Insolvency Laws

2. Financial Rehabilitation and Insolvency Act of

2010
a. definition of insolvency
b. suspension of payment
c. Rehabilitation
i.types
ii. commencement order
iii. stay or suspension order
iv. Rehabilitation receiver
v. management committee
vi. rehabilitation plan
vii. cramdown effect
Facts: On October 15, 2004, Jose Marcel Panlilio,
Erlinda Panlilio, Nicole Morris and Mario Cristobal
(petitioners), as corporate officers of Silahis
International Hotel, Inc. (SIHI), filed with the
Regional Trial Court (RTC) of Manila, Branch 24, a
petition for Suspension of Payments and
Rehabilitation in SEC Corp. Case No. 04-111180.
On October 18, 2004, the RTC of Manila, Branch 24,
issued an Order staying all claims against SIHI upon
finding the petition sufficient in form and substance.
At the time, however, of the filing of the petition for
rehabilitation, there were a number of criminal
charges pending against petitioners in Branch 51 of
the RTC of Manila. These criminal charges were
initiated by respondent Social Security System
(SSS) and involved charges of violations of Section
28 (h) of Republic Act 8282, or the Social Security
Act of 1997 (SSS law), in relation to Article 315 (1)
(b) of the Revised Penal Code, or Estafa.
Consequently, petitioners filed with the RTC of
Manila, Branch 51, a Manifestation and Motion to
Suspend Proceedings. Petitioners argued that the
stay order issued by Branch 24 should also apply to
the criminal charges pending in Branch 51.
Petitioners, thus, prayed that Branch 51 suspend its
proceedings until the petition for rehabilitation was
finally resolved.

Issue: Whether or not suspension of claims during

corporate rehabilitation include suspension of the
criminal action against it.

Held: No. To begin with, corporate rehabilitation

connotes the restoration of the debtor to a position
of successful operation and solvency, if it is shown
that its continued operation is economically feasible
and its creditors can recover more, by way of the
present value of payments projected in the
rehabilitation plan, if the corporation continues as a
going concern than if it is immediately liquidated. It
contemplates a continuance of corporate life and
activities in an effort to restore and reinstate the
corporation to its former position of successful
operation and solvency, the purpose being to enable
the company to gain a new lease on life and allow its
creditors to be paid their claims out of its earnings.

A principal feature of corporate rehabilitation is the

suspension of claims against the distressed
corporation. Section 6 (c) of Presidential Decree No.
902-A, as amended, provides for suspension of
claims against corporations undergoing
rehabilitation, to wit:

Section 6 (c). . . . . . .

Provided, finally, that upon appointment of a

management committee, rehabilitation receiver,
board or body, pursuant to this Decree, all actions
for claims against corporations, partnerships or
associations under management or receivership
pending before any court, tribunal, board or body,
shall be suspended accordingly.

The rehabilitation of SIHI and the settlement of

claims against the corporation is not a legal ground
for the extinction of petitioners’ criminal liabilities.
There is no reason why criminal proceedings should
be suspended during corporate rehabilitation, more
so, since the prime purpose of the criminal action is
to punish the offender in order to deter him and
others from committing the same or similar offense,
to isolate him from society, reform and rehabilitate
him or, in general, to maintain social order. As
correctly observed in Rosario, it would be absurd for
one who has engaged in criminal conduct could
escape punishment by the mere filing of a petition
for rehabilitation by the corporation of which he is an
officer.

The prosecution of the officers of the corporation

has no bearing on the pending rehabilitation of the
corporation, especially since they are charged in
their individual capacities. Such being the case, the
purpose of the law for the issuance of the stay order
is not compromised, since the appointed
rehabilitation receiver can still fully discharge his
functions as mandated by law. It bears to stress that
the rehabilitation receiver is not charged to defend
the officers of the corporation. If there is anything
that the rehabilitation receiver might be remotely
interested in is whether the court also rules that
petitioners are civilly liable. Such a scenario,
however, is not a reason to suspend the criminal
proceedings, because as aptly discussed in Rosario,
should the court prosecuting the officers of the
corporation find that an award or indemnification is
warranted, such award would fall under the category
of claims, the execution of which would be subject to
the stay order issued by the rehabilitation court. The
penal sanctions as a consequence of violation of the
SSS law, in relation to the revised penal code can
therefore be implemented if petitioners are found
guilty after trial. However, any civil indemnity
awarded as a result of their conviction would be
subject to the stay order issued by the rehabilitation
court. Only to this extent can the order of
suspension be considered obligatory upon any
court, tribunal, branch or body where there are
pending actions for claims against the distressed
corporation.