Category Archives: Corporate Law

Management Committee in Court-Supervised Rehabilitation in the Philippines

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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).

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Creditor’s Committee in Court-Supervised Rehabilitation in the Philippines

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After the petition for court-supervised rehabilitation, whether voluntary or involuntary, is given due course, the court shall issue an order directing the rehabilitation receiver to call a meeting with the debtor and all classes of creditors, to take place in not less than 2 weeks nor more than 4 weeks from the date of the order, to consider the organization of a creditors’ committee. 

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Involuntary Court-Supervised Rehabilitation Proceedings against Insolvent Juridical Debtors

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Involuntary court-supervised rehabilitation proceedings, as opposed to voluntary court-supervised proceedings, is initiated by the creditors. This is provided under Republic Act No. 10142, also known as the Financial Rehabilitation and Insolvency Act (FRIA) of 2010, as fleshed out in the Financial Rehabilitation Rules of Procedure (2013) or “FR Rules” (A.M. 12-12-11-SC).

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Court Assistance to Implement or Annul the Out-of-Court Rehabilitation Proceeding or the Standstill Period

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The court may assist in the execution or implementation of the standstill agreement or the Out-of-Court or Informal Restructuring Agreements or Rehabilitation Plan (OCRA) by issuing a writ of execution to enforce its terms. Nevertheless, the court has the power to provide any other form of additional assistance as may be necessary to execute or implement the standstill agreement or the OCRA, including the award of damages properly pleaded and proved, and to protect the interests of the creditors, the debtor, and other interested parties.

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Voluntary Court-Supervised Rehabilitation Proceedings for Insolvent Juridical Debtors

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Rehabilitation proceedings may be voluntary (initiated by the debtor) or involuntary (initiated by the creditor or group of creditors), as provided under Republic Act No. 10142, also known as the “Financial Rehabilitation and Insolvency Act (FRIA) of 2010”. Here are the requirements for initiating voluntary court-supervised rehabilitation proceedings under R.A. 10142. [See also Court-Supervised Rehabilitation Proceedings]. 

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The Rehabilitation Receiver in Court-Supervised Financial Rehabilitation in the Philippines

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Rehabilitation receiver refers to the person or persons, natural or juridical, appointed as such by the court pursuant to Republic Act No. 10142 (“Financial Rehabilitation and Insolvency Act (FRIA) of 2010”) and which shall be entrusted with such powers, duties, and responsibilities provided under the Financial Rehabilitation Rules of Procedure (2013) or “FR Rules” (A.M. 12-12-11-SC). Where the rehabilitation receiver is a juridical entity, the term includes the juridical entity’s designated representative. The Rehabilitation Receiver is appointed in court-supervised rehabilitation proceedings.

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Cram-Down Clause in Financial Rehabilitation

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“Cram-down” is the power of the rehabilitation court to approve and implement a rehabilitation plan notwithstanding the objection of the majority of creditors. As noted in the case of Bank of the Philippine Islands vs. Sarabia Manor Hotel Corporation (G.R. No. 175844, 29 July 2013), the “cram-down” clause, which is currently incorporated in Section 64 of Republic Act No. 10142, also known as the Financial Rehabilitation and Insolvency Act (FRIA) of 2010, “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.” Section 64 reads:

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