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. These are provided under Republic Act No. 10142, also known as the Financial Rehabilitation and Insolvency Act of 2010 (FRIA) and the Financial Rehabilitation Rules of Procedure (2013) or “FR Rules” (A.M. 12-12-11-SC).

DISPLACEMENT OF EXISTING MANAGEMENT BY THE REHABILITATION RECEIVER OR MANAGEMENT COMMITTEE

Upon motion of any interested party and within the soonest possible time, the court may appoint a management committee that will undertake the management of the debtor, upon clear and convincing evidence of any of the following circumstances:

• 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 FRIA by the existing management of the debtor or the owner, partner, director, officer or representative/s in management of the debtor.

ROLE OF THE MANAGEMENT COMMITTEE

The management committee shall have the power to take custody of and control all assets and properties owned or possessed by the debtor. It shall take the place of the management and governing body of the debtor, and assume their powers, rights and responsibilities.

The management committee may overrule or revoke the actions of the previous management or the governing body of the debtor.

Without limiting the generality of the foregoing, the specific powers and duties of the management committee, whose members shall also be considered as officers of the court, are the following:

• 1. to investigate the acts, conduct, properties, liabilities, and financial condition of the corporation, association or partnership under management;

• 2. to examine under oath the directors and officers of the entity and any other witnesses that the committee may deem appropriate;

• 3. to report to the court any ascertained fact pertaining to the causes of the problems, fraud, misconduct, mismanagement and irregularities committed by any other person;

• 4. to use the services of or employ such person or persons, such as lawyers, accountants, auditors, appraisers and staff as are necessary to perform its functions and duties as management committee;

• 5. to report to the court any material adverse change in the business of the entity under management;

• 6. to evaluate the existing equity, capital, assets and liabilities, earnings and operations of the entity under management;

• 7. to determine and recommend to the court the best way to salvage and protect the interest of the creditors, stockholders and the general public, including the rehabilitation of the entity under management;

• 8. to prohibit and report to the court any encumbrance, transfer, or disposition of the debtor’s property outside of the ordinary course of business or beyond what is allowed by the court;

• 9. to prohibit and report to the court payments made outside the ordinary course of business; 

• 10. to have unlimited access to the employees, premises, books, records and financial documents of the entity under management during business hours;

• 11. to inspect, copy, photocopy or photograph any document, paper, book, account or letter, whether in the possession of the entity or other persons, that pertain to the business of the debtor;

• 12. to gain entry into any property owned by the entity under management for the purposes of inspecting, measuring, surveying, or taking photos or videos of any designated relevant object or operation thereon;

• 13. to bring to the attention of the court any material change affecting the entity’s ability to meet its obligations;

• 14. to take the appropriate steps to modify, nullify or revoke transactions coming to its knowledge which it deems detrimental or prejudicial to the interest of the entity under management;

• 15. to recommend the termination of the proceedings and the dissolution of the entity if it determines that the continuance in business of such entity will no longer work to the best interest of the stakeholders and creditors, in accordance with the purposes of the FRIA;

• 16. to apply to the court for any order or directive that it may deem necessary or desirable to aid it in the exercise of its powers and performance of its duties and functions, including the power to examine parties and witnesses under oath; and

• 17. to exercise such other powers as the court may, from time to time, confer upon it.

The court may limit the powers and functions of the appointed management committee, as may be appropriate.

COMPOSITION OF THE MANAGEMENT COMMITTEE

Unless the court otherwise provides, the management committee shall be composed of 3 qualified members appointed by the court, as follows:

• 1. the first member shall be nominated by the debtor; in case the debtor fails, the court shall appoint the first member;

• 2. the second member shall be nominated by the creditor/s holding more than 50% of the total obligations of the debtor; in case the creditors fail, the court shall appoint the second member; and

• 3. the third member, who shall act as chairman of the management committee, shall be nominated by the first and second members within 10 days from the appointment. In case of disagreement between the first and second members, or failure to nominate, the court shall appoint the third member.

In all cases, the court may:

• (i) require the members of the management committee to post a bond;

• (ii) authorize the management committee to employ or engage the services or to employ or engage persons or entities to assist it in the discharge of its duties and functions, pursuant to provision on the employment or use of professionals; and

• (iii) authorize the setting of the compensation of the members of the management committee.

ACTION BY MANAGEMENT COMMITTEE

A majority of all members shall be necessary for the management committee to act or make a decision.

QUALIFICATIONS OF MEMBERS OF THE MANAGEMENT COMMITTEE

The members of the management committee shall have the same qualifications and none of the disqualifications as those prescribed for the rehabilitation receiver.

In case a member of the management committee is a juridical person, the relevant provisions governing juridical persons as rehabilitation receivers shall apply.

EMPLOYMENT OR USE OF PROFESSIONALS

The management committee shall submit the identities and other personal circumstances of the professionals or experts they want to engage or to assist them in the exercise of their powers and functions. Court approval shall be made after notice and hearing, taking into account the following factors, among others:

• 1. reasons for the appointment;

• 2. disclosure of conflict of interest;

• 3. compensation, fees, or other arrangements;

• 4. scope of work involved;

• 5. the specific area of expertise of the person to be appointed;

• 6. confidentiality;

• 7. expected work time to be spent in relation to the engagement and extent of services required; and

• other arrangements, as the court may deem appropriate.

The persons engaged by the rehabilitation receiver or the management committee may be considered either employees or independent contractors, as the case may be.

IMMUNITY FROM SUIT

The members of the management committee, and all persons they engage shall not be subject to any action, claim or demand for any act or omission in good faith in the exercise of their powers and functions under the FRIA, these FR Rules, or other actions approved by the court.

	COURT-SUPERVISED REHABILITATION:
	* Voluntary Court-Supervised Rehabilitation Proceedings for Insolvent Juridical Debtors	* Involuntary Court-Supervised Rehabilitation Proceedings against Insolvent Juridical Debtors
	PROVISIONS COMMON TO BOTH:
	* Action of Court and Proceedings	* The Rehabilitation Plan
	* The Commencement Order	* The Rehabilitation Receiver
	* Stay or Suspension Order	* The Creditor’s Committee
	* Determination of claims	* Avoidance proceedings
	* Treatment of secured creditors	* Termination of proceedings