Fria Codal Sections 1 75
Fria Codal Sections 1 75
Fria Codal Sections 1 75
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CHAPTER I
GENERAL PROVISIONS
SECTION 1. Title. — This Act shall be known as the “Financial Rehabilitation and
Insolvency Act (FRIA) of 2010”.
SEC. 3. Nature of Proceedings. — The proceedings under this Act shall be in rem.
Jurisdiction over all persons affected by the proceedings shall be considered as
acquired upon publication of the notice of the commencement of the proceedings
in any newspaper of general circulation in the Philippines in the manner prescribed
by the rules of procedure to be promulgated by the Supreme Court.
(2) arising from, or in connection with, the conduct of the proceedings under this
Act, including those incurred for the rehabilitation or liquidation of the debtor;
(3) incurred in the ordinary course of business of the debtor after the
commencement date;
(4) for the payment of new obligations obtained after the commencement date to
finance the rehabilitation of the debtor;
(5) incurred for the fees of the rehabilitation receiver or liquidator and of the
professionals engaged by them; and
(6) that are otherwise authorized or mandated under this Act or such other
expenses as may be allowed by the Supreme Court in its rules.
(b) Affiliate shall refer to a corporation that directly or indirectly, through one or
more intermediaries, is controlled by, or is under the common control of another
corporation.
(c) Claim shall refer to all claims or demands of whatever nature or character
against the debtor or its property, whether for money or otherwise, liquidated or
unliquidated, fixed or contingent, matured or unmatured, disputed or undisputed,
including, but not limited to: (1) all claims of the government, whether national or
local, including taxes, tariffs and customs duties; and (2) 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.
(d) Commencement date shall refer to the date on which the court issues the
Commencement Order, which shall be retroactive to the date of filing of the petition
for voluntary or involuntary proceedings.
(e) Commencement Order shall refer to the order issued by the court under
Section 16 of this Act.
(f) Control shall refer to the power of a parent corporation to direct or govern the
financial and operating policies of an enterprise so as to obtain benefits from its
activities. Control is presumed to exist when the parent owns, directly or indirectly
through subsidiaries or affiliates, more than one-half (1/2) of the voting power of
an enterprise unless, in exceptional circumstances, it can clearly be demonstrated
that such ownership does not constitute control. Control also exists even when the
parent owns one-half (1/2) or less of the voting power of an enterprise when there
is power:
(1) over more than one-half (1/2) of the voting rights by virtue of an agreement with
investors;
(2) to direct or govern the financial and operating policies of the enterprise under
a statute or an agreement;
(3) to appoint or remove the majority of the members of the board of directors or
equivalent governing body; or
(4) to cast the majority votes at meetings of the board of directors or equivalent
governing body.
(g) Court shall refer to the court designated by the Supreme Court to hear and
determine, at the first instance, the cases brought under this Act.
(h) Creditor shall refer to a natural or juridical person which has a claim against
the debtor that arose on or before the commencement date.
(i) Date of liquidation shall refer to the date on which the court issues the
Liquidation Order.
(j) Days shall refer to calendar days unless otherwise specifically stated in this Act.
(k) Debtor shall refer to, unless specifically excluded by a provision of this Act, a
sole proprietorship duly registered with the Department of Trade and Industry
(DTI), a partnership duly registered with the Securities and Exchange Commission
(SEC), a corporation duly organized and existing under Philippine laws, or an
individual debtor who has become insolvent as defined herein.
(l) Encumbered property shall refer to real or personal property of the debtor upon
which a lien attaches.
(m) General unsecured creditor shall refer to a creditor whose claim or a portion
thereof is neither secured, preferred nor subordinated under this Act.
(n) Group of debtors shall refer to and can cover only: (1) corporations that are
financially related to one another as parent corporations, subsidiaries or affiliates;
(2) partnerships that are owned more than fifty percent (50%) by the same person;
and (3) single proprietorships that are owned by the same person. When the
petition covers a group of debtors, all reference under these rules to debtor shall
include and apply to the group of debtors.
(o) Individual debtor shall refer to a natural person who is a resident and citizen of
the Philippines that has become insolvent as defined herein.
(p) Insolvent shall refer to the financial condition of a debtor that is generally unable
to pay its or his liabilities as they fall due in the ordinary course of business or has
liabilities that are greater than its or his assets.
(q) Insolvent debtor’s estate shall refer to the estate of the insolvent debtor, which
includes all the property and assets of the debtor as of commencement date, plus
the property and assets acquired by the rehabilitation receiver or liquidator after
that date, as well as all other property and assets in which the debtor has an
ownership interest, whether or not these property and assets are in the debtor’s
possession as of commencement date: Provided, That trust assets and bailment,
and other property and assets of a third party that are in the possession of the
debtor as of commencement date, are excluded therefrom.
(s) Liabilities shall refer to monetary claims against the debtor, including
stockholder’s advances that have been recorded in the debtor’s audited financial
statements as advances for future subscriptions.
(t) Lien shall refer to a statutory or contractual claim or judicial charge on real or
personal property that legally entitles a creditor to resort to said property for
payment of the claim or debt secured by such lien.
(u) Liquidation shall refer to the proceedings under Chapter V of this Act.
(v) Liquidation Order shall refer to the Order issued by the court under Section 112
of this Act.
(w) Liquidator shall refer to the natural person or juridical entity appointed as such
by the court and entrusted with such powers and duties as set forth in this
Act: Provided, That, if the liquidator is a juridical entity, it must designate a natural
person who possesses all the qualifications and none of the disqualifications as its
representative, it being understood that the juridical entity and the representative
are solidarily liable for all obligations and responsibilities of the liquidator.
(x) Officer shall refer to a natural person holding a management position described
in or contemplated by a juridical entity’s articles of incorporation, bylaws or
equivalent documents, except for the corporate secretary, the assistant corporate
secretary and the external auditor.
(y) Ordinary course of business shall refer to transactions in the pursuit of the
individual debtor’s or debtor’s business operations prior to rehabilitation or
insolvency proceedings and on ordinary business terms.
(z) Ownership interest shall refer to the ownership interest of third parties in
property held by the debtor, including those covered by trust receipts or
assignments of receivables.
(aa) Parent shall refer to a corporation which has over another corporation either
directly or indirectly through one or more intermediaries.
(bb) Party to the proceedings shall refer to the debtor, a creditor, the unsecured
creditors’ committee, a stakeholder, a party with an ownership interest in property
held by the debtor, a secured creditor, the rehabilitation receiver, liquidator or any
other juridical or natural person who stands to be benefited or injured by the
outcome of the proceedings and whose notice of appearance is accepted by the
court.
(cc) Possessory lien shall refer to a lien on property, the possession of which has
been transferred to a creditor or a representative or agent thereof.
(ee) Property of others shall refer to property held by the debtor in which other
persons have an ownership interest.
(hh) Rehabilitation receiver shall refer to the person or persons, natural or juridical,
appointed as such by the court pursuant to this Act and which shall be entrusted
with such powers and duties as set forth herein.
(ii) Rehabilitation Plan shall refer to a plan by which the financial well-being and
viability of an insolvent debtor can be restored using various means including, but
not limited to, debt forgiveness, debt rescheduling, reorganization or quasi-
reorganization, dacion en pago, debt-equity conversion and sale of the business
(or parts of it) as a going concern, or setting-up of new business entity as
prescribed in Section 62 hereof, or other similar arrangements as may be
approved by the court or creditors.
(ll) Secured party shall refer to a secured creditor or the agent or representative of
such secured creditor.
(oo) Subsidiary shall refer to a corporation more than fifty percent (50%) of the
voting stock of which is owned or controlled directly or indirectly through one or
more intermediaries by another corporation, which thereby becomes its parent
corporation.
(pp) Unsecured claim shall refer to a claim that is not secured by a lien.
SEC. 5. Exclusions. — The term debtor does not include banks, insurance
companies, pre-need companies, and national and local government agencies or
units.
(a) Bank shall refer to any duly licensed bank or quasi-bank that is potentially or
actually subject to conservatorship, receivership or liquidation proceedings under
the New Central Bank Act (Republic Act No. 7653) or successor legislation;
(b) Insurance company shall refer to those companies that are potentially or
actually subject to insolvency proceedings under the Insurance Code (Presidential
Decree No. 1460) or successor legislation; and
(a) there was commingling in fact of assets and liabilities of the debtor and the
related enterprise prior to the commencement of the proceedings;
(b) the debtor and the related enterprise have common creditors and it will be more
convenient to treat them together rather than separately;
(c) the related enterprise voluntarily accedes to join the debtor as party petitioner
and to commingle its assets and liabilities with the debtor’s; and
(d) The consolidation of assets and liabilities of the debtor and the related
enterprise is beneficial to all concerned and promotes the objectives of
rehabilitation.
Provided, finally, That nothing in this section shall prevent the court from joining
other entities affiliated with the debtor as parties pursuant to the rules of procedure
as may be promulgated by the Supreme Court.
(a) Dispose or cause to be disposed of any property of the debtor other than in the
ordinary course of business or authorize or approve any transaction in fraud of
creditors or in a manner grossly disadvantageous to the debtor and/or creditors;
or
CHAPTER II
COURT-SUPERVISED REHABILITATION
(a) Identification of the debtor, its principal activities and its addresses;
(b) Statement of the fact of and the cause of the debtor’s insolvency or inability to
pay its obligations as they become due;
(e) Other information that may be required under this Act depending on the form
of relief requested;
(f) Schedule of the debtor’s debts and liabilities including a list of creditors with
their addresses, amounts of claims and collaterals, or securities, if any;
(g) An inventory of all its assets including receivables and claims against third
parties;
(i) The names of at least three (3) nominees to the position of rehabilitation
receiver; and
(j) Other documents required to be filed with the petition pursuant to this Act and
the rules of procedure as may be promulgated by the Supreme Court.
A group of debtors may jointly file a petition for rehabilitation under this Act when
one or more of its members foresee the impossibility of meeting debts when they
respectively fall due, and the financial distress would likely adversely affect the
financial condition and/or operations of the other members of the group and/or the
participation of the other members of the group is essential under the terms and
conditions of the proposed Rehabilitation Plan.
(b) a creditor, other than the petitioner/s, has initiated foreclosure proceedings
against the debtor that will prevent the debtor from paying its debts as they become
due or will render it insolvent.
SEC. 14. Petition to Initiate Involuntary Proceedings. — The creditor/s’ petition for
rehabilitation shall be verified to establish the substantial likelihood that the debtor
may be rehabilitated, and include:
(a) identification of the debtor, its principal activities and its address;
(e) the names of at least three (3) nominees to the position of rehabilitation
receiver;
(f) other information that may be required under this Act depending on the form of
relief requested; and
(g) other documents required to be filed with the petition pursuant to this Act and
the rules of procedure as may be promulgated by the Supreme Court.
SEC. 15. Action on the Petition. — If the court finds the petition for rehabilitation
to be sufficient in form and substance, it shall, within five (5) working days from the
filing of the petition, issue a Commencement Order. If, within the same period, the
court finds the petition deficient in form or substance, the court may, in its
discretion, give the petitioner/s a reasonable period of time within which to amend
or supplement the petition, or to submit such documents as may be necessary or
proper to put the petition in proper order. In such case, the five (5) working days
provided above for the issuance of the Commencement Order shall be reckoned
from the date of the filing of the amended or supplemental petition or the
submission of such documents.
(a) identify the debtor, its principal business or activity/ies and its principal place of
business;
(c) state the relief sought under this Act and any requirement or procedure
particular to the relief sought;
(d) state the legal effects of the Commencement Order, including those mentioned
in Section 17 hereof;
(g) if the petitioner is the debtor, direct the service by personal delivery of a copy
of the petition on each creditor holding at least ten percent (10%) of the total
liabilities of the debtor as determined from the schedule attached to the petition
within five (5) days; if the petitioner/s is/are creditor/s, direct the service by
personal delivery of a copy of the petition on the debtor within five (5) days;
(h) appoint a rehabilitation receiver who may or may not be from among the
nominees of the petitioner/s, and who shall exercise such powers and duties
defined in this Act as well as the procedural rules that the Supreme Court will
promulgate;
(i) summarize 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;
(j) direct the Bureau of Internal Revenue (BIR) to file and serve on the debtor its
comment on or opposition to the petition or its claim/s against the debtor under
such procedures as the Supreme Court may hereafter provide;
(k) prohibit the debtor’s suppliers of goods or services from withholding the supply
of goods and services in the ordinary course of business for as long as the debtor
makes payments for the services or goods supplied after the issuance of the
Commencement Order;
(m) set the case for initial hearing, which shall not be more than forty (40) days
from the date of filing of the petition for the purpose of determining whether there
is substantial likelihood for the debtor to be rehabilitated;
(n) make available copies of the petition and rehabilitation plan for examination
and copying by any interested party;
(o) indicate the location or locations at which documents regarding the debtor and
the proceedings under this Act may be reviewed and copied;
(p) 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;
(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; and
(4) prohibit the debtor from making any payment of its liabilities outstanding as of
the commencement date except as may be provided herein.
SEC. 17. Effects of the Commencement Order. — Unless otherwise provided for
in this Act, the court’s issuance of a Commencement Order shall, in addition to the
effects of a Stay or Suspension Order described in Section 16 hereof:
(a) vest the rehabilitation receiver with all the powers and functions provided for in
this Act, such as the right to review and obtain all records to which the debtor’s
management and directors have access, including bank accounts of whatever
nature of the debtor, subject to the approval by the court of the performance bond
filed by the rehabilitation receiver;
(b) prohibit, or otherwise serve as the legal basis for rendering null and void the
results of any extrajudicial activity or process to seize property, sell encumbered
property, or otherwise attempt to collect on or enforce a claim against the debtor
after the commencement date unless otherwise allowed in this Act, subject to the
provisions of Section 50 hereof;
(c) serve as the legal basis for rendering null and void any set-off after the
commencement date of any debt owed to the debtor by any of the debtor’s
creditors;
(d) serve as the legal basis for rendering null and void the perfection of any lien
against the debtor’s property after the commencement date; and
(e) consolidate the resolution of all legal proceedings by and against the debtor to
the court: Provided, however, That the court may allow the continuation of cases
in other courts where the debtor had initiated the suit.
Attempts to seek legal or other recourse against the debtor outside these
proceedings shall be sufficient to support a finding of indirect contempt of court.
SEC. 18. Exceptions to the Stay or Suspension Order. — The Stay or Suspension
Order shall not apply:
(b) subject to the discretion of the court, to 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: Provided, That any final and executory judgment of such court or agency
shall be referred to the court and shall be treated as a non-disputed claim;
(c) to the enforcement of claims against sureties and other persons solidarily liable
with the debtor, and third party or accommodation mortgagors as well as issuers
of letters of credit, unless the property subject of the third party or accommodation
mortgage is necessary for the rehabilitation of the debtor as determined by the
court upon recommendation by the rehabilitation receiver;
(e) to the 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;
(f) the clearing and settlement of financial transactions through the facilities of a
clearing agency or similar entities duly authorized, registered and/or recognized
by the appropriate regulatory agency like the Bangko Sentral ng Pilipinas (BSP)
and the SEC as well as any form of actions of such agencies or entities to
reimburse themselves for any transactions settled for the debtor; and
(g) any criminal action against the individual debtor or owner, partner, director or
officer of a debtor shall not be affected by any proceeding commenced under this
Act.
SEC. 19. Waiver of Taxes and Fees Due to the National Government and to Local
Government Units (LGUs). — Upon issuance of the Commencement Order by the
court, and until the approval of the Rehabilitation Plan or dismissal of the petition,
whichever is earlier, the imposition of all taxes and fees, including penalties,
interests and charges thereof, due to the national government or to LGUs shall be
considered waived, in furtherance of the objectives of rehabilitation.
SEC. 21. Effectivity and Duration of Commencement Order. — Unless lifted by the
court, the Commencement Order shall be effective for the duration of the
rehabilitation proceedings for as long as there is a substantial likelihood that the
debtor will be successfully rehabilitated. In determining whether there is
substantial likelihood for the debtor to be successfully rehabilitated, the court shall
ensure that the following minimum requirements are met:
(a) The proposed Rehabilitation Plan submitted complies with the minimum
contents prescribed by this Act;
(c) The debtor has met with its creditors to the extent reasonably possible in
attempts to reach a consensus on the proposed Rehabilitation Plan;
(1) there are sufficient assets with which to rehabilitate the debtor;
(2) there is sufficient cash flow to maintain the operations of the debtor;
(3) the debtor’s owner/s, partners, stockholders, directors and officers have been
acting in good faith and with due diligence;
(4) the petition is not a sham filing intended only to delay the enforcement of the
rights of the creditor/s or of any group of creditors; and
(5) the debtor would likely be able to pursue a viable Rehabilitation Plan;
(e) The petition, the Rehabilitation Plan and the attachments thereto do not contain
any materially false or misleading statement;
(f) If the petitioner is the debtor, that the debtor has met with its creditor/s
representing at least three-fourths (3/4) of its total obligations to the extent
reasonably possible and made a good faith effort to reach a consensus on the
proposed Rehabilitation Plan; if the petitioner/s is/are a creditor or group of
creditors, that the petitioner/s has/have met with the debtor and made a good faith
effort to reach a consensus on the proposed Rehabilitation Plan; and
(g) The debtor has not committed acts of misrepresentation or in fraud of its
creditor/s or a group of creditors.
SEC. 22. Action at the Initial Hearing. — At the initial hearing, the court shall:
(a) determine the creditors who have made timely and proper filing of their notice
of claims;
(b) hear and determine any objection to the qualifications or the appointment of
the rehabilitation receiver and, if necessary, appoint a new one in accordance with
this Act;
(c) direct the creditors to comment on the petition and the Rehabilitation Plan, and
to submit the same to the court and to the rehabilitation receiver within a period of
not more than twenty (20) days; and
(d) direct the rehabilitation receiver to evaluate the financial condition of the debtor
and to prepare and submit to the court within forty (40) days from the initial hearing
the report provided in Section 24 hereof.
SEC. 23. Effect of Failure to File Notice of Claim. — A creditor whose claim is not
listed in the schedule of debts and liabilities and who fails to file a notice of claim
in accordance with the Commencement Order but subsequently files a belated
claim shall not be entitled to participate in the rehabilitation proceedings but shall
be entitled to receive distributions arising therefrom.
SEC. 24. Report of the Rehabilitation Receiver. — Within forty (40) days from the
initial hearing, and with or without the comments of the creditors or any of them,
the rehabilitation receiver shall submit a report to the court stating his preliminary
findings and recommendations on whether:
(a) the debtor is insolvent and if so, the causes thereof and any unlawful or
irregular act or acts committed by the owner/s of a sole proprietorship, partners of
a partnership, or directors or officers of a corporation in contemplation of the
insolvency of the debtor or which may have contributed to the insolvency of the
debtor;
(b) the underlying assumptions, the financial goals and the procedures to
accomplish such goals as stated in the petitioner’s Rehabilitation Plan are realistic,
feasible and reasonable;
(2) the petition is a sham filing intended only to delay the enforcement of the rights
of the creditor/s or of any group of creditors;
(3) the petition, the Rehabilitation Plan and the attachments thereto contain any
materially false or misleading statements; or
(4) the debtor has committed acts of misrepresentation or in fraud of its creditor/s
or a group of creditors;
(c) convert the proceedings into one for the liquidation of the debtor upon a finding
that:
SEC. 26. Petition Given Due Course. — If the petition is given due course, the
court shall direct the rehabilitation receiver to review, revise and/or recommend
action on the Rehabilitation Plan and submit the same or a new one to the court
within a period of not more than ninety (90) days.
The court may refer any dispute relating to the Rehabilitation Plan or the
rehabilitation proceedings pending before it to arbitration or other modes of dispute
resolution, as provided for under Republic Act No. 9285, or the Alternative Dispute
Resolution Act of 2004, should it determine that such mode will resolve the dispute
more quickly, fairly and efficiently than the court.
SEC. 28. Who May Serve as a Rehabilitation Receiver. — Any qualified natural or
juridical person may serve as a rehabilitation receiver: Provided, That if the
rehabilitation receiver is a juridical entity, it must designate a natural person/s who
possess/es all the qualifications and none of the disqualifications as its
representative, it being understood that the juridical entity and the representative/s
are solidarily liable for all obligations and responsibilities of the rehabilitation
receiver.
(a) A citizen of the Philippines or a resident of the Philippines in the six (6) months
immediately preceding his nomination;
(b) Of good moral character and with acknowledged integrity, impartiality and
independence;
(c) Has the requisite knowledge of insolvency and other relevant commercial laws,
rules and procedures, as well as the relevant training and/or experience that may
be necessary to enable him to properly discharge the duties and obligations of a
rehabilitation receiver; and
(d) Has no conflict of interest: Provided, That such conflict of interest may be
waived, expressly or impliedly, by a party who may be prejudiced thereby.
SEC. 30. Initial Appointment of the Rehabilitation Receiver. — The court shall
initially appoint the rehabilitation receiver, who may or may not be from among the
nominees of the petitioner. However, at the initial hearing of the petition, the
creditors and the debtor who are not petitioners may nominate other persons to
the position. The court may retain the rehabilitation receiver initially appointed or
appoint another who may or may not be from among those nominated.
In case the debtor is a securities market participant, the court shall give priority to
the nominee of the appropriate securities or investor protection fund.
If a qualified natural person or entity is nominated by more than fifty percent (50%)
of the secured creditors and the general unsecured creditors, and satisfactory
evidence is submitted, the court shall appoint the creditors’ nominee as
rehabilitation receiver.
(a) To verify the accuracy of the factual allegations in the petition and its annexes;
(b) To verify and correct, if necessary, the inventory of all of the assets of the
debtor, and their valuation;
(c) To verify and correct, if necessary, the schedule of debts and liabilities of the
debtor;
(d) To evaluate the validity, genuineness and true amount of all the claims against
the debtor;
(e) To take possession, custody and control, and to preserve the value of all the
property of the debtor;
(f) To sue and recover, with the approval of the court, all amounts owed to, and all
properties pertaining to the debtor;
(h) To sue and recover, with the approval of the court, all property or money of the
debtor paid, transferred or disbursed in fraud of the debtor or its creditors, or which
constitute undue preference of creditor/s;
(i) To monitor the operations and the business of the debtor to ensure that no
payments or transfers of property are made other than in the ordinary course of
business;
(j) With the court’s approval, to engage the services of or to employ persons or
entities to assist him in the discharge of his functions;
(k) To determine the manner by which the debtor may be best rehabilitated, to
review, revise and/or recommend action on the Rehabilitation Plan and submit the
same or a new one to the court for approval;
(m) To assume and exercise the powers of management of the debtor, if directed
by the court pursuant to Section 36 hereof;
(n) To exercise such other powers as may, from time to time, be conferred upon
him by the court; and
(o) To submit a status report on the rehabilitation proceedings every quarter or as
may be required by the court motu proprio, or upon motion of any creditor, or as
may be Provided, in the Rehabilitation Plan.
(c) Illegal acts or conduct in the performance of his duties and powers;
(f) Manifest lack of independence that is detrimental to the general body of the
stakeholders.
SEC. 33. Compensation and Terms of Service. — The rehabilitation receiver and
his direct employees or independent contractors shall be entitled to compensation
for reasonable fees and expenses from the debtor according to the terms approved
by the court after notice and hearing. Prior to such hearing, the rehabilitation
receiver and his direct employees shall be entitled to reasonable compensation
based on quantum meruit. Such costs shall be considered administrative
expenses.
SEC. 34. Oath and Bond of the Rehabilitation Receiver. — Prior to entering upon
his powers, duties and responsibilities, the rehabilitation receiver 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.
SEC. 35. Vacancy. — In case the position of rehabilitation receiver is vacated for
any reason whatsoever, the court shall direct the debtor and the creditors to submit
the name/s of their nominee/s to the position. The court may appoint any of the
qualified nominees, or any other person qualified for the position.
(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
or the owner, partner, director, officer or representative/s in management of the
debtor.
In case the court appoints the rehabilitation receiver to assume the powers of
management of the debtor, the court may:
(2) authorize him to engage the services or to employ persons or entities to assist
him in the discharge of his managerial functions; and
SEC. 37. Role of the Management Committee. — When appointed pursuant to the
foregoing section, the management committee shall take the place of the
management and the governing body of the debtor and assume their rights and
responsibilities.
The specific powers and duties of the management committee, whose members
shall be considered as officers of the court, shall be prescribed by the procedural
rules.
SEC. 38. Qualifications of Members of the Management Committee. — The
qualifications and disqualifications of the members of the management committee
shall be set forth in the procedural rules, taking into consideration the nature of the
business of the debtor and the need to protect the interest of all stakeholders
concerned.
SEC. 39. Employment of Professionals. — Upon approval of the court, and after
notice and hearing, the rehabilitation receiver or the management committee may
employ specialized professionals and other experts to assist each in the
performance of their duties. Such professionals and other experts shall be
considered either employees or independent contractors of the rehabilitation
receiver or the management committee, as the case may be. The qualifications
and disqualifications of the professionals and experts may be set forth in
procedural rules, taking into consideration the nature of the business of the debtor
and the need to protect the interest of all stakeholders concerned.
(b) he is engaged in a line of business which competes with that of the debtor;
(c) he is, or was, within five (5) years from the filing of the petition, a director,
officer, owner, partner or employee of the debtor or any of the creditors, or the
auditor or accountant of the debtor;
(d) he is, or was, within two (2) years from the filing of the petition, an underwriter
of the outstanding securities of the debtor;
(e) he is related by consanguinity or affinity within the fourth civil degree to any
individual creditor, owner/s of a sole proprietorship-debtor, partners of a
partnership-debtor or to any stockholder, director, officer, employee or underwriter
of a corporation-debtor; or
(f) he has any other direct or indirect material interest in the debtor or any of the
creditors.
SEC. 41. Immunity. — The rehabilitation receiver and all persons employed by
him, and the members of the management committee and all persons employed
by it, shall not be subject to any action, claim or demand in connection with any
act done or omitted to be done by them in good faith in connection with the exercise
of their powers and functions under this Act or other actions duly approved by the
court.
SEC. 42. Creditors’ Committee. — After the creditors’ meeting called pursuant to
Section 63 hereof, the creditors belonging to a class may formally organize a
committee among themselves. In addition, the creditors may, as a body, agree to
form a creditors’ committee composed of a representative from each class of
creditors, such as the following:
SEC. 44. Registry of Claims. — Within twenty (20) days from his assumption into
office, the rehabilitation receiver shall establish a preliminary registry of claims.
The rehabilitation receiver shall make the registry available for public inspection
and provide publication notice to the debtor, creditors and stakeholders on where
and when they may inspect it. All claims included in the registry of claims must be
duly supported by sufficient evidence.
SEC. 45. Opposition or Challenge of Claims. — Within thirty (30) days from the
expiration of the period stated in the immediately preceding section, the debtor,
creditors, stakeholders and other interested parties may submit a challenge to
claim/s to the court, serving a certified copy on the rehabilitation receiver and the
creditor holding the challenged claim/s. Upon the expiration of the thirty (30)-day
period, the rehabilitation receiver shall submit to the court the registry of claims
which shall include undisputed claims that have not been subject to challenge.
SEC. 46. Appeal. — Any decision of the rehabilitation receiver regarding a claim
may be appealed to the court.
(E) Governance.
(F) Use, Preservation and Disposal of Assets and Treatment of Assets and Claims
after Commencement Date.
SEC. 49. Sale of Assets. — The court, upon application of the rehabilitation
receiver, may authorize the sale of unencumbered property of the debtor outside
the ordinary course of business upon a showing that the property, by its nature or
because of other circumstance, is perishable, costly to maintain, susceptible to
devaluation or otherwise in jeopardy.
SEC. 50. Sale or Disposal of Encumbered Property of the Debtor and Assets of
Third Parties Held by Debtor. — The court may authorize the sale, transfer,
conveyance or disposal of encumbered property of the debtor, or property of
others held by the debtor where there is a security interest pertaining to third
parties under a financial, credit or other similar transactions if, upon application of
the rehabilitation receiver and with the consent of the affected owners of the
property, or secured creditor/s in the case of encumbered property of the debtor
and, after notice and hearing, the court determines that:
(a) such sale, transfer, conveyance or disposal is necessary for the continued
operation of the debtor’s business; and
(b) the debtor has made arrangements to provide a substitute lien or ownership
right that provides an equal level of security for the counter-party’s claim or right.
Provided, That properties held by the debtor where the debtor has authority to sell
such as trust receipt or consignment arrangements may be sold or disposed of by
the debtor, if such sale or disposal is necessary for the operation of the debtor’s
business, and the debtor has made arrangements to provide a substitute lien or
ownership right that provides an equal level of security for the counter-party’s claim
or right.
Sale or disposal of property under this section shall not give rise to any criminal
liability under applicable laws.
SEC. 51. Assets of Debtor Held by Third Parties. — In the case of possessory
pledges, mechanic’s liens or similar claims, third parties who have in their
possession or control property of the debtor shall not transfer, convey or otherwise
dispose of the same to persons other than the debtor, unless upon prior approval
of the rehabilitation receiver. The rehabilitation receiver may also:
(a) demand the surrender or the transfer of the possession or control of such
property to the rehabilitation receiver or any other person, subject to payment of
the claims secured by any possessory lien/s thereon;
(b) allow said third parties to retain possession or control, if such an arrangement
would more likely preserve or increase the value of the property in question or the
total value of the assets of the debtor; or
(c) undertake any other disposition of the said property as may be beneficial for
the rehabilitation of the debtor, after notice and hearing, and approval of the court.
(a) if such are in the interest of administering the debtor and facilitating the
preparation and implementation of a Rehabilitation Plan;
(b) in order to provide a substitute lien, mortgage or pledge of property under this
Act;
(d) for payments to victims of quasi delicts upon a showing that the claim is valid
and the debtor has insurance to reimburse the debtor for the payments made;
(e) for payments made to repurchase property of the debtor that is auctioned off
in a judicial or extrajudicial sale under this Act; or
(f) for payments made to reclaim property of the debtor held pursuant to a
possessory lien.
(a) allow the encumbered property to be foreclosed upon by the secured creditor
according to the relevant agreement between the debtor and the secured creditor,
applicable rules of procedure and relevant legislation: Provided, That the proceeds
of the sale will be distributed in accordance with the order prescribed under the
rules of concurrence and preference of credits; or
(b) upon motion of, or with the consent of the affected secured creditor or interest
owner, order the conveyance of a lien against or ownership interest in substitute
property of the debtor to the secured creditor: Provided, That other creditors
holding liens on such property, if any, do not object thereto, or, if such property is
not available;
(c) order the conveyance to the secured creditor or holder of an ownership interest
of a lien on the residual funds from the sale of encumbered property during the
proceedings; or
(d) allow the sale or disposition of the property: Provided, That the sale or
disposition will maximize the value of the property for the benefit of the secured
creditor and the debtor, and the proceeds of the sale will be distributed in
accordance with the order prescribed under the rules of concurrence and
preference of credits.
SEC. 54. Post-commencement Interest. — The rate and term of interest, if any,
on secured and unsecured claims shall be determined and provided for in the
approved Rehabilitation Plan.
SEC. 55. Post-commencement Loans and Obligations. — With the approval of the
court upon the recommendation of the rehabilitation receiver, the debtor, in order
to enhance its rehabilitation, may:
(c) provides security or additional security executed within ninety (90) days prior
to the commencement date;
(d) involves creditors, where a creditor obtained, or received the benefit of, more
than its pro rata share in the assets of the debtor, executed at a time when the
debtor was insolvent; or
(e) is intended to defeat, delay or hinder the ability of the creditors to collect claims
where the effect of the transaction is to put assets of the debtor beyond the reach
of creditors or to otherwise prejudice the interests of creditors.
Provided, however, That nothing in this section shall prevent the court from
rescinding or declaring as null and void a transaction on other grounds provided
by relevant legislation and jurisprudence: Provided, further, That the provisions of
the Civil Code on rescission shall in any case apply to these transactions.
SEC. 59. Actions for Rescission or Nullity. — (a) The rehabilitation receiver or, with
his conformity, any creditor may initiate and prosecute any action to rescind, or
declare null and void any transaction described in Section 58 hereof. If the
rehabilitation receiver does not consent to the filing or prosecution of such action,
any creditor may seek leave of the court to commence said action.
(b) If leave of court is granted under subsection (a), the rehabilitation receiver shall
assign and transfer to the creditor all rights, title and interest in the chose in action
or subject matter of the proceeding, including any document in support thereof.
(c) Any benefit derived from a proceeding taken pursuant to subsection (a), to the
extent of his claim and the costs, belongs exclusively to the creditor instituting the
proceeding, and the surplus, if any, belongs to the estate.
(d) Where, before an order is made under subsection (a), the rehabilitation receiver
(or liquidator) signifies to the court his readiness to institute the proceeding for the
benefit of the creditors, the order shall fix the time within which he shall do so and,
in that case, the benefit derived from the proceeding, if instituted within the time
limits so fixed, belongs to the estate.
SEC. 61. Lack of Adequate Protection. — The court, on motion or motu proprio,
may terminate, modify or set conditions for the continuance of suspension of
payment, or relieve a claim from the coverage thereof, upon showing that:
(a) a creditor does not have adequate protection over property securing its claim;
or
(b) the value of a claim secured by a lien on property which is not necessary for
rehabilitation of the debtor exceeds the fair market value of the said property.
(a) the debtor fails or refuses to honor a pre-existing agreement with the creditor
to keep the property insured;
(b) the debtor fails or refuses to take commercially reasonable steps to maintain
the property; or
(c) the property has depreciated to an extent that the creditor is under secured.
Upon showing of a lack of protection, the court shall order the debtor or 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 such
arrangements are not feasible, the court may modify the Stay Order to allow the
secured creditor lacking adequate protection to enforce its security claim against
the debtor: Provided, however, That the court may deny the creditor the remedies
in this paragraph if the property subject of the enforcement is required for the
rehabilitation of the debtor.
(a) specify the underlying assumptions, the financial goals and the procedures
proposed to accomplish such goals;
(b) 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 one hundred twenty (120) days;
(e) establish subclasses of voting creditors if prior approval has been granted by
the court;
(f) indicate how the insolvent debtor will be rehabilitated including, but not limited
to, debt forgiveness, debt rescheduling, reorganization or quasi-
reorganization, dacion en pago, debt-equity conversion and sale of the business
(or parts of it) as a going concern, or setting-up of a new business entity or other
similar arrangements as may be necessary to restore the financial well-being and
viability of the insolvent debtor;
(g) specify the treatment of each class or subclass described in subsections (d)
and (e);
(h) provide for equal treatment of all claims within the same class or subclass,
unless a particular creditor voluntarily agrees to less favorable treatment;
(i) 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;
(j) maintain the security interest of secured creditors and preserve the liquidation
value of the security unless such has been waived or modified voluntarily;
(k) disclose all payments to creditors for pre-commencement debts made during
the proceedings and the justifications thereof;
(l) describe the disputed claims and the provisioning of funds to account for
appropriate payments should the claim be ruled valid or its amount adjusted;
(n) state any rehabilitation covenants of the debtor, the breach of which shall be
considered a material breach of the Plan;
(o) 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;
(p) address the treatment of claims arising after the confirmation of the
Rehabilitation Plan;
(q) require the debtor and its counter-parties to adhere to the terms of all contracts
that the debtor has chosen to confirm;
(s) arrange for the payment of all outstanding taxes and assessments, or an
adjusted amount pursuant to a compromise settlement with the BIR or other
applicable tax authorities;
(v) state the compensation and status, if any, of the rehabilitation receiver after the
approval of the Plan; and
SEC. 63. Consultation with Debtor and Creditors. — If the court gives due course
to the petition, the rehabilitation receiver shall confer with the debtor and all the
classes of creditors, and may consider their views and proposals in the review,
revision or preparation of a new Rehabilitation Plan.
Notwithstanding the rejection of the Rehabilitation Plan, the court may confirm the
Rehabilitation Plan if all of the following circumstances are present:
(a) The Rehabilitation Plan complies with the requirements specified in this Act;
(c) The shareholders, owners or partners of the juridical debtor lose at least their
controlling interest as a result of the Rehabilitation Plan; and
(d) The Rehabilitation Plan would likely provide the objecting class of creditors with
compensation which has a net present value greater than that which they would
have received if the debtor were under liquidation.
(b) The documents or data relied upon in the Rehabilitation Plan are materially
false or misleading; or
(c) The Rehabilitation Plan is in fact not supported by the voting creditors.
SEC. 67. Hearing on the Objections. — If objections have been submitted during
the relevant period, the court shall issue an order setting the time and date for the
hearing or hearings on the objections.
If the court finds merit in the objection, it shall order the rehabilitation receiver or
other party to cure the defect, whenever feasible. If the court determines that the
debtor acted in bad faith, or that it is not feasible to cure the defect, the court shall
convert the proceedings into one for the liquidation of the debtor under Chapter V
of this Act.
SEC. 68. Confirmation of the Rehabilitation Plan. — If no objections are filed within
the relevant period or, if objections are filed, the court finds them lacking in merit,
or determines that the basis for the objection has been cured, or determines that
the debtor has complied with an order to cure the objection, the court shall issue
an order confirming the Rehabilitation Plan.
The court may confirm the Rehabilitation Plan notwithstanding unresolved
disputes over claims if the Rehabilitation Plan has made adequate provisions for
paying such claims.
For the avoidance of doubt, the provisions of other laws to the contrary
notwithstanding, the court shall have the power to approve or implement the
Rehabilitation Plan despite the lack of approval, or objection from the owners,
partners or stockholders of the insolvent debtor: Provided, That the terms thereof
are necessary to restore the financial well-being and viability of the insolvent
debtor.
(a) The Rehabilitation Plan and its provisions shall be binding upon the debtor and
all persons who may be affected by it, including the creditors, whether or not such
persons have participated in the proceedings or opposed the Rehabilitation Plan
or whether or not their claims have been scheduled;
(b) The debtor shall comply with the provisions of the Rehabilitation Plan and shall
take all actions necessary to carry out the Plan;
(c) Payments shall be made to the creditors in accordance with the provisions of
the Rehabilitation Plan;
(d) Contracts and other arrangements between the debtor and its creditors shall
be interpreted as continuing to apply to the extent that they do not conflict with the
provisions of the Rehabilitation Plan;
(f) Claims arising after approval of the Plan that are otherwise not treated by the
Plan are not subject to any Suspension Order.
The Order confirming the Plan shall comply with Rule 36 of the Rules of
Court: Provided, however, That the court may maintain jurisdiction over the case
in order to resolve claims against the debtor that remain contested and allegations
that the debtor has breached the Plan.
SEC. 70. Liability of General Partners of a Partnership for Unpaid Balances Under
an Approved Plan. — The approval of the Plan shall not affect the rights of
creditors to pursue actions against the general partners of a partnership to the
extent they are liable under relevant legislation for the debts thereof.
SEC. 72. Period for Confirmation of the Rehabilitation Plan. — The court shall
have a maximum period of one (1) year from the date of the filing of the petition to
confirm a Rehabilitation Plan.
If no Rehabilitation Plan is confirmed within the said period, the proceedings may,
upon motion or motu proprio, be converted into one for the liquidation of the debtor.
(c) Under the Rehabilitation Plan submitted by the debtor, there is no substantial
likelihood that the debtor can be rehabilitated within a reasonable period;
(d) The Rehabilitation Plan or its amendment is approved by the court but in the
implementation thereof, the debtor fails to perform its obligations thereunder, or
there is a failure to realize the objectives, targets or goals set forth therein,
including the timelines and conditions for the settlement of the obligations due to
the creditors and other claimants;
(e) The commission of fraud in securing the approval of the Rehabilitation Plan or
its amendment; and
Upon a breach of, or upon a failure of the Rehabilitation Plan, the court, upon
motion by an affected party, may:
(1) issue an order directing that the breach be cured within a specified period of
time, failing which the proceedings may be converted to a liquidation;
(4) issue any other order to remedy the breach consistent with the present
regulation, other applicable law and the best interests of the creditors; or
(5) enforce the applicable provisions of the Rehabilitation Plan through a writ of
execution.
(a) The discharge of the rehabilitation receiver, subject to his submission of a final
accounting; and
(b) The lifting of the Stay Order and any other court order holding in abeyance any
action for the enforcement of a claim against the debtor.