FRIA Chapter 2

8/16/2019 FRIA Chapter 2

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FINANCIAL

REHABILITATION

AC

NSOLVENC

CHAPTER 2


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+ Insolvent debtor may file petition for rehabilitation

+ Approved

• Owner of a Sole Proprietorship

• Majority of Partners

• Majority of BOD and authorized by:

- 2/3 of outstanding capital stock

- 2/3 of members

INITIAL PROCEEDINGS

VOLUNTARY

PETITION TO INITIATE VOLUNTARYPROCEEDINGS BY DEBTOR


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+ Minimum for verification:

• Identification of the debtor

• Statement of fact and cause of debtor’s insolvency

•

Specific relief pursued• Grounds upon which the petition is based

• Other information required

• Schedule of debtor’s debts and liabilities

• Inventory of debtor’s assets

INITIAL PROCEEDINGS

VOLUNTARY



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+ Minimum for verification:

• Rehabilitation Plan

•

Names of at least 3 nominees to the rehabilitation rece• Other documents required

INITIAL PROCEEDINGS

VOLUNTARY



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+ Group of debtors may jointly file when:

• One or more of its members foresee the impossibility of me

debts when they respectively fall due

• Financial distress would likely affect the financial conditionand/or operations

INITIAL PROCEEDINGS

VOLUNTARY



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Creditor/Group of creditors with a claim/aggregate cla

at least Php 1M or at least 25% of subscribed capital stpartners’ contributions, whichever is higher

INITIAL PROCEEDINGS

INVOLUNTARY

CIRCUMSTANCES NECESSARY TOINITIATE


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• No genuine issue of fact on law on the claim/s of the petitio

due and demandable payments thereon have not been mad

at least 60 days, or debtor has generally failed to meet lia

as they fall due• Creditor, other than petitioner/s, initiated foreclosure proce

against the debtor that will prevent debtor from paying his

debts as they become due/will render him insolvent

INITIAL PROCEEDINGS

INVOLUNTARY

CIRCUMSTANCES NECESSARY TOINITIATE


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• Identification of the debtor its principal activities and its ad

• The circumstances sufficient to support a petition to initiate

involuntary rehabilitation proceedings

•

The specific relief sought• Rehabilitation Plan

• Names of at least 3 nominees for rehabilitation receiver

• Other information that may be required

• Other documents required to be filed

INITIAL PROCEEDINGS

INVOLUNTARY

PETITION TO INITIATEINVOLUNTARY PROCEEDINGS


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+If sufficient in form and in substance

• Issue Commencement Order within 5 working day

filing of petition

ACTION ON PETITION

+


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+If deficient in form or substance:

• Court may give petitioner/s a reasonable period of

to amend or supplement petition, or submit document

necessary

• Issue Commencement Order within 5 working days fr

date of filing amended or supplemental

petition/submission of documents

ACTION ON PETITION

+


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+Commence upon issue of Commencement Order, which shal

• Identify the debtor

• Summarize the ground/s for initiating the proceedings

• State the relief sought after

• State the legal effects

• Declare that the debtor is under rehabilitation• Direct the publication of the Commencement Order

• once a week for at least 2 consecutive weeks

• first publication to be made within (7) days

COMMENCEMENT OF

PROCEEDINGS


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• Petitioner is the debtor: delivery a copy of the petition t

creditor holding at least 10% of the total liabilities of the

within 5 days

• Petitioner is the creditor: deliver the petition within 5 da

• Appoint a rehabilitation receiver• Summarize the requirements and deadlines for credito

direct them to their claims with the court at least 5 days

COMMENCEMENT OF

PROCEEDINGS


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• Direct Bureau of internal Revenue (BIR) to file and serve on

debtor its comment on or opposition to the petition or its cla

against the debtor under such procedures as the Supreme C

provide

• Prohibit the debtor's suppliers of goods or services fromwithholding the supply of goods and services

• Authorize the payment of administrative expenses

COMMENCEMENT OF

PROCEEDINGS


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• Set the case for initial hearing, which shall not be more tha

days from the date of filing

• Make available copies of the petition and rehabilitation pl

examination and copying by any interested party

• Indicate the locations at which documents regarding the deand the proceedings under Act may be reviewed and copie

• State that any creditor or debtor who is not the petitioner,

submit the name or nominate any other qualified person

COMMENCEMENT OF

PROCEEDINGS


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+Vest rehabilitation with all powers and functions

+Prohibit or otherwise serve as legal basis rendering null and

results of any extrajudicial activity against debtor after

commencement date+Serve as legal basis for rendering null and void:

• Any setoff of debt owed to debtor of debtor’s creditors

• Perfection of any lien against debtor’s property

EFFECTS OF THE

COMMENCEMENT ORDER

IN ADDITION TO THE EFFECTS OFTHE STAY/SUSPENSION ORDER


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+Consolidate resolution of all legal proceedings by and a

the debtor to the court

• Court may allow continuation of cases on other courts wdebtor initiated the suit

EFFECTS OF THE

COMMENCEMENT ORDER



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+Attempts to seek legal of other resource against the debto

outside these proceedings shall be sufficient to support a fiof indirect contempt of court

EFFECTS OF THE

COMMENCEMENT ORDER



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+Cases already pending appeal as of commencement date

• Any final and executory judgment arising from such appea

be referred to the court for appropriate action

+Subject to court’s discretion, cases pending/filed at a specialicourt or quasi-judicial agency

• Any final and executory judgment shall be referred to the

and shall be treated as a non-disputed claim

EFFECTS OF THE

COMMENCEMENT ORDEREXCEPTIONS TO THE

STAY/SUSPENSION ORDER


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+Enforcement of claims against:

• Sureties and other persons solidarily liable with debtor

• Third party/accommodation mortgagors

• Issuers of letters of credit

EFFECTS OF THE




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+To any form of action of customers or clients of a securities m

participant to recover or otherwise claim moneys and securities

entrusted to the latter in the ordinary course of the latter's busine

well as any action of such securities market participant or theappropriate regulatory agency or self-regulatory organization to

or settle such claims or liabilities

EFFECTS OF THE




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+To the actions of a licensed broker or dealer to sell p

securities of a debtor pursuant to a securities pledge or

agreement for the settlement of securities transactions

+The clearing and settlement of financial transactions throufacilities of a clearing agency or similar entities duly auth

registered and/or recognized

EFFECTS OF THE




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+Any criminal action against:

• Individual debtor or owner

• Partner

• Director• Officer

EFFECTS OF THE




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+Shall apply to government financial institutions

+Notwithstanding provisions in their charters or other laws

the contrary

EFFECTS OF THE

COMMENCEMENT ORDERAPPLICATION OF STAY/SUSPENSION ORDER

TO GOV FINANCIAL INSTITUTIONS


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Unless lifted by court, effective for the duration of the

rehabilitation proceedings for as long as there is a substa

likelihood that the debtor will be successfully rehabilitated

EFFECTS OF THE

COMMENCEMENT ORDEREFFECTIVITY AND DURATION OF

COMMENCEMENT ORDER


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+Minimum requirements to determine substantial likelihood:

• Proposed Rehabilitation Plan submitted

• Sufficient monitoring by the Rehabilitation Receiver

• Debtor has met with its creditors to reach consensus on theRehabilitation Plan

• Rehabilitation receiver submits a report stating that

Plan is reasonable or if not, there is a substantial likelihood

EFFECTS OF THE


COMMENCEMENT ORDER


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+Minimum requirements to determine substantial likelihood:

• The Petition, Plan, and the attachments do not contain mate

false or misleading statement

• If the petitioner is a debtor, he has met with its creditorsrepresenting ¾ of its total debt to reach consensus

• Debtor has not committed acts misrepresentation or in fraud

EFFECTS OF THE


COMMENCEMENT ORDER


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+At the initial hearing, the court shall:

• Determine the creditors who have made timely and proper

of their notice of claims

• Hear and determine any objection to the qualifications of tappointment of the rehabilitation receiver and, if necessary

appoint a new one in accordance with this Act

EFFECTS OF THE

COMMENCEMENT ORDERACTION AT THE INITIAL

HEARING


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+At the initial hearing, the court shall:

• Direct the creditors to comment on the petition and the

Rehabilitation Plan, and to submit the same to the court and

rehabilitation receiver within a period of not more than 20• Direct the rehabilitation receiver to evaluate the financial

condition of the debtor and submit to the court within 40 da

EFFECTS OF THE

COMMENCEMENT ORDERACTION AT THE INITIAL

HEARING


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+A creditor:

• Whose claim is not listed in the schedule of debts and liabi

• Fails to file a notice of claim in accordance with Commence

Order• Subsequently files belated claim

shall not be entitled to participate in rehabilitation proceeding

but is entitled to distributions therefrom

EFFECTS OF THE

COMMENCEMENT ORDEREFFECT OF FAILURE TO FILE

NOTICE OF CLAIM


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+Shall submit a report to court within 40 days from initial hearin

• the causes of insolvency and any unlawful or irregular act o

committed which may have contributed to the insolvency

• underlying assumptions, financial goals and procedures• there is a substantial likelihood to be successfully rehabilita

• the petition should be dismissed

• the debtor should be dissolved and/or liquidated

EFFECTS OF THE

COMMENCEMENT ORDERREPORT OF THE

REHABILITATION RECEIVER


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+Within 10 days from receipt of previously mentioned report the

may:

• Give due course to the petition upon a finding that:

• The debtor is insolvent• There is a substantial likelihood to be successfully

rehabilitated

EFFECTS OF THE

COMMENCEMENT ORDERGIVING DUE COURSE TO OR DISMISSAL OF

PETITION OR CONVERSION OF PROCEEDINGS


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+Within 10 days from receipt of the report the court may:

• Dismiss the petition upon finding that:

• Debtor is not insolvent

• Petition is a sham filing intended only to delay the enforce

of the rights of the creditor/s

• Petition, the Rehabilitation Plan and the attachments there

contain any materially false or misleading statements

• Debtor has committed acts of misrepresentation or in frau

EFFECTS OF THE




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+Within 10 days from receipt of the report the court may:

• Convert the proceedings into one for liquidation:

• Debtor is insolvent

• There is no substantial likelihood for the debtor to be succ

rehabilitated

EFFECTS OF THE




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+The court shall direct the Rehabilitation Receiver to:

• Review, revise and/or recommend action on the Rehabilitat

Plan

• Submit within 90 days the same or a new one

+The court may refer any dispute relating to the rehabilitation pproceedings to arbitration or other modes of dispute resolution

EFFECTS OF THE

COMMENCEMENT ORDERPETITION GIVEN DUE COURSE


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REHABILITATION

RECEIVER

+Any qualified natural or juridical person

+If juridical:

• Designate natural person/s who possesses all qualifications

none of the disqualifications as its representatives

•

Juridical entity and representatives are SOLIDARILY liable obligations and responsibilities as Rehabilitation Receiver

WHO MAY SERVE


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REHABILITATION

RECEIVER

+Citizen or resident for at least 6 months

+Good moral character, with knowledge in integrity, impartiality

independence

+Requisite knowledge of insolvency and relevant commercial la

+No conflict of interest

• May be waived by party prejudiced thereby+Other qualifications set forth in procedural rules

QUALIFICATIONS


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REHABILITATION

RECEIVER

+Appointed by the court

+May or may not be among nominees

+Creditor and debtor who are not petitioners may nominate oth

• Court may retain initially appointed or appoint another

+If debtor is a securities market participant, court shall give prithe nominee of the securities/investor protection fund

• Nominated by >50% with satisfactory evidence such will

be appointed

INITIAL APPOINTMENT


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• To verify the accuracy of the factual allegations

• To verify and correct, if necessary, the inventory of all of th

assets of the debtor, and their valuation

• To verify and correct, if necessary, the schedule of debts a

liabilities of the debtor• To evaluate the validity, genuineness and true amount of al

claims against the debtor

POWERS, DUTIES AND RESPONSIBILITIES

REHABILITATION

RECEIVER


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• To take possession, custody and control, and to preserve the

of all the property of the debtor

• To sue and recover all amounts owed to, and all properties

pertaining to the debtor

• To have access to all information necessary• To sue and recover all property or money of the debtor pa

fraud, or which constitute undue preference of creditor/s


REHABILITATION

RECEIVER


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• To monitor the operations and business of the debtor

• With court’s approval, to engage the services of or to emp

persons or entities to assist him in the discharge of his functi

• To determine the manner by which the debtor may be best

rehabilitated• To review, revise, and/or recommend action on the Plan and

submit the same or a new one to the court for approval


REHABILITATION

RECEIVER


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• To implement the Rehabilitation Plan

• To assume and exercise powers of management of the deb

• To exercise such other powers as may be conferred upon hi

the court

•To submit a status report on the proceedings every quartermay be required by the court motu proprio, upon motion of

creditor, or as may be provided in the Plan


REHABILITATION

RECEIVER


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Unless appointed by the court, pursuant to Section 36 hereof

rehabilitation receiver shall not take over the management a

control of the debtor but may recommend the appointment o

management committee over the debtor in the cases provide

this Act


REHABILITATION

RECEIVER


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+May be removed by the court motu proprio or by creditor/s ho

more than 50% of the total obligations

+Grounds (not exclusive):

• Incompetence, gross negligence, failure to perform or failur

exercise the proper degree of care• Lack of a particular or specialized competency required by

specific case

REMOVALS

REHABILITATION

RECEIVER


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+Grounds (not exclusive):

• 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

• Manifest lack of independence that is detrimental to the

general body of the stakeholders

REMOVALS

REHABILITATION

RECEIVER


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+Entitled to compensation for reasonable fees and expense

from the debtor according to terms approved by the court a

notice and hearing

+Prior to hearing, reasonable compensation based on qua

meruit

+Considered administrative expenses

REHABILITATION

RECEIVER

COMPENSATION AND TERMS OF SERVICE


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REHABILITATION

RECEIVER

Prior to entering powers, duties and responsibilities

oath and file a bond in an amount fixed by court

OATH AND BOND


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REHABILITATION

RECEIVER

+Court shall direct the debtor and the creditors to s

the name/s of their nominee/s

+Court appoints, which may or may not be fro

nominees

VACANCY


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REHABILITATION

RECEIVER

Court may appoint Rehabilitation Receiver or Management Comm

to assume powers of of the debtor upon evidence of the followin

• Actual or imminent danger of dissipation, loss, wastage or

destruction of the debtor’s assets or other properties

•

Paralyzation of the business operations of the debtor• Gross mismanagement of the debtor or fraud or other wro

conduct on the part of, or gross or willful violation of this A

by existing management of the debtor

DISPLACEMENT OF EXISTING MANAGEMENT


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REHABILITATION

RECEIVER

+If directed by the court to assume powers of managem

of the debtor, court may:

• Require receiver to post an additional bond;

• Authorize him to engage the services or to employ

persona or entities to assist him in the discharge of hmanagerial functions

• Authorize a commensurate increase in his compensati

POWERS OF MANAGEMENT


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MANAGEMENT

COMMITTEE

• When appointed, take place of the management a

the governing body of the debtor

• Assume their rights and responsibilities

•

Specific powers and duties as prescribed by procerules

ROLE


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MANAGEMENT

COMMITTEE

• Set forth in procedural rules

• Consider nature of the business of the debtor and t

need to protect the interest of all stakeholders conc

QUALIFICATIONS OF MEMBERS


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MANAGEMENT

COMMITTEE

+Upon approval of the court, after notice and hearing, Rehabilita

Receiver or Management Committee may employ specialized

professionals and other experts to assist them in their duties.

+Will be considered either as employees or independent contra

+Qualifications are similar to those for members of the Manage

Committee

EMPLOYMENT OF PROFESSIONALS


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MANAGEMENT

COMMITTEE

+So situated as to be materially influenced in the exercise of h

judgment for or against any party of the proceedings

+Including, but not limited to:

• Creditor, owner, partner or stockholder of the debtor;

• Engaged in a line of business which competes with that of t

debtor;• Is, or was, within 5 years from the filing of the petition, a d

officer, owner, partner or employee of the debtor or any o

creditors, or the auditor or accountant of the debtor

CONFLICT OF INTEREST


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MANAGEMENT

COMMITTEE

• Is, or was, within two (2) years from the filing of the petition

underwriter of the outstanding securities of the debtor;

• Related by consanguinity or affinity within the fourth civil d

to any individual creditor, owners of a sale proprietorship-d

partners of a partnership- debtor or to any stockholder, di

officer, employee or underwriter of a corporation-debtor;

• Has any other direct or indirect material interest in the deb

any of the creditors.



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MANAGEMENT

COMMITTEE

+Cannot be appointed as a Rehabilitation Receiver or member o

Management Committee

+Any Rehabilitation Receiver, member of the Management Comm

or those employed or contracted by them with COI must make th

appropriate disclosure to the court or to the creditors

+Any party to the proceeding adversely affected by such may w

right to object to such appointment

If waive is unreasonably withheld, court may disregard the CO



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MANAGEMENT

COMMITTEE

Rehabilitation Receiver, members of the Manag

Committee, and persons employed or contracted by

shall not be subject to any claim, action, or dema

connection with acts or omissions done by them infaith in the exercise of their powers and functions

IMMUNITY


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CREDITORS

COMMITTEE

+Creditors belonging to a class may formally organize after the

creditors’ meeting pursuant to Sec. 63

+May be composed of a representative from each class of cred

• Secured creditors

• Unsecured creditors

• Trade creditors and suppliers• Employees of the debtor

+In the election of representative, rehabilitation receiver or his

representative may attend and extend assistance

FORMALIZATION AND COMPOSITION


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CREDITORS

COMMITTEE

+Assist the rehabilitation receiver in communicating to creditors

+Primary liaison between receiver and creditors

+May be authorized by the court or by the receiver to perform s

other tasks and function

+Cannot waive or exercise any right or give any consent on be

of any creditor unless specifically authorized in writing by such cr

ROLE


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DETERMINATION

OF CLAIMS

+Established by rehabilitation receiver within 20 days after

assumption into office

+Available for public inspection and provide notice to debtor,

creditors, and stakeholders on when and where they may inspect

+All claims in the registry must be supported by sufficient evide

REGISTRY OF CLAIMS


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DETERMINATION

OF CLAIMS

+Within 30 days after expiration of the 20-day period, the deb

creditors, stakeholders and other interested parties may submit

challenge to claim/s to the court

+Upon expiry of the 30-day period, rehabilitation receiver shal

submit to court registry of claims which include undisputed claim

subject to challenge

OPPOSITION OR CHALLENGE OF CLAIMS

DETERMINATION


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OF CLAIMS

+Any decision of the rehabilitation receiver regarding

claim may be appealed to the court

APPEAL

GOVERNANCE


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+

+Unless otherwise provided, management of the juridical debtor

remain with existing management subject to applicable law/s a

agreement/s, if any, on the election or appointment of directors,

managers, or managing partner

+Disbursements, payments or sale, disposal, assignment, transfer

encumbrance of property, any other act affecting title/interest in

property will be subject to approval of rehabilitation receiver

and/or court

MANAGEMENT

USE, PRESERVATION DISPOSAL


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& TREATMENT OF ASSETS

+Except as otherwise provided, no funds or property of the deb

shall be used or disposed of except:

• In the ordinary course of business

• Unless necessary to finance administrative expenses of

rehabilitation proceedings

USE OR DISPOSITION OF ASSETS



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+The court, upon application of receiver, may authorize sale of

unencumbered property of debtor outside ordinary course of th

business if shown:

• Perishable

• Costly to maintain

• Susceptible to devaluation or otherwise in jeopardy

SALE OF ASSETS



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+May be authorized by court upon application of receiver and

the consent of affected owners or secured creditors, after notice

hearing, if it is determined that:

• Such sale, transfer, conveyance or disposal is necessary for

continued operation of debtor’s business

• Debtor has made arrangements to provide a substitute lien

ownership right

SALE OR DISPOSAL OF ENCUMBERED

PROPERTY OF THE DEBTOR



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+Sale/disposal under such section shall not give rise

criminal liability

SALE OR DISPOSAL OF ENCUMBERED

PROPERTY OF THE DEBTOR



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Shall not transfer, convey or otherwise dispose to perso

other than the debtor, unless upon prior approval of t

rehabilitation receiver

ASSETS OF DEBTOR HELD BY THIRD

PARTIES



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+Rehabilitation receiver may also:

• Demand the surrender or the transfer of the possession or

of such property to the rehabilitation receiver or any other

person, subject to payment of the claims secured by anypossessory Iien/s thereon


PARTIES



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• Allow said third parties to retain possession or control, if su

arrangement would more likely preserve or increase the va

the property in question or the total value of the assets of tdebtor


PARTIES



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• Undertake any other disposition of the said property as m

beneficial for the rehabilitation of the debtor, after notice

hearing, and approval of the court


PARTIES



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+Court may rescind or declare null and void any sale, payment

transfer/conveyance which is not in the ordinary course of bus

+Unencumbered property may be sold, encumbered or otherwi

disposed of upon order of the court after notice and hearing:

• If such are in the interest of administering the debtor andfacilitating the preparation and implementation of a

Rehabilitation Plan

RESCISSION OR NULLITY OF SALE, PAYMENT,

TRANSFER OR CONVEYANCE OF ASSETS



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• In order to provide a substitute lien, mortgage or pledge

property under this Act

• For payments made to meet administrative expenses• For payments to victims of quasi delicts upon a showing th

claim is valid and the debtor has insurance to reimburse





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• For payments made to repurchase property of the debtor

auctioned off in a judicial or extrajudicial sale

• For payments made to reclaim property of the debtor heldpursuant to a possessory lien





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+Upon application of a secured creditor, the court shall order to

reasonable steps necessary to prevent the depreciation

+If cannot be avoided, the court shall:

• Allow the encumbered property to be foreclosed upon by

secured creditor according to the relevant agreement• Provided. That the proceeds of the sale will be distribut

in accordance with the order prescribed

ASSETS SUBJECT TO RAPID OBSOLESCENCE,

DEPRECIATION, AND DIMINUTION OF VALUE



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• Order the conveyance of a lien against or ownership int

in substitute property of the debtor to the secured credito

• Provided: That other creditors holding liens on such pro

do not object thereto or if such property is not availabl





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• Order the conveyance to the secured creditor or holder of

ownership interest of a lien on the residual funds

• Allow the sale or disposition of the property

• Provided: That the sale or disposition will maximize the of the property, and the proceeds of the sale will be

distributed in accordance with the order prescribed



GOVERNANCE


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+

Determined and provided for in the approved Rehabi

Plan

POST-COMMENCEMENT INTEREST




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+With approval of the court, upon recommendation of the

rehabilitation receiver, debtor may:

• Enter into credit arrangements

• Enter into credit arrangements, secured by mortgages of i

unencumbered property or secondary mortgages ofencumbered property with the approval of senior secured

parties with regard to the encumbered property

POST-COMMENCEMENT LOANS AND

OBLIGATIONS




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+With approval of the court, upon recommendation of the

rehabilitation receiver, debtor may:

• Incur other obligations as may be essential for its rehabil

+Payment of the foregoing obligations are administrative expen

POST-COMMENCEMENT LOANS AND

OBLIGATIONS




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+Compensation of employees required to carry on business =

administrative expenses

+Claims of separation pay for work prior to commencement da

pre-commencement claim

+Claims for salary and separation pay after commencement da

administrative expenses

TREATMENT OF EMPLOYEES, CLAIMS




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+Unless cancelled, all valid and subsisting contracts of the debtor

creditors and other third parties as at the commencement date sh

remain in force

+Within 90 days from commencement of proceedings, debtor, wi

consent of rehabilitation receiver, shall notify each contractual

counter-party for confirmation of particular contracts• If not confirmed within said period, considered terminated

TREATMENT OF CONTRACTS




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+Claims for actual damages, if any, arising from election of term

of contract = pre-commencement claim

+Contractual obligations arising or performed during said perio

afterwards for confirmed contracts = administrative expenses

+Nothing contained herein shall prevent cancellation/terminatio

any contract of the debtor for any ground provided by law

TREATMENT OF CONTRACTS

AVOIDANCE

PROCEEDINGS


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+May be rescinded or declared null and void on the ground the

transaction was executed with the intent to defraud a

creditor/creditors, or which constitute undue preference of cred

+Disputable presumption of such shall arise if:

• Provides unreasonably inadequate consideration to the deand is executed within ninety (90) days prior to the

commencement date

RESCISSION OR NULLITY OF CERTAIN PRE-

COMMENCEMENT TRANSACTIONS

PROCEEDINGS

AVOIDANCE

PROCEEDINGS


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+Disputable presumption of such shall arise if:

• Involves an accelerated payment of a claim to a creditor w

90 days prior to the commencement date

• Provides security or additional security executed within (90

prior to the commencement date• Involves creditors, where a creditor obtained, or received t

benefit of, more than its pro rata share in the assets

RESCISSION OR NULLITY OF CERTAIN PRE-

COMMENCEMENT TRANSACTIONS

PROCEEDINGS

AVOIDANCE

PROCEEDINGS


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+The rehabilitation receiver or, with his conformity, any creditor m

initiate and prosecute any action to rescind, or declare null and

any transaction described in Section 58 hereof

• If the rehabilitation receiver does not consent to the filing o

prosecution of such action

+The rehabilitation receiver shall assign and transfer to the credirights, title and interest in the chose in action or subject matter of

proceeding, including any document in support thereof

ACTIONS FOR RESCISSION OR NULLITY

PROCEEDINGS

AVOIDANCE

PROCEEDINGS


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+Any benefit derived from a proceeding taken, to the extent of h

claim and the costs, belongs exclusively to the creditor instituting

proceeding, and the surplus, if any, belongs to the estate

+Where the rehabilitation receiver (or liquidator) signifies to t

court his readiness to institute the proceeding for the benefit of

creditors, the order shall fix the time within which he shall do so that case, the benefit derived from the proceeding, if instituted w

the time limits so fixed, belongs to the estate

ACTIONS FOR RESCISSION OR NULLITY

PROCEEDINGS

TREATMENT OF

SECURED CREDITORS


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+Issuance of Commencement Order or Stay/Suspension Order an

other provision of this act shall not be deemed to diminish or im

the security/lien/value of security or lien of secured creditor

+Only right to enforce such security/lien may be suspended dur

term of Stay Order

+Exception:

• Court may allow enforcement of security/lien or foreclosur

property if the property is NOT necessary for the rehabilit

NO DIMINUTION OF SECURED CREDITOR

RIGHTS

SECURED CREDITORS

TREATMENT OF

SECURED CREDITORS


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+Secured creditor and other lien holder/s shall be admitte

the proceedings only for the balance of his claim

NO DIMINUTION OF SECURED CREDITOR

RIGHTS

SECURED CREDITORS

AVOIDANCE

PROCEEDINGS


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+Court may terminate, modify/set conditions for the continuance

suspension of payment, or relieve a claim from the coverage ther

• Creditor does not have adequate protection over property

o Debtor fails or refuses to honor a pre-existing agreem

o Debtor fails or refuses to take commercially reasonab

steps to maintain the propertyo Property has depreciated to an extent that the creditor

under secured

LACK OF ADEQUATE PROTECTION

PROCEEDINGS

AVOIDANCE

PROCEEDINGS


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+Court may terminate, modify/set conditions for the continuance

suspension of payment, or relieve a claim from the coverage ther

• The value of a claim secured by a lien on property which is

necessary for rehabilitation of the debtor exceeds the fair

market value of the said property


PROCEEDINGS

AVOIDANCE

PROCEEDINGS


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+Upon showing lack of protection:

• Court shall order debtor/rehabilitation receiver to make

arrangements to provide for the insurance/maintenance o

property, or to make payments, or provide security

• If such arrangements are not feasible, court may modify S

Order• Court may deny such remedies to creditor if the property

necessary for the rehabilitation of the debtor


PROCEEDINGS

ADMINISTRATION

OF PROCEEDINGS


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• Specify the underlying assumptions, the financial goals and procedures proposed to accomplish such goals;

• Compare the amount to be received by the creditors with thos

they will receive if liquidation ensues within the next 120 days

• Contain information sufficient to give the various classes of

creditors a reasonable basisfor determining whether

support

Plan is in their financial interest when compared to the immed

liquidation of the debtor, including any reduction of principal in

and penalties payable to the creditors

CONTENTS OF A REHABILITATION PLAN

OF PROCEEDINGS

ADMINISTRATION

OF PROCEEDINGS


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• Establish classes of voting creditors• Establish subclasses of voting creditors

• Indicate how the insolvent debtor will be rehabilitated includ

but not limited to, debt forgiveness, debt rescheduling, reorgan

or quasi-reorganization, dacion en pago, debt-equity conversio

sale of the business (or parts of it) as a going concern, or settin

of a new business entity or other similar arrangements as may

necessary to restore the financial well-being and visibility of th

insolvent debtor


OF PROCEEDINGS

ADMINISTRATION

OF PROCEEDINGS


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• Specify the treatment of each class or subclass• Provide for equal treatment of all claims within the same clas

subclass, unless a particular creditor voluntarily agrees to less

favorable treatment

• Ensure that the payments made under the plan follow the prio

established

• Maintain the security interest of secured creditors and preserv

liquidation value of the security unless such has been waived or

modified voluntarily


ADMINISTRATION

OF PROCEEDINGS


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• Disclose all payments to creditors for pre-commencement debmade during the proceedings and the justifications thereof

• Describe the disputed claims and the provisioning of funds t

account for appropriate payments should the claim be ruled va

its amount adjusted

• Identify the debtor's role in the implementation of the Plan

• State any rehabilitation covenants of the debtor, the breach o

which shall be considered a material breach of the Plan



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ADMINISTRATION

OF PROCEEDINGS


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• Arrange for the payment of all outstanding taxes andassessments, or an adjusted amount pursuant to a compromise

settlement with the BlR Or other applicable tax authorities

• Include a certified copy of a certificate of tax clearance or ev

of a compromise settlement with the BIR

• Include a valid and binding resolution of a meeting of the d

stockholders to increase the shares by the required amount in

where the Plan contemplates an additional issuance of shares b

debtor


ADMINISTRATION

OF PROCEEDINGS


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+If the court gives due course to the petition, rehabil

receiver may confer with the debtor and all class

creditors

+May consider their view for the review, revisio

preparation of a new Plan

CONSULTATION WITH DEBTOR AND

CREDITOR

ADMINISTRATION

OF PROCEEDINGS


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+Rehabilitation receiver shall notify the debtor and stakeholde

the plan is ready for examination

+Within 20 days from such notice, convene creditors as a whole

class for purposes of voting for the approval of the Plan

+Votes of creditors are based solely on the amount of their claim

+Plan is deemed:• Approved by a class of creditors = creditors who hold mo

50% of claims in such class are in favor

CREDITORS’ APPROVAL

ADMINISTRATION

OF PROCEEDINGS


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+Plan is deemed:• Rejected, unless all classes of creditors whose rights are ad

affected by the Plan approve

• Notwithstanding rejection, may be approved by the court i

the following are present:

a) The Rehabilitation Plan complies with the requi

specified in this Act

b) The rehabilitation receiver recommends the confirma

the Rehabilitation Plan


ADMINISTRATION

OF PROCEEDINGS


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• Notwithstanding rejection, may be approved by the court i

the following are present:

c) The shareholders, owners or partners of the juridical

lose at least their controlling interest as a result of the P

d) The Rehabilitation Plan would likely provide the obje

class of creditors with compensation which has a net prevalue greater than that which they would have received i

the debtor were under liquidation


ADMINISTRATION

OF PROCEEDINGS


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+Receiver shall submit Plan if approved

+Within 5 days from receipt, court shall notify creditors that:

• Plan has been submitted for confirmation

• They may obtain copies of the Plan

• They may file an objection thereto

SUBMISSION TO THE COURT

ADMINISTRATION

OF PROCEEDINGS


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+Creditor may file an objection to the Rehabilitation Plan

20 days from receipt of notice

+Limited to the following:

• Creditors' support was induced by fraud

• Documents or data relied upon in the Rehabilitation Pl

materially false or misleading• Rehabilitation Plan is in fact not supported by the

voting creditors

FILING OF OBJECTIONS

ADMINISTRATION

OF PROCEEDINGS


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+The court shall issue an order setting the time and date

hearing

+If the court find merit in the objections, it shall ord

rehabilitation receiver or other party to cure the defect, wh

feasible

+If the court determines that the debtor acted in bad faith, oris not feasible to cure the defect, the court shall convert

the proceedings into one for the liquidation of the debtor

HEARING ON THE OBJECTIONS

ADMINISTRATION

OF PROCEEDINGS


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+Court issues order for confirmation of the Plan, notwithst

unresolved disputes over claims if the Plan has made ad

provisions for paying such claims

+For the avoidance of doubt the court shall have the power to a

or implement the Plan despite the lack of approval, or objectio

the owners, partners or stockholders of the insolvent debtor• Terms thereof are necessary to restore the financial

well-being and viability of the insolvent debtor

CONFIRMATION OF THE REHABILITATION

PLAN

ADMINISTRATION

OF PROCEEDINGS


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+The Rehabilitation Plan and its provisions shall be binding

the debtor and all persons who may be affected by it, includ

creditors, whether or not such persons have participated

proceedings or opposed the Rehabilitation Plan or whether

their claims have been scheduled

+The debtor shall comply with the provisions of the RehabiPlan and shall take all actions necessary to

carry out the Plan

EFFECT OF CONFIRMATION

ADMINISTRATION

OF PROCEEDINGS


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+Payments shall be made to the creditors in accordance wprovisions of the Rehabilitation Plan

+Contracts and other arrangements between the debtor a

creditors shall be interpreted as continuing to apply to the

that they do not conflict with the provisions of the Rehabilitation

+Any compromises on amounts or rescheduling of timing of paby the debtor shall be binding on creditors regardless of w

or not the Plan is successfully implement


ADMINISTRATION

OF PROCEEDINGS


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+Plan that are otherwise not treated by the Plan are not subany Suspension Order

+The rehabilitation receiver shall provide a final repo

accounting to the court, and shall be discharged of his

unless Plan specifically requires and describes his role afte

approval


ADMINISTRATION

OF PROCEEDINGS


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+Not affect the rights of creditors to pursue actions agai

general partners of a partnership to the extent they are

under relevant legislation for the debts thereof

LIABILITY OF GENERAL PARTNERS OF A

PARTNERSHIP FOR UNPAID BALANCES

ADMINISTRATION

OF PROCEEDINGS


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+Shall not be subject to any tax in furtherance of th

if such amounts are in connection with a Plan’s approva

TREATMENT OF AMOUNTS OF INDEBTEDNESS

OR OBLIGATIONS FORGIVEN OR REDUCED

ADMINISTRATION

OF PROCEEDINGS


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+One year from the date of filing

+If not confirmed within said period, proceedings, may

motion or motu proprio, be converted into on

liquidation

PERIOD FOR CONFIRMATION

ADMINISTRATION

OF PROCEEDINGS


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+The rehabilitation receiver shall provide a final repo

accounting to the court

+Unless the Rehabilitation Plan specifically requires and descri

role of the rehabilitation receiver after the approval

Rehabilitation Plan, the court shall discharge the rehabireceiver of his duties

ACCOUNTING FOR DISCHARGE OF

REHABILITATION RECEIVER

TERMINATION

OF PROCEEDINGS


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+Upon motion of any stakeholder or by the rehabilitation receiv

court may order termination of the rehabilitation procedeclaring:

• Successful implementation of the Rehabilitation Plan

• Failure of rehabilitation

o Dismissal of the petition by the court

o The debtor fails to submit a Rehabilitation Plan

o There is no substantial likelihood that the debtor can

be rehabilitated within a reasonable period

TERMINATION

OF PROCEEDINGS


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• Failure of rehabilitation

o The debtor fails to perform its obligations thereunthere is a failure to realize the objectives, targets or go

forth therein, including the timelines and conditions f

settlement of the obligations due to the creditors and

claimants

o The commission of fraud in securing the approval

Rehabilitation Plan or its amendment

o Other analogous circumstances

TERMINATION

OF PROCEEDINGS


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+Upon a breach of, or upon a failure of the Rehabilitation P

court, upon motion by an affected party may:• Issue an order directing that the breach be cured w

specified period of time

• Issue an order converting the proceedings to a liquidation

• Allow the debtor or rehabilitation receiver to submit amen

to the Rehabilitation Plan

• Issue any other order to remedy the breach• Enforce the applicable provisions of the Rehabilitation

Plan through a writ of execution

EFFECTS OF TERMINATION

TERMINATION

OF PROCEEDINGS


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+The discharge of the rehabilitation receiver subject to his subm

of a final accounting

+The lifting of the Stay Order and any other court order hol

abeyance any action for the enforcement of a claim against the d

• If the termination of proceedings is due to failu

rehabilitation or dismissal of the petition for reasons othtechnical grounds, the proceedings shall be

immediately converted to liquidation

EFFECTS OF TERMINATION

FRIA Chapter 2

Documents

Transcript of FRIA Chapter 2