 Despite the foregoing, Misajon, et al.
, acting as
I. PURPOSE OF REHABILITATION
Corporate rehabilitation as an attempt to conserve and
administer the assets of an insolvent corporation in the
hope of its eventual return from financial stress to
solvency
It contemplates the continuance of corporate life and
activities in an effort to restore and reinstate the
corporation to its former position of successful
operation and liquidity
"Insolvent"
Is defined under section 4 "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"
Inherent purpose
The inherent purpose of rehabilitation is to find ways
and means to minimize the expenses of the distressed
corporation during the rehabilitation period by
providing the best possible framework for the
corporation to gradually became or achieve a
sustainable operating form.
Rehabilitation assumes that the corporation has been
operational but for some reasons like economic crisis or
mismanagement had become distressed or insolvent.
A. BIR VS. LEPANTO
 LCI filed a petition or corporate rehabilitation
pursuant to Republic Act No. (RA) 10142, otherwise
known as the (FRIA) of 2010, before the RTC
ofCalamba City, Branch 34, the designated Special
Commercial Court in Laguna (Rehabilitation Court).
 Essentially, LCI alleged that due to the financial
difficulties it has been experiencing dating back to the
Asian financial crisis, it had entered into a state of
insolvency considering its inability to pay its
obligations as they become due and that its total
liabilities far exceed its total assets.
 Notably, LCI admitted its tax liabilities to the national
government.
 Rehabilitation Court issued a Commencement Order.
 Accordingly, the Commencement Order was
published in a newspaper of general circulation and
the same, together with the petition for corporate
rehabilitation, were personally served upon LCI's
creditors, including the BIR.
1
Assistant Commissioner, Group Supervisor, and
Examiner, respectively, of the BIR's Large Taxpayers
Service, sent LCI a notice of informal conference
-informing the latter of its deficiency internal tax
liabilities
 In response, LCI's court-appointed receiver, Mendoza,
sent BIR a letter-reply, reminding the latter of the
pendency of LCI's corporate rehabilitation
proceedings, as well as the issuance of a
Commencement Order in connection therewith.
 Undaunted, the BIR sent LCI a Formal Letter of
Demand requiring LCI to pay deficiency taxes in the
amount.
 This prompted LCI to file a petition for indirect
contempt against petitioners before RTC Br. 35.
LCI CONTENTION:
In said petition, LCI asserted that petitioners'
act of pursuing the BIR's claims for deficiency
taxes against LCI outside of the pending
rehabilitation proceedings in spite of the
Commencement Order issued by the
Rehabilitation Court is a clear defiance of the
aforesaid Order.
BIR CONTENTION:
1. the instant petition had already been
mooted by the Rehabilitation Court's Order
which declared LCI to have been successfully
rehabilitated resulting in the termination of the
corporate rehabilitation proceedings;
2. their acts do not amount to a defiance of the
Commencement Order as it was done merely to
toll the prescriptive period in collecting
deficiency taxes, and thus, sanctioned by the
Rules of Procedure of the FRIA
3. their acts of sending a Notice of Informal
Conference and Formal Letter of Demand do
not amount to a "legal action or other recourse"
against LCI outside of the rehabilitation
proceedings;
The RTC Br. 35 Ruling: GUILTY OF INDIRECT CONTEMPT
1.the supervening termination of the
rehabilitation proceedings and the consequent
lifting of the Commencement Order did not
render moot the petition for indirect contempt
as the acts complained of were already
consummated;
2. petitioners could have tolled the prescriptive
period to collect deficiency taxes without
violating the Commencement Order by simply
ventilating their claim before the rehabilitation
 proceedings, which they were adequately
notified of.
3. petitioners' acts of sending LCI a notice of
informal conference and Formal Letter of
Demand are covered by the Commencement
Order as they were for the purpose of pursuing
and enforcing a claim for deficiency taxes, and
thus, are in clear defiance of the
Commencement Order;
ISSUE:
whether or not the RTC Br. 35 correctly found Misajon,
et al. to have defied the Commencement Order and,
accordingly, cited them for indirect contempt.
RULING:
YES.
DEFINITION
Section 4. Definition of Terms. - As used in this Act, the
term:
xxxx
(gg) Rehabilitation shall refer to the restoration of the
debtor to a condition of successful operation and
solvency, if it is shown that its continuance of operation
is economically feasible and its creditors can recover by
way of the present value of payments projected in the
plan, more if the debtor continues as a going concern
than if it is immediately liquidated.
xxxx
"[C]ase law has defined corporate rehabilitation as an
attempt to conserve and administer the assets of an
insolvent corporation in the hope of its eventual return
from financial stress to solvency. It contemplates the
continuance of corporate life and activities in an effort
to restore and reinstate the corporation to its former
position of successful operation and liquidity."
PURPOSE:
Verily, the inherent purpose of rehabilitation is to find
ways and means to minimize the expenses of the
distressed corporation during the rehabilitation period
by providing the best possible framework for the
corporation to gradually regain or achieve a sustainable
operating form.
ANSWER TO THE ISSUE:
<STAY ORDER>
upon the issuance of a Commencement Order - which
includes a Stay or Suspension Order - all actions or
2
proceedings, in court or otherwise, for the enforcement
of "claims" against the distressed company shall be
suspended.
<CLAIMS>
"shall refer to all claims or demands of whatever nature
or character against the debtor or its property, whether
for money or otherwise, liquidated or unliquidated,
fixed or contingent, matured or unmatured, disputed or
undisputed, including, but not limited to; (1) all claims
of the government, whether national or local, including
taxes, tariffs and customs duties; and
XXX
{(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."}
XXX
APPLICATION:
Notably, the acts of sending a notice of informal
conference and a Formal Letter of Demand are part and
parcel of the entire process for the assessment and
collection of deficiency taxes from a delinquent
taxpayer, - an action or proceeding for the enforcement
of a claim which should have been suspended pursuant
to the Commencement Order. Unmistakably, Misajon,
et al. 's foregoing acts are in clear defiance of the
Commencement Order.
REMEDY:
submit their claims to the rehabilitation court for
proper consideration
B. BPI VS. SMMCI
 Sps. Rodil are the owners and sole proprietors of St.
Michael Diagnostic and Skin Care Laboratory Services
and Hospital (St. Michael Hospital),... With a vision to
upgrade St. Michael Hospital... into a modern, well-
equipped and full service tertiary 11-storey
hospital,... Sps. Rodil... incorporated SMMCI, with
which entity they planned to... eventually
consolidate St. Michael Hospital's operations.
 In May 2004,... construction of a new hospital
building on the adjoining properties commenced
 To finance the costs of... construction, SMMCI
applied for a loan with petitioner BPI Family Savings
Bank... secured by a Real Estate Mortgage... after
suffering financial losses due to problems with the
first building contractor, Sps. Rodil temporarily
deferred the original construction plans for the 11-
storey hospital building and, instead, engaged the
 services of another... contractor for the completion
of the remaining structural works of the unfinished
building
 The lack of funds for the finishing works of the 3rd,
4th and 5th floors, however, kept the new building
from becoming completely functional and, in turn,
hampered the plans for the physical transfer of St.
Michael Hospital's operations to SMMCI.
 as of May 2006, SMMCI... was still neither
operational nor earning revenues. Hence, it was only
able to pay the... interest on its BPI Family loan...
from the income of St. Michael Hospital
 BPI Family demanded immediate payment of the
entire loan obligation and, soon after, filed a
petition for extrajudicial foreclosure of the real
properties covered by the mortgage.
 SMMCI filed a Petition for Corporate Rehabilitation...
before the RTC, with prayer for the issuance of a Stay
Order as it foresaw the impossibility of meeting its
obligation to BPI Family
 In its proposed Rehabilitation Plan, SMMCI merely
sought for BPI Family (a) to defer foreclosing on the
mortgage and (b) to agree to a moratorium of at
least two (2) years during which SMMCI either
through St. Michael Hospital or its... successor will
retire all other obligations. After which, SMMCI can
then start servicing its loan obligation to the bank
under a mutually acceptable restructuring
agreement
 Finding the Rehabilitation Petition to be sufficient in
form and substance, the RTC issued a Stay Order...
the same... was referred to the court-appointed
Rehabilitation Receiver, Dr. Uriel S. Halum
 Accordingly, Dr. Halum found that SMMCI may be
rehabilitated because it is a viable option but,
nevertheless, opined that it will take more than what
it had proposed to successfully bring the company
back to good financial health
RTC: APPROVED REHABILITATION PLAN
W/MODIFICATION
(a) a five-year moratorium on SMMCI’s bank
loan;
(b) a restructuring and payment of obligations
to other creditors such as suppliers and lenders;
(c) a programmed spending of a reasonable part
of the hospital’s revenues for the finishing of
the 5th floor and the improvement of hospital
facilities in the next two or three years; and
(d) use of fresh capital from prospective
investors to partly pay SMMCI’s bank loan and
improve St. Michael Hospital’s competitiveness.
CA: AFFIRMED
3
ISSUE:
whether or not the CA correctly affirmed SMMCI's
Rehabilitation Plan as approved by the RTC.
RULING: NO
Section 4. Definition of Terms. – As used in this Act, the
term:
xxxx
(gg) Rehabilitation shall refer to the restoration of the
debtor to a condition of successful operation and
solvency, if it is shown that its continuance of operation
is economically feasible and its creditors can recover by
way of the present value of payments projected in the
plan, more if the debtor continues as a going concern
than if it is immediately liquidated.
x x x x (Emphasis supplied)
In other words, rehabilitation assumes that the
corporation has been operational but for some reasons
like economic crisis or mismanagement had become
distressed or insolvent, i.e., that it is generally unable to
pay its debts as they fall due in the ordinary course of
business or has liability that are greater than its assets.
Thus, the basic issues in rehabilitation proceedings
concern the viability and desirability of continuing the
business operations of the distressed corporation, all
with a view of effectively restoring it to a state of
solvency or to its former healthy financial condition
through the adoption of a rehabilitation plan.
Restoration is the central idea behind the remedy of
corporate rehabilitation. In common parlance, to
“restore” means “to bring back to or put back into a
former or original state.” Case law explains that
corporate rehabilitation 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.
APPLICATION:
In this case, it cannot be said that the petitioning
corporation, SMMCI, had been in a position of
successful operation and solvency at the time the
Rehabilitation Petition was filed While it had indeed
“commenced business” through the preparatory act of
opening a credit line with BPI Family to finance the
construction of a new hospital building for its future
operations, SMMCI itself admits that it has not formally
operated nor earned any income since its incorporation.
This simply means that there exists no viable business
concern to be restored. Perforce, the remedy of
corporate rehabilitation is improper, thus rendering the
dispositions of the courts a quo infirm.
In fact, for the same reasons, the Court observes that
SMMCI could not have even complied with the form
and substance of a proper rehabilitation petition, and
submit its accompanying documents, among others, the
required financial statements of a going concern.
Section 2, Rule 4 of the 2008 Rules of Procedure on
Corporate Rehabilitation(Rules), which were in force at
the time SMMCI’s rehabilitation petition was filed,
pertinently provides:
SEC. 2. Contents of Petition. -
xxxx
(b) The petition shall be accompanied by the following
documents:
(1) An audited financial statement of the debtor at the
end of its last fiscal year;
(2) Interim financial statements as of the end of the
month prior to the filing of the petition;
xxxx
In fine, the petition should not have been given due
course, nor should a Stay Order have been issued.
To compound its error, the CA even disregarded the fact
that SMMCI’s Rehabilitation Plan, an indispensable
requisite in corporate rehabilitation proceedings, failed
to comply with the fundamental requisites outlined in
Section 18, Rule 3 of the Rules, particularly, that of a
material financial commitment to support the
rehabilitation and an accompanying liquidation analysis,
all of the petitioning debtor:
SEC. 18. Rehabilitation Plan. - The rehabilitation plan
shall include
(c) the material financial commitments to support the
rehabilitation plan;
(e) a liquidation analysis setting out for each creditor
that the present value of payments it would receive
under the plan is more than that which it would receive
if the assets of the debtor were sold by a liquidator
within a six-month period from the estimated date of
filing of the petition;
4
SHORT CUT
While the Court recognizes the financial predicaments
of upstart corporations under the prevailing economic
climate, it must nonetheless remain forthright in
limiting the remedy of rehabilitation only to meritorious
cases. As above-mentioned, the purpose of
rehabilitation proceedings is not only to enable the
company to gain a new lease on life but also to allow
creditors to be paid their claims from its earnings, when
so rehabilitated. Hence, the remedy must be accorded
only after a judicious regard of all stakeholders’
interests; it is not a one-sided tool that may be
graciously invoked to escape every position of distress.
In this case, not only has the petitioning debtor failed to
show that it has formally began its operations which
would warrant restoration, but also it has failed to show
compliance with the key requirements under the Rules,
the purpose of which are vital in determining the
propriety of rehabilitation. Thus, for all the reasons
hereinabove explained, the Court is constrained to rule
in favor of BPI Family and hereby dismiss SMMCI’s
Rehabilitation Petition. With this pronouncement, it is
now unnecessary to delve on the other ancillary issues
raised herein.
XXX---------------
Basic issues in rehabilitation proceedings
Concerned viability and desirability of continuing the
business operations of the distress corporation , all with
of effectively restoring it to a state of solvency or to its
former healthy financial condition through the adoption
of rehabilitation plan.
II. NATURE OF PROCEEDINGS
A. Section 3. Nature of Proceedings. - The
proceedings under this Act shall be in rem.
Jurisdiction over all persons affected by the
proceedings shall be considered as acquired
upon publication of the notice of the
commencement of the proceedings in any
newspaper of general circulation in the
Philippines in the manner prescribed by the
rules of procedure to be promulgated by the
Supreme Court.
In Rem
The proceeding shall be in rem- wherein the petitioner
seeks to establish the status of a party or a particular
fact, i.e., the inability of the corporate debtor to pay its
debts when they fall due.
Jurisdiction
Jurisdiction over all persons affected by the proceedings
shall be considered as acquired upon publication of the
notice of the commencement of the proceedings in
any newspaper of general circulation in the Philippines
in the manner prescribed by the rules of procedure to
be promulgated by the supreme court.
The proceedings shall be conducted in a summary and
non- adversarial manner.
SEC> RTC <securities regulation code 2000>
originally fell within the jurisdiction of the securities and
exchange commission but with the enactment of the
securities regulation code in 2000, this jurisdiction is
transferred to regional trial court.
B. Golden Cane vs. Steelpro
 On November 3, 2008, Golden Cane filed a Petition
for Corporate Rehabilitation with the RTC of San
Fernando, Pampanga. The petition was raffled to
Branch 42.
 The RTC issued a Stay Order and set the initial hearing
on January 7, 2009.
 The RTC denied due course to the petition because of:
(2) the consistent failure of the rehabilitation receiver
to fulfill her duties; (3) the receiver's failure to file her
bond on time; and (4) the receiver's failure to submit
Golden Cane's interim financial statements.
 The RTC dismissed the petition and lifted the Stay
Order.
 Golden Cane moved for reconsideration of the
dismissal. RTC Denied.
 Golden Cane elevated the case to the CA via a petition
for certiorari.
 CA dismissed the petition outright for being the
wrong mode of appeal. he CA held that the correct
remedy is a petition for review under Rule 43 of the
Rules of Court pursuant to A.M. No. 04-9-07-SC.
 Golden Cane moved to reconsider the dismissal but
the CA denied the motion
ISSUE:
whether the correct remedy to challenge the outright
dismissal of Golden Cane's petition for rehabilitation is a
petition for review under Rule 43 or a petition for
certiorari under Rule 65, both of the Rules of Court.
RULING:
PETITION FOR REVIEW.
5
PROCEEDINGS IN REM:
A corporate rehabilitation case is a special proceeding in
rem wherein the petitioner seeks to establish the status
of a party or a particular fact, i.e., the inability of the
corporate debtor to pay its debts when they fall due.
It is summary and non-adversarial in nature.
Its end goal is to secure the approval of a rehabilitation
plan to facilitate the successful recovery of the
corporate debtor.
It does not seek relief from an injury caused by another
party.
JURISDICTION
Jurisdiction over corporate rehabilitation cases
originally fell within the jurisdiction of the Securities and
Exchange Commission (SEC) which had absolute
jurisdiction, control, and supervision over all Philippine
corporations. With the enactment of the Securities
Regulation Code in 2000, this jurisdiction was
transferred to the Regional Trial Courts.
PROCEDURAL REMEDIES
1. Interim Rules
Review
All decisions and final orders in cases falling under the
Interim Rules of Corporate Rehabilitation and the
Interim Rules of Procedure Governing Intra-Corporate
Controversies under Republic Act No. 8799 shall be
appealable to the Court of Appeals through a petition
for review under Rule 43 of the Rules of Court.
2. [December 2, 2008] 2008 Rules rule 8 -
approval= certiorari
aapproval & disapproval = review
a. Section 1- An order issued after the approval of the
rehabilitation plan can be reviewed only through a
special civil action for certiorari under Rule 65 of the
Rules of Court.
b. Section 2. Review of Decision or Order on
Rehabilitation Plan. - An order approving or
disapproving a rehabilitation plan can only be reviewed
through a petition for review to the Court of Appeals
under Rule 43 of the Rules of Court within fifteen (15)
days from notice of the decision or order.26 [emphasis
supplied]
3. 2013 Rules rule 6-
Certiorari
Certiorari
a. Section 1 - An order issued after the approval of the
Rehabilitation Plan can be reviewed only through a
special civil action for certiorari under Rule 65 of the
Rules of Court.
b. Section 2.- Review of Decision or Order on
Rehabilitation Plan. - An order approving or
disapproving a rehabilitation plan can only be reviewed
through a petition for certiorari to the Court of Appeals
under Rule 65 of the Rules of Court within fifteen (15)
days from notice of the decision or order.
Golden Cane's petition for corporate rehabilitation falls
under the regime of the Interim Rules.
Golden Cane filed its petition for rehabilitation on
November 3, 2008 under the regime of the Interim
Rules. The initial hearing was also held on January 7,
2009, before the effectivity of the 2008 Rules.
Even if Golden Cane's petition were under the regime of
the 2008 Rules, the correct remedy would still have
been a petition for review to the Court of Appeals under
Rule 43.
STAGES OF REHABILITATION
The following is the summary of procedure for both
voluntary and involuntary rehabilitation
proceedings (Sec. 8, Rule 2 of FR Rules):
1. Filing of a verified petition for rehabilitation;
2. Issuance of Commencement Order: If the court
finds the petition for rehabilitation to be
sufficient in form and substance, it shall, within
five (5) working days from the filing of the
petition, issue a Commencement Order. The
effects of the court’s issuance of a
Commencement Order shall retroact to the
date of the filing of the petition (Sec 9, Rule 2).
Commencement Order shall include
Suspension/ Stay Order;
a. If deficient in form or substance, the
court may, in its discretion, give the
petitioner/s not exceeding five (5) working
days from receipt of notice of the order of
the court 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 shall be reckoned from the date of
the filing of the amended or supplemental
petition or the submission of such
documents. The court shall dismiss the
6
petition if the deficiency is not complied
within the extended five (5)-day period.
3. Publication of commencement order in a
newspaper of general circulation in the
Philippines once a week for at least two
consecutive weeks , with the first publication to
be made within 7 days from the time of its
issuance
4. Filing of Verified Notice of Claim of all the
creditors of the debtor or any interested party
whose claim is not yet listed in the schedule of
debts and liabilities not later than five (5) days
before the first initial hearing date fixed in the
Commencement Order. (Sec 12, Rule 2)
a. If a creditor files a belated claim, he
shall not be entitled to participate in the
proceedings but shall be entitled to receive
distributions arising therefrom if
recommended and approved by the
rehabilitation receiver, and approved by the
court.
5. Filing of Publisher’s Affidavit & Petitioner’s
Affidavit. On or before the initial hearing
scheduled on the Commencement Order, the
petitioner shall file a publisher’s affidavit
indicating the full compliance to the publication
requirements. Petitioner’s affidavit shall also be
filed showing that the service requirement for
local creditors and notification requirement for
foreign creditors had been complied with, as
required in the Commencement Order. These
affidavits are jurisdictional in nature.  (Sec. 13,
Rule 2, F-Rules)
6. Initial hearing on any matter relating to the
petition
a. Determination of creditors who timely
filed their claims;
b. Qualifications of receiver;
c. Direct the creditors to discuss their
comments and opposition to the
Rehabilitation plan;
d. Referral for evaluation of the
rehabilitation plan to the rehabilitation
receiver who shall submit his
recommendations to the court;
e. Determine the reasonableness of the
rehabilitation receiver’s fees stated in the
Rehabilitation Plan, which shall be
presumed reasonable unless the creditors
object to it.
7. Additional Hearings. — The court may hold
additional hearings as may be necessary to
continue the initial hearing process but these
hearings must be concluded not later than
ninety (90) days from the first hearing date
fixed in the Commencement Order.
a. Modifications or revisions of the
rehabilitation plan as necessary
8. Submission of final rehabilitation plan and
submission by Rehabilitation Receiver to the
court within forty (40) days from the last initial
hearing, the final report (Sec. 16, Rule 2)
 9. Giving Due Course to or Dismissal of Petition,
or Conversion of Proceedings (to
liquidation) (Secs. 17 – 18, Rule 2). The Court
may give due course to the proceedings, and
order that the rehabilitation plan must be
submitted within a period of not more than
ninety (90) days from the date of the order
giving due course to the petition. If there are
still objections or disputes on the Rehabilitation
Plan, the court may refer them to ADR or
arbitration.
Contents of Petition:
Section 2, Rule 4 of the 2008 Rules of Procedure
on Corporate Rehabilitation
SEC. 2. Contents of Petition. -
xxxx
(b) The petition shall be accompanied by the
following documents:
(1) An audited financial statement of the debtor
at the end of its last fiscal year;
(2) Interim financial statements as of the end of
the month prior to the filing of the petition;
xxxx
Rehabilitation Plan:
Section 18, Rule 3 of the Rules
SEC. 18. Rehabilitation Plan. - The
rehabilitation plan shall include
(a) the desired business targets or goals
and the duration and coverage of the
rehabilitation;
(b) the terms and conditions of such
rehabilitation which shall include the manner of
its implementation, giving due regard to the
interests of secured creditors such as, but not
limited, to the non-impairment of their security
liens or interests;
(c) the material financial commitments
to support the rehabilitation plan;
(d) the means for the execution of the
rehabilitation plan, which may include debt to
equity conversion, restructuring of the
debts, dacion en pago or sale exchange or any
disposition of assets or of the interest of
shareholders, partners or members;
(e) a liquidation analysis setting out for
each creditor that the present value of
payments it would receive under the plan is
7
more than that which it would receive if the
assets of the debtor were sold by a liquidator
within a six-month period from the estimated
date of filing of the petition; and
(f) such other relevant information to
enable a reasonable investor to make an
informed decision on the feasibility of the
rehabilitation plan. (Emphases supplied)
III. TYPES OF REHABILITATION PROCEEDINGS
1. COURT SUPERVISED
A. Voluntary proceedings [Section 12 of FRIA]
Voluntary proceedings are initiated by the insolvent
debtor.
It is approved:
1. By the owner in case of a sole proprietorship
2. By a majority of the partners in case of a
partnership
3. >In case of a corporation, by a majority vote
of the board of directors or trustees and
authorized by the vote of the stockholders
representing at least 2/3 of the outstanding
capital stock ,
>or in case of non-stock, by the vote of at least
two-thirds of the in a stockholders or members
meeting duly code for the purpose ,
>by filing a petition for rehabilitation with the
court and on the ground herein after specifically
provided.
The petition shall be verified to establish the insolvency
of the debtor and the viability of its rehabilitation, and
include, whether as an attachment or as part of the
body of the petition, as a minimum the following:
(a) Identification of the debtor, its principal
activities and its addresses;
(b) Statement of the fact of and the cause of the
debtor's insolvency or inability to pay its
obligations as they become due;
(c) The specific relief sought pursuant to this
Act;
(d) The grounds upon which the petition is
based;
 (e) Other information that may be required
under this Act depending on the form of relief
requested;
(f) 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;
(g) An inventory of all its assets including
receivables and claims against third parties;
(h) A Rehabilitation Plan;
(i) The names of at least three (3) nominees to
the position of rehabilitation receiver; and
(j) Other documents required to be filed with
the petition pursuant to this Act and the rules of
procedure as may be promulgated by the
Supreme Court.
A group of debtors may jointly file a petition for
rehabilitation when:
1. One or more of its members foresee the impossibility
of meeting debts when they respectively fall due
2. Differential distress would likely adversely affect the
financial condition and/or operations of the other
members of the group and/or the participation of the
members of the group is essential under the terms and
conditions of the proposed rehabilitation plan.
B. Involuntary proceedings [Section 13 of FRIA]
Involuntary proceedings are initiated by the creditors.
Any credit or or group of creditors with a claim of , or
the aggregate of whose claims is, at least P1K or at least
25% of the subscribed capital stock or partners'
contributions, whichever is higher , may initiate
involuntary proceedings against the debtor by filing a
petition for rehabilitation with the court if:
1. (a) There is no genuine issue of fact or law on
the claim/s of the petitioner/s, (b) and that due
and demandable payments thereon have not
been made for at least 60 days (c) or that the
debtor has failed generally to meet its liabilities
as they fall due.
2. A creditor, other than 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.
8
2. PRE-NEGOTIATED REHABILITATION PROCEEDINGS
[Section 76 of FRIA]
Proceedings arise when an insolvent debtor, by itself or
jointly with any of its creditors, filed a verified petition
with the court for the approval of pre-negotiated
rehabilitation plan which has been endorsed or
approved by:
A. creditors holding at least 2/3 of the total
liabilities of the debtor,
B. including secured creditors holding more
than 50% of the total secured claims of the
debtor
C. and unsecured creditors holding more than
50% of the total unsecured claims of the debtor
The petition shall include as a minimum: (contents of
petition)
(a) a schedule of the debtor's debts and
liabilities;
(b) an inventory of the debtor's assets;
(c) the pre-negotiated Rehabilitation Plan,
including the names of at least three (3)
qualified nominees for rehabilitation receiver;
and
(d) a summary of disputed claims against the
debtor and a report on the provisioning of
funds to account for appropriate payments
should any such claims be ruled valid or their
amounts adjusted.
3. OUT-OF-COURT OR INFORMAL RESTRUCTURING/
WORKOUT AGREEMENT (OCRA) OR REHABILITATION
PLAN [SECTION 84 OF FRIA]
To qualify, it must meet the following minimum
requirements:
1. The debtor must agree to the out-of-court or
informal restructuring / work out agreement or
rehabilitation plan
2. It must be approved by the creditors representing at
least 67% of the secured obligations of the debtor
3. It must be approved by the creditors representing at
least 75% of the unsecured obligations of the debtor
4. It must be approved by the creditors holding at least
85% of the total liabilities secured and unsecured of the
debtor
Note: Rehabilitation covers not only problems of
solvency but also liquidity.
xxx
E. PBC VS. BASIC PLY PRINTERS
IV. COMMENCEMENT ORDER
-which refers to the order issued by the court to start
the rehabilitation proceedings.
[SECTION 16 OF FRIA] The rehabilitation proceedings
shall commence upon issuance of the commencement
order.
Commencement Order shall: (contents)
1. Identify the debtor its principal business or activity/
principal place of business
2. Summarize the ground/s for initiating
proceedings
3. State the relief sought and any requirement or
procedure particular to the relief sought
4. State the legal effects of the commencement order
5. Declared that a debtor is under rehabilitation
6. Direct the publication of the commencement order in
a newspaper of general circulation in the Philippines
once a week for at least two consecutive weeks , with
the first publication to be made within 7 days from the
time of its issuance
7. If the petitioner is the debtor, direct the service by
personal delivery of a copy of the petition on each
creditor holding at least 10% of the total liabilities of the
debtor as determined from the schedule attached to
the petition within 5 days;
8. Appoint rehabilitation receiver who may or may not
be from among the nominees of the petitioner/s, and
who shall exercise such powers and duties defined in
this act.
9. Summarize the requirements and deadlines for the
creditors to establish their claims against the debtor
and direct all creditor to file their claims with the court
at least five days before the initial hearing
10. Direct the bir to file and served on the death or its
comment on or opposition to the petition or its claim/s
against the debtor
11. Prohibit the debtor's suppliers of goods or service
from withholding the supply of goods and services in
the ordinary course of the business for as long as the
debtor make payments for the services or goods
supplied after the issuance of the commencement order
12. Authorize the payment of administrative expenses
as they become due
13. Set the case for initial hearing which shall not be
more than 40 days from the date of filing of the petition
for the purpose of determining whether there is
substantial like hood for the debtor to be rehabilitated
14. Make available copies of the petition and
rehabilitation plan for nation and copying by any
interested party
15. Indicate a location or locations at which documents
regarding the debtor and the proceedings under the act
may be reviewed and copy
16. State that any creditor or debtor, who is not a
petitioner , we submit any more nominate any other
qualified person to the position of rehabilitation
the
receiver at least five days before the initial hearing
17. Include a stay or suspension order which shall:
a. Suspend all actions or proceedings in court or
otherwise, for the enforcement of claims
against the debtor
b. Suspend all actions to enforce any judgment ,
attachment or other provisional remedies
against the debtor
c. Prohibit the debtor from selling,
encumbering, transferring or disposing in any
manner any of its properties except in the
ordinary course of business
d. Prohibit the debtor from making any
payment of its liabilities outstanding as of the
commencement date except as may be
provided here in.
"STAY ORDER"
(1) Suspends all actions or proceedings in the court or
otherwise , for the enforcement of claims against the
debtor;
(2) suspends all actions to enforce any judgment,
attachment or other provisional remedies against the
debtor;
(3) prohibits the debtor from selling, encumbering,
transferring, or disposing in any manner any of its
properties except in the ordinary course of business;
(4) prohibits the debtor from making any payment of its
liabilities outstanding as of the commencement date
except as may be provided herein.
9

B. EFFECTS OF THE COMMENCEMENT ORDER
In addition to the effects of a stay or suspension order
described above:
1. Commencement order vest the rehabilitation
receiver with all the powers and functions provided for
in this act , such as the right to review and obtain all
records to which the debtor's management and
directors have access , including bank accounts or
whatever nature of the debtor , subject to the approval
by the court of the performance banned by
rehabilitation receiver
2. Prohibit or otherwise serve as the legal basis for
rendering null and void the results of any extrajudicial
activity or process to seize property, sell encumbered
property , or otherwise attempt to collect on or enforce
a claim against the debtor after the commencement
date unless otherwise allowed in this act , subject to the
provisions of this section 50 hereof
3. Serve as the legal basis for rendering null and void
any set-off after the commencement date of any debt
owed to the debtor by any of the debtor's creditors
4. Service the basis for rendering null and void the
perfection of any lien against the debtor's property
after the commencement date
5. Consolidated solution of all legal proceedings by and
against the debtor to the court: Provided , however,
that the court may allow the continuation of cases in
other courts where the debtor had initiated the suit
C. EXCEPTIONS TO THE STAY OR SUSPENSION ORDER
The stay or suspension order shall not apply:
1. To cases already pending appeal in the supreme court
as of commencement date: Provided, that any final and
executory judgment arising from such appeal shall be
referred to the court for appropriate action
2. Subject to the discretion of the court , to cases
pending or filed at a specialized court or quasi judicial
agencies which, upon determination by the court, is
capable of resolving the claim more quickly , and
efficiently than the court: Provided , that any final and
executory judgment of such court or agency shall be
referred to the court and shall be treated as an non-
disputed claim
3. To the enforcement of claims against sureties and
other persons solidarily liable with the debtor, and third
party or accommodation mortgagors as well as issuers
10
of letters of credit, unless the property subject of the
third party or accommodation mortgage is necessary for
the rehabilitation of the debtor as determined by the
court upon recommendation by the rehabilitation
receiver.
4. To any form of action of customers or clients of a
securities market participant to recover or otherwise
claim monies and securities and trusted 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
5. To the actions of a licensed broker or dealer to sell
pledged securities of a debtor pursuant to a securities
pledge or margin agreement for the settlement of
securities transactions in accordance with the
provisions of the securities regulation code and its
implementing rules and regulations
6. The clearing and settlement of financial transactions
through the facilities of a clearing agency or similar
entities duly authorized, registered and or recognized
by the appropriate regulatory agency like the BSP and
the sec as well as any form of actions of such agencies
or entities to reimburse themselves for any transaction
settled for the debtor
6. Any criminal action against the individual debtor or
owner, partner, director, or officer of a debtor shall not
be affected by any proceedings comments this act
V. "REHABILITATION RECEIVER"
- shall be deemed an officer of the court with the
principal duty of preserving and maximizing the value of
the assets of the debtor during the rehabilitation
proceedings , determining the viability of a
rehabilitation of the debtor, repairing and
recommending publication plan to the court and
implementing the approved rehabilitation plan .
The rehabilitation receiver shall have the following
minimum qualifications:
1. A citizen of the Philippines or a resident of the
Philippines in the 6 months immediately preceding his
nomination.
2. Of good moral character and with acknowledge
integrity impartiality, and independence
3. Has the requisite knowledge of insolvency and other
relevant commercial laws, rules and procedures , as
well as be relevant training and or experience that may
be necessary to enable him to properly discharge the
duties and obligations of a rehabilitation receiver
4. Has no conflict of interest: Provided , that such
conflict of interest may be waived, expressly or
impliedly, by a party who may be prejudiced thereby.
B. Powers, duties, and responsibilities of a rehabilitation
receiver
Rehabilitation receiver shall have the following powers
duties and responsibilities
(a)To verify the accuracy of the factual allegations in the
petition and its annexes;
(b)To verify and correct, if necessary, the inventory of
all of the assets of the debtor, and their valuation;
(c)To verify and correct, if necessary, the schedule of
debts and liabilities of the debtor;
(d)To evaluate the validity, genuineness and true
amount of all the claims against the debtor;
(e)To take possession, custody and control, and to
preserve the value of all the property of the debtor;
(f)To sue and recover, with the approval of the court,
all amounts owed to, and all properties pertaining to
the debtor;
(g)To have access to all information necessary, proper
or relevant to the operations and business of the debtor
and for its rehabilitation;
(h) To sue and recover, with the. approval of the court,
all property or money of the debtor paid, transferred or
disbursed in fraud of the debtor or its creditors, or
which constitute undue preference of creditor/s;
(i) To monitor the operations and the business of the
debtor to ensure that no payments or transfers of
property are made other than in the ordinary course of
business;
(j) With the court's approval, to engage the services of
or to employ persons or entities to assist him in the
discharge of his functions;
(k) To determine the manner by which the debtor may
be best rehabilitated, to review) revise and/or
recommend action on the Rehabilitation Plan and
submit the same or a new one to the court for approval;
(1) To implement the Rehabilitation Plan as approved by
the court, if 80 provided under the Rehabilitation Plan;
11
(m) To assume and exercise the powers of management
of the debtor, if directed by the court pursuant to
Section 36 hereof;
(n) To exercise such other powers as may, from time to
time, be conferred upon him by the court; and
(o) To submit a status report on the rehabilitation
proceedings every quarter or as may be required by the
court motu proprio. or upon motion of any creditor. or
as may be provided, in the Rehabilitation Plan.
Unless appointed by the court, pursuant to Section 36
hereof, the rehabilitation receiver shall not take over
the management and control of the debtor but may
recommend the appointment of a management
committee over the debtor in the cases provided by this
Act.
C. REMOVAL OF THE REHABILITATION OFFICER
Section 32.Removal of the Rehabilitation Receiver. –
The rehabilitation receiver may be removed at any time
by the court either motu proprio or upon motion by any
creditor/s holding more than fifty percent (50%) of the
total obligations of the debtor, on such grounds as the
rules of procedure may provide which shall include, but
are not limited to, the following:
(a) Incompetence, gross negligence, failure to perform
or failure to exercise the proper degree of care in the
performance of his duties and powers;
(b) Lack of a particular or specialized competency
required by the specific case;
(c) Illegal acts or conduct in the performance of his
duties and powers;
(d) Lack of qualification or presence of any
disqualification;
(e) Conflict of interest that arises after his appointment;
and
(f) Manifest lack of independence that is detrimental to
the general body of the stakeholders.