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Rehabilitation
Question of liquidity Restoration of the debtor to a condition of successful operation and
(FRIA) of 2010
Only applicable to individual debtors – natural person who solvency, if it is shown that:
AM NO. 15-04-06-SC FINANCIAL LIQUIDATION AND SUSPENSION OF
is a resident and citizen of the Philippines who has 1. Its continuance of operation is economically feasible
PAYMENTS RULES OF PROCEDURE FOR INSOLVENT DEBTORS (2015)
become insolvent 2. Its creditors can recover by way of the present value of
RESOLUTION
payments, more if the debtor continues as a going
concern
Section 2. Declaration of Policy. –
Section 94. Petition. –
It is the policy of the State to encourage debtors, both juridical and
An individual debtor Section 3. Nature of Proceedings. –
natural persons, and their creditors to collectively and realistically resolve
who, possessing sufficient property to cover all his debts The proceedings under this Act shall be in rem.
and adjust competing claims and property rights.
but foreseeing the impossibility of meeting them when they Jurisdiction over all persons affected by the proceedings shall
respectively fall due, be considered as acquired upon publication of the notice of
In furtherance thereof, the State shall ensure a timely, fair, transparent,
may file a verified petition that he be declared in the state of suspension the commencement of the proceedings in any newspaper of
effective and efficient rehabilitation or liquidation of debtors.
of payments general circulation in the Philippines in the manner prescribed
by the court of the province or city in which he has resides for by the rules of procedure to be promulgated by the Supreme
The rehabilitation or liquidation shall be made with a view to
six (6) months prior to the filing of his petition. Court.
ensure or maintain certainly and predictability in commercial
The proceedings shall be conducted in a summary and non-
affairs,
He shall attach to his petition, as a minimum: adversarial manner consistent with the declared policies of
preserve and maximize the value of the assets of these
(a) a schedule of debts and liabilities; this Act and in accordance with the rules of procedure that the
debtors,
(b) an inventory of assess; and Supreme Court may promulgate.
recognize creditor rights and respect priority of claims, and
(c) a proposed agreement with his creditors.
ensure equitable treatment of creditors who are similarly
situated.
Section 96. Actions Suspended. –
Upon motion filed by the individual debtor,
When rehabilitation is not feasible, it is in the interest of the State to
the court may issue an order suspending any pending execution against
facilities a speedy and orderly liquidation of these debtor's assets and the
the individual debtor. [ SUSPENSION ORDER ]
settlement of their obligations.
Provided, (LIMITATIONS)
1. That properties held as security by secured creditors shall not be the
Debtor refers to:
subject of such suspension order.
1. Sole proprietorship duly registered with DTI
2. The suspension order shall lapse when three (3) months shall have
2. Partnership duly registered with SEC
passed without the proposed agreement being accepted by the
3. Corporation duly organized and existing under PH laws
creditors or as soon as such agreement is denied.
4. Individual debtor who has become insolvent
3. No creditor shall sue or institute proceedings to collect his claim from
the debtor from the time of the filing of the petition for suspension
Debtor does not include
of payments and for as long as proceedings remain pending
Banks
except:
Insurance companies
(a) those creditors having claims for
Pre-need companies
personal labor,
National and local government agencies or units
maintenance,
o XPT (Covered by FRIA)
expense of last illness and
Non-bank GFI and GOCC
funeral of the wife or children of the debtor
incurred in the sixty (60) days immediately prior to
government financial institutions other than banks and
the filing of the petition; and
government-owned or controlled corporations
(b) secured creditors.
shall be covered by this Act, unless their specific charter
provides otherwise.
A. Court Supervised 4. A group of debtors may jointly file a petition for b. Involuntary or Creditor Initiated Rehabilitation Proceedings
a. Voluntary or Debtor-Initiated Rehabilitation Proceedings rehabilitation
When (GROUNDS for Voluntary Rehabilitation) Required Approval
Required Approval 1. one or more of its members foresee the Whichever is higher of
Sole Prop – owner impossibility of meeting debts when they o At least P1,000,000; or
Partnership – majority of partners respectively fall due, and o At least 25% of subscribed capital stock or
Corporation – majority BOD & 2/3 OCS 2. the financial distress would likely adversely partner’s contributions
Group of Debtors may jointly file petition affect the financial condition and/or
operations of the other members of the Section 13. Circumstances Necessary to Initiate Involuntary
Verified Petition + Rehabilitation Plan group and/or Proceedings. –
the participation of the other members of the Any creditor or group of creditors with a claim of, or the
Section 12. Petition to Initiate Voluntary Proceedings by group is essential under the terms and aggregate of whose claims is,
Debtor. – conditions of the proposed Rehabilitation at least One Million Pesos (Php1,000,000.00) or
When approved Plan. at least twenty-five percent (25%) of the
1. by the owner in case of a sole proprietorship, or subscribed capital stock or partners' contributions,
2. by a majority of the partners in case of a partnership, or whichever is higher,
3. in case of a corporation, by a majority vote of the board may initiate involuntary proceedings against the debtor by
of directors or trustees and authorized by the vote of the filing a petition for rehabilitation with the court if:
stockholders representing at least two-thirds (2/3) of the (GROUNDS for Involuntary Rehabilitation)
outstanding capital stock, or in case of nonstock (a) there is no genuine issue of fact on law on the
corporation, by the vote of at least two-thirds (2/3) of claim/s of the petitioner/s, and
the members, in a stockholder's or member's meeting that the due and demandable payments
duly called for the purpose, thereon have not been made for at least sixty
(60) days or
an insolvent debtor may initiate voluntary proceedings that the debtor has failed generally to meet its
by filing a petition for rehabilitation with the court and on the liabilities as they fall due; or
grounds hereinafter specifically provided. (b) a creditor, other than the petitioner/s, has initiated
foreclosure proceedings against the debtor that will
The petition shall be verified to establish prevent the debtor from paying its debts as they
the insolvency of the debtor and become due or will render it insolvent.
the viability of its rehabilitation, and
include, whether as an attachment or as part of the body Section 14. Petition to Initiate Involuntary Proceedings. –
of the petition, as a minimum the following: The creditor/s' petition for rehabilitation shall be verified to
a. Identification of the debtor, its principal activities and establish the substantial likelihood that the debtor may be
its addresses; rehabilitated, and include:
b. Statement of the fact of and the cause of the debtor's (a) identification of the debtor its principal activities and its
insolvency or inability to pay its obligations as they address;
become due; (b) the circumstances sufficient to support a petition to
c. The specific relief sought pursuant to this Act; initiate involuntary rehabilitation proceedings under
d. The grounds upon which the petition is based; Section 13 of this Act;
e. Other information that may be required under this (c) the specific relief sought under this Act;
Act depending on the form of relief requested; (d) a Rehabilitation Plan;
f. Schedule of the debtor's debts and liabilities including (e) the names of at least three (3) nominees to the position
a list of creditors with their addresses, amounts of of rehabilitation receiver;
claims and collaterals, or securities, if any; (f) other information that may be required under this Act
g. An inventory of all its assets including receivables and depending on the form of relief requested; and
claims against third parties; (g) other documents required to be filed with the petition
h. A Rehabilitation Plan; pursuant to this Act and the rules of procedure as may
i. The names of at least three (3) nominees to the be promulgated by the Supreme Court.
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.
Commencement Order or Stay Order there is a substantial likelihood that the debtor will be successfully Effects of a Stay Order [ CJAL ]
Commencement Order rehabilitated. 1) Suspend all actions or proceedings, in court or otherwise, for the
If the court finds the petition for rehabilitation to be sufficient in form xxxxx enforcement of claims against the debtor
and substance, it shall, within five (5) working days from the filing of the 2) Suspend all actions to enforce any judgment, attachment or
petition, issue a Commencement Order. Prohibited Acts of the Debtor during effectivity of Commencement other provisional remedies against the debtor
Order: 3) Prohibit the debtor from selling, encumbering, transferring or
If, within the same period, the court finds the petition deficient in form or i. Disposal of any property not in the ordinary course of business disposing in any manner any of its properties, except in the
substance, the court may, in its discretion, give the petitioner/s a ii. Authorization of any transaction in fraud of creditors, or in a ordinary course of business
reasonable period of time within which manner grossly disadvantageous to the debtor or creditors 4) Prohibit the debtor from making any payment of its liabilities
to amend or supplement the petition, or iii. Concealment from creditors outstanding as of the commencement date, except as may be
to submit such documents as may be necessary or proper to iv. Embezzlement or misappropriation of any property of debtor provided under FRA
put the petition in proper order.
In such case, the five (5) working days provided above for the issuance of Section 10. Liability of Individual Debtor, Owner of a Sole Proprietorship, The right of a secured creditor to enforce his security or lien may
the Commencement Order shall be reckoned from the date of the filing Partners in a Partnership, or Directors and Officers. – be suspended during the term of the Stay Order, unless the courts
of the amended or supplemental petition or the submission of such Individual debtor, allow it.
documents. owner of a sole proprietorship,
partners in a partnership, or Exceptions to Stay Order
Commencement Date: the date on which the court issues the directors and officers of a debtor
commencement order, which shall retroact to the date of filing of the shall be liable for Section 18. Exceptions to the Stay or Suspension Order. –
petition (or amended petition) for voluntary or involuntary proceedings double the value of the property sold, embezzled or disposed of The Stay or Suspension Order shall not apply: [ SSS – P – CCC ]
or
double the amount of the transaction involved,
Effects of Commencement Order 1. to cases already pending appeal in the Supreme Court as of
whichever is higher
In addition to the effects of a Stay Order [CJAL] + [ R-COL-EC ] commencement date
to be recovered for benefit of the debtor and the creditors,
a. Vest in the Rehabilitation Receiver all powers and functions if they, Provided, That any final and executory judgment arising from
provided for under FRIA having notice of the commencement of the proceedings, or such appeal shall be referred to the court for appropriate action;
having reason to believe that proceedings are about to be commenced, or
b. Serve as a legal basis for rendering null and void in contemplation of the proceedings, 2. subject to the discretion of the court, to cases pending or filed at
a. Any attempt to collect or enforce a claim against the willfully commit the following acts: a specialized court or quasi-judicial agency
debtor a. Dispose or cause to be disposed of any property of the debtor other which, upon determination by the court is capable of resolving
b. any off set of debt owed to debtor by any creditor than in the ordinary course of business or the claim more quickly, fairly and efficiently than the court:
c. any lien against debtor’s property authorize or approve any transaction in fraud of creditors or in a Provided, That any final and executory judgment of such court or
AFTER the commencement date manner grossly disadvantageous to the debtor and/or creditors; or agency shall be referred to the court and shall be treated as a
b. Conceal or authorize or approve the concealment, from the non-disputed claim;
c. Consolidate all legal proceedings by and against the debtor to the creditors, or
court. BUT the court may allow the continuation of cases in other embezzles or misappropriates, any property of the debtor 3. to the enforcement of claims against (SIM)
courts where the debtor initiated the suit. (corporation). sureties and other persons solidarily liable with the
debtor, and
The court shall determine the extent of the liability of an owner, partner,
d. Exempt the debtor from payment of taxes and fees, including third party or accommodation mortgagors as well as
director or officer under this section.
penalties, interests and charges thereof, due to the national issuers of letters of credit,
government of the LGU unless the property subject of the third party or accommodation
In this connection, in case of partnerships and corporations, the court shall
consider mortgage is necessary for the rehabilitation of the debtor as
Attempts to seek legal of other resource against the debtor outside these the amount of the shareholding or partnership or equity interest of such determined by the court upon recommendation by the
proceedings shall be sufficient to support a finding of indirect contempt partner, director or officer, the degree of control of such partner, director rehabilitation receiver;
of court. or officer over the debtor, and
the extent of the involvement of such partner, director or debtor in the 4. to any form of action of customers or clients of a securities
Effectivity of Commencement Order actual management of the operations of the debtor. market participant to recover or otherwise claim moneys and
Entire duration of the rehabilitation proceedings, unless: securities entrusted to the latter in the ordinary course of the
i. Earlier lifted by court latter's business
ii. Rehabilitation plan is seasonably confirmed or approved as well as any action of such securities market participant or the
iii. Rehabilitation proceedings a re ordered terminated by the court appropriate regulatory agency or self-regulatory organization to
pay or settle such claims or liabilities;
Section 21. Effectivity and Duration of Commencement Order. –
Unless lifted by the court, the Commencement Order shall be for the 5. to the actions of a licensed broker or dealer to sell pledged
effective for the duration of the rehabilitation proceedings for as long as 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 Section 23. Effect of Failure to File Notice of Claim. – review, revise and/or recommend action on the
and its implementing rules and regulations; A creditor Rehabilitation Plan and
whose claim is not listed in the schedule of debts and liabilities and submit the same or a new one to the court within a
6. the clearing and settlement of financial transactions who fails to file a notice of claim in accordance with the period of not more than ninety (90) days.
through the facilities of a clearing agency or similar entities duly Commencement Order
authorized, registered and/or recognized by the appropriate but subsequently files a belated claim The court may refer any dispute relating to the Rehabilitation
regulatory agency like the Bangko Sentral ng Pilipinas (BSP) and shall Plan or the rehabilitation proceedings pending before it to
the SEC as well as any form of actions of such agencies or not be entitled to participate in the rehabilitation arbitration or other modes of dispute resolution, as provided
entities to reimburse themselves for any transactions settled for proceedings for under Republic Act No. 9285, Or the Alternative Dispute
the debtor; and but shall be entitled to receive distributions arising Resolution Act of 2004, should it determine that such mode
therefrom. will resolve the dispute more quickly, fairly and efficiently than
7. any criminal action against individual debtor or owner, partner, the court.
director or officer of a debtor shall not be affected by any REPORT OF REHAB RECEIVER
proceeding commend under this Act. Section 24. Report of the Rehabilitation Receiver. – ii. Dismiss the petition
Within forty (40) days from the initial hearing and a. Debtor is not insolvent
with or without the comments of the creditors or any of them, the b. Petition is a sham, intended only to delay enforcement
Section 60. No Diminution of Secured Creditor Rights. rehabilitation receiver shall submit a report to the court stating his of the rights of creditors
preliminary findings and recommendations on whether: c. Petition contains false or misleading statements
The issuance of the Commencement Order and the Suspension or Stay a. the debtor is insolvent and d. Debtor has committed acts of misrepresentation or
Order, and any other provision of this Act, if so, the causes thereof and fraud
shall not be deemed in any way to diminish or impair any unlawful or irregular act or acts committed by the owner/s
the security or lien of a secured creditor, or of a sole proprietorship partners of a partnership or directors
the value of his lien or security, or officers of a corporation in contemplation of the insolvency Section 27.Dismissal of Petition. –
except that his right to enforce said security or lien may be suspended of the debtor or which may have contributed to the insolvency If the petition is dismissed
during the term of the Stay Order. of the debtor; then the court may, in its discretion, order the petitioner to pay
b. the underlying assumptions, damages to any creditor or to the debtor, as the case may be, who
Secured creditors are included in the stay order but excluded in the financial goals and may have been injured by the filing of the petition, to the extent of
suspension order the procedures to accomplish such goals any such injury.
as stated in the petitioner's Rehabilitation Plan
The court, upon motion or recommendation of the rehabilitation are realistic, feasible and reasonable;
receiver, may allow a secured creditor to enforce his security or lien, or c. there is a substantial likelihood for the debtor to be iii. Convert proceedings into liquidation of the debtor
foreclose upon property of the debtor securing his/its claim, if the said successfully rehabilitated; a. Debtor is insolvent
property is not necessary for the rehabilitation of the debtor. d. the petition should be dismissed; and b. There is no likelihood for debtor to be rehabilitated
The secured creditor and/or the other lien holders shall be admitted to
the rehabilitation proceedings only for the balance of his claim, if any. ACTION OF COURT AFTER REPORT OF REHABILITATION RECEIVER (Sec 25)
INITIAL HEARING Within 10 Days After receipt of the report of the rehabilitation receiver,
Section 22. Action at the Initial Hearing. – the court may:
At the initial hearing, the court shall: i. Give due course to the petition
(a) determine the creditors who have made timely and proper filing a. Debtor is insolvent and
of their notice of claims; b. There is a substantial likelihood for the debtor to be
(b) hear and determine any objection to the qualifications of the successfully rehabilitated
appointment of the rehabilitation receiver and, if necessary
appoint a new one in accordance with this Act; Issue a commencement order
(c) direct the creditors to comment on the petition and the Initial hearing
Rehabilitation Plan, and to submit the same to the court and to Appoint a receiver
the rehabilitation receiver within a period of not more than Check rehabilitation plan and approve within 1 year
twenty (20) days; and o Court has 1 year to approve rehabilitation plan from the
(d) direct the rehabilitation receiver to evaluate the financial date of filing. If not confirmed, it may be converted in to
condition of the debtor and to prepare and submit to the court liquidation motu prioprio or upon motion.
within forty (40) days from initial hearing the report provided in
Section 24 hereof.
Section 26.Petition Given Due Course. –
If the petition is given due course,
the court shall direct the rehabilitation receiver to
Rehabilitation Receiver Section 32.Removal of the Rehabilitation Receiver. – Section 36. Displacement of Existing Management by the Rehabilitation
- appointed by court & deemed an officer of the court The rehabilitation receiver may be removed at any time by the court Receiver or Management Committee. –
1. Preserve and maximize the assets either Upon motion of any interested party,
2. Determine viability of rehabilitation 1. motu proprio or the court may
3. Prepare and recommend a rehabilitation plan to court 2. upon motion a. appoint and direct the rehabilitation receiver to assume the powers
4. Implement the approved rehabilitation plan by debtor of management of the debtor, or
by any creditor/s holding more than fifty percent b. appoint a management committee that will undertake the
Rehabilitation Receiver is a Natural Person (50%) of the total obligations of the debtor, management of the debtor
Citizen of the PH or a Resident of the PH for at least 6months on such grounds as the rules of procedure may provide which shall upon clear and convincing evidence of any of the following
immediately preceding his nomination include, but are not limited to, the following: circumstances:
Good moral character, with acknowledged integrity, impartiality 1. Incompetence, gross negligence, failure to perform or failure to (a) Actual or imminent danger of dissipation, loss, wastage or
and independedce exercise the proper degree of care in the performance of his destruction of the debtor’s assets or other properties;
No conflict of interest duties and powers; (b) Paralyzation of the business operations of the debtor; or
Not been earlier dismissed as an RR 2. Lack of a particular or specialized competency required by the (c) Gross mismanagement of the debtor or fraud or other wrongful
Willing and able to file a bond specific case; conduct on the part of, or gross or willful violation of this Act by
Has the requisite knowledge of insolvency and other relevant 3. Illegal acts or conduct in the performance of his duties and existing management of the debtor Or the owner, partner,
commercial laws, rules and procedures, powers; director, officer or representative/s in management of the
as well as the relevant training and/or experience that may be 4. Lack of qualification or presence of any disqualification; debtor.
necessary to enable him to properly discharge the duties and 5. Conflict of interest that arises after his appointment; and
obligations of a rehabilitation receiver 6. Manifest lack of independence that is detrimental to the general In case the court appoints the rehabilitation receiver to assume the
body of the stakeholders. powers of management of the debtor. the court may:
Rehabilitation Receiver is a Juridical Person (1) require the rehabilitation receiver to post an additional bond;
Duly authorized to do business in PH for at least 6years prior (2) authorize him to engage the services or to employ persona or
to its appointment entities to assist him in the discharge of his managerial
Good standing functions; and
No conflict of interest (3) authorize a commensurate increase in his compensation
Not been earlier dismissed as an RR
Willing and able to file a bond
Name of person designated to discharge the responsibilities Management Committee – appointed by court
and powers of RR (Representative of Juridical Person) 1) Take custody and control of all assets owned or possessed by
Sworn Undertaking to be solidarily liable with the debtor
Representative 2) Take the place of the management
3) Assume the powers, rights and responsibilities of debtor
Representative of Juridical Person
Duly designated and authorized to act for and on
behalf of the juridical entity
Director, Officer, Stockholder or Partner of the
juridical entity
Sworn Undertaking that he will be solidarily liable
with the juridical entity Section 41.Immunity. –
The rehabilitation receiver and all persons employed by him,
An individual shall be deemed to have a conflict of interest if he is so and
situated as to be materially influenced in the exercise of his judgment for the members of the management committee and all persons
or against any party to the proceedings 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.
Creditors Committee REHABILITATION PLAN 6. Filing of Objections to Rehabilitation Plan
Section 42.Creditors' Committee. – Rehabilitation Plan shall refer to a plan by which the financial well-being A creditor may file an objection to the Rehabilitation Plan
After the creditors' meeting called pursuant to Section 63 hereof, and viability of an insolvent debtor can be restored using various means within twenty (20) days from receipt of notice from the court
the creditors belonging to a class may formally organize a committee including, but not limited to, that the Rehabilitation Plan has been submitted for
among themselves. debt forgiveness, confirmation.
In addition, the creditors may, as a body, agree to form a creditors' debt rescheduling, Objections to a Rehabilitation Plan shall be limited to the
committee composed of a representative from each class of reorganization or quasi-reorganization, following:
creditors, dacion en pago, i. The creditors' support was induced by fraud;
such as the following: debt-equity conversion and ii. The documents or data relied upon in the Rehabilitation
(a) Secured creditors; sale of the business (or parts of it) as a going concern, or Plan are materially false or misleading; or
(b) Unsecured creditors; setting-up of new business entity as prescribed in Section 62 iii. The Rehabilitation Plan is in fact not supported by the
(c) Trade creditors and suppliers; and hereof, or voting creditors.
(d) Employees of the debtor other similar arrangements as may be approved by the court
or creditors. 7. Hearing on the Objections
In the election of the creditors' representatives,
the rehabilitation receiver or his representative PROCESS 8. Confirmation of the Rehabilitation Plan
shall attend such meeting and extend the appropriate assistance as may
be defined in the procedural rules. 3. Consultation with Debtor and Creditors Effect of Confirmation of the Rehabilitation Plan
the rehabilitation receiver shall confer with the debtor and a. The Rehabilitation Plan and its provisions shall be binding
Section 43. Role of Creditors' Committee. – all the classes of creditors, and may consider their views and upon the debtor and all persons who may be affected by it,
The creditors' committee when constituted pursuant to Section 42 of this proposals in the review, revision or preparation of a new including the creditors,
Act Rehabilitation Plan whether or ot such persons have participated in the
i. shall assist the rehabilitation receiver in proceedings or opposed the Rehabilitation Plan or whether or
communicating with the creditors and 4. Creditor Approval of Rehabilitation Plan not their claims have been scheduled;
ii. shall be the primary liaison between the the rehabilitation receiver shall convene the creditors for b. The debtor shall comply with the provisions of the
rehabilitation receiver and the creditors. purposes of voting on the approval of the Plan Rehabilitation Plan and shall take all actions necessary to carry
The Plan shall be deemed rejected unless approved by all out the Plan;
The creditors' committee cannot exercise or waive any right or give any classes of creditors whose rights are adversely modified or c. Payments shall be made to the creditors in accordance with
consent on behalf of any creditor affected by the Plan. the provisions of the Rehabilitation Plan;
unless specifically authorized in writing by such creditor. the Plan is deemed to have been approved by a class of d. Contracts and other arrangements between the debtor and its
creditors if members of the said class holding more than fifty creditors shall be interpreted as continuing to apply to the
The creditors' committee may be authorized by the court or by the percent (50%) of the total claims of the said class vote in extent that they do not conflict with the provisions of the
rehabilitation receiver to perform such other tasks and functions as may favor of the Plan. Rehabilitation Plan;
be defined by the procedural rules in order to facilitate the rehabilitation The votes of the creditors shall be based solely on the e. Any compromises on amounts or rescheduling of timing of
process. amount of their respective claims based on the registry of payments by the debtor shall be binding on creditors
claims submitted by the rehabilitation receiver regardless of whether or not the Plan is successfully
Notwithstanding the rejection of the Rehabilitation Plan, the implement; and
court may confirm the Rehabilitation Plan if all of the f. Claims arising after approval of the Plan that are otherwise not
following circumstances are present: treated by the Plan are not subject to any Suspension Order.
a. The Rehabilitation Plan complies with the
requirements specified in this Act. Period for Confirmation of the Rehabilitation Plan
b. The rehabilitation receiver recommends the The court shall have a maximum period of one (1) year from the
confirmation of the Rehabilitation Plan; date of the filing of the petition to confirm a Rehabilitation Plan.
c. The shareholders, owners or partners of the juridical
debtor lose at least their controlling interest as a If no Rehabilitation Plan is confirmed within the said period,
result of the Rehabilitation Plan; and the proceedings may upon motion or motu propio,
d. The Rehabilitation Plan would likely provide the be converted into one for the liquidation of the debtor .
objecting class of creditors with compensation which
has a net present value greater than that which they 9. Termination of Proceedings
would have received if the debtor were under The rehabilitation proceedings shall,
liquidation. upon motion by any stakeholder or the rehabilitation receiver
be terminated by order of the court either declaring
5. Submission of Rehabilitation Plan to the Court a successful implementation of the Rehabilitation Plan or
a failure of rehabilitation.
B. Pre Negotiated Rehabilitation C. Out of Court or Informal Restructuring Agreements or
Insolvent debtor, by itself or jointly with any of its Rehabilitation Plans
creditors, files a verified petition for the approval of a Debtor agrees to out of court rehab agreement (OCRA)
pre-negotiated Rehabilitation Plan Approved by 85% of total liabilities
Approved or endorsed by 2/3 of the total liabilities o At least 67% of secured obligations
o More than 50% of secured claims o At least 75% of unsecured obligations
o More than 50% of unsecured claims Publication of notice of OCRA once a week for 3
consecutive weeks on a newspaper of general circulation
Period of Approval – 120 days maximum. If the court fails to act
within the said period, the rehabilitation plan shall be deemed Standstill Period – period agreed upon by the debtor and its
approved, and the court shall issue a certificate to that affect. creditors to enable them to negotiate and enter into an out-of-court
or informal agreement
The petition shall include as a minimum: Not to exceed 120 days
(d) a schedule of the debtor's debts and liabilities; Agreement approved by more than 50% of total
(e) an inventory of the debtor's assets; liabilities
(f) the pre-negotiated Rehabilitation Plan, including the names Notice published in a newspaper of general circulation
of at least three (3) qualified nominees for rehabilitation once a week for 2 consecutive weeks
receiver; and
(g) a summary of disputed claims against the debtor and a Cram Down Effect (Section 86)
report on the provisioning of funds to account for A restructuring/workout agreement or Rehabilitation Plan that is
appropriate payments should any such claims be ruled valid approved pursuant to an informal workout framework
or their amounts adjusted. shall have the same legal effect as confirmation of a Plan.
Approval of a Plan shall have the same legal effect as The OCRA is binding upon the 15% of total liabilities who did not
confirmation of a Plan. approve the rehabilitation plan.
6. Hearing on Objections
III. Liquidation Involuntary Liquidation of Insolvent Juridical Debtors Conversion Of Rehabilitation Proceedings To Liquidation Proceedings
A. Verified Petition for Liquidation After notice and hearing, the court where rehabilitation proceedings are
a. Juridical Persons Three (3) or more creditors the aggregate of whose claims is pending may also order the conversion of rehabilitation proceedings into
i. Voluntary at least either One million pesos (Php1,000,000,00) or liquidation proceedings
ii. Involuntary at least twenty-five percent (25%) of the subscribed in those cases authorized by law, or
b. Individual Debtors capital stock or partner's contributions of the debtor, at any other time upon the recommendation of the
i. Voluntary whichever is higher, rehabilitation receiver or management committee that the
ii. Involuntary may apply for and seek the liquidation of an insolvent debtor by filing rehabilitation of the debtor is no longer feasible.
a petition for liquidation of the debtor with the court. In such case, the FLSP Rules shall apply
Hence, the Court held that they cannot find the rehabilitation plan for Basic
Polyprinters to be genuine and in good faith, for it was, in fact, unilateral
and detrimental to its creditors and the public.