Court Supervised Rehabilitation 1 2

Court Supervised
Rehabilitation
Prof. Maria Lulu G. Reyes
The case of
On the Brink Corporation
OtB
C
Next Generation
Generation
Next
Products
Products

(OtBC)
a well-established and
reputable domestic
company
heavily invested on research
and development of next
generation products
The case of
OtB
C
Next Generation
Generation
Next
Products
Products
OtBC
OtBC
recently announced that it has developed a fuel

saving device that can reduce fuel consumption
by at least 60% when attached to the cars
engine.
Registered and patented the same
The case of
OtB
C
Next Generation
Generation
Next
Products
Products
announcement was supported with various

certifications attesting to the effectiveness of
the product
exhaustive laboratory tests have likewise
supported the claim of the company
The case of
OtB
C
Next Generation
Generation
Next
Products
Products
1. Liquidity problems
OtBC used almost all of its
resources in developing the
product and is now having
difficulty meeting its debts
and obligations
Not enough money to
manufacture the products
The case of
2. Threats of foreclosure and
garnishment
its major creditor, Bankable Credit,
has initiated the proceedings to
foreclose the new machineries and
equipment, which OtBC used as
security for its loan obligation
other secured creditors are also
threatening to garnish or foreclose
other company assets
OtB
C
Next Generation
Generation
Next
Products
Products
The case of
OtB
C
Next Generation
Generation
Next
Products
Products
3. Stoppage of work and supplies

delivery
suppliers of the materials needed
for producing the product has also
withheld delivery and is
demanding immediate payment
before it resumes delivery.
Workers have also filed labor
cases against OtBC for unpaid
benefits and threatened to strike
The case of
OtB
C
Next Generation
Generation
Next
Products
Products
invention is worth millions of

dollars and company has
great potentials
the moment any of the
creditors succeeded in
enforcing its claim against
the corporation, its chance
of developing and selling the
product becomes difficult, if
not impossible.
The case of
OtB
C
Next Generation
Generation
Next
Products
Products
What are the options available to OtBC?
The case of
OtB
C
Next Generation
Generation
Next
Products
Products
OtBC can meet with its

creditors to
Ask for time to find
white knight investor.
The case of
OtB
C
Next Generation
Generation
Next
Products
Products

creditors to
Convince them
to restructure
existing loan
agreements
The case of
OtB
C
Next Generation
Generation
Next
Products
Products

creditors to
Ask for time to find white

knight investor.
Convince them to
restructure existing loan
agreements
Invite them to
become part
owners (i.e.
convert loan to
equity)
The case of
OtB
C
Next Generation
Generation
Next
Products
Products

creditors to
Convince them to
restructure existing
loan agreements
Invite them to
become part owners
(i.e. convert loan to
equity)
Mode 1: Out-of-Court
Rehabilitation or Informal
Restructuring Agreement
or Rehabilitation Plan
(OCRA)
The case of
OtB
C
Next Generation
Generation
Next
Products
Products

creditors to
Convince them to
loan agreements
Invite them to
become part owners
equity)
Mode 1: Out-of-Court
Rehabilitation or Informal
Restructuring Agreement
or Rehabilitation Plan
(OCRA)
Mode 2: Pre-Negotiated
Rehabilitation
The case of
OtB
C
Next Generation
Generation
Next
Products
Products

creditors to
Convince them to
loan agreements
invite them to
become part owners
equity)
Out-of-Court
Rehabilitation or
Informal
Restructuring
Agreement or
Rehabilitation
Plan (OCRA)
Pre-Negotiated
Rehabilitation
Restructuring
Agreement/Re
habilitation
Plan
The case of
OtB
C
Next Generation
Generation
Next
Products
Products

creditors to
Convince them to
loan agreements
invite them to
become part owners
equity)
Out-of-Court
Rehabilitation or
Informal
Restructuring
Agreement or
Rehabilitation
Plan (OCRA)
Pre-Negotiated
Rehabilitation
Restructuring
Agreement/Re
habilitation
Plan
Approval or endorsement of creditors holding at least 2/3 of the total

liabilities or the debtor
secured creditors holding more than 50% of the total secured claims
of the debtor
unsecured creditors holding more 50% of the total unsecured claims
of the debtor
The case of
OtB
C
Next Generation
Generation
Next
Products
Products
Approval by the
debtor;
creditors representing at least 67% of the secured obligations of the debtor;
creditors representing at least 75% of the unsecured obligations of the debtor; and,
creditors holding at least 85% of the total liabilities, secured and unsecured, of the debtor;
and,
Publication of the notice of the OCRA

creditors to
Convince them to
loan agreements
invite them to
become part owners
equity)
Out-of-Court
Rehabilitation or
Informal
Restructuring
Agreement or
Rehabilitation
Plan (OCRA)
Pre-Negotiated
Rehabilitation
Restructuring
Agreement/Re
habilitation
Plan
The case of
OtB
C
Next Generation
Generation
Next
Products
Products
OtBC met with its

creditors to
Convince them to
loan agreements
Invite them to
become part owners
equity)
Trade
creditors/suppliers
agreed to continue to
supply materials
The case of
OtB
C
Next Generation
Generation
Next
Products
Products
OtBC met with its

creditors to
Ask for time to
find white knight
investor.
Convince them to
restructure
existing loan
agreements
Invite them to
become part
owners (i.e.
convert loan to
Unsecured creditors
agreed to convert
loan to equity
Trade
creditors/suppliers
supply materials
The case of
OtB
C
Next Generation
Generation
Next
Products
Products
OtBC met with its

creditors to
white knight
investor.
Convince them to
loan agreements
Invite them to
become part owners
equity)
Bankable Credit
refuses to meet with
OtBC and pursued
foreclosure
proceedings.
Unsecured creditors
agreed to convert
loan to equity
Trade
creditors/suppliers
supply materials
The case of
OtB
C
Next Generation
Generation
Next
Products
Products
OtBC met with its

creditors to
Ask for time to
find white knight
investor.
Convince them to
restructure
existing loan
agreements
Invite them to
become part
owners (i.e.
convert loan to
equity)
Bankable Credit
Credit
Bankable
refuses to
to meet
meet
refuses
with OtBC
OtBC and
and
with
pursued
pursued
foreclosure
foreclosure
proceedings.
proceedings.
Unsecured
creditors agreed
to convert loan to
equity
Trade
creditors/supplier
s agreed to
continue to
supply materials
Mode 3. Court
Supervised
Rehabilitation
Involuntary Petition
Voluntary Petition
OtB
C
The case of
Next Generation
Generation
Next
Products
Products
OtBC met with its

creditors to
Ask for time to
find white knight
investor.
Convince them to
restructure
existing loan
agreements
Invite them to
become part
owners (i.e.
convert loan to
equity)
Bankable Credit
Credit
Bankable
refuses to
to meet
meet
refuses
with OtBC
OtBC and
and
with
pursued
pursued
foreclosure
foreclosure
proceedings.
proceedings.
Unsecured
creditors agreed
to convert loan to
equity
Trade
creditors/supplier
s agreed to
continue to
supply materials
Mode 4.
Liquidation
Involuntary Petition
Voluntary Petition
The case of
OtB
C
Next Generation
Generation
Next
Products
Products
Liquidation Proceedings
OtBC can close business and file a petition for Voluntary
Liquidation (Section 90, FRIA)
OtBC can wait for a creditor to file Involuntary Petition
for Liquidation (Section 91, FRIA)
The Remedy of Liquidation
OtB
C
Next Generation
Generation
Next
Products
Products
the historical and traditional

method of dealing with the
insolvency of a corporation.
ultimate objective is to
liquidate asset of debtor to pay
its creditors and terminate
commercial activities
tends to be universal in its
concept, acceptance and
application
The Remedy of Liquidation:

Process
Petition
Appointment
of Liquidator
Order of
Liquidation
Closure of
Business
Gather/preserve/s
ale of corp assets
Termination
of corp
powers
Adjudication
of creditors
claims
Distribution of proceeds
(applying priority of
claims principles
Dissolution
of
Corporation
Economic theory behind

liquidation
in a competitive market economy, an
enterprise that is unable to compete has no
place in and should be removed from the
market place
insolvency is the principal identifying mark
of an uncompetitive enterprise
If business is needed, new investors will
step in to fill the vacuum if insolvent debtor
is removed
Legal Theory Behind Liquidation

liquidation process can only function
effectively if it is regarded as a collective
process, from the time of its inception up to
distribution of assets and dissolution of the
debtor
Only way to ensure an orderly, transparent
and predictable distribution of remaining
assets of the debtor
The case of
Corporate Rehabilitation Proceedings

1. OtBC can file a voluntary petition for Corporate
Rehabilitation
2. A creditor can file a petition for Involuntary
Corporate Rehabilitation
Economic Theory Behind

Rehabilitation Proceedings
inefficiency is not always
the cause of corporate
failures in the market
place
remedy of liquidation is not
always appropriate and efficient
corporation with a reasonable prospect of survival should
be given opportunity if it can be demonstrated that
there is greater value and greater benefit for creditors in the

long term
keeping essential business and other component parts of a
corporation together is more cost efficient than liquidation
Legal Justification Behind

facilitates quick and easy

access to remedies that
would make rehabilitation
feasible
provides sufficient protection

for all those involved in the
process
provides a structure which

permits the negotiation of a
commercial plan
Legal Justification for

Enables a majority of creditors to bind all other

creditors by the democratic exercise of voting rights
(cram down);
Provides for judicial or other supervision to ensure

that the process is not subject to unfair manipulation
or abuse.
Enables the emphasis on the concept of the

collective nature of the procedure.
Debt Relief Proceedings:

Nature
Collective Procedure
Distinguishes insolvency proceedings from practically
any other legal procedure.
Endeavors to accommodate all of those who are
affected by or have an interest in the insolvent
debtor.
insolvent debtor
directors and shareholders,
Secured and unsecured creditors
employees,
guarantors of the debtor
Government
etc.
Debt Relief Proceedings:

Nature
all about deciding who to pay, in what order
to pay, and how much to pay in an efficient
and equitable manner
efficiency and equity sometimes may be
competing policy goals
the way a country pursues those goals,
insolvency law says a lot about the attitudes of
its legal system
Development of Philippine
Laws and Rules on Corporate
Rehab
Insolvency Law (Act No. 1956)
KINDS OF INSOLVENCY
1. Voluntary insolvencyan insolvent debtor owing debts exceeding in
amount in the sum of P1000, may apply to be discharged from his
debts and liabilities by petition to the RTC of the province or city in
which he has resided for 6 months next preceding the filing of the
petition
2. Involuntary insolvencyan adjudication of insolvency may be made by
the petition of 3 or more creditors, residents of the Philippines,
whose credits or demands accrued in the Philippines, for the
amount of which credits or demands are in the aggregate of not
less than P1000.
Rehab
Section 5 of P.D. 902-A, as amended, vested the SEC with
jurisdiction
"petitions of corporations, partnerships or associations to be
declared in a state of suspension of payments in cases where the
corporation, partnership or association possess sufficient property
to cover all its debts but foresees the impossibility of meeting
them when they respectively fall due or in cases where the
corporation, partnership or association has no sufficient assets to
cover its liabilities, but is under the management of a
Rehabilitation Receiver or Management Committee created
pursuant to (PD 902-A)."
Rehab
Section 5 of P.D. 902-A, as amended, vested the SEC with
jurisdiction
"petitions of corporations, partnerships or associations to be
declared in a state of suspension of payments in cases where the
corporation, partnership or association possess sufficient
property to cover all its debts but foresees the impossibility of
meeting them when they respectively fall due or in cases where
the corporation, partnership or association has no sufficient
assets to cover its liabilities, but is under the management of a
Rehabilitation Receiver or Management Committee created
pursuant to (PD 902-A)."
Rehab
In order to effectively exercise its jurisdiction, SEC is
granted the power to
a. appoint a rehabilitation receiver" and
b. create and appoint a management committee x x x to
undertake the management of corporations, partnerships or
associations in appropriate cases when there is imminent danger
of dissipation, loss, wastage or destruction of assets
or other
properties or paralyzation of business operations of
such
corporations or entities which may be prejudicial to the
interest of minority stockholders, parties-litigants or the
general public.
Rehab
in addition to proceedings for simple suspension of
payments, P.D. 902-A introduced a variation:
proceedings for suspension of payments where the
petition seeks the appointment of a rehabilitation
receiver or management committee.
Rehab
Rules of Procedure on Corporate Recovery
Approved on January 15, 2000
Sought to rationalize the procedure on
corporate rehabilitation and suspension of
payments, the Rules explicitly provide for an
independent action for rehabilitation, i.e.
separate from a proceeding for suspension of
payments.
Rehab
Securities Regulation Code
Passed on July 19, 2000
transferred jurisdiction from the SEC to the
regular courts over cases enumerated in
Section 5 of P.D. 902-A, and allowed the
Supreme Court to designate branches of the
appropriate Regional Trial Courts to hear and
decide cases of such nature
Rehab
Interim Rules on Corporate Rehabilitation
Interim Rules resemble to a large extent the
SEC Rules of Procedure on Corporate Recovery
Promulgated by the SC on November 2000 and
took effect on December 2000.
SC designated 60 RTCs as commercial
courts to hear and decide SEC cases.
Republic Act No.10142 Financial Rehabilitation

and Insolvency Act
42
Passed by Congress in February 2010

Lapsed into law (not signed by the
President)
Applicable to existing proceedings unless
court deemed it will cause prejudice
Financial Rehabilitation
Rules of Procedure
(2013)
Promulgated by the SC on
August 27, 2013
apply to petitions for
rehabilitation of
corporations, partnerships,
and sole proprietorships.
Rules on Liquidation are
currently being drafted by
the Rules
43
Financial Rehabilitation and

Insolvency Act
FRIA
45
Declared Policy of FRIA

to encourage debtors and creditors to collectively
and realistically resolve and adjust competing claims
and property rights.
ensure a timely, fair, transparent, effective and
efficient rehabilitation or liquidation of debtors
maintain certainty 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.
Nature of proceedings
under FRIA
46
Proceedings initiated are considered in rem, summary, and

non-adversarial in nature.
Jurisdiction over all persons affected by the proceedings is
acquired upon publication of the notice of the commencement
of the proceedings in any newspaper of general circulation
proceedings operate against the whole world and the orders
issued by rehabilitation court are binding not only upon those
parties who appear in such proceedings but also upon parties
who were summoned by publication but did not appear
Nature of proceedings
under FRIA
47
Rehabilitation proceedings are summary and non

adversarial in nature, and do not contemplate
adjudication of claims that must be threshed out in
ordinary court proceedings. Adversarial proceedings
similar to that in ordinary courts are inconsistent with
the commercial nature of a rehabilitation case. The
latter must be resolved quickly and expeditiously for
the sake of the corporate debtor, its creditors and
other interested parties.
Advent Capital and Finance Corporation v.
Alcantara, G.R. No. 183050, 25, January 2012
Rehabilitation
Proceeding as a
Remedy
48
Rehabilitation is xxx available to a corporation who,

while illiquid, has assets that can generate more
cash if used in its daily operations than sold. Its
liquidity issues can be addressed by a practicable
business plan that will generate enough cash to
sustain daily operations, has a definite source of
financing for its proper and full implementation, and
anchored on realistic assumptions and goals.
Wonder Book Corporation v. Philippine Bank of Communications
676 SCRA 489 (July 16, 2012)
Rehabilitation
Proceeding as a
Remedy
49
remedy should be denied to corporations whose insolvency

appears to be irreversible and whose sole purpose is to delay
enforcement of any of the rights of the creditors, which is
rendered obvious by the following:
a. the absence of a sound and workable business plan;
b. baseless and unexplained assumptions, targets and goals;
c. speculative capital infusion or complete lack thereof for the
execution of the business plan;
d. cash flow cannot sustain daily operations; and
e. negative net worth and the assets are near full depreciation
or fully depreciated.
Wonder Book Corporation v. Philippine Bank of Communications
676 SCRA 489 (July 16, 2012)
Court Supervised Rehabilitation

Proceedings: Initiation of
Petition
Corporate Rehabilitation:
Who can initiate court
supervised rehabilitation
Two types of court supervised rehabilitation
proceedings
1. Voluntary petition filed by the debtor or group of
debtors
2. Involuntary petition filed by a creditor or group of
creditors
52
Definition of Debtor
A debtor is a
a. sole proprietorship duly registered with the DTI
b. partnership duly registered with SEC
c. corporation duly organized and existing under Philippine
laws
d. individual debtor who has become insolvent as defined
herein.
53
Definition of Debtor
The following are excluded from FRIA
a. Banks jurisdiction with BSP;
b. Insurance Companies jurisdiction with Insurance
Commission;
c. PreNeed Companies jurisdiction with Insurance
Commission;
d. National or Local Government Units
Note that GOCCs and GFIs other than banks are covered by
the FRIA unless their specific charter provides otherwise
The case of
NextGen Group
of Companies
OtB
C
Next Generation
Generation
Next
Products
Products
BestHa
us
Corp.
OtB
C
Next Generation
Generation
Next
Products
Products
GroWit
hUs
Finance
L
I
N
E
A
R
Devt.
Corp
55
Group of Debtor
A group of debtors may jointly file a petition for
rehabilitation when:
a. one or more of its members foresee the impossibility
of meeting debts when they respectively fall due;
b. the financial distress would likely adversely affect
the financial condition and/or operations of the other
members of the group; and/or
c. the participation of the other members of the group
is essential under the terms and conditions of the
proposed Rehabilitation Plan.
56
Definition of Creditor
A creditor is a holder of a claim against the debtor that
arose on or before the commencement date.
modifies Finasia Investments and Finance Corporation vs.
Court of Appeals insofar as it holds that the term claims is
limited to debts or demands of a pecuniary nature or to an
assertion of a right to have money paid.
adopts the ruling in the earlier case of Jimenez vs. BF
Homes, Inc., et al, (GR No. 76661 [1987]) where the Supreme
Court enunciated the principle that when the law speaks of
all claims for actions against corporations under
management or receivership being suspended, the words all
claims mean all kinds of claims and is not limited to money
claims only.
57
Definition of Claim under FRIA

a claim includes all claims or demands of whatever
nature or character against a debtor or its property,
whether for money or otherwise, liquidated or
unliquidated, fixed or contingent, matured or unmatured,
disputed or undisputed, including, but not limited to;
1.
2.
all claims of the government, whether national or local, including taxes,

tariffs and customs duties; and
claims against directors and officers of the debtor arising from acts
done in the discharge of their functions falling within the scope of their
authority: Provided, That, this inclusion does not prohibit the creditors
or third parties from filing cases against the directors and officers
acting in their personal capacities .
Voluntary Petition for

Corporate
Rehabilitation
Voluntary Corporate
Rehabilitation: Who can file
If voluntary, petition can be
initiated by any of the
following:
1. Owner of sole
proprietorship
2. majority of the partners
3. stockholders representing
2/3 of outstanding
capital stocks or members.
Minimum Allegations:
Voluntary Corporate
Rehabilitation
1. The debtor is insolvent
it foresees the impossibility of paying its debts as they
fall due in the ordinary course of business, or
its liabilities are greater than its assets
2. The rehabilitation or continuation of operations is

economically feasible
3. The creditors can recover, by way of the present
value of payments projected in the plan, more if the
debtor continues as a going concern than if it is
immediately liquidated (w/in 120 days from the
preparation of the rehabilitation plan)
Minimum Allegations:
Voluntary Corporate
Rehabilitation
4. Identification of the debtor, its principal activities
and its addresses;
5. Statement of the fact of and the cause of the
debtors insolvency;
6. The specific relief sought pursuant to the FRIA;
7. The grounds upon which the Petition is based;
8. Other information as may be required under the FRIA
depending on the form of relief requested;
The following has to be

included as part and parcel
of petition
Voluntary Corporate
Rehabilitation: To include as
part and parcel of petition
a. Tax clearance or evidence of compromise with the
BIR;
b. Income tax returns as received by the BIR for the past
2 years prior to filing of the petition;
c. Audited financial statement of the debtor at the end
of its last fiscal year;
d. Interim financial statement not earlier than 30 days
prior to the date of the filing of the petition duly
certified under oath by the appropriate officer;
e. An inventory of all its assets including receivables
and claims against third parties;
Voluntary Corporate
Rehabilitation: To include as
part and parcel of petition
f. Schedule of the debtors debts and liabilities, including
a list of creditors with their addresses, amounts of
claims and collaterals, if any;
g. Schedule of payments and disposition for the 1 year
prior to the filing of the petition;
h. A Rehabilitation Plan; and
i. The names of at least three (3) nominees to the position
of rehabilitation receiver. [Sec. 12, FRIA; FR Rule 2,
Sec. 2]
Involuntary Petition for

Corporate
Rehabilitation
Involuntary Corporate
Rehabilitation: Who can file
Can be initiated by
1. any creditor or
2. group of creditors
with a claim of, or the aggregate of whose claims is, at
least P 1 M or at least 25% of the subscribed capital stock
or partners' contributions, whichever is higher
[Sec. 13, FRIA; FR Rule 2, Sec. 4]
Rehabilitation
Can be initiated by any creditor or group of creditors if
any of the following is present:
1. there is no genuine issue of fact/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
2. the debtor has failed generally to meet its liabilities as
they fall due or
3. Another creditor 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
Rehabilitation: Contents of
Petition
a. Identification of the debtor, its principal activities and
its addresses;
b. Circumstances showing that the conditions precedent to
the filing of a Petition for Involuntary Rehabilitation are
satisfied;
c. The specific relief sought pursuant to the FRIA;
d. Other information as may be required under the FRIA
depending on the form of relief requested;
Rehabilitation: Contents of
Petition
f. Exact address at which documents regarding the debtor

and the proceedings may be reviewed and copied; and
g. Documents showing there is substantial likelihood that
the debtor may be rehabilitated.
h. A Rehabilitation Plan; and
i. The names of at least three (3) nominees to the position
of rehabilitation receiver.
70
Court action on the

Petition
71
Court action on the Petition

If sufficient in form and substance, court has to
issue Commencement Order within 5 working days
from filing of petition.
If not
it may either give the petitioner/s a reasonable period of time
within which to amend or supplement the petition, or submit
such documents as may be necessary or proper to put the

petition in proper order
72
Court action on the Petition
Petition
5 days
Sufficient
in form &
substance
Yes
Yes
No
Corrective
Order
Commencement
Order
(Suspension
Order)
Number of
days based
on courts
discretion
5 days
Sufficient
in form &
substance
Hearing is not required

for issuance of
Commencement Order
73
Court is not required to conduct a hearing before

issuing a Commencement Order that includes a
Stay Order (Sections 7 and 8, Rule 2 of the FR
Rules)
Pryce Corporation vs. Court of Appeals

G.R. No. 172302 (February 4, 2008)
74
Contents of
Commencement Order
1. Identity of the debtor, its principal business or activity/ies and
its principal place of business;
2. Summary of ground/s for initiating the proceedings;
3. The relief sought
4. The legal effects of the Commencement Order
5. Declaration that the debtor is under rehabilitation
6. Order for the publication of the Commencement Order
7. Order to serve by personal delivery a copy of the petition on
each creditor holding at 10% of total liabilities; or the debtor if
petition is involuntary.
75
Contents of
Commencement Order
8. Appointment of a rehabilitation receiver
9. A summary of the requirements and deadlines for creditors to
establish their claims against the debtor and direct all
creditors to file their claims with the court at least five (5)
days before the initial hearing
10. Order to BIR to file and serve on the debtor its comment on
or opposition to the petition or its claim/s against the debtor
11. Ordering prohibiting debtor's suppliers of goods or services
from withholding the supply of goods and services in the
ordinary course of business
12. Order authorizing the payment of administrative expenses as
they become due
76
Contents of
Commencement Order
13.Set the case for initial hearing (not be more than 40 days from the
date of filing of the petition)
14.Make available copies of the petition and rehabilitation plan for
examination and copying by any interested party
15.Indicate the location or locations at which documents regarding the
debtor and the proceedings under Act may be reviewed and copied;
16.State that any creditor or debtor who is not the petitioner, may
submit the name or nominate any other qualified person to the
position of rehabilitation receiver at least five (5) days before the
initial hearing
17.Issue Stay or Suspension Order
77
Effects of Commencement
Order
1. vest the rehabilitation receiver with all the powers and
functions (e.g. right to review and obtain records to
which the debtor's management and directors have
access )
2. Serve as basis for 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
78
Effects of
Commencement Order
3. Serve as basis rendering null and void any setoff after
the commencement
4. serve as the legal basis for rendering null and void the
perfection of any lien against the debtor's property
5. consolidate the resolution of all legal proceedings by
and against the debtor to the court
Suspension Order
80
Effects of Stay or
Suspension Order
1. suspend all actions or proceedings, in court or
otherwise, for the enforcement of claims against the
debtor
2. suspend all actions to enforce any judgment,
attachment or other provisional remedies against the
debtor;
3. prohibit the debtor from selling, encumbering,
transferring or disposing in any manner any of its
properties except in the ordinary course of business
4. prohibit the debtor from making any payment of its
liabilities outstanding as of the commencement date
except as may be provided herein
81
Not covered by Stay Order

1. cases already pending appeal in the Supreme Court as of
commencement date )
2. subject to discretion of court, cases pending or filed at a
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
3. enforcement of claims against sureties and other persons
solidarily liable with the debtor, and 3rd party or accommodation
mortgagors, as well as issuers of letters of credit unless the
property subject of the 3rd party or accommodation mortgage is
necessary for the rehabilitation of the debtor as determined by
the court upon recommendation by the rehabilitation receiver;
82
Not covered by Stay Order

4. any form of action of 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; any action of such securities market participant
or the appropriate regulatory agency or self-regulatory organization to pay or
settle such claims or liabilities;
5. actions of a licensed broker or dealer to sell pledged securities of a debtor
pursuant to a securities pledge or margin agreement for the settlement of
securities transactions in accordance with the provisions of the Securities
Regulation Code and its implementing rules and regulations;
6. clearing and settlement of financial transactions through the facilities of a BSP
registered clearing agency
7. any criminal action against individual debtor or owner, partner, director or
officer of a debtor
83
Panlilio, et al. vs. RTC, et al.
(G.R. NO. 173846, February 2, 2011)

rehabilitation of SIHI and the settlement of claims
against the corporation is not a legal ground for the
extinction of petitioners criminal liabilities.
prosecution of the officers of the corporation has no
bearing on the pending rehabilitation of the
corporation, especially since they are charged in their
individual capacities.
the purpose of the law for the issuance of the stay
order is not compromised, since the appointed
rehabilitation receiver can still fully discharge his
functions as mandated by law.
Other legal effects of Suspension

or Stay Order
84
taxes and fees due to the national government and LGUs are
considered waived upon issuance of Commencement Order
until Rehab plan is approved or petition is dismissed.
Commencement Order and Stay Order apply even to
government financial institutions despite provisions in their
charter to the contrary
Commencement Order is effective for the duration of the
rehabilitation proceedings for as long as there is a substantial
likelihood that the debtor will be successfully rehabilitated
Duration and condition for

continued effectivity of
Commencement Order
85
Effectivity is for the duration of the rehabilitation

proceedings for as long as there is a substantial likelihood
that the debtor will be successfully rehabilitated
Conditions
Compliance with the prescribed minimum contents by the proposed
Rehabilitation Plan
sufficient monitoring by the rehabilitation receiver of the debtor's

business for creditors protection
reasonable attempts of debtor to reach consensus with creditors
on Rehab plan
absence of false or misleading statement
absence of acts of misrepresentation or fraud on part debtors
favorable endorsement of the plan by the receiver
Substantial likelihood of
rehabilitation: Factors to
consider
86
Substantial likelihood of successful rehabilitation is

determined by:
a. Sufficiency of assets with which to rehabilitate the
debtor
b. sufficiency cash flow to maintain the operations of the
debtor
c. Good faith on the part of debtors
d. Not a sham petition
e. Viability of pursuing rehab plan by debtor
Actions to be taken after the issuance of

Commencement Order before Initial Hearing
87
Petition
Commencement Order
W/in 20 days from
assumption into
office, Receiver to
Establish
Preliminary
Registry of
Claims
30 days
Hear
Opposition/
Challenge
to claim/s
Submit
undisputed
claim/s
7 days
Publish Commencement
Order in newspaper of
general circulation
W/in 90 days
5 days before initial hearing

Filing of Creditors claims
15 days before initial
Filing of hearing
comments by
creditors
40 days from the filing of the petition
Initial Hearing
Debtor to notify
each counterparty
of the particular
contract that is
confirmed; if not
confirmed, deemed
terminated
88
Initial Hearing: Purpose

1. Determine the creditors who have made timely and proper filing of
their notice of claims
Failure to file notice of claim in accordance with Commencement Order but belatedly file
the same is not entitled to participate in the proceedings; but entitled to receive
distributions
2. hear and determine any objection to the qualifications of the

appointment of the rehabilitation receiver
3. Direct creditors to comment on Petition and Rehab Plan within 20
days
4. Direct Receiver to evaluate financial condition of debtor through a
Report within 40 days
Actions to be taken after the issuance of

Commencement Order
89
Petition
Commencement Order
W/in 20 days from
assumption into
office, Receiver to
Establish
Preliminary
Registry of
Claims
30 days
Hear
Opposition/
Challenge
to claim/s
Submit
undisputed
claim/s
7 days
Publish Commencement
Order in newspaper of
general circulation
W/in 90 days
5 days before initial hearing

Filing of Creditors claims
15 days before initial
Filing of hearing
comments by
creditors
Debtor to notify
each counterparty
of the particular
contract that is
confirmed; if not
confirmed, deemed
terminated
40 days from the filing of the petition

Initial Hearing
40 days from the termination of initial hearing
Preliminary Report of
Receiver
Report of Receiver: Contents
90
a. Whether debtor is insolvent causes thereof and

any unlawful or irregular act/s by the debtor
b. Feasibility and reasonableness of underlying
assumptions, financial goals and procedures
c. Substantially likelihood of successful rehabilitation
d. Whether petition should be dismissed
e. Whether debtor should be dissolved and/or
liquidated.
SiochiFishery Enterprises, Inc.,

vs. BPI (G.R. NO. 193872, October 19, 2011
91
The most glaring procedural infirmity committed by rehab court is its

failure to petition for rehabilitation and Rehabilitation Plan to the
rehabilitation receiver despite the explicit and clear mandate of the
Interim Rules that if the court is satisfied that there is merit in the
petition, it shall give due course to the petition and immediately
refer the same and its annexes to the rehabilitation receiver xxx
his recommendation bears much weight as it is one of the factors
which must be considered by the court if it were to approve the
rehabilitation plan
Court made an unwarranted procedural shortcut as its finding that
there was merit in respondent corporations petition for rehabilitation
was made in the same Order approving Rehabilitation Plan.
92
Action on the Petition

Petition
Commencement
Order
Initial Hearing
Receivers Report
10 days from receipt of Receivers Report
Give due course

to the Petition
Dismiss the
Petition
Convert
Proceeding to
Liquidation
93

Within 10 days from receipt of Receivers Report
1. Give due course to the petition
Debtor is insolvent
Substantial likelihood of successful rehabilitation
2. Dismiss the petition

Debtor is not insolvent
Petition is a sham intended to delay enforcement of creditors rights
There are misleading statements or material misrepresentation in the
petition or attachments
Debtor has committed acts of misrepresentation or in fraud of creditors
3. Convert proceedings into Liquidation if

.Debtor is insolvent
.No substantial likelihood of substantial rehabilitation
Action on the Petition:

Dismissal
94
If Petition is dismissed because of intent to defraud,

court in its discretion may order payment of damages
to any creditor or to any person who may have been
injured by such filing.
Action on the Petition : Given

Due Course
Direct Receiver to review, revise and/or

recommend action on the Rehab plan and submit
the same or a new one within 90 days.
Refer any dispute on rehab plan or proceedings to
ADR for a quick, efficient and fair resolution.
95

Petition
Commencement Order
Initial Hearing
Give due course

to the Petition
96
97
Petition
Commencement Order
Initial Hearing
Give due course
to the Petition
within 90 days
Receiver to
Review/Revise/
Modify/Replace
Rehabilitation Plan
If there are
disputes, refer to
ADR
Rehab Receiver, Management

Committee and Creditors Committee
98
Natural or juridical person may serve as rehab

receiver
If juridical person, a natural person
possessing all the qualifications and none of
the disqualifications must be designated
Liability of rehab receiver (i.e. corporation)
and its representatives are solidary
Rehab Receiver : Qualifications
99
Philippine citizen or resident

Good moral character, with integrity, impartiality and
independence
Has the requisite knowledge of insolvency and relevant
laws and trainings/experience to enable to him to
discharge his duties and obligations
No conflict of interest unless waived by those affected
Other qualifications that may be set by the SC later
Rehab Receiver, Management

Committee and Creditors Committee
100
Rehabilitation Receiver
May or may not be be from the nominees of the rehab plan
Creditor or debtor may nominate other person during the
initial hearing
Court may appoint creditors nominee if supported by more
than 50% of the secured and general unsecured creditors.
If debtor is a securities market participant, court has to
give priority the nominee of the appropriate securities or
investor protection fund.
Rehabilitation Receiver :
Power and Duties
101
1. preserve and maximize value of debtors assets during

proceedings
2. Determine viability of rehabilitation of debtor
3. Prepare and recommend Rehab Plan to the court
a. Verify accuracy of factual allegations in petition and annexes
b. Verify and correct inventory of all assets and valuation
c. Verify and correct schedule of debts and liabilities
d. Evaluate validity, genuineness and true amount of all claims
e. Take possession, custody and control and preserve value of all
assets
Power and Duties
102
4. Prepare and recommend Rehab Plan to the

court
f.
Sue and recover, with courts approval, of all amounts owed to

debtor
g. Have access to all needed information re operation and business

of debtor
h. Recover fraudulent conveyances, transfers, payments and
disbursements
i.
Monitor operations and business of debtor to ensure that all

payments and transfer of properties are in ordinary course of
business.
Power and Duties
103
4. Prepare and recommend Rehab Plan to the court

j. Determine best way to rehabilitate debtor
k. Revise, modify or recommend action on Rehab plan and
recommend action on the same
l. assume and exercise the powers of management of the
debtor
m. other powers as may, from time to time, be conferred
upon him by the court
n. submit a status report on the rehabilitation proceedings
every quarter or as may be required
Power and Duties
104
4. Prepare and recommend Rehab Plan to the

court
NOTE: unless appointed by the court, Receiver is not
take over management and control of the debtor; only
recommend appointment of management committee for
specific reasons.
Grounds for Removal
105
Incompetence, gross negligence, failure to perform or failure

to exercise the proper degree of care in the performance of his
duties and powers
Lack of a particular or specialized competency required by the
specific case
Illegal acts or conduct in the performance of his duties and
powers
Lack of qualification or presence of any disqualification
Conflict of interest that arises after his appointment; and
Manifest lack of independence that is detrimental to the
general body of the stakeholders.
Compensation
106
entitled to compensation for reasonable fees and expenses

from the debtor according to the terms approved by the
court after notice and hearing
Includes expenses of direct employees and independent contractors
Prior to hearing, be entitled to reasonable compensation

based on quantum meruit
costs shall be considered administrative expenses.
shall take an oath and file a bond, in such amount to be
fixed by the court, conditioned upon the faithful and proper
discharge of his powers, duties and responsibilities.
Rehabilitation Receiver : Factors

for Determining Compensation
107
1. the size of the debtor under rehabilitation;

2. the time to be spent on such services;
3. the credentials, experience, skills and reputation of
the receiver, his direct employees or independent
contractors;
4. the benefits accruing to the debtor;
5. the complexity, importance, urgency, and nature of
the problems, issues, or tasks addressed; and
6. the customary compensation charged by
comparably skilled practitioners in other
rehabilitation cases.
Displacement of Existing
Management
108
court may appoint and direct the rehabilitation receiver

to assume the powers of management of the debtor, or
appoint a management committee that will undertake the
management of the debtor.
a. Actual or imminent danger of dissipation, loss, wastage or
destruction of the debtors assets or other properties
b. Paralyzation of the business operations of the debtor
c. 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
Hearing required for creation

of Management Committee
109
The creation of a management committee without first conducting an

evidentiary hearing for the purpose is an egregious error that
amounts to bad faith, leading to the conclusion of gross ignorance of
the law, as charged.
In rehabilitation proceedings, the parties must first be given an
opportunity to prove (or disprove) the existence of an imminent
danger of dissipation, loss, wastage or destruction of the debtorcompanys assets and properties that are or may be prejudicial to the
interest of minority stockholders, parties-litigants or the general
public.
the rehabilitation court should hear both sides, allow them to present
proof and conscientiously deliberate, based on their submissions, on
whether the appointment of a management receiver is justified.
(Lorenzana vs. Austria, A.M. No. RTJ-09-2200 (April 2, 2014)
Procedure for creation of

Management Committee
110
1st member shall be nominated by the debtor; in case the

debtor fails, the court shall appoint the first member;
2nd member shall be nominated by the creditor/s holding more
than fifty percent (50%) of the total obligations of the debtor;
in case the creditors fail, the court shall appoint the second
member; and
the third member, who shall act as chairman of the
management committee, shall be nominated by the first and
second members within 10 days from the appointment.
In case of disagreement between the first and second
members, or failure to nominate, the court shall appoint the
third member.
Role of Management
Committee
111
takes the place of the management and the

governing body of the debtor and assume their
rights and responsibilities
Specific powers and duties are prescribed by Section 33
of the Rules
Powers of Management
Committee
112
1. to investigate the acts, conduct, properties, liabilities, and financial

condition of the corporation, association or partnership under
management;
2. to examine under oath the directors and officers of the entity and
any other witnesses that the committee may deem appropriate;
3. to report to the court any ascertained fact pertaining to the causes
of the problems, fraud, misconduct, mismanagement and
irregularities committed by any other person;
4. to use the services of or employ such person or persons, such as
lawyers, accountants, auditors, appraisers and staff as are
necessary to perform its functions and duties as management
committee;
5. to report to the court any material adverse change in the business
of the entity under management;
Committee
113
1. to investigate the acts, conduct, properties, liabilities, and

financial condition of the debtor
2. to examine under oath the directors and officers of the
debtor
3. to report to the court any ascertained fact pertaining to the
causes of the problems, fraud, misconduct, mismanagement
and irregularities committed by any other person;
4. to use the services of or employ such person or persons as
are necessary to perform its functions and duties as
management committee;
5. to report to the court any material adverse change in the
business of the entity under management;
Committee
114
6. to evaluate the existing equity, capital, assets and liabilities,

earnings and operations of the entity under management;
7. to determine and recommend to the court the best way to
salvage and protect the interest of the creditors,
stockholders and the general public, including the
rehabilitation of the entity under management;
8. to prohibit and report to the court any encumbrance,
transfer, or disposition of the debtor's property outside of
the ordinary course of business or beyond what is allowed by
the court;
9. to prohibit and report to the court payments made outside
the ordinary course of business;
Committee
115
10. to have unlimited access to the employees, premises, hooks,

records and financial documents of the entity under
management during business hours;
11. to inspect, copy, photocopy or photograph any document,
paper, book, account or letter, whether in the possession of
the entity or other persons, that pertain to the business of
the debtor;
12. to gain entry into any property owned by the entity under
management for the purposes of inspecting, measuring,
surveying, or taking photos or videos of any designated
relevant object or operation thereon;
13. to bring to the attention of the court any material change
affecting the entity's ability to meet its obligations;
Committee
116
14.to take the appropriate steps to modify, nullify or revoke transactions

coming to its knowledge which it deems detrimental or prejudicial to
the interest of the entity under management;
15.to recommend the termination of the proceedings and the dissolution
of the entity if it determines that the continuance in business of such
entity will no longer work to the best interest of the stakeholders and
creditors, in accordance with the purposes of the Act;
16.to apply to the court for any order or directive that it may deem
necessary or desirable to aid it in the exercise of its powers and
performance of its duties and functions, including the power to
examine parties and witnesses under oath; and
17.to exercise such other powers as the court may, from time to time
confer upon it.
Conflicts of Interest
117
If a creditor, owner, partner or stockholder of the debtor

If engaged in a line of business which competes with that
of the debtor;
If within five (5) years from the filing of the petition, was
a director, officer, owner, partner or employee of the
debtor or any of the creditors, or the auditor or
accountant of the debtor
If within two (2) years from the filing of the petition, was
an underwriter of the outstanding securities of the debtor
Conflicts of Interest
118
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
If with any other direct or indirect material interest in
the debtor or any of the creditors.
Creditors Committee
119
creditors belonging to a class may formally organize a

committee among themselves
Secured creditors, unsecured creditors, trade creditors and suppliers and
debtors employees
Receiver must attend meeting for this purpose

Role is to assist the rehabilitation receiver in
communicating with the creditors and shall be the primary
liaison between the rehabilitation receiver and the
creditors.
cannot exercise or waive any right or give any consent on behalf of any
creditor unless specifically authorized in writing by such creditor.
Determination of Claims
120
Receiver has to establish a preliminary registry of

claims within 20 days from assumption into office
Has to be made available for public inspection after
publication notice to the debtor, creditors and
stakeholders on where and when they may inspect it
Ensure that all claims in the register are supported by
sufficient evidence.
121
Within 30 days, debtor, creditors, stakeholders

and other interested parties has to submit a
challenge to claim/s to the court, serving a
certified copy on the rehabilitation receiver and
the creditor holding the challenged claim.
Thereafter, receiver has to submit to the court the
registry of claims which shall include undisputed claims
that have not been subject to challenge.
Receivers decision regarding a claim is appealable to
the court.
122
Within 30 days, debtor, creditors, stakeholders and other

interested parties has to submit a challenge to claim/s to
the court, serving a certified copy on the rehabilitation
receiver and the creditor holding the challenged claim.
Thereafter, receiver has to submit to the court the registry of
claims which shall include undisputed claims that have not
been subject to challenge.
Receivers decision regarding a claim is appealable to the
court.
Treatment of Secured
Creditors
123
issuance of the Commencement Order and the

Suspension or Stay Order does not in any way to
diminish or impair the security or lien of a secured
creditor, or the value of his lien or security.
1. except that his right to enforce said security or lien may be
suspended during the term of the Stay Order.
2. a secured creditor may be allowed to enforce his security or
lien, or 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
124
court may, on motion or motu proprio, terminate,

modify, or set conditions for the continuance of the
Stay Order, or relieve a claim from the coverage
thereof upon showing that
a creditor does not have adequate protection over
property securing its claim; or
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.
Lack of Adequate Protection
125
A secured creditor lacks adequate protection if it can be

shown that:
the debtor fails or refuses to honor a pre-existing agreement with

the creditor to keep the property insured;
the debtor fails or refuses to take commercially reasonably steps

to maintain the property; or
the property has depreciated to an extent that the creditor is

undersecured
Remedy of Creditor that Lacks

Adequate Protection
126
Upon showing of a lack of adequate protection, the

court shall order the rehabilitation receiver to
make arrangements to provide for the insurance or

maintenance of the property,
make payments or otherwise provide additional or

replacement security such that the obligation is fully
secured.
Remedy of Creditor that Lacks

Adequate Protection
127
Upon showing of a lack of adequate protection, the court

shall order the rehabilitation receiver to make
arrangements to provide for the insurance or maintenance
of the property; or to make payments or otherwise
provide additional or replacement security such that the
obligation is fully secured
If not feasible, modify Stay Order to allow the secured
creditor lacking adequate protection to enforce its claim
against the debtor unless such remedies would prevent
the continuation of the debtor as a going concern or
otherwise prevent the approval and implementation of a
rehabilitation plan.
Content of a Rehabilitation
Plan
128
1.
specify the underlying assumptions, the financial goals and the

procedures proposed to accomplish such goals
2.
compare the amounts expected to be received by the creditors

under the Rehabilitation Plan with those that they will receive if
liquidation ensues within the next 120 days
3.
contain information sufficient to give the various classes of

creditors a reasonable basis for determining whether supporting
the Plan is in their financial interest
4.
establish classes of voting creditors
5.
establish subclasses of voting creditors if prior approval has been

granted by the court
Plan
129
6. specify the treatment of each class or subclass described in

subsections (d) and (e);
7. provide for equal treatment of all claims within the same class or
subclass, unless a particular creditor voluntarily agrees to less
favorable treatment;
8. ensure that the payments made under the plan follow the priority
established under the provisions of the Civil Code on concurrence
and preference of credits and other applicable laws;
9. maintain the security interest of secured creditors and preserve the
liquidation value of the security unless such has been waived or
modified voluntarily;
Plan
130
10. disclose all payments to creditors for pre-commencement debts made

during the proceedings and the justifications thereof;
11. describe the disputed claims and the provisioning of funds to account for
appropriate payments should the claim be ruled valid or its amount
adjusted;
12. identify the debtor's role in the implementation of the Plan;
13. state any rehabilitation covenants of the debtor, the breach of which
shall be considered a material breach of the Plan;
14. identify those responsible for the future management of the debtor and
the supervision and implementation of the Plan, their affiliation with the
debtor and their remuneration;
Contents of a Rehabilitation
Plan
131
15. state any rehabilitation covenants of the debtor, the breach of

which shall be considered a material breach of the Plan;
16. identify those responsible for the future management of the debtor
and the supervision and implementation of the Plan, their
affiliation with the debtor and their remuneration;
17. address the treatment of claims arising after the confirmation of
the Rehabilitation Plan;
18. require the debtor and its counter-parties to adhere to the terms of
all contracts that the debtor has chosen to confirm
19. arrange for the payment of all outstanding administrative expenses
as a condition to the Plan's approval unless such condition has been
waived in writing by the creditors concerned;
Contents of a Rehabilitation
Plan
132
20.arrange for the payment of all outstanding taxes and assessments, or

an adjusted amount pursuant to a compromise settlement with the BlR
or other applicable tax authorities;
21.include a certified copy of a certificate of tax clearance or evidence
of a compromise settlement with the BIR;
22.include a valid and binding r(,solution of a meeting of the debtor's
stockholders to increase the shares by the required amount in cases
where the Plan contemplates an additional issuance of shares by the
debtor;
23.state the compensation and status, if any, of the rehabilitation receiver
after the approval of the Plan; and
24.contain provisions for conciliation and/or mediation as a prerequisite
to court assistance or intervention in the event of any disagreement in
the interpretation or implementation of the Rehabilitation Plan.
Approval by Creditor
133
Receiver has to notice creditors and stakeholders that

Plan is ready for examination
Within 20 days, convene creditors for purpose of voting
on plans approval
deemed rejected unless approved by all classes of creditors whose
rights are adversely modified or affected by the Plan
if members of the said class holding more 50% of the total claims
of the said class vote in favor of the Plan
based solely on the amount of their respective claims based on
the registry of claims
134
Petition
Commencement Order
Initial Hearing
Give due course
to the Petition
within 90 days
Receiver to
Review/Revise/
Modify/Replace
Rehabilitation Plan
Present to Creditors
for Approval
If there are
disputes, refer to
ADR
135
Petition
Commencement Order
Initial Hearing
Give due course
to the Petition
Present to
Creditors for
Approval
Liquidation
Rejected
Cramdown
Approved
Hearing of
objections
Implementatio
n
Despite rejection, court can

still approve if:
136
1. Rehabilitation Plan complies with all the requirements of

FRIA
2. rehabilitation receiver recommends the confirmation
3. shareholders, owners or partners of the juridical debtor lose
at least their controlling interest as a result of the
Rehabilitation Plan
4. Rehabilitation Plan would likely provide the objecting class
of creditors with compensation which has a net present
value greater than that which they would have received if
the debtor were under liquidation
When to deny remedy of

rehabilitation
137
(Wonder Book vs. PBCOM (G.R. No. 187316 Jan 16,

2012
If insolvency appears to be irreversible and

whose sole purpose is to delay the
enforcement of any of the rights of the
creditor rendered obvious by the following:
1. the absence of a sound and workable business plan;
2. baseless and unexplained assumptions, targets and
goals;
3. speculative capital infusion or complete lack thereof
for the execution of the business plan;
4. cash flow cannot sustain daily operations; and
5. negative net worth and the assets are near full
depreciation or fully depreciated.
Sole Grounds for Objection to

a Plan
138
1. creditors' support was induced by fraud

2. documents or data relied upon in the Rehabilitation Plan
are materially false or misleading
3. Rehabilitation Plan is in fact not supported by the voting
creditors
Hearing on the Objections
139
Objections must be made during the relevant period

Court issues order setting time and date for the hearing
of objections
If objection is meritorious, court can either
Order Receiver to cure the defect, if feasible or
If court determines that debtor acted in bad faith, or that it is not
feasible to cure the defect, convert the proceedings into one for
the liquidation.
Confirmation of Rehab Plan
140
Issued if
no objections are filed within the relevant period
Even with objections, they lack merit or basis has been
cured
Court may confirm Rehab plan notwithstanding

unresolved disputes over claims if the
Rehabilitation Plan has made adequate provisions
for paying such claims.
Termination of Proceedings
141
Successful implementation
Failure of rehabilitation
Dismissal of the petition by the court
debtor fails to submit a Rehabilitation Plan
Even with rehab plan, there is no substantial likelihood
that the debtor can be rehabilitated within a
reasonable period commission of fraud in securing the
approval of the Rehabilitation Plan or its amendment
Analogous circumstances.
Termination of Proceedings: Failure to

complete rehab proceeding within 1
year
142
the RTC erred in giving due course to the petitioners action.
utterly disregarded the Rules on Corp Rehabn in the guise of liberal

construction and granted the petition for rehabilitation based on insufficient
evidence.
NBC inventory did not mention the condition of its listed assets and merely
enumerated certain real properties and their respective sizes and market
values.
Rehab court should have dismissed the petition as it had not approved any
rehabilitation plan within the period specified by law.
when petitioner declined to comply with the simpler rules of rehabilitation,

when the documentation of its assets were inadequate, and the when the
creditors opposition offered insurmountable basis for shelving the entire effort.
. . obviously, its continued operation would no longer be viable.
(North Bulacan Corporation vs. PBCOM, G.R. No. 183140, August 2, 2010)
143
Petition
Commencement Order
Initial Hearing
Give due course
to the Petition
Presentation of Rehab
Plan to Creditors
Approval
Implementatio
n
Liquidation
Failure
Successful
Restored
Effects of Confirmation
of Rehab Plan
144
binding upon all affected parties debtor, creditors whether

they participated in the proceedings or opposed the Plan or
whether or not their claims have been scheduled.
Debtor has to carry out the plan
Payments shall be made according to the provisions of the Rehab
Plan
Contracts and other arrangements between the debtor and its
creditors to be interpreted as continuing to apply to the extent
that they do not conflict with the provisions of the Rehabilitation
Plan
Effects of Confirmation of
Rehab Plan
145
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
claims arising after approval of the Plan that are
otherwise not treated by the Plan are not subject to any
Suspension Order.
Remedies when rehab plan is

approved
146
Motion to dismiss in the SC is not

appropriate when rehab plan has already
been approved by rehabilitation court and
in fact already being implemented.
BPI vs. Shemberg Biotech Corporation,

G.R. No. 162291, August 11, 2010
147
Proper Mode of Appeal

proper mode of appeal is through a petition for certiorari
to the Court of Appeals under Rule 65 of the Rules of
Court within fifteen (15) days from notice of the decision
or order, based on Section 2, Rule 6, FR Rules modifying
the Courts ruling in New Frontier Sugar Corporation v.
RTC, Branch 39, Iloilo City which previously held that the
proper mode of appeal in cases of corporate
rehabilitation is through a petition for review under Rule
43 of the Rules of Court to be filed within fifteen (15)
days from notice of the decision or final order of the RTC.
China Banking Corporation vs. Cebu Printing and
Packaging Corporation, G.R. No. 172880, August 11, 2010
Liquidation vs.
Corporate Rehabilitation
all about deciding who to pay, in what order to pay,

and how much to pay in an efficient and equitable
manner
efficiency and equity sometimes may be competing

policy goals
the way a country pursues those goals, insolvency

law says a lot about the attitudes of its legal system
The Pro Debtor Pro Creditor

Continuum
Different countries implement the doctrines
differently.
how pro-debtor or pro-creditor is the countrys
bankruptcy regime?
a pro-debtor regime encourages
entrepreneurial risk-taking.
a pro-creditor regime encourages the provision
of liquidity to business.

Continuum
What is a pro-debtor regime?
one that dwells on increasing the size of the debtors
estate by destroying creditor rights.
every effort is made to maximize the value of the
debtors assets for ultimate distribution to creditors.
debtors and their employees ought to be saved, and if
need be, all creditors ought to contribute to this
rescue.

Continuum
What is a pro-creditor regime?
connotes that creditors ought to be able to avoid
losses that result from the default of a debtor.
allows creditors to avail themselves of protection
through security interests and set-offs.
allows a wide class of third party owners to claim
their property held by the bankrupt ahead of other
creditors.

Continuum
operating at either extreme on the continuum
is problematic.
credit may be hard to come by for many firms in a
pro-debtor regime, simply because lending
institutions fear the all-too-favorable rules for
debtors.
rules that are skewed too far in favor of creditors
hardly create an environment friendly for
entrepreneurs.

Continuum
Hong
Kong
and
Singa
pore
Most 1
ProCreditor
Germany,
Netherlands,
Sweden,
Switzerland
2
Australia,
England,
and
Ireland
Canada
and the
United
States
Japan,
Korea, New
Zealand,
Norway,
and
Scotland
Belgium and
Luxembourg
Italy
6
Austria,
Denmark,
and South
Africa
8
Greece,
Portugal,
Spain, and
most Latin
America
countries
Most
10 ProDebtor
France

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Court Supervised

Prof. Maria Lulu G. Reyes

On the Brink Corporation

On the Brink Corporation

recently announced that it has developed a fuel

announcement was supported with various

3. Stoppage of work and supplies

invention is worth millions of

On the Brink Corporation

What are the options available to OtBC?

OtBC can meet with its

OtBC can meet with its

OtBC can meet with its

Ask for time to find white

OtBC can meet with its

OtBC can meet with its

OtBC can meet with its

OtBC can meet with its

Approval or endorsement of creditors holding at least 2/3 of the total

OtBC can meet with its

OtBC met with its

OtBC met with its

OtBC met with its

OtBC met with its

OtBC met with its

The Remedy of Liquidation

the historical and traditional

The Remedy of Liquidation:

Economic theory behind

Legal Theory Behind Liquidation

Corporate Rehabilitation Proceedings

Economic Theory Behind

there is greater value and greater benefit for creditors in the

Legal Justification Behind

facilitates quick and easy

provides sufficient protection

provides a structure which

Legal Justification for

Enables a majority of creditors to bind all other

Provides for judicial or other supervision to ensure

Enables the emphasis on the concept of the

Debt Relief Proceedings:

Debt Relief Proceedings:

Republic Act No.10142 Financial Rehabilitation

Passed by Congress in February 2010

Financial Rehabilitation and

Declared Policy of FRIA

Proceedings initiated are considered in rem, summary, and

Rehabilitation proceedings are summary and non

Rehabilitation is xxx available to a corporation who,

remedy should be denied to corporations whose insolvency

Court Supervised Rehabilitation

Definition of Claim under FRIA

all claims of the government, whether national or local, including taxes,

Voluntary Petition for

2. The rehabilitation or continuation of operations is

The following has to be

Involuntary Petition for

[Sec. 13, FRIA; FR Rule 2, Sec. 4]

f. Exact address at which documents regarding the debtor

Court action on the

Court action on the Petition

such documents as may be necessary or proper to put the

Court action on the Petition