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

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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

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The Court shall initially appoint Disclosure of conflict of interest by Objection to conflict of interest Oath and Bond
Rehabilitation Receiver; court nominees and by receiver
shall p

APPOINTMENT OF CONFLICT OF INTEREST - Situated as


The Court shall initially appoint
REHABILITATION Rehabilitation Receiver. Person
to be materially influenced in the exercise of
judgment for or against a party. Conflict of
RECEIVER nominated by 50% of creditors. interest situations; (1) engaged in competing
Natural or juridical person. business; (2) within 5 years, was a director,
officer, employee, auditor or accountant of
Qualifications (1) Filipino or debtor; (3) within 2 years, an underwriter of
resident for 6 months; (2) good the outstanding securities of the debtor; (4)
moral character; (3) Knowledge, related within 4th civil degree to creditor,
owner, partner, stockholder, underwriter of
training and experience; (4) no corp.; (5) direct or material interest
conflict of interest

OFFICER OF THE COURT MANAGEMENT OF THE COMPANY


Management shall remain with existing DETERMINATION OF CLAIMS- RESCISSION of CERTAIN PRE-
(1) Preserving and maximizing the management. However, receiver may assume Receiver shall establish a Registry of Claims,
COMMENCEMENT TRANSACTIONS
value of the assets of the debtor; powers of management of the debtor upon with 20 days from assumption into office. Make
POWERS and DUTIES 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-
(2) determine viability of commencement transactions : (A) effected within
paralyzation of business operations; (3)gross a challenge to claim. After 30 day period,
COMPENSATION and TERMS of SERVICE- 90 days prior to Commencement Date; (1)
compensation for reasonable fees and expenses after
rehabilitation; 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
court hearing. Prior to hearing, based on quantum involves an accelerated payment of a claim to a
may seek a review of the decision of Receiver
meruit. (3)implement the Plan 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;
(enumeration in Section 31) REPORT EVERY QUARTER decision.
(4) intended to defeat ability of creditors to collect
claims.

Removal motru proprio upon


motion by creditors holding 50% VACANCY - if a qualified
of total obligations on the ff. person is nominated by more than
REMOVAL of the grounds: (1) lack of competency; 50% of the secured creditors and
REHABILITATION (2) illegal acts; (3) lack of the general unsecured creditors,
qualification; (4)conflict of and satisfactory evidence is
RECEIVER interest; (5)lack of independence; submitted, the court shall appoint
(6) failure to perform any of his creditor’s nominee as
powers; (7) other grounds under rehabilitation receiver USE, PRESERVATION and DISPOSAL of ASSETS
Trust 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


ASSETS OF DEBTOR HELD BY THIRD PARTIES RESCISSION or NULLITY of SALE, PAYMENT,
(1) IN THE ORDINARY COURSE OF BUSINESS OF DEBTOR; (2) TRANSFER or CONVEYANCE of ASSETS- the Court
UNLESS NECESSARY TO FINANCE THE ADMINISTRATIVE
EXPENSES OF THE PROCEEDINGS (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.
(3) SALE OF ENCUMBERED PROPERTY OF THE DEBTOR AND said third parties to retain possession or control, if it would more
ASSETS OF THIRD PARTIES HELD BY DEBTOR upon showing that likely preserve the value of the property; (3)undertake any other
(i)affected secured creditor have given their consent; (ii)such sale disposition of the same property as may be in beneficial for the
is necessary for the continued operation of the debtor’s business; rehabilitation of the debtor.
(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.

(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

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LACK of ADEQUATE PROTECTION-
Rehabilitation proceedings shall The court may modify conditions of
not diminish the security of suspension of payment upon
security creditor EXCEPT ONLY; showing that (1) creditor does not
right to enforce security may be have adequate protection over
SECURED CREDITORS suspended. The Court may allow property (i)debtor fails to ensure
enforcement of security or or maintain property; property has
foreclosure if property is not depreciated; (2)value of claim
necessary for rehabilitation. 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
Valid contracts with third parties
CONTRACTS as of the commencement date shall
following commencement administrative expenses from termination of contract shall
proceedings whether it is be considered a pre-
continue to be in force. confirming the contract. Contracts not confirmed shall be commencement claim
terminated.

Employees compensation required


to carry on the business are
considered as Administrative Claims of separation pay for
Expenses. months worked prior to the
commencement date shall be
EMPLOYEES Claims for salary and separation considered a Pre-Commencement
pay for work performed after the Claim.
commencement date shall be an
Administrative Expense.

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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.