The Financial Rehabilitation Rules of Procedure (2013), referred to as the “FR Rules,” covers cross-border insolvency proceedings pursuant to the Financial Rehabilitation and Insolvency Act (FRIA) of 2010. These provisions are likewise made applicable in proceedings under the Financial Liquidation and Suspension of Payments Rules of Procedure for Insolvent Debtors (2015), referred to as the “FLSP Rules”.
COMMENCEMENT OF ACTION OR PARTICIPATION IN PROCEEDINGS
The rules on cross-border proceedings apply when creditors in a foreign State have an interest in requesting the commencement of, or participating in, any of the following proceedings in the Philippines: (a) court-supervised rehabilitation; (b) pre-negotiated rehabilitation; and (c) out-of-court or informal restructuring agreement or rehabilitation plan.
The rules on cross-border proceedings also apply when assistance is sought in a Philippine court by a foreign court or a foreign representative in connection with a foreign proceeding. A foreign proceeding refers to a collective judicial or administrative proceeding in a foreign State, including an interim proceeding, pursuant to a law relating to insolvency, in which proceeding, the assets and affairs of the debtor are subject to control or supervision by a foreign court, for the purpose of rehabilitation, re-organization, or liquidation. A foreign proceeding – whether filed before, simultaneously or after a proceeding is commenced in the Philippines – may be recognized by Philippine courts.
The sole fact that a petition is filed pursuant to the FR Rules does not subject the foreign representative or the foreign assets and affairs of the debtor to the jurisdiction of the local courts for any purpose other than the petition for recognition and resulting related proceedings.
RULES ON RECIPROCITY AND PUBLIC POLICY
The court shall refuse to take any action in any cross-border insolvency proceeding if:
- 1. the action would be manifestly contrary to the public policy of the Philippines; and
- 2. the court finds that the country where the foreign rehabilitation proceeding is taking place does not extend recognition to a Philippine rehabilitation proceeding, or that the country of which the petitioner-foreign creditor is a national does not grant the same rights to a Philippine creditor in a manner substantially in accordance with the FR Rules.
PETITION FOR RECOGNITION OF FOREIGN PROCEEDING: WHERE FILED
A foreign representative may apply with the Regional Trial Court which has jurisdiction over the place where the debtor resides or holds principal office for recognition of the foreign proceeding in which the foreign representative has been appointed.
However, when a petition for recognition of a foreign proceeding is filed after a proceeding under the FR Rules has been commenced, the petition for recognition of the foreign proceeding shall be filed with the same court.
RECOGNITION OF FOREIGN PROCEEDING: CONTENTS OF PETITION
A petition for recognition shall be accompanied by:
- A certified copy of the order commencing the foreign proceeding and appointing the foreign representative; OR
- A certificate from the foreign court affirming the existence of the foreign proceeding and of the appointment of the foreign representative; OR
- In the absence of evidence referred to in (1) and (2), any other evidence acceptable to the court of the existence of the foreign proceeding and of the appointment and identity of the foreign representative; and
- Any additional evidence that the court may deem necessary, and allege how the petition is affected by the factors in granting relief.
An application for recognition shall also be accompanied by a statement identifying all foreign proceedings in respect of the debtor that are known to the foreign representative.
NOTICE OF FILING; PUBLICATION
Within 3 days from the filing of the petition for recognition of a foreign proceeding, the court shall acknowledge the fact of filing and issue a Notice of filing of the petition, which shall be published once in a newspaper of general circulation within 5 days from its issuance.
The Notice shall likewise state that any opposition to the petition should be filed within 5 days from publication.
PROVISIONAL RELIEFS GRANTED BY COURT
From the time of the complete publication of the Notice of filing of the petition, until the same is decided upon, the court may, upon motion of the foreign representative where relief is urgently needed to protect the assets of the debtor or the interests of the creditors and there is prima facie showing that the petition is meritorious, grant relief of a provisional nature, including:
- 1. Staying execution against the debtor’s assets;
- 2. Entrusting the administration or realization of all or part of the debtor’s assets located in the Philippines to the foreign representative or another person designated by the court in order to protect and preserve the value of assets that, by their nature or because of other circumstances, are perishable, susceptible to devaluation or otherwise in jeopardy;
- Any of the following reliefs: (i) suspending the right to transfer, encumber or otherwise dispose of any assets of the debtor; (ii) providing for the examination of witnesses, the taking of evidence or the delivery of information concerning the debtor’s assets, affairs, rights, obligations or liabilities; and granting any additional relief that may be available to the rehabilitation receiver under the FRIA or the FR Rules.
Unless extended, the provisional relief granted under this section terminates when the application for recognition is decided upon. The court may refuse to grant the provisional relief under this section if such relief would interfere with the administration of a foreign main proceeding.
RECOGNITION OF FOREIGN PROCEEDING: EFFECTS
Upon recognition of a foreign main proceeding, the following are stayed or suspended:
- (i) commencement or continuation of individual actions or individual proceedings concerning the debtor’s assets, rights, obligations or liabilities;
- (ii) execution against the debtor’s assets; and
- (iii) the right to transfer, encumber or otherwise dispose of any assets of the debtor.
The order granting recognition of the foreign proceeding shall be published in two separate newspapers of general circulation not later than 5 days from its issuance. The court may modify or terminate the order granting recognition, if it is shown that the grounds for granting it were fully or partially lacking or have ceased to exist.
Upon recognition of a foreign proceeding, the foreign representative is entitled to participate, through counsel, in any proceeding involving the debtor filed under the FR Rules. The foreign representative may also intervene, through counsel, in any action or proceeding in the Philippines in which the debtor is a party.
Foreign creditors have the same rights as creditors in the Philippines, without prejudice to the ranking of claims under the relevant laws. Upon recognition of a foreign proceeding, the foreign representative acquires the standing to initiate actions to avoid or otherwise render ineffective acts detrimental to creditors.
The recognition of the foreign proceeding does not affect the right of Philippine creditors to commence or continue a rehabilitation or liquidation proceeding under the FR Rules or the right to file or continue claims in these proceedings.
For the applicable rules on corporate rehabilitation, suspension of payments, and insolvency proceedings/ liquidation for individual and juridical debtors, see:
|Other options – Corporations:||Options – Individuals:|
|* Court-supervised rehabilitation|
* Pre-negotiated rehabilitation
* Informal restructuring
|* Suspension of payments|
* Voluntary insolvency
* Involuntary insolvency