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.
The submission and approval of the Rehabilitation Plan is part of court-supervised rehabilitation proceedings. [See Court-Supervised Rehabilitation Proceedings under the Financial Rehabilitation and Insolvency Act (FRIA) of 2010]
A. CONTENTS OF REHABILITATION PLAN
The Rehabilitation Plan shall, as a minimum:
- (a) specify the underlying assumptions, the financial goals and the procedures proposed to accomplish such goals;
- (b) compare the amounts expected to be received by the creditors under the Rehabilitation Plan with those that they will receive if liquidation ensues within the next 120 days;
- (c) contain information sufficient to give the various classes of creditors a reasonable basis for determining whether supporting the Plan is in their financial interest when compared to the immediate liquidation of the debtor, including any reduction of principal interest and penalties payable to the creditors;
- (d) establish classes of voting creditors;
- (e) establish subclasses of voting creditors if prior approval has been granted by the court;
- (f) indicate how the insolvent debtor will be rehabilitated 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 a new business entity or other similar arrangements as may be necessary to restore the financial well-being and viability of the insolvent debtor;
- (g) specify the treatment of each class or subclass described in subsections (d) and (e);
- (h) provide for equal treatment of all claims within the same class or subclass, unless a particular creditor voluntarily agrees to less favorable treatment;
- (i) ensure that the payments made under the plan follow the priority established under the provisions of the Civil Code on concurrence and preference of credits and other applicable laws;
- (j) maintain the security interest of secured creditors and preserve the liquidation value of the security unless such has been waived or modified voluntarily;
- (k) include relevant foreign ownership limits or information, if any;
- (l) disclose all payments to creditors for pre-commencement debts made during the proceedings and the justifications thereof;
- (m) describe the disputed claims and the provisioning of funds to account for appropriate payments should the claim be ruled valid or its amount adjusted;
- (n) identify the debtor’s role in the implementation of the Plan;
- (o) state any rehabilitation covenants of the debtor, the breach of which shall be considered a material breach of the Plan;
- (p) identify those responsible for the future management of the debtor and the supervision and implementation of the Plan, their affiliation with the debtor and their remuneration;
- (q) address the treatment of claims arising after the confirmation of the Rehabilitation Plan;
- (r) require the debtor and its counter-parties to adhere to the terms of all contracts that the debtor has chosen to confirm;
- (s) arrange for the payment of all outstanding administrative expenses as a condition to the Plan’s approval unless such condition has been waived in writing by the creditors concerned;
- (t) arrange for the payment of all outstanding taxes and assessments, or an adjusted amount pursuant to a compromise settlement with the Bureau of Internal Revenue (BIR) or other applicable tax authorities;
- (u) include a certified copy of a certificate of tax clearance or evidence of a compromise settlement with the BIR;
- (v) include a valid and binding resolution of a meeting of the debtor’s stockholders to increase the shares by the required amount in cases where the Plan contemplates an additional issuance of shares by the debtor;
- (w) state the compensation and status, if any, of the rehabilitation receiver after the approval of the Plan; and
- (x) contain provisions for conciliation and/or mediation as a prerequisite to court assistance or intervention in the event of any disagreement in the interpretation or implementation of the Rehabilitation Plan.
- (y) include material financial undertakings or commitments to support the Rehabilitation Plan;
- (z) contain provisions for monitoring the implementation of the Rehabilitation Plan, including, requiring the rehabilitation receiver and/or debtor to make reports from time to time;
- (aa) contain the manner of its implementation, giving due regard to the interests of secured creditors such as the non-impairment of their security liens or interests; and
- (bb) contain such other relevant information to enable a reasonable investor to make an informed decision on the feasibility of the Rehabilitation Plan.
The court may require such other information it may deem necessary to determine the viability of the Rehabilitation Plan.
B. CONSULTATION WITH DEBTORS AND CREDITORS
If the court gives due course to the petition, the rehabilitation receiver shall confer with the debtor and all the classes of creditors, and may consider their views and proposals in the review, revision or preparation of a new Rehabilitation Plan.
C. CREDITOR APPROVAL
The rehabilitation receiver shall notify the creditors and stakeholders that the Plan is ready for their examination. Within 20 days from the said notification, the rehabilitation receiver shall convene the creditors, either as a whole or per class, for purposes of voting on the approval of the Plan.
The Plan shall be deemed rejected unless approved by all classes of creditors whose right are adversely modified or affected by the Plan. The Plan is deemed to have been approved by a class of creditors if members of the said class holding more than fifty percent (50%) of the total claims of the said class vote in favor of the Plan. The votes of the creditors shall be based solely on the amount of their respective claims based on the registry of claims submitted by the rehabilitation receiver.
Notwithstanding the rejection of the Rehabilitation Plan, the court may confirm the Rehabilitation Plan if all of the following circumstances are present:
- (a) The Rehabilitation Plan complies with the requirements specified in R.A. 10142;
- (b) The rehabilitation receiver recommends the confirmation of the Rehabilitation Plan;
- (c) The shareholders, owners or partners of the juridical debtor lose at least their controlling interest as a result of the Rehabilitation Plan; and
- (d) The Rehabilitation Plan would likely provide the objecting class of creditors with compensation which has a net present value greater than that which they would have received if the debtor were under liquidation.
D. SUBMISSION TO COURT
If the Rehabilitation Plan is approved, the rehabilitation receiver shall submit the same to the court for confirmation. Within 5 days from receipt of the Rehabilitation Plan, the court shall notify the creditors that the Rehabilitation Plan has been submitted for confirmation, that any creditor may obtain copies of the Rehabilitation Plan and that any creditor may file an objection thereto.
E. FILING OF OBJECTIONS
A creditor may file an objection to the Rehabilitation Plan within 20 days from receipt of notice from the court that the Rehabilitation Plan has been submitted for confirmation. Objections to a Rehabilitation Plan shall be limited to the following:
- (a) The creditors’ support was induced by fraud;
- (b) The documents or data relied upon in the Rehabilitation Plan are materially false or misleading; or
- (c) The Rehabilitation Plan is in fact not supported by the voting creditors.
F. HEARING ON OBJECTIONS
If objections have been submitted during the relevant period, the court shall issue an order setting the time and date for the hearing or hearings on the objections.
If the court finds merit in the objection, it shall order the rehabilitation receiver or other party to cure the defect, whenever feasible. If the court determines that the debtor acted in bad faith, or that it is not feasible to cure the defect, the court shall convert the proceedings into one for the liquidation of the debtor. [See Liquidation of Insolvent Juridical Debtors under the Financial Rehabilitation and Insolvency Act (FRIA) of 2010]
G. CONFIRMATION OF REHAB PLAN
If no objections are filed within the relevant period or, if objections are filed, the court finds them lacking in merit, or determines that the basis for the objection has been cured, or determines that the debtor has complied with an order to cure the objection, the court shall issue an order confirming the Rehabilitation Plan.
The court may confirm the Rehabilitation Plan notwithstanding unresolved disputes over claims if the Rehabilitation Plan has made adequate provisions for paying such claims.
For the avoidance of doubt, the provisions of other laws to the contrary notwithstanding, the court shall have the power to approve or implement the Rehabilitation Plan despite the lack of approval, or objection from the owners, partners or stockholders of the insolvent debtor. The terms thereof are necessary to restore the financial well-being and viability of the insolvent debtor.
H. EFFECT OF CONFIRMATION
The confirmation of the Rehabilitation Plan by the court shall result in the following:
- (a) The Rehabilitation Plan and its provisions shall be binding upon the debtor and all persons who may be affected by it, including the creditors, whether or not such persons have participated in the proceedings or opposed the Rehabilitation Plan or whether or not their claims have been scheduled;
- (b) The debtor shall comply with the provisions of the Rehabilitation Plan and shall take all actions necessary to carry out the Plan;
- (c) Payments shall be made to the creditors in accordance with the provisions of the Rehabilitation Plan;
- (d) Contracts and other arrangements between the debtor and its creditors shall be interpreted as continuing to apply to the extent that they do not conflict with the provisions of the Rehabilitation Plan;
- (e) Any compromises on amounts or rescheduling of timing of payments by the debtor shall be binding on creditors regardless of whether or not the Plan is successfully implemented; and
- (f) Claims arising after approval of the Plan that are otherwise not treated by the Plan are not subject to any Suspension Order.
The Order confirming the Plan shall comply with Rule 36 of the Rules of Court. The court may maintain jurisdiction over the case in order to resolve claims against the debtor that remain contested and allegations that the debtor has breached the Plan.
I. TAX IMPLICATION
Amounts of any indebtedness or obligations reduced or forgiven in connection with a Plan’s approval shall not be subject to any tax, in furtherance of the purposes of R.A. 10142.
J. PERIOD OF CONFIRMATION
The court shall have a maximum period of 1 year from the date of the filing of the petition to confirm a Rehabilitation Plan.
K. DISCHARGE OF REHABILITATION RECEIVER
Upon the confirmation of the Rehabilitation Plan, the rehabilitation receiver shall provide a final report and accounting to the court. Unless the Rehabilitation Plan specifically requires and describes the role of the rehabilitation receiver after the approval of the Rehabilitation Plan, the court shall discharge the rehabilitation receiver of his duties.