Corporate Rehabilitation in the Philippines

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Corporate Rehabilitation in the Philippines Corporate rehabilitation, which is similar to Chapter 11 reorganization in the United States of America, is distinct and separate from insolvency. Rehabilitation is intended to enable a distressed corporation to gain a new lease on life, so to speak, and to continue its business as a going concern. On the other hand, insolvency is intended to close and liquidate an insolvent corporation (please note that insolvency is also available to individuals or n
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  Corporate Rehabilitation in the Philippines  Corporate rehabilitation, which is similar toChapter 11reorganizationin the United States of America, is distinct andseparate from insolvency. Rehabilitation is intended to enable adistressed corporation to gain a new lease on life, so to speak,and to continue its business as a going concern. On the otherhand, insolvency is intended to close and liquidate an insolventcorporation (please note that insolvency is also available toindividuals ornaturalpersons, while rehabilitation is availableonly to corporations, partnerships and associations).With the increased media coverage these past monthsregarding businesses undergoing corporate rehabilitation(e.g.,College Assurance Plan [CAP]andPacific Plans, Inc. [PPI]), even the general public has started asking questionsregarding this legal option that is available to distressedcorporations. Governing laws/Jurisdiction . – Jurisdiction over petitions forcorporate rehabilitation WAS vested in the Securities and Exchange Commission (SEC) under Presidential Decree (“P.D.”) No. 902-A, as amended by P.D. 1758 and P.D. 1799.WhileRepublic Act No. 8799transferred this jurisdiction toregular courts, P.D. 902-A remains to be the governing law oncorporate rehabilitations. TheRules of Procedure on CorporateRehabilitation (2008)superseded the  Interim Rules of Procedureon Corporate Rehabilitation  as the governing rule, withtheRules of Courtapplying suppletorily. The relevantdifferences between the old and new rules are discussedhere.  Issuance of “Stay Order”  . – If the court is convinced that thepetition is sufficient in form and substance, it will issue a Stay  Order, which shall include, among other things, theappointment of a Receiver and the suspension of ALL pendingclaims against the corporation under rehabilitation. Thrust of rehabilation . – Rehabilitation contemplates acontinuance of corporate life and activities in an effort torestore and reinstate the corporation to its former position of successful operation and solvency.The foregoing discussions constitute just the tip of the iceberg,so to speak. For instance, the treatment of creditors should be  “  pari passu ” (which literally means “in equal step” or “in equalfooting”), but this does not mean that some creditors cannot be paid ahead of the others especially when justified as set forthin the Rehabilitation Plan. For the layman, the RehabilitationPlan is the grand plan (recommended by the RehabilitationReceiver, with comments from the parties and approved by thecourt) on how the corporation is supposed to be rehabilitated.The issue on the exact treatment of all types of creditors ismerely one of the more complex matters involved in corporate rehabilitation. In another corporate rehabilitation I’ve handled, one of the issues that came up is the jurisdiction of Philippinecourts over a foreign corporation/branch that is registered anddoing business in the Philippines.These matters will be discussed in the months to come.Updates on the existing petitions for rehabilitation, as well asthe new ones which will surely arise, should serve as thespringboard for further and more detailed discussions.  A.M. NO. 00-8-10-SC   [November 21, 2000]   RE : INTERIM RULES OF PROCEDURE ON CORPORATEREHABILITATION   EN BANC    R E S O L U T I O N   Acting on the Memorandum of the Committee on SEC Cases submitting forthis Court's consideration and approval the Interim Rules of Procedure onCorporate Rehabilitation, the Court Resolved to approve the same.   The Interim Rules shall take effect on December 15, 2000 following itspublication in two (2) newspapers of general circulation not later thanNovember 26, 2000.   November 21, 2000, Manila.   Davide, Jr., C.J  ., Bellosillo, Melo, Puno, Vitug, Kapunan, Mendoza,Panganiban, Quisumbing, Pardo, Buena, Gonzaga-Reyes, Ynares-Santiagoand De Leon, Jr., JJ  ., concur.   INTERIM RULES OF PROCEDURE ON CORPORATE REHABILITATION   (2000)   Rule 1   COVERAGE   Section 1. Scope. - These Rules shall apply to petitions for rehabilitation filedby corporations, partnerships, and associations pursuant to PresidentialDecree No. 902-A, as amended.     Sec. 2. Applicability to Rehabilitation Cases Transferred from the Securities and Exchange Commission. -  Cases for rehabilitation transferred from theSecurities and Exchange Commission to the Regional Trial Courts pursuantto Republic Act No. 8799, otherwise known as The Securities Regulation  Code,shall likewise be governed by these Rules.   Rule 2    DEFINITION OF TERMS AND CONSTRUCTION   Section 1. Definition of Terms. -  For purposes of these Rules:   Administrative expenses  shall refer to those expenses incurred in theordinary course of business of the debtor after the issuance of the stayorder, excluding interest payable to creditors.   Affidavit of General Financial Conditio  n shall refer to a verifiedstatement on the general financial condition of the debtor required inSection 2, Rule 4 of these Rules.   Board of Directors  shall include the executive committee or themanagement of a partnership or association.   Claim  shall include all claims or demands of whatever nature orcharacter against a debtor or its property, whether for money orotherwise.   Creditor  shall mean any holder of a Claim.   Court  shall refer to the proper Regional Trial Court designated to hearand decide the cases contemplated under these Rules.   Debtor  shall mean any corporation, partnership, or association,whether supervised or regulated by the Securities and ExchangeCommission or other government agencies, on whose behalf a petitionfor rehabilitation has been filed under these Rules.   Stockholder  shall include a member of a non-stock corporation orassociation, in a partnership.   Sec. 2. Construction  . - These Rules shall be liberally construed to carry outthe objectives of Sections 5(d), 6(c) and 6(d) of Presidential Decree No. 902-A, as amended,and to assist the parties in obtaining a just, expeditious, and   inexpensive determination of cases. Where applicable, the Rules ofCourt shall apply suppetorily to proceedings under these Rules.   Rule 3   
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