creditor obtained, or received the benefit of, more than its pro rata share in the assets of the debtor, executed at a time when the debtor was insolvent;
e. intended to defeat, delay or hinder the ability of the creditors to collect claims (prejudice the interests of creditors.)
contents of Rehabilitation Plan
The court may confirm if all of the following are present:
(a) complies with the requirements specified in this Act.
(b) The rehabilitation receiver recommends the confirmation of the Rehabilitation Plan;
(c) The shareholders, owners or partners of the juridical debtor lose at least their controlling interest as a result of the Rehabilitation Plan; and
(d) The Rehabilitation Plan would likely provide the objecting class of creditors with compensation
consultation with debtor and creditors
creditor approval of rehabilitation plan
VOTING ON APPROVAL OF PLAN (within 20 days from notification)*
*Based on amount of respective claims based on registry of claims
deemed approved by a class of creditors if members of the said class holding more than fifty percent (50%) of the total claims of the said class vote in favor of the Plan
deemed rejected unless approved by all classes of creditors whose rights are adversely modified or affected by the Plan.
Submit to court for Confirmation
(Notify creditors (5)days from receipt for filing of objection)
Maximum period of 1 year from date of filing of the petition to confirm a rehabilitation plan
If with merit, order the receiver or the other party to cure defect when feasible
If without merit, lacking in merit, or basis of objection has been cured, or debtor complied with an order to cure the objection
If debtor in bad faith or not feasible to cure defect, CONVERT proceedings into one for:
CONFIRMATION OF REHABILITATION PLAN
if no plan is confirmed within the said period, upon MOTU PROPRIO, convert to:
LIQUIDATION OF DEBTOR
effects of confirmation:
(a) The Rehabilitation Plan and its provisions shall be binding upon the debtor and all persons who may be affected by . it, including the creditors, whether or not such persons have participated in the proceedings or opposed the Rehabilitation Plan or whether or not their claims have been scheduled;
(b) The debtor shall comply with the provisions of the Rehabilitation Plan and shall take all actions necessary to carry out the Plan;
(c) Payments shall be made to the creditors in accordance with the provisions of the Rehabilitation Plan;
(d) Contracts and other arrangements between the debtor and its creditors shall be interpreted as continuing to apply to the extent that they do not conflict with the provisions of the Rehabilitation Plan;
(e) Any compromises on amounts or rescheduling of timing of payments by the debtor shall be binding on creditors regardless of whether or not the Plan is successfully implement; and
(f) Claims arising after approval of the Plan that are otherwise not treated by the Plan are not subject to any Suspension Order.
shall not affect rights of creditors to pursue actions against general partners
amounts of any indebtedness or obligations reduced or forgiven shall not be subject to tax
TERMINATION OF PROCEEDINGS
a. upon motion by any stakeholder
b. upon motion by the rehabilitation receive
a. Discharge of the rehabilitation receiver
- submission of a final accounting
b. Lifting of the Stay Order and any other court order.
if cause: failure of rehabilitation or dismissal of the petition for reasons other than technical grounds
order from the court declaring:
SUCCESSFUL IMPLEMENTATION OF THE REHABILITATION PLAN
FAILURE OF REHABILITATION
a. Dismissal of the petition
b. Debtor fails to submit a Rehabilitation Plan
c. No substantial likelihood that the debtor can be rehabilitated within a reasonable period under the Rehabilitation Plan submitted
d. Debtor fails to perform its obligations under the Rehabilitation Plan or its amendment as approved by the court
e. Fraud in securing the approval of the Rehabilitation Plan or its amendment
f. Analogous circumstances
UPON MOTION OF AFFECTED PARTY
COURT may order:
a. Issue an order directing that the breach be cured within a specified period of time, falling which the proceedings may be converted to a liquidation;
b. Issue an order converting the proceedings to a liquidation;
c. Allow the debtor or rehabilitation receiver to submit amendments to the Rehabilitation Plan
d. Issue any other order to remedy the breach consistent with the present regulation, other applicable law and the best interests of the creditors;
e. Enforce the applicable provisions of the Rehabilitation Plan through a writ of execution.
WHO MAY INITIATE?
An insolvent debtor jointly with any of its creditors
may file a verified petition with the court for the approval of a pre-negotiated Rehabilitation Plan which has been endorsed or approved by:
a. creditors holding at least 2/3 of the total liabilities of the debtor
b. including secured creditors holding more than 50% of the total secured claims of the debtor
c. unsecured creditors holding more than 50% of the total unsecured claims of the debtor
Contents of Petition:
a. a schedule of the debtor's debts and liabilities;
b. an inventory of the debtor's
c. the pre-negotiated Rehabilitation Plan, including the names of at least 3 qualified nominees for rehabilitation receiver; and
d. a summary of disputed claims against the debtor and a report on the provisioning of funds to account for appropriate payments should any such claims be ruled valid or their amounts adjusted.
ISSUES OF ORDER
Within 5 working days, and after determination that the petition is sufficient in form and substance, the court shall issue an Order which shall:
1. identify the debtor, its principal business of activity/ies and its principal place of business;
2. declare that the debtor is under rehabilitation.
3. summarize the ground./s for the filling of the petition
4. direct the publication of the Order in a newspaper of general circulation in the Philippines once a week for at least 2 consecutive weeks, with the first publication to be made within 7 days from the time of its issuance
5. direct the service by personal delivery of a copy of the petition on each creditor who is not a petitioner holding at least 10% of the total liabilities of the debtor, as determined in the schedule attached to the petition, within 3 days
6. state that copies of the petition and the Rehabilitation Plan are available for examination and copying by any interested party;
7. state that creditors and other interested parties opposing the petition or Rehabilitation Plan may file their objections or comments thereto within a period of not later than 20 days from the second publication of the Order
8. appoint a rehabilitation receiver, if provided for in the Plan
9. include a Suspension or Stay Order as described in this Act
APPROVAL OF PLAN
Within 10 days from the date of the second publication of the Order, the court shall approve the Rehabilitation Plan
Unless: a creditor or other interested party submits an objection to it in accordance with the next succeeding section.
OBJECTION TO THE PETITION OR REHABILITATION PLAN
Any creditor or other interested party may submit to the court a verified objection to the petition or the Rehabilitation Plan not later than 8 days from the date of the second publication of the Order mentioned in Section 77. The objections shall be limited to the following:
1. The allegations in the petition or the Rehabilitation Plan or the attachments thereto are materially false or misleading;
2. The majority of any class of creditors do not in fact support the Rehabilitation Plan;
3. The Rehabilitation Plan fails to accurately account for a claim against the debtor and the claim in not categorically declared as a contested claim; or
4. The support of the creditors, or any of them was induced by fraud.
Note: Copies of any objection to the petition of the Rehabilitation Plan shall be served on the debtor, the rehabilitation receiver (if applicable), the secured creditor with the largest claim and who supports the Rehabilitation Plan, and the unsecured creditor with the largest claim and who supports the Rehabilitation Plan.
HEARING ON THE OBJECTIONS
After receipt of an objection, the court shall set the same for hearing
1. If the court finds merit in the objection – it shall direct the debtor, when feasible to cure the detect within a reasonable period.
2. If the court determines that the debtor or creditors supporting the Rehabilitation Plan acted in bad faith, or that the objection is noncurable – the court may order the conversion of the proceedings into liquidation. A finding by the court that the objection has no substantial merit, or that the same has been cured shall be deemed an approval of the Rehabilitation Plan.
The date of the hearing shall be no earlier than 20 days and no later than 30 days from the date of the second publication of the Order
PERIOD FOR APPROVAL OF REHABILITATION PLAN
The court shall have a maximum period of 120 days from the date of the filing of the petition to approve the Rehabilitation Plan
If the court fails to act within the said period, the Rehabilitation Plan shall be deemed approved
*Effect of approval shall be the same as confirmation of a Plan under Chapter II
REHABILITATION RECEIVER, MANAGEMENT COMMITTEE AND CREDITORS COMMITTEE
Who may serve?
*must designate a natural person/s who possess/es all the qualifications and none of the disqualification’s as its representative
*juridical entity and the representative/s are solidarily liable for all obligations and responsibilities of the rehabilitation receiver.
1. Philippine citizen or resident for 6 months immediately preceding his nomination
2. Of good moral character and with acknowledged integrity, impartiality and independence;
3. Has the requisite knowledge of insolvency and other relevant commercial laws, rules and procedures, as well as the relevant training and/or experience that may be necessary to enable him to properly discharge the duties and obligations of a rehabilitation receiver; and
4. Has no conflict of interest: Provided, That such conflict of interest may be waived, expressly or impliedly, by a party who may be prejudiced thereby
5.Other qualifications and disqualification’s of the rehabilitation receiver shall be set forth in procedural rules, taking into consideration the nature of the business of the debtor and the need to protect the interest of all stakeholders concerned.
The court shall initially appoint the rehabilitation receiver, who may or may not be from among the nominees of the petitioner.
At the initial hearing of the petition, the creditors and the debtor who are not petitioners may nominate other persons to the position.
If a qualified natural person or entity is nominated by more than fifty percent (50%) of the secured creditors and the general unsecured creditors, and satisfactory evidence is submitted, the court shall appoint the creditors' nominee as rehabilitation receiver.
The court may retain the rehabilitation receiver initially appointed or appoint another who may or may not be from among those nominated.
In case the debtor is a securities market participant=the court shall give priority to the nominee of the appropriate securities or investor protection fund.
Powers, Duties and Responsibilities
Deemed an officer of the court with the principal duty of preserving and maximizing the value of the assets of the debtor during the rehabilitation proceedings,
determining the viability of the rehabilitation of the debtor,
preparing and recommending a Rehabilitation Plan to the court,
implementing the approved Rehabilitation Plan
*All other powers, duties and responsibilities of Rehabilitation receiver -See Sec. 31 for enumeration.
at any time
1. by the court or
2. upon motion by any creditor/s holding more than fifty percent (50%) of the total obligations of the debtor
a. Incompetence, gross negligence, failure to perform or failure to exercise the proper degree of care in the performance of his duties and powers;
b. Lack of a particular or specialized competency required by the specific case;
c. Illegal acts or conduct in the performance of his duties and powers;
d. Lack of qualification or presence of any disqualification;
e. Conflict of interest that arises after his appointment; and vi. Manifest lack of independence that is detrimental to the general body of the stakeholders.
Terms of Service
Oath and Bond of the Rehabilitation Receiver
1. reasonable fees and;
2. expenses from the debtor according to the terms approved by the court after notice and hearing.
*Such costs shall be considered administrative expenses
Is required prior to entering upon his powers, duties and responsibilities.
to submit the name/s of their nominee/s to the position, and court shall appoint any qualified nominee or any other qualified person
*The court shall appoint any qualified nominee or any other qualified person
Displacement of Existing Management by the Rehabilitation Receiver or Management Committee
Upon clear and convincing evidence of any of the following circumstances:
i. Actual or imminent danger of dissipation, loss, wastage or destruction of the debtor’s assets or other properties;
ii. Paralyzation of the business operations of the debtor; or
iii. Gross mismanagement of the debtor. or fraud or other wrongful conduct on the part of, or gross or willful violation of this Act by. existing management of the debtor Or the owner, partner, director, officer or representative/s in management of the debtor.
the court may appoint
The rehabilitation receiver
Appoint a management committee
to assume the powers of management of the debtor
that will undertake the management of the debtor
Role of Management Committee
the management committee shall take the place of the management and the governing body of the debtor and assume their rights and responsibilities.
Specifics to be provided by procedural rules, taking into consideration the nature of the business of the debtor and the need to protect the interest of all stakeholders concerned.
Employment of Professionals
Conflict of Interest
Approval of Court
*Conflict of Interest must be disclosed
*No person may be appointed as a rehabilitation receiver, member of a management committee, or be employed by the rehabilitation receiver or the management committee if he has a conflict of interest
An individual shall be deemed to have a conflict of interest :
if he is so situated as to be materially influenced in the exercise of his judgment for or against any party to the proceedings.
(a) he is a creditor, owner, partner or stockholder of the debtor;
(b) he is engaged in a line of business which competes with that of the debtor;
(c) he is, or was, within five (5) years from the filing of the petition, a director, officer, owner, partner or employee of the debtor or any of the creditors, or the auditor or accountant of the debtor;
(d) he is, or was, within two (2) years from the filing of the petition, an underwriter of the outstanding securities of the debtor;
(e) he is related by consanguinity or affinity within the fourth civil degree to any individual creditor, owners of a sale proprietorship-debtor, partners of a partnership- debtor or to any stockholder, director, officer, employee or underwriter of a corporation-debtor; or
(f) he has any other direct or indirect material interest in the debtor or any of the creditors.
The rehabilitation receiver and all persons employed by him, and the members of the management committee and all persons employed by it, shall not be subject to any action. claim or demand in connection with any act done or omitted to be done by them in good faith in connection with the exercise of their powers and functions under this Act or other actions duly approved by the court.
Specifics to be provided by procedural rules, taking into consideration the nature of the business of the debtor and the need to protect the interest of all stakeholders concerned.
TREATMENT OF SECURED CREDITORS
No Diminution of Secured Creditor Rights
The issuance of the :
1. Commencement Order
2. Suspension or Stay Order
3. Any other provision of this Act
GR: shall not be deemed in any way to diminish or impair the security or lien of a secured creditor, or the value of his lien or security
Except: that his right to enforce said security or lien may be suspended during the term of the Stay Order.
*Upon the motion or recommendation of the rehabilitation receiver, the court may allow a secured creditor:
1. to enforce his security or lien or
2. foreclose upon property of the debtor securing his/its claim
if the said property is not necessary for the rehabilitation of the debtor.
Lack of Adequate Protection
The court, on motion or motu proprio, may terminate, modify or set conditions for the continuance of suspension of payment, or relieve a claim from the coverage thereof, upon showing that:
(a) a creditor does not have adequate protection over property securing its claim; or
b) the value of a claim secured by a lien on property which is not necessary for rehabilitation of the debtor exceeds the fair market value of the said property. See Sec. 61 for enumeration of factors.
For purposes of this section, a creditor shall be deemed to lack adequate protection if it can be shown that:
(a) the debtor fails or refuses to honor a pre-existing agreement with the creditor to keep the property insured;
(b) the debtor fails or refuses to take commercially reasonable steps to maintain the property; or
(c) the property has depreciated to an extent that the creditor is under secured.
OUT OF COURT OR INFORMAL RESTRUCTURING AGREEMENT OR REHABILITATION PLANS
Effect of Court Action of Proceeding
GR: Any court action or other proceedings arising from, or relating to, the out-of-court or informal restructuring/workout agreement or Rehabilitation Plan shall not stay its implementation.
XPN: the relevant party is able to secure a temporary restraining order or injunctive relief from the Court of Appeals.
1.The debtor must agree to the out-of-court or informal restructuring/workout agreement or Rehabilitation Plan;
2.It must be approved by creditors representing at least 67% of the secured obligations of the debtor;
3.It must be approved by creditors representing at least 75% of the unsecured obligations of the debtor; and
4. It must be approved by creditors holding at least 85% of the total liabilities, secured and unsecured, of the debtor.
The insolvent debtor and/or creditor may seek court assistance for the execution or implementation of a Rehabilitation Plan under this Chapter, under such rules of procedure as may be promulgated by the Supreme Court.
Amendment or Modification
Cram Down Effect
must be made in accordance with the terms of the agreement and with due notice on all creditors.
May be agreed upon pending negotiation and finalization of Rehabilitation Program (OOC), Provided that:
1. such agreement is approved by creditors representing more than 50% of the total liabilities of the debtor;
2. notice thereof is publishing in a newspaper of general circulation in the Philippines once a week for 2 consecutive weeks; and
3. the standstill period does not exceed 120 days from the date of effectivity.
The notice must invite creditors to participate in the negotiation
for out-of-court rehabilitation or restructuring agreement
and notify them that said agreement will
be binding on all creditors if the required majority
votes prescribed in Section 84 are met.
A restructuring/workout agreement or Rehabilitation Plan that is approved pursuant to an informal workout framework referred to in this chapter shall have the same legal effect as confirmation of a Plan under Section 69. The notice of the Rehabilitation Plan or restructuring agreement or Plan shall be published once a week for at least 3 consecutive weeks in a newspaper of general circulation in the Philippines. The Rehabilitation Plan or restructuring agreement shall take effect upon the lapse of 15 days from the date of the last publication of the notice thereof.
Liquidation of Insolvent Juridical Debtors
Insolvent debtor files a petition for liquidation with the court
An aggregate of 3 or more creditors whose claims is at least either (1) 1 million pesos or (2) 25% of the subscribed capital stock or partner’s contributions of the debtor,whichever is higher
Conversion by the Court into Liquidation Proceedings
Liquidation of Insolvent Individual Debtors