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.