Financial

Rehabilitation
and
Insolvency
Act
Brief History
• 1909 – Insolvency Law (Act No.
1956)
• PD No. 902-A
• SRC
• Interim Rules of Procedure on
Corporate Rehabilitation
Objectives

• To encourage debtors, and creditors to collectively and

realistically resolve and adjust competing claims and
property rights.
• To have a timely, fair, transparent, effective and
efficient rehabilitation or liquidation of debtors.
Objectives

• To ensure or maintain certainly and predictability in commercial

affairs, preserve and maximize the value of the assets of these
debtors, recognize creditor rights and respect priority of claims,
and ensure equitable treatment of creditors who are similarly
situated.
• To facilitate a speedy and orderly liquidation of these debtor's
assets and the settlement of their obligations when rehabilitation
is not feasible.
What is rehabilitation?

A procedure of conserving and administering the assets and

resources of an insolvent debtor in the hopes of restoring it "to its
former position of successful operation and liquidity.“
Its purpose is to give the debtor a chance to "gain a new lease on
life and thereby allow creditors to be paid their claims from its
earnings.“ (BDO vs. International Copra Export Corporation,
G.R. Nos. 218485-86 and 218493-97, April 28, 2021)
Two-pronged purpose of rehabilitation

1.Equitable purpose
2.Rehabilitative purpose
Definition of
Terms
Claim
It shall refer to all claims or demands of whatever nature or
character against the debtor or its property xxx 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.
Debtor
It 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.
Creditor
shall refer to a natural or juridical person which
has a claim against the debtor that arose on or
before the commencement date.
Group of debtors
They 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.
Insolvent
It 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.
Two types of insolvency
(1)Actual insolvency, i.e., the corporation’s assets are not enough to
cover its liabilities; and
(2)Technical insolvency defined under Sec. 3-12, i.e., the
corporation has enough assets but it foresees its inability to pay
its obligations for more than one year. (PNB vs. Hon. Court of
Appeals, G.R. No. 165571, January 20, 2009)
Rehabilitation It shall refer to a plan by which the
financial well-being and viability of
Plan 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.
Exclusions
Exclusions

Banks,

Insurance companies,

Pre-need companies, and

National and local government agencies or units.

Four types of rehabilitation proceedings
1.Court-supervised Rehabilitation (CSR)
1.Voluntary Proceedings
2.Involuntary Proceedings
2.Pre-negotiated Rehabilitation (PNR); and (Source:
Alburolaw.com)
3.Out-of-court or Informal Restructuring Agreement or
Rehabilitation Plan (A.M.-12-12-11-SC)
4. Suspension of Payments for individual debtors.
Court Supervised
Rehabilitation
Voluntary and involuntary proceedings
Voluntary proceedings shall refer to
proceedings initiated by the debtor. (Letter
rr, Sec. 4)
On the other hand, involuntary
proceedings shall refer to proceedings
initiated by creditors. (Letter r, Sec. 4)
Eight steps to rehabilitation
1. Filing of a verified petition for rehabilitation
2. Issuance of Commencement Order
3. Filing of Verified Notice of Claim
4. Filing of Publisher’s Affidavit & Petitioner’s Affidavit
5. Initial hearing
6. Additional Hearings
7. Submission of final rehabilitation plan
8. Giving Due Course to or Dismissal of Petition, or Conversion
of Proceedings (to liquidation)
Source:
Alburolaw.com
Who may file?
In case of voluntary proceedings:
1.the owner, in case of a sole proprietorship;
2.a majority of the partners, in case of a partnership; or
3.a majority vote of the board of directors or trustees and authorized by
the vote of the stockholders representing at least two-thirds (2/3) of
the outstanding capital stock or at least two-thirds (2/3) of the
members in a non-stock corporation, in case of a corporation;
4.an insolvent debtor may initiate voluntary proceedings under this Rule
by filing a petition far rehabilitation with the court based on the
grounds hereinafter specifically provided. (A.M-12-12-11-SC)
Who may file?
In case of involuntary proceedings:
Any creditor or group of creditors with a claim of, or the
aggregate of whose claims is at least One Million Pesos
(P1,000,000.00) or at least twenty-five percent (25%) of the
subscribed capital stock or partners' contributions, whichever
is higher, may initiate involuntary proceedings under this Rule
by filing a petition for rehabilitation of a debtor with the court
and on the grounds hereinafter specifically provided. (A.M-12-
12-11-SC)
Grounds for voluntary rehabilitation
(1)one or more of its members foresee the impossibility
of meeting debts when they respectively fall due, and
(2)the financial distress would likely adversely affect the
financial condition and/or operations of the other
members of the group or the participation of the other
members of the group is essential under the terms and
conditions of the proposed Rehabilitation Plan. (Sec.
1, Rule 2, A.M-12-12-11-SC)
Grounds for involuntary rehabilitation
Involuntary proceedings may be initiated against the debtor by filing a
petition with the court if:
1.there is no genuine issue of fact or law on the claim/s of the
petitioner/s, and that the due and demandable payments thereon have
not been made for at least sixty (60) days; or
2.the debtor has failed generally to meet its liabilities as they fall due; or
3.at least one 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. 5, Rule 2, A.M-12-12-11-SC)
A. Action on the Petition and
Commencement of
Proceedings.
Where to file
The court where the principal office of the debtor
lies.
Action on the petition
The court shall issue a Commencement Order, within five (5) working
days from the filing of the petition, if the court find the petition for
rehabilitation to be sufficient in form and substance.
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 x x x 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. (Sec. 15)
What is a Commencement Order?
It is a mechanism wherein a court suspends
all claims, and actions against a distressed
corporation.
It includes a Suspension/Stay Order.
Contents of a Commencement Order
(a) appointing a Rehabilitation Receiver and fixing his bond;
(b) staying enforcement of all claims, whether for money or otherwise and
whether such enforcement is by court action or otherwise, against the
debtor, its guarantors and sureties not solidarity liable with the debtor;
(c) prohibiting the debtor from selling, encumbering, transferring, or
disposing in any manner any of its properties except in the ordinary course
of business;
(d) prohibiting the debtor from making any payment of its liabilities
outstanding as at the date of filing of the petition; x x x. (Dela Torre vs.
Primetown Property Group, G.R. No. 221932)
Effect of the Commencement Order
The effect of a Commencement Order is, it shall
retroact to the date of the filing of the petition and
renders void any attempt to collect on or enforce a
claim against the debtor or to set off any debt by
the debtor’s creditors, after the commencement
date. (Allied Banking Corporation vs. Equitable
PCI Banking Corporation, G.R. No. 191939.
March 14, 2018)
Effect of the Commencement Order
It is undisputed that the Commencement Order was
issued on January 11, 2013. As to the date of the filing of
the petition, petitioner claimed that the same was filed on
August 17, 2012. However, the records reveal otherwise.
It is apparent that it was on August 17, 2012 that the
petition was prepared by petitioner's counsel, Atty. Rio T.
Espiritu; but it was actually filed on August 22, 2012, as
evidenced by the rubber stamp of the RTC.
Effect of the Commencement Order
Moreover, the Notice of Lis Pendens annotated in the
titles of the subject properties reads that the petition for
corporate rehabilitation was filed before the RTC on
August 22, 2012. In deliberately stating an erroneous
fact, petitioner's counsel attempted to mislead this Court
to advocate the case of its client. Such act is, in absolute
terms, a downright violation of a lawyer's duty to act at
all times in a manner consistent with the truth. (Landbank
vs. Polillo Paradise, G.R. No. 211537, December 10,
2019)
Effect of the Commencement Order
XXX it must be emphasized that it was the October 18,
2012 petition which was granted by the RTC and initiated
the rehabilitation proceedings. Thus, the commencement
date is reckoned on October 18, 2012.
As the commencement date is ascertained, it is
indispensable to discern the period where the
extrajudicial foreclosure sale and its effects took place as
Section 17 of the FRIA extends only to processes which
occurred after the commencement date. (Id)
Stay Order
It shall refer to an order issued in conjunction with the commencement order
that shall:
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. (Section
5(r), Rule 1, A.M-12-12-11-SC)
Reason for Stay Order
As between creditors, the key phrase is 'equality is equity.
When a corporation threatened by bankruptcy is taken
over by a receiver, all the creditors should stand on equal
footing. Not anyone of them should be given any
preference by paying one or some of them ahead of the
others. (Sobrejuanite vs. ASB Development Corp.)
Do note!
All pending actions, including the execution of the
judgement against the corporation, should be
suspended pending termination of the
rehabilitation proceedings. (Molina vs. Pacific
Plans, Inc., G.R. No. 165476) Thus, claims of
whatever nature against the corporation,
partnership, or association are suspended.
Do note!
Moreover, the issuance of a stay order does not
affect the right to commence actions or
proceedings in order to preserve ad cautelam a
claim against the debtor and to toll the running of
the prescriptive period to file the claim.
(Philippine Wireless, Inc., vs. Optimum
Development Bank, G.R. No. 208251, November
10, 2020)
Inapplicability of Stay Order
1.To cases on appeal in the Supreme Court at the time of the
issuance of the commencement order;
2.The enforcement of claims against sureties and other persons
solidarily liable with the debtor and third party/accommodation
mortgagors;
3.The sale by licensed brokers or dealers of pledged securities
pursuant to a securities pledge or margin agreement;
4.Any criminal action against the individual debtor or owner,
partner, director or officer of a debtor;
Inapplicability of Stay Order
5. Clearing and settlement of financial transactions through the facilities
of a clearing agency or similar entities;
6. Any form of action of customers or clients of a securities market
participant to recover or otherwise claim moneys and securities
entrusted to the latter in the ordinary course of the latter's business as
well as any action of such securities market participant or the
appropriate regulatory agency or self-regulatory organization to pay or
settle such claims or liabilities.
Action at the Initial Hearing.
(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. 22)
What is the effect if a creditor has belatedly filed
his claim, and his claim is not included in the
schedule of debts, and liabilities?

He shall not be entitled to participate in the

rehabilitation proceedings but shall be entitled to
receive distributions arising therefrom. (Sec. 23)
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;
Report of the Rehabilitation Receiver

(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;
(c) there is a substantial likelihood for the debtor to be
successfully rehabilitated;
(d) the petition should be dismissed; and
(e) the debtor should be dissolved and/or liquidated. (Sec. 24)
The court, Within ten (10) days from receipt of the
report of the rehabilitation receiver, may:
(a)give due course to the petition,
(b)dismiss the petition, or
(c)convert the proceedings into one for the
liquidation of the debtor. (Sec. 25)
The court directing the receiver to review, revise, and/or
recommend action.

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.
 (C) The Rehabilitation
Receiver, Management
Committee and Creditors’
Committee.
When to appoint a Rehabilitation
Receiver/Management Committee?
1.actual or imminent danger of dissipation, loss, wastage or destruction
of the debtor's assets or other properties; or
2.paralyzation of the business operations of the debtor; or
3.gross mismanagement of the debtor, fraud or other wrongful conduct
on the part of, or gross or willful violation of the Act by the existing
management of the debtor or the owner, partner, director, officer or
representative/s in management of the debtor. (Sec. 36)
Who may serve as a Rehabilitation Receiver?

Any qualified natural or juridical person may serve as a

rehabilitation receiver.
A rehabilitation receiver who is a juridical entity must
designate, as its representative, a natural person who
possesses all the qualifications and none of the
disqualifications under this Rule.
Qualifications of a Rehabilitation Receiver in case
the Receiver is an individual
The rehabilitation receiver who is a natural person must comply with
the following minimum qualifications and requirements:
1. He is a citizen of the Philippines or a resident of the Philippines for at
least six (6) months immediately preceding his nomination;
2. He is of good moral character and with acknowledged integrity,
impartiality and independence;
3. As far as practicable, he has expertise and acumen to manage and
operate a business similar in size and complexity to that of the debtor;
4. He has an operating knowledge in management, finance and
rehabilitation of distressed companies;
Qualifications of a Rehabilitation Receiver in case
the Receiver is an individual
5. He has a general familiarity with the rights of creditors subject to
suspension of payments or rehabilitation and a general understanding of
the duties and obligations of a rehabilitation receiver;
6. He has not been earlier dismissed as a rehabilitation receiver pursuant
to Section 27 of this Rule;
7. He has no conflict of interest as defined in this Rule; and
8. He is willing and able to file a bond in such amount as may be
determined by the court.
Qualifications of a Rehabilitation Receiver in case
the Receiver is a juridical person
1.It is duly authorized to do business in the Philippines for at least
six (6) years prior to its appointment;
2.It is of good standing as certified by the appropriate regulatory
agency/ies;
3.It has no conflict of interest as defined in this Rule;
4.It has not been earlier dismissed as a rehabilitation receiver
pursuant to Section 27 of this Rule;
Qualifications of a Rehabilitation Receiver in case
the Receiver is a juridical person
5.It must submit the name of the person designated to discharge the
responsibilities and powers of a rehabilitation receiver and the names of
the employees and other persons authorized to assist the designated
representative, together with a sworn certification that these persons
possess the qualifications and none of the disqualifications enumerated
above;
6.It must submit a sworn undertaking, duly approved in accordance with
law, binding itself to be solidarily liable with the persons designated by
it to discharge the functions and responsibilities of a rehabilitation
receiver;
Qualifications of a Rehabilitation Receiver in case
the Receiver is a juridical person
7. It is willing and able to file a bond in such amount as may
be determined by the court;
8. It is not disqualified to discharge the duties of a
rehabilitation receiver under the Constitution and other
relevant laws;
Qualifications of a Rehabilitation Receiver in case
the Receiver is a juridical person
In addition, the designated representative of the juridical person must
comply with the following requirements:
1. The representative must be duly designated and authorized to act for
and on behalf of the juridical entity;
2. The designated representative must be a director, officer, stockholder
or partner of the juridical entity; and
3. The designated representative must submit a sworn undertaking that
he shall be solidarily liable with his firm for all the obligations and
responsibilities of a rehabilitation receiver.
Conflict of interest definition

An individual shall be deemed to have a conflict of interest if he is

so situated as to be materially influenced in the exercise of his
judgment for or against any party to the proceedings.
A conflict of interest of an individual employed or contracted by
the rehabilitation receiver or the management committee or its
members shall be deemed to be a conflict of interest of the
rehabilitation receiver or the management committee. (Sec. 22,
Rule 2, A.M-12-12-11-SC)
Removal of a Rehabilitation Receiver

The rehabilitation receiver may be removed at any time by the court, either
motu proprio or upon motion by the debtor or any creditor/s holding more
than fifty percent (50%) of the total obligations of the debtor, on such
grounds as these Rules may provide, which shall include, but not limited
to, the following:
1.incompetence, gross negligence, failure to perform or failure to exercise
the proper degree of care in the performance of his duties and powers;
2.lack of a particular or specialized competency required by the specific
case;
3.illegal acts or conduct in the performance of his duties and powers;
4.lack of qualification or presence of any disqualification;
Removal of a Rehabilitation Receiver

1.conflict of interest that arises after his appointment;

2.manifest lack of independence that is detrimental to the general body
of the stakeholders;
3.failure, without just cause, to perform any of his powers and functions
under these Rules; or
4.on any of the grounds for removing a trustee under the general
principles of trusts.
What is a Management Committee

The Management Committee is composed of persons, natural or

juridical, appointed by the court when proper, in court-supervised
rehabilitation.
The management committee shall take the place of the
management and governing body of the debtor, and assume such
powers, rights and responsibilities under the law. (PNLaw.com)
(D)
Determination
of Claims.
Determination of claims

Within twenty (20) days from his assumption into office, the
rehabilitation receiver shall establish a preliminary registry of claims
based on the schedule of debts and liabilities provided in the petition.
The rehabilitation receiver shall make the registry available for public
inspection and give notice to the debtor, creditors and stakeholders on
where and when they may inspect it by causing the publication of the
place/s and date/s of inspection in a newspaper of general circulation in
the Philippines once every week for two (2) consecutive weeks.
The period of inspection shall not exceed fifteen (15) days from the last
publication. All claims included in the registry of claims must be duly
supported by sufficient evidence. (Sec. 44, Rule 2
(F) Use, Preservation
and Disposal of
Assets and Treatment
of Assets and Claims
after Commencement
Date.
Use or disposition of assets

Except as otherwise provided herein, no funds or property of

the debtor shall be used or disposed of except in the ordinary
course of business of the debtor, or unless necessary to finance
the administrative expenses of the rehabilitation proceedings.
(Sec. 47, Rule 2)
Clawback Provisions

The court may, upon motion and after notice and hearing, rescind or
declare as null and void any sale, payment, transfer or conveyance of
the debtor’s unencumbered property or any encumbering thereof by the
debtor or its agents or representatives after the commencement date
which are not in the ordinary course of the business of the debtor. (Sec.
49 FRIA, and Sec. 51, Rule 2)
The court may also rescind or declare as null and void any transaction
that occurred prior to the commencement date and was entered into by
the debtor or involved its funds or assets, on the ground that the same
was executed with intent to defraud a creditor(s) or constitutes undue
preference of creditors.
Clawback Provisions

The court may also rescind or declare as null and void any
transaction that occurred prior to the commencement date and
was entered into by the debtor or involved its funds or assets,
on the ground that the same was executed with intent to
defraud a creditor(s) or constitutes undue preference of
creditors. (Global Restructuring and Insolvency Guide, Baker
McKenzie)
Clawback Provisions inapplicable

1. to administer the debtor and facilitate the preparation and implementation

of a Rehabilitation Plan;
2. to provide a substitute lien, mortgage or pledge of property under this Rule;
3. to pay or meet administrative expenses as they arise;
4. to pay 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;
5. to repurchase property of the debtor that is auctioned off in a judicial or
extrajudicial sale under these Rules; or
6. to reclaim or redeem property of the debtor held pursuant to a possessory
lien. (Sec. 49 FRIA, and Sec. 51, Rule 2)
Treatment of Employees' Claims.

The claims for separation pay and salary of employees for months
worked prior to the commencement date shall be considered a pre-
commencement claims.
 The compensation of employees required to carry on the business
during the rehabilitation proceedings shall be considered an
administrative expense.
Claims for salary and separation pay for work actually performed after
the commencement date shall be an administrative expense. (Sec. 55,
Rule 2)
 (I)
Administration of
Proceedings.
Rehabilitation Plan

It 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.
(Sec. 4(ii))
Creditor approval of Rehabilitation Plan

The Rehabilitation Plan is deemed to have been approved by a

class of creditors if members of the said class holding more than
fifty percent (50%) of the total claims of the said class vote in favor
of the Plan. The votes of the creditors shall be based solely on the
amount of their respective claims based on the registry of claims
submitted by the rehabilitation receiver pursuant to Section 44 of
this Rule. (Sec. 62, Rule 2)
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. (Sec.
63)
Cram Down Rule

If the plan is rejected by the creditors, the

rehabilitation court may still confirm the
rehabilitation plan, subject to certain conditions
provided under Section 64.
This power to override the creditor's disapproval
of the rehabilitation plan refers to the
rehabilitation court's "cram-down" power xxx
Cram Down Rule

Among other rules that foster the foregoing policies, Section

23, Rule 4 of the Interim Rules of Procedure on Corporate
Rehabilitation (Interim Rules) states that a rehabilitation plan
may be approved even over the opposition of the creditors
holding a majority of the corporation's total liabilities if there
is a showing that rehabilitation is feasible and the opposition
of the creditors is manifestly unreasonable.
Cram Down Rule

Also known as the "cram-down" clause, this provision, which is

currently incorporated in the FRIA, is necessary to curb the
majority creditors' natural tendency to dictate their own terms and
conditions to the rehabilitation, absent due regard to the greater
long-term benefit of all stakeholders.
Otherwise stated, it forces the creditors to accept the terms and
conditions of the rehabilitation plan, preferring long-term
viability over immediate but incomplete recovery. (BDO vs.
International Copra Export Corporation, G.R. Nos. 218485-86
and 218493-97, April 28, 2021)
Submission of Rehabilitation Plan to creditors

If the Rehabilitation Plan is approved, the rehabilitation

receiver shall submit the same to the court for
confirmation.
Within five (5) days from receipt of the Rehabilitation
Plan, the court shall notify the creditors that the
Rehabilitation Plan has been submitted for confirmation,
that any creditor may obtain copies of the Rehabilitation
Plan and that any creditor may file an objection thereto.
(Sec. 65)
Confirmation of the Rehabilitation Plan

The court shall issue an order confirming the Rehabilitation

Plan in any of the following instances:
1.no objections are filed within the twenty (20)-day period
from receipt of notice from the court that a Rehabilitation
Plan has been submitted to court;
2.the court finds the objections lacking in merit;
3.the basis for the objection has been cured; or
4.the debtor has complied with the order to cure the objection.
(Sec. 66, Rule 2)
Confirmation of the Rehabilitation Plan

However, if the court finds that there is no

substantial likelihood that the debtor can be
rehabilitated, it shall not confirm the
Rehabilitation Plan and, instead, declare a failure
of rehabilitation in accordance with Section 73 of
this Rule. (Id.)
Effects of confirmation

a. the Plan and its provisions shall bind the debtor and all
persons who may be affected thereby, including the creditors;
b. the debtor shall comply with the provisions of the Plan and
shall take all actions necessary to carry them out;
c. payments shall be made to the creditors in accordance with
the provisions of the Plan;
Effects of confirmation

d. contracts and other arrangements between the debtor and its

creditors shall remain valid and continue to apply to the extent
that they do not conflict with the provisions of the Plan;
e. any compromises on amounts or rescheduling of timing of
payments by the debtor shall be binding on the creditors
regardless of whether or not the Plan is successfully
implemented; and
f. claims arising after the approval of the Plan that are
otherwise not treated by the Plan are not subject to any
Suspension Order
Pre-Negotiated
Rehabilitation
Who shall file the Pre-Negotiated Rehabilitation
Plan?
An insolvent debtor, by itself or jointly with any of its
creditors, may file a verified petition with the court for the
approval of a pre-negotiated Rehabilitation Plan, supported by
an affidavit showing the written endorsement or approval of
creditors holding at least two-thirds of the total liabilities of the
debtor, including secured creditors holding more than 50% of
the total secured claims of the debtor and unsecured creditors
holding more than 50% of the total unsecured claims of the
debtor.
Issuance of order

Within five (5) working days from the date of

filing the petition, if the court determines that the
petition is sufficient in form and substance. (Sec.
2, Rule 3)
Effectivity and duration of Order

The Order shall have the same effects as a

Commencement Order under Section 9, Rule 2 of these
Rules.
It shall retroact to the date of the filing of the petition and
shall be effective for one hundred twenty (120) days from
the filing of the petition unless earlier lifted by the court
on account of (a) the approval of the Pre-Negotiated
Rehabilitation Plan, or (b) the termination of the
rehabilitation proceedings. (Sec. 3, Rule 3)
Out-of-court or
Informal
Restructuring
Agreement or
Rehabilitation
Plan
Requirements

1.Approval by the:
1. debtor;
2. creditors representing at least sixty-seven percent (67%) of the secured
obligations of the debtor;
3. creditors representing at least seventy-five percent (75%) of the unsecured
obligations of the debtor; and,
4. creditors holding at least eighty-five percent (85%) of the total liabilities,
secured and unsecured, of the debtor; and,
2.Publication of the notice of the OCRA once a week for at least three
(3) consecutive weeks in a newspaper of general circulation in the
Philippines, as prescribed in Section 4 of this Rule. (Sec. 1, Rule 4)
Standstill period

A standstill period may be agreed upon by the parties and shall be

effective and enforceable not only against the contracting parties but
also against the other creditors provided it complies with the following
conditions:
1.approval of the agreement for a standstill period by creditors
representing more than fifty percent (50%) of the total liabilities of the
debtor;
2.publication of the notice of the agreement in a newspaper of general
circulation in the Philippines, once a week for two (2) consecutive
weeks; and
3.the standstill period shall not exceed one hundred twenty (120) days
Suspension of
Payments for
Individual
Debtors
Suspension of Payments
An individual debtor who, possessing sufficient property
to cover all his debts but foreseeing the impossibility of
meeting them when they respectively fall due, may file a
verified petition that he be declared in the state of
suspension of payments by the court of the province or
city in which he has resided for six (6) months prior to
the filing of his petition.
Court Action
If the court finds the petition sufficient in form and substance, it
shall, within five (5) working days from the filing of the petition.
(Sec. 95)
Upon motion filed by the individual debtor, the court may issue an
order suspending any pending execution against the individual
debtor: Provided, that properties held as security by secured
creditors shall not be the subject of such suspension order.
The suspension order shall lapse when three (3) months shall have
passed without the proposed agreement being accepted by the
creditors or as soon as such agreement is denied. (Sec. 96)
As a rule
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 of payments and for as long as
proceedings remain pending except:
(a) those creditors having claims for personal labor,
maintenance, expense of last illness and funeral of the
wife or children of the debtor incurred in the sixty (60)
days immediately prior to the filing of the petition; and
(b) secured creditors. (Sec. 96)
Liquidation
Two types
1. Voluntary
2. Involuntary
Voluntary
An insolvent debtor may apply for liquidation by filing a verified
petition for liquidation with the court. The petition must establish
the insolvency of the debtor, and must contain the following:
a. A 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;
b. An inventory of all of the debtor’s assets, including receivables
and claims against third parties; and
c. The names of at least three nominees to the position of
liquidator.
Voluntary
At any time during the pendency of court-supervised or pre-
negotiated rehabilitation proceedings, the debtor may also
initiate liquidation proceedings by filing, in the same court
where the rehabilitation proceedings are pending, a motion to
convert the rehabilitation proceedings into liquidation
proceedings. If the court finds the petition or the motion, as the
case may be, to be sufficient in form and substance, the court
will issue a Liquidation Order.
Acts of Insolvency
The following shall be considered acts of insolvency, and the petition for liquidation
shall set forth or allege at least one of such acts:
(a) That such person is about to depart or has departed from the Republic of the
Philippines, with intent to defraud his creditors;
(b) That being absent from the Republic of the Philippines, with intent to defraud his
creditors, he remains absent;
(c) That he conceals himself to avoid the service of legal process for the purpose of
hindering or delaying the liquidation or of defrauding his creditors;
(d) That he conceals, or is removing, any of hise) That he h property to avoid its being
attached or taken on legal process;
as suffered his property to remain under attachment or legal process for three (3) days
for the purpose of hindering or delaying the liquidation or of defrauding his creditors;
Acts of Insolvency
(f) That he has confessed or offered to allow judgment in favor of any creditor or
claimant for the purpose of hindering or delaying the liquidation or of defrauding any
creditor or claimant;
(g) That he has willfully suffered judgment to be taken against him by default for the
purpose of hindering or delaying the liquidation or of defrauding his creditors;
(h) That he has suffered or procured his property to be taken on legal process with
intent to give a preference to one or more of his creditors and thereby hinder or delay
the liquidation or defraud any one of his creditors;
(i) That he has made any assignment, gift, sale, conveyance or transfer of his estate,
property, rights or credits with intent to hinder or delay the liquidation or defraud his
creditors;
(j) That he has, in contemplation of insolvency, made any payment, gift, grant, sale,
conveyance or transfer of his estate, property, rights or credits;
Acts of Insolvency
(k) That being a merchant or tradesman, he has generally defaulted
in the payment of his current obligations for a period of thirty (30)
days;
(l) That for a period of thirty (30) days, he has failed, after demand,
to pay any moneys deposited with him or received by him in a
fiduciary capacity; and
(m) That an execution having been issued against him on final
judgment for money, he shall have been found to be without
sufficient property subject to execution to satisfy the judgment.
(Sec. 105)
Grounds for Involuntary Liquidation
1. No genuine issue of fact or law on the claim/s
of the petitioner/s, and that the due and
demandable payments have not been made for
at least 180 days or that the debtor has failed to
generally meet its liabilities as they fall due.
2. There is no substantial likelihood that the debtor
may be rehabilitated.
Involuntary Liquidation for corporations
Three or more creditors of an insolvent corporate debtor whose claims total at
least Php1,000,000.00 or at least 25% of the subscribed capital stock or
partners’ contribution of the debtor, whichever is higher, may seek the
liquidation of debtor by filing a petition for liquidation of the debtor with the
court.
At any time during the pendency of or after a rehabilitation court-supervised or
pre-negotiated rehabilitation proceeding, three or more creditors whose claims
are at least either PHP1,000,000 or at least 25% of the subscribed capital or
partners’ contributions, whichever is higher, may also initiate liquidation
proceedings by filing a verified motion, in the same court where the
rehabilitation proceedings are pending, to convert the rehabilitation
proceedings into liquidation proceedings. If the court determines the petition or
motion to be meritorious, it will issue a Liquidation Order.
Involuntary Liquidation for individuals
On the other hand, any creditor or group of creditors with a claim
of, or with claims aggregating at least PHP 500,000 against an
individual debtor may file a verified petition for liquidation with
the court of the city or province in which the debtor resides.
 The court will issue an order requiring the individual debtor to
show cause why he should not be declared an insolvent. If the
individual debtor defaults or if, after trial, the issues are found in
favor of the petitioning creditors, the court will issue the
Liquidation Order.
Effects of the Liquidation Order
Upon the issuance of the Liquidation Order:
• The juridical debtor will be deemed dissolved and its corporate
or juridical existence terminated;
• Legal title to and control of all the assets of the debtor, except
those that may be exempt from execution, will be deemed vested in
the liquidator or, pending his election or appointment, with the
court;
• All contracts of the debtor will be deemed terminated and/or
breached, unless the liquidator, within 90 days from the date of his
assumption of office, declares otherwise and the contracting party
agrees;
Effects of the Liquidation Order
• No separate action for the collection of an unsecured claim will
be allowed. Such actions already pending will be transferred to the
liquidator to accept and settle or contest. If the liquidator contests
or disputes the claim, the court will allow, hear and resolve such
contest, except when the case is already on appeal. In such a case,
the suit may proceed to judgment, and any final and executory
judgment therein for a claim against the debtor will be filed and
allowed in court; and
• No foreclosure proceeding will be allowed for a period of 180
days.
Rights of Secured Creditors
If the secured creditor maintains his rights under the security or
lien:
• The value of the property may be fixed in a manner agreed upon
by the creditor and the liquidator. When the value of the property is
less than the claim it secures, the liquidator may convey the
property to the secured creditor and the latter will be admitted in
the liquidation proceedings as a creditor for the balance. If its value
exceeds the claim secured, the liquidator may convey the property
to the creditor and waive the debtor’s right of redemption upon
receiving the excess from the creditor;
Rights of Secured Creditors
• The liquidator may sell the property and satisfy the
secured creditor’s entire claim from the proceeds of the
sale; or
• The secured creditor may enforce the lien or foreclose
on the property pursuant to applicable laws.
Rights of Secured Creditors
The Liquidation Order will not affect the right of a
secured creditor to enforce his lien in accordance with
the applicable contract or law. A secured creditor may:
• Waive his right under the security or lien, prove his
claim in the liquidation proceedings and share in the
distribution of the assets of the debtor; or
• Maintain his rights under the security or lien.
Rights of Secured Creditors
If the secured creditor maintains his rights under the security or lien:
• The value of the property may be fixed in a manner agreed upon by the
creditor and the liquidator. When the value of the property is less than the
claim it secures, the liquidator may convey the property to the secured
creditor and the latter will be admitted in the liquidation proceedings as a
creditor for the balance. If its value exceeds the claim secured, the
liquidator may convey the property to the creditor and waive the debtor’s
right of redemption upon receiving the excess from the creditor;
• The liquidator may sell the property and satisfy the secured creditor’s
entire claim from the proceeds of the sale; or
• The secured creditor may enforce the lien or foreclose on the property
pursuant to applicable laws.