In court-supervised rehabilitation proceedings, as opposed to out-of-court restructuring agreements or pre-negotiated rehabilitation, the court examines the petition to determine if it is sufficient in form and substance (see Initiation of Court-Supervised Proceedings). If the petition is sufficient, the court proceeds to issue a Commencement Order. 

CONTENTS OF COMMENCEMENT ORDER

The Commencement Order shall:

• (a) identify the debtor, its principal business or activity/ies and its principal place of business;

• (b) summarize the ground/s for initiating the proceedings;

• (c) state the relief sought and any requirement or procedure particular to the relief sought;

• (d) state the legal effects of the Commencement Order, including the matters enumerated below;

• (e) declare that the debtor is under rehabilitation;

• (f) direct the publication of the Commencement Order in a newspaper of general circulation in the Philippines once a week for at least 2 consecutive weeks, with the first publication to be made within 7 days from the time of its issuance;

• (g) 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; if the petitioner/s is/are creditor/s, direct the service by personal delivery of a copy of the petition on the debtor within 5 days;

• (h) appoint a rehabilitation receiver who may or may not be from among the nominees of the petitioner/s;

• (i) summarize the requirements and deadlines for creditors to establish their claims against the debtor and direct all creditors to file their claims with the court at least 5 days before the initial hearing;

• (j) direct the Bureau of Internal Revenue (BIR) to file and serve on the debtor its comment on or opposition to the petition or its claim/s against the debtor;

• (k) prohibit the debtor’s suppliers of goods or services from withholding the supply of goods and services in the ordinary course of business for as long as the debtor makes payments for the services or goods supplied after the issuance of the Commencement Order;

• (l) authorize the payment of administrative expenses as they become due;

• (m) 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 likelihood for the debtor to be rehabilitated;

• (n) make available copies of the petition and rehabilitation plan for examination and copying by any interested party;

• (o) indicate the location or locations at which documents regarding the debtor and the proceedings may be reviewed and copied;

• (p) state that any creditor or debtor, who is not the petitioner, may submit the name or nominate any other qualified person to the position of rehabilitation receiver at least 5 days before the initial hearing;

• (q) include a Stay or Suspension Order. 

EFFECTS OF COMMENCEMENT ORDER

The court’s issuance of a Commencement Order shall, in addition to the effects of a Stay or Suspension Order:

• (a) vest the rehabilitation receiver with all the powers and functions provided in Republic Act No. 10142, such as the right to review and obtain all records to which the debtor’s management and directors have access, including bank accounts of whatever nature of the debtor, subject to the approval by the court of the performance bond filed by the rehabilitation receiver;

• (b) 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 under R.A. 10142;

• (c) 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;

• (d) serve as the legal basis for rendering null and void the perfection of any lien against the debtor’s property after the commencement date; and

• (e) consolidate the resolution of all legal proceedings by and against the debtor to the court. However, the court may allow the continuation of cases in other courts where the debtor had initiated the suit.

Attempts to seek legal or other recourse against the debtor outside these proceedings shall be sufficient to support a finding of indirect contempt of court.

Moreover, upon issuance of the Commencement Order by the court, and until the approval of the Rehabilitation Plan or dismissal of the petition, whichever is earlier, the imposition of all taxes and fees, including penalties, interests and charges thereof, due to the national government or to Local Government Units (LGUs) shall be considered waived, in furtherance of the objectives of rehabilitation.

[See also Cross-Border Rehabilitation and Insolvency: Actions of Foreign Creditors and Enforcement Framework of Foreign Proceedings in the Philippines]

EFFECTIVITY AND DURATION OF COMMENCEMENT ORDER

Unless lifted by the court, the Commencement Order shall be effective for the duration of the rehabilitation proceedings for as long as there is a substantial likelihood that the debtor will be successfully rehabilitated. In determining whether there is substantial likelihood for the debtor to be successfully rehabilitated, the court shall ensure that the following minimum requirements are met:

(a) The proposed Rehabilitation Plan submitted complies with the minimum contents;

(b) There is sufficient monitoring by the rehabilitation receiver of the debtor’s business for the protection of creditors;

(c) The debtor has met with its creditors to the extent reasonably possible in attempts to reach a consensus on the proposed Rehabilitation Plan;

(d) The rehabilitation receiver submits a report, based on preliminary evaluation, stating that the underlying assumptions and the financial goals stated in the petitioner’s Rehabilitation Plan are realistic, feasible and reasonable; or, if not, there is, in any case, a substantial likelihood for the debtor to be successfully rehabilitated because, among others:

• (1) there are sufficient assets with which to rehabilitate the debtor;
• (2) there is sufficient cash flow to maintain the operations of the debtor;
• (3) the debtor’s owner/s, partners, stockholders, directors and officers have been acting in good faith and with due diligence;
• (4) the petition is not a sham filing intended only to delay the enforcement of the rights of the creditor/s or of any group of creditors; and
• (5) the debtor would likely be able to pursue a viable Rehabilitation Plan;

(e) The petition, the Rehabilitation Plan and the attachments thereto do not contain any materially false or misleading statement;

(f) If the petitioner is the debtor, that the debtor has met with its creditor/s representing at least three-fourths of its total obligations to the extent reasonably possible and made a good faith effort to reach a consensus on the proposed Rehabilitation Plan; if the petitioner/s is/are a creditor or group of creditors, that the petitioner/s has/have met with the debtor and made a good faith effort to reach a consensus on the proposed Rehabilitation Plan; and

(g) The debtor has not committed acts of misrepresentation or in fraud of its creditor/s or a group of creditors.

	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
	* Stay or Suspension Order	* The Rehabilitation Receiver
	* Determination of claims	* The Management Committee
	* Treatment of secured creditors	* The Creditor’s Committee
	* Termination of proceedings	* Avoidance proceedings