Category Archives: Corporate & Investments

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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Rehabilitation Plan in Court-Supervised Rehabilitation Proceedings

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Rehabilitation Plan refers to a plan by which the financial well-being and viability of an insolvent debtor can be restored using various means including, but not limited to, debt forgiveness, debt rescheduling, reorganization or quasi-reorganization, dacion en pago, debt-equity conversion and sale of the business (or parts of it) as a going concern, or setting-up of new business entity as prescribed in Republic Act No. 10142, or other similar arrangements as may be approved by the court or creditors.

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Stay Order or Suspension Order in Court-Supervised Rehabilitation Proceedings

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Court-supervised proceedings is one of the options for rehabilitation of insolvent juridical persons under the the Financial Rehabilitation and Insolvency Act (FRIA) of 2010 (Republic Act No. 10142). If the court finds the petition for rehabilitation (see Initiation of Proceedings) to be sufficient in form and substance, it shall, within 5 working days from the filing of the petition, issue a Commencement Order. 

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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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