REHABILITATION LIQUIDATION SUSPENSION OF

PAYMENTS

Pre-negotiated Out of Court Insolvent Insolvent

Court Individual
Supervised
Rehabilitation Juridical Individual
Debtors
Debtors Debtors

Debtor : (1) has sufficient

Pre-negotiated property to cover debts; (2)
Rehabilitation Plan (1)Debtor must agree to foreseeing the impossibility of
approved by: (1) out of court rehabilitation meeting them when they fall
creditors holding 2/3 of plan; approved by
Voluntary total liabilities (i)
due
secured creditors
creditors holding 85% of Voluntary Voluntary
liabilities representing
holding 505; and (ii) 67% of secured and 75% of
unsecured creditors unsecured Effect of Suspension Order:
holding more than 50% (1) if no agreement accepted
by creditors within 3 months,
order will lapse; (2) No
Cram down effect: a Plan creditor can collect claim
Involuntary
Will include a
approved under this Involuntary Involuntary from the time of filing of
Suspension/Stay Order
chapter shall have the petition except secured
same effect as creditors; and creditors
confirmation of a Chapter having claims for personal
II Plan provided : notice labor , maintenance, illness,
Approval of a Pre-
published once a week for funeral expense incurred 60
Negotiated
3 weeks; take effect 15 days prior to filing.
Rehabilitation Plan shall
days from last publication
have the same effect as
confirmation of a a plan
under Chapter II

Two- Majority Rule; (1) 2/3

of the creditors voting unite
upon the same proposition;
INITIATION ACTION on the PETITION (2) claims represented by said
majority constitute 3/5 of
PROCEEDINGS total liabilities
 VOLUNTARY 40 days 40 days 10 days
PROCEEDINGS

By debtor: sole
proprietorship,
partnership and COMMENCEMENT ----------------- INITIAL RECEIVER Additional ------------ GIVE DUE ---
corporation 2/3 of ocs ORDER 5 days HEARING REPORT HEARINGS COURSE,
DISMISS,
CONVERT

INVOLUNTARY
PROCEEDINGS
by creditors with a claim
of 1 M or 25% of
subscribed capital stock,
whichever is higher; there
is no genuine issue of fact
on claim of petitioner and
no payment made at least
60 days; creditor has
initiated foreclosure
proceedings that will make
debtor insolvent.
Publication once a week for two ----------------------------------------------------------------------------------------------------------------------------------------------
weeks; first publication within 7
days
Service by personal delivery to
Findings and
creditors holding 10% of total File claims at least 5 days Creditor to submit
before the initial hearing recommendations:
liabilities; service to debtor comment within
within 5 days (1) Debtor is
20 days Give Due Course: (1) Receiver to review
insolvent; (2) goals
insolvent; (2) likelihood and submit new
realistic; (3)
Set the case for initial hearing of rehabilitation Plan within 90
possible
not more than 40 days from days
Determine rehabilitation; (4)
date of filing of petition Creditor to submit name of
creditors, belated dismissal; (5)
qualified receiver within 5 claim not entitled dissolution or
days before initial hearing liquidation Dismiss the Petition:
to participate but Dismiss; may
Appoint receiver will have (1) solvent; (2) sham order to pay
distribution filing; (3) materially
damages
false and misleading
statements; (4) fraud

SUSPENSION ORDER
Convert to liquidation:
(1) insolvent; (2) no
likelihood of
rehabilitation

2
 COMMENCEMENT ORDER SUSPENSION ORDER

By
nominees -
What does Commencement Order state? before
1.Publication and Notice requirements submission
of name Suspension Order shall state:
2.Requirements and Deadline for establishment of claims
1. Suspend all actions to enforce a claim
3. Direct payment of administrative expense (Sec. 4a) 2. Suspend all actions to enforce a judgment, attachment or provisional remedy
4. Prohibit suppliers from withholding supply after issuance of 3.Prohibit debtor from selling or disposing property
Commencement Order 4.Prohibit debtor from making any payment of its liabilities
5. Set the case for Initial Hearing
6. Creditor may submit names of nominees
By
7. Stay or Suspension Order receiver- What are exceptions to Stay or Suspension Order?
within 15
days from 1. To Cases already pending appeal in the Supreme Court as of
What is the Effect of the Commencement Order? appointment Commencement Date
2. To cases pending at specialized courts which are capable of resolving the
1. Vest the Rehabilitation Receiver with all the powers and functions provided
under FRIA claim more quickly, fairly and efficiently than the court PROVIDED that any
2.Prohibit any extra-judicial activity or process to seize the property Within 10 days final and executor of such court shall be referred to the court and shall be
3. Prohibit any set-off of any debt after commencement date from knowledge treated as a non-disputed claim
within 10 days
4. Nullify any lien on debtor’s property after commencement date 3. To the enforcement of claim against sureties solidarily liable with
5. Consolidate the resolution of all legal proceedings. (Section 17) debtors
4. Action by clients of a securities market participant to recover security
and money entrusted to the latter
5. Action of a licensed broker or dealer to sell pledged securities
What is the duration of the Commencement Order?
Effective for the whole duration of the rehabilitation proceedings for as long as there
6.Clearing and settlement of financial transactions
is substantial likelihood that the debtor will be successfully rehabilitated. 7. Criminal action against individual debtor, owner, partner, director

3
 The Court shall initially appoint
Rehabilitation Receiver; court
shall p
APPOINTMENT OF
The Court shall initially appoint
REHABILITATION Rehabilitation Receiver. Person
RECEIVER nominated by 50% of creditors.
Natural or juridical person.
Qualifications (1) Filipino or
resident for 6 months; (2) good
moral character; (3) Knowledge,
training and experience; (4) no
conflict of interest
OFFICER OF THE COURT
(1) Preserving and maximizing the
value of the assets of the debtor;
POWERS and DUTIES
(2) determine viability of
COMPENSATION and TERMS of SERVICE-
compensation for reasonable fees and expenses after
rehabilitation;
court hearing. Prior to hearing, based on quantum
meruit. (3)implement the Plan
(enumeration in Section 31)
Removal motru proprio upon
motion by creditors holding 50%
of total obligations on the ff.
REMOVAL of the grounds: (1) lack of competency;
REHABILITATION (2) illegal acts; (3) lack of
qualification; (4)conflict of
RECEIVER interest; (5)lack of independence;
(6) failure to perform any of his
powers; (7) other grounds under
Trust
Disclosure of conflict of interest by Objection to conflict of interest Oath and Bond
nominees and by receiver
CONFLICT OF INTEREST - Situated as
to be materially influenced in the exercise of
judgment for or against a party. Conflict of
interest situations; (1) engaged in competing
business; (2) within 5 years, was a director,
officer, employee, auditor or accountant of
debtor; (3) within 2 years, an underwriter of
the outstanding securities of the debtor; (4)
related within 4th civil degree to creditor,
owner, partner, stockholder, underwriter of
corp.; (5) direct or material interest
MANAGEMENT OF THE COMPANY
Management shall remain with existing DETERMINATION OF CLAIMS- RESCISSION of CERTAIN PRE-
management. However, receiver may assume Receiver shall establish a Registry of Claims,
COMMENCEMENT TRANSACTIONS
powers of management of the debtor upon with 20 days from assumption into office. Make
evidence of the following: (1) actual or
imminent danger of loss of assets; (2)
registry available for inspection. Within 30
days (after 20 day period), parties may submit
Receiver may initiate action to rescind certain pre-
commencement transactions : (A) effected within
paralyzation of business operations; (3)gross a challenge to claim. After 30 day period,
90 days prior to Commencement Date; (1)
mismanagement of the debtor or fraud or gross Receiver shall submitted to the court the
unreasonably inadequate consideration (2)
or willful violation of this act Registry, including undisputed claim. Party
involves an accelerated payment of a claim to a
may seek a review of the decision of Receiver
creditor; (3) provides security ; (B)creditor obtain
SALE OF ASSETS UPON COURT APPROVAL by filing a motion within 5 days from receipt of
more than pro rate share in the assets of debtor;
REPORT EVERY QUARTER decision.
(4) intended to defeat ability of creditors to collect
claims.
VACANCY - if a qualified
person is nominated by more than
50% of the secured creditors and
the general unsecured creditors,
and satisfactory evidence is
submitted, the court shall appoint
creditor’s nominee as
rehabilitation receiver USE, PRESERVATION and DISPOSAL of ASSETS
and TREATMENT OF ASSETS and CLAIMS after COMMENCEMENT DATE
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 No FUND or PROPERT OF THE DEBTOR SHALL BE USED Or DISPOSED

EXCEPTION: SALE OF DEBTORS PROPERTIES ALLOWED

(1) IN THE ORDINARY COURSE OF BUSINESS OF DEBTOR; (2)
UNLESS NECESSARY TO FINANCE THE ADMINISTRATIVE
EXPENSES OF THE PROCEEDINGS
(3) SALE OF ENCUMBERED PROPERTY OF THE DEBTOR AND
ASSETS OF THIRD PARTIES HELD BY DEBTOR upon showing that
(i)affected secured creditor have given their consent; (ii)such sale
is necessary for the continued operation of the debtor’s business;
(3)debtor has made arrangement to provide a substitute lien.
PROVIDED Properties by debtor who has authority to sell under
trust receipt or consignment arrangements may be sold if (ii( and
(iii) above are present.
ASSETS OF DEBTOR HELD BY THIRD PARTIES RESCISSION or NULLITY of SALE, PAYMENT,
TRANSFER or CONVEYANCE of ASSETS- the Court
(possessory pledges, mechanic’s lien or similar claims). Third
may rescind sale of unencumbered property after the
parties may not sell. Receiver may also (1) transfer possession of commencement date which are not in the ordinary
property to the receiver, subject to payment of claims; (2)allow course of business.
said third parties to retain possession or control, if it would more
likely preserve the value of the property; (3)undertake any other
disposition of the same property as may be in beneficial for the
rehabilitation of the debtor.

(4)SALE OF ASSETS SUBJECT TO RAPID OBSOLESCENCE,

DEPRECIATION AND DIMINUTION OF VALUE (i) allow foreclosure by
the secured creditor of the encumbered property PROVIDED proceeds of sale will
be distributed in order with rules of concurrence and preference of credits
(ii)conveyance of lien in substitute property of debtor PROVIDED: other creditors
holding liens, in any, do not object; (iii)lien on residual funds from the sale of
encumbered property; (iv)allow sale Provided this will maximize property and
proceeds of sale be distributed in accordance with concurrence and preference of
credits.

UNENCUMBERED PROPERTY MAY BE SOLD, ENCUMBERED UPON COURT ORDER

)1) interest of Plan; (2) to substitute a lien; (3) for payments made to administrative
expenses; victims of quasi-delicts; repurchase of debtor’s property that is auctioned
off in sale under FRIA; reclaim debtor’s property

5

Rehabilitation proceedings shall
not diminish the security of
security creditor EXCEPT ONLY;
right to enforce security may be
SECURED CREDITORS suspended. The Court may allow
enforcement of security or
foreclosure if property is not
necessary for rehabilitation.
Valid contracts with third parties
CONTRACTS as of the commencement date shall
continue to be in force.
Employees compensation required
to carry on the business are
considered as Administrative
Expenses.
EMPLOYEES Claims for salary and separation
pay for work performed after the
commencement date shall be an
Administrative Expense.
LACK of ADEQUATE PROTECTION-
The court may modify conditions of
suspension of payment upon
showing that (1) creditor does not
have adequate protection over
property (i)debtor fails to ensure
or maintain property; property has
depreciated; (2)value of claim
secured by a lien exceeds the fair
market value
Contractual obligations out of
Debtor will confirm within 90 days confirmed contracts are Claims for actual damages arising
following commencement administrative expenses from termination of contract shall
proceedings whether it is be considered a pre-
confirming the contract. Contracts not confirmed shall be commencement claim
terminated.
Claims of separation pay for
months worked prior to the
commencement date shall be
considered a Pre-Commencement
Claim.
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 One year

5 days 20 days Successful

implementation

Plan submitted to
Court for 20 days for
Approval of Termination
Confirmation; within creditors to Hearing on Confirmation Accounting
Rehabilitation of
5 days from receipt, file objections of Plan Discharge
Plan; Approval - Proceedings
Court will send objections
50% of total
claims notice to creditors

Consultation
Petition is give
with Debtors Failure of
due course
and Creditors rehabilitation (1)
dismissal of
petition; (2)
debtor fails to
Rejection of Plan submit Plan; (3) no
likelihood of
by Creditors rehabilitation;
(4)fails to perform
obligation
Court may confirm the Plan rehabilitation
if: (1) Plan complies with act;
(2)Receiver a confirmation;
(3) owners lose at least their
controlling interest; (4) Plan
will provide objecting
creditors a net present value
greater than that would have
been received under
liquidation.