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.
A. WHO MAY SERVE AS REHABILITATION RECEIVER
Any qualified natural or juridical person may serve as a rehabilitation receiver. If the rehabilitation receiver is a juridical entity, it must designate a natural person/s who possess/es all the qualifications and none of the disqualifications as its representative, it being understood that the juridical entity and the representative/s are solidarily liable for all obligations and responsibilities of the rehabilitation receiver.
The rehabilitation receiver shall have the following minimum qualifications:
When a natural person
The rehabilitation receiver who is a natural person must comply with the following minimum qualifications and requirements:
- 1. He is a citizen of the Philippines or a resident of the Philippines for at least 6 months immediately preceding his nomination;
- 2. He is of good moral character and with acknowledged integrity, impartiality and independence;
- 3. As far as practicable, he has expertise and acumen to manage and operate a business similar in size and complexity to that of the debtor;
- 4. He has an operating knowledge in management, finance and rehabilitation of distressed companies;
- 5. He has a general familiarity with the rights of creditors subject to suspension of payments or rehabilitation and a general understanding of the duties and obligations of a rehabilitation receiver;
- 6. He has not been earlier dismissed as a rehabilitation receiver
- 7. He has no conflict of interest; and
- 8. He is willing and able to file a bond in such amount as may be determined by the court.
When a juridical person
The rehabilitation receiver, which is a juridical person, must comply with the following qualifications and requirements:
- 1. It is duly authorized to do business in the Philippines for at least 6 years prior to its appointment;
- 2. It is of good standing as certified by the appropriate regulatory agency/ies;
- 3. It has no conflict of interest as defined in this Rule;
- 4. It has not been earlier dismissed as a rehabilitation receiver pursuant to Section 27 of this Rule;
- 5. It must submit the name of the person designated to discharge the responsibilities and powers of a rehabilitation receiver and the names of the employees and other persons authorized to assist the designated representative, together with a sworn certification that these persons possess the qualifications and none of the disqualifications enumerated above;
- 6. It must submit a sworn undertaking, duly approved in accordance with law, binding itself to be solidarily liable with the persons designated by it to discharge the functions and responsibilities of a rehabilitation receiver;
- 7. It is willing and able to file a bond in such amount as may be determined by the court;
- 8. It is not disqualified to discharge the duties of a rehabilitation receiver under the Constitution and other relevant laws;
In addition, the designated representative of the juridical person must comply with the following requirements:
- (i) The representative must be duly designated and authorized to act for and on behalf of the juridical entity;
- (ii) The designated representative must be a director, officer, stockholder or partner of the juridical entity; and
- (iii) The designated representative must submit a sworn undertaking that he shall be solidarily liable with his firm for all the obligations and responsibilities of a rehabilitation receiver.
C. CONFLICT OF INTEREST
No person may be appointed as a rehabilitation receiver or as a member of a management committee, or be engaged by the rehabilitation receiver or the management committee if he has a conflict of interest.
An individual shall be deemed to have a conflict of interest if he is so situated as to be materially influenced in the exercise of his judgment for or against any party to the proceedings. A conflict of interest of an individual employed or contracted by the rehabilitation receiver or the management committee or its members shall be deemed to be a conflict of interest of the rehabilitation receiver or the management committee.
Without limiting the generality of the following, a rehabilitation receiver may be deemed to have a conflict of interest if:
- 1. he is a creditor, owner, partner or stockholder of the debtor;
- 2. he is engaged in a line of business which competes with the debtor;
- 3. he is, or was within 5 years from the filing of the petition, a director, officer, owner, partner, or employee or the auditor or accountant of the debtor;
- 4. he is, or was within 2 years from the filing of the petition, an underwriter of the outstanding securities of the debtor;
- 5. he is related by consanguinity or affinity within the fourth civil degree to any individual creditor, owner/s of a sole proprietorship-debtor, partners of a partnership-debtor, or to any stockholder, director, officer, employee, or underwriter of the corporation-debtor; or
- 6. he has any other direct or indirect material interest in the debtor or any creditor.
D. DISCLOSURE OF CONFLICT OF INTEREST
Conflict of interest as set forth in the preceding Section shall be disclosed at all times throughout the proceedings to the court and to the creditors. Disclosure of any conflict of interest must be made:
- 1. by the nominees for the position of rehabilitation receiver before their names are submitted for appointment;
- 2. by the rehabilitation receiver and its designated representative in case of juridical person, within 15 days from the appointment as rehabilitation receiver or as a member of the management committee; and
- 3. by the rehabilitation receiver and its designated representative in case of juridical person, within 10 days from the time the rehabilitation receiver and/or its designated representative learns of any fact described in the preceding section while the rehabilitation proceedings are pending.
The same rule shall apply to persons who assist the rehabilitation receiver or the management committee as professionals, experts or employees. They shall file their disclosure within 10 days from the date they are contracted or are employed.
E. OBJECTION TO CONFLICT OF INTEREST
Within 10 days from receipt of the disclosure of conflict of interest provided under the preceding Section, any party to the proceedings adversely affected by the appointment of the persons to the positions mentioned above may file his objection to the appointment of the rehabilitation receiver or a member of the management committee, or to the employment by them of professionals, experts or employees. The court may disregard the conflict of interest if it finds that it will not be detrimental to the general interest of the stakeholders.
Failure to file a timely objection shall be deemed a waiver of the conflict of interest rule.
Should the court decide that the objection has merit and that the conflict of interest will be detrimental to the general interest of the stakeholders, it shall dismiss the rehabilitation receiver having conflict of interest and appoint a new one. Should the person concerned be a member of the management committee or one employed by the rehabilitation receiver or the management committee as a professional or expert, the court shall dismiss the person having conflict of interest and direct the rehabilitation receiver or management committee to appoint or employ a new one in his place, as the case may be.
F. INITIAL APPPOINTMENT
The court shall initially appoint the rehabilitation receiver, who may or may not be from among the nominees of the petitioner. However, at the initial hearing of the petition, the creditors and the debtor who are not petitioners may nominate other persons to the position. The court may retain the rehabilitation receiver initially appointed or appoint another who may or may not be from among those nominated.
In case the debtor is a securities market participant, the court shall give priority to the nominee of the appropriate securities or investor protection fund.
If a qualified natural person or entity is nominated by more than 50% of the secured creditors and the general unsecured creditors, and satisfactory evidence is submitted, the court shall appoint the creditors’ nominee as rehabilitation receiver.
G. POWERS, DUTIES AND RESPONSIBILITIES
The rehabilitation receiver shall be deemed an officer of the court with the principal duty of preserving and maximizing the value of the assets of the debtor during the rehabilitation proceedings, determining the viability of the rehabilitation of the debtor, preparing and recommending a Rehabilitation Plan to the court, and implementing the approved Rehabilitation Plan.
To this end, and without limiting the generality of the foregoing, the rehabilitation receiver shall have the following powers, duties and responsibilities:
- (A) to verify the accuracy of the petition, and correct, if necessary, the annexes such as the Schedule of Debts and Liabilities and the Inventory of Assets submitted in support to the petition;
- (B) to accept and incorporate, when justified, amendments to the Schedule of Debts and Liabilities;
- (C) to evaluate the validity, genuineness and true amount of all the claims against the debtor and to recommend to the court the disallowance of claims and rejection of amendments to the Schedule of Debts and Liabilities that lack sufficient proof and justification;
- (D) to submit to the court, and make available for the creditors’ review, a revised Schedule of Debts and Liabilities;
- (E) to investigate the acts, conduct, properties, liabilities and financial condition of the debtor, the operation of its business and the desirability of the continuance thereof, and any other matter relevant to the proceeding or to the formulation of a Rehabilitation Plan;
- (F) to sue and recover, with the approval of the court, all amounts owed to, and all properties pertaining to the debtor, including all property or money of the debtor paid, transferred or disbursed in fraud of the debtor or its creditors, or which constitute undue preference of creditor/s;
- (G) to examine under oath the directors and officers of the debtor and any other witnesses that he may deem appropriate;
- (H) to make available to the creditors the documents and notices necessary for them to follow and participate in the proceedings;
- (I) to report to the court any fact ascertained by him to pertain to the causes of the debtor’s problems, fraud, preferences, dispositions, encumbrances, misconduct, mismanagement and irregularities committed by the stockholders, directors, management, or any other person against the debtor;
- (J) to employ such specialized professionals and other experts such as lawyers, accountants, auditors, appraisers and staff, with the approval of the court, whose services are necessary in assisting the rehabilitation receiver in performing his duties and functions;
- (K) to monitor the operations of the debtor and to immediately report to the court any material adverse change in the debtor’s business;
- (L) to evaluate the existing assets and liabilities, earnings and operations of the debtor;
- (M) to determine and recommend to the court the best way to salvage and protect the interests of the creditors, stockholders and the general public;
- (N) to study the Rehabilitation Plan proposed by the debtor or any Rehabilitation Plan submitted during the proceedings, together with any comments made thereon;
- (O) to prohibit and report to the court any encumbrance, transfer or disposition of the debtor’s property outside of the ordinary course of business or what is allowed by the court;
- (P) to prohibit and report to the court any payments made by the debtor outside of the ordinary course of business;
- (Q) to have unlimited access to the debtor’s employees, premises, books, records and financial documents during business hours;
- (R) to inspect, copy, photocopy or photograph any document, paper, book, account or letter, whether in the possession of the debtor or other persons, that pertain to the business of the debtor;
- (S) to gain entry into any property owned by the debtor for the purpose of inspecting, measuring, surveying or photographing it or any designated relevant object or operation thereon;
- (T) to take possession, control and custody, and to preserve the value of all of the debtor’s assets;
- (U) to notify counterparties and the court as to contracts that the debtor has decided to confirm;
- (V) to be notified of and to attend all meetings of the board of directors and stockholders of the debtor;
- (W) to recommend any modification of an approved Rehabilitation Plan as he may deem appropriate;
- (X) to bring to the attention of the court any material change affecting the debtor’s ability to meet the obligations under the Rehabilitation Plan;
- (Y) to recommend the appointment of a management committee, when appropriate;
- (Z) within the soonest possible time, to submit a report to the management committee, if one has been constituted, on the status and condition of the debtor and on the actions taken by the receiver with regard to the proceedings;
- (AA) to recommend the termination of the proceedings and the dissolution of the debtor if he determines that the debtor’s continuance in business is no longer feasible or profitable or no longer works to the best interest of the stockholders, parties-litigants, creditors or the general public;
- (BB) to apply to the court for any order or directive that he may deem necessary or desirable to aid him in the exercise of his powers and performance of his duties and functions;
- (CC) to make quarterly reports on the status and progress of the rehabilitation, or as often as may be required by the court; and
- (DD) to exercise such other powers as may from time to time be conferred upon him by the court.
The court may limit the powers and functions of the rehabilitation receiver, as may be appropriate.
H. REMOVAL OF REHABILITATION RECEIVER
The rehabilitation receiver may be removed at any time by the court, either motu proprio or upon motion by any creditor/s holding more than 50% of the total obligations of the debtor, on such grounds as the rules of procedure may provide which shall include, but are not limited to, the following:
- 1. incompetence, gross negligence, failure to perform or failure to exercise the proper degree of care in the performance of his duties and powers;
- 2. lack of a particular or specialized competency required by the specific case;
- 3. illegal acts or conduct in the performance of his duties and powers;
- 4. lack of qualification or presence of any disqualification;
- 5. conflict of interest that arises after his appointment;
- 6. manifest lack of independence that is detrimental to the general body of the stakeholders;
- 7. failure, without just cause, to perform any of his powers and functions under these Rules; or
- 8. on any of the grounds for removing a trustee under the general principles of trusts.
I. COMPENSATION AND TERMS OF SERVICE
A. The rehabilitation receiver and his direct employees or independent contractors shall be entitled to compensation, to be paid by the debtor, for reasonable fees and expenses according to the terms approved by the court after notice and hearing. Prior to such hearing, the rehabilitation receiver, his direct employees and his independent contractors shall be entitled to reasonable compensation based on quantum meruit. Such costs shall be considered administrative expenses.
In determining the amount of reasonable compensation, the court shall consider the nature, extent and value of the services provided, taking into account the following factors, among others:
- the size of the debt under rehabilitation;
- the time to be spent on such services;
- the credentials, experience, skills and reputation of the receiver, his direct employees or independent contractors;
- the benefits accruing to the debtor;
- the complexity, importance, urgency, and nature of the problems, issues, or tasks addressed; and
- the customary compensation charged by comparably skilled practitioners in other rehabilitation cases.
B. If any substantial or material change in the circumstances intervenes affecting the compensation fixed, the court may, upon motion of the debtor, rehabilitation receiver, or the creditors, order a review or revision of the compensation set by the court.
C. The rehabilitation receiver and his direct employees or independent contractors shall disclose in writing, at the earliest opportunity, to the court, with notice to all the parties, all forms of arrangements or agreements in the handling of the receivership such as, but not limited to, commissions, fees, fee-sharing arrangements, and payments in kind. Failure to comply with this duty shall be a ground for removal from office of the person concerned and for forfeiture of the rehabilitation receiver’s bond.
J. OATH AND BOND
Prior to entering upon his powers, duties and responsibilities, the rehabilitation receiver shall take an oath and file a bond, in such amount to be fixed by the court, conditioned upon the faithful and proper discharge of his powers, duties and responsibilities.
In case the position of rehabilitation receiver is vacated for any reason whatsoever, the court shall direct the debtor and the creditors to submit the name/s of their nominee/s to the position. The court may appoint any of the qualified nominees, or any other person qualified.
In case the rehabilitation receiver is a juridical person and its designated representative resigns or is otherwise separated from it, it must manifest to the court this fact and the reason/s for the separation, within 10 days from its occurrence, together with the name and other personal circumstances of the new representative. The new representative must have the qualifications and none of the disqualifications set forth above.
L. DISPLACEMENT OF EXISTING MANAGEMENT
Upon motion of any interested party, the court may appoint and direct the rehabilitation receiver to assume the powers of management of the debtor, or appoint a management committee that will undertake the management of the debtor, upon clear and convincing evidence of any of the following circumstances:
- (a) Actual or imminent danger of dissipation, loss, wastage or destruction of the debtor’s assets or other properties;
- (b) Paralyzation of the business operations of the debtor; or
- (c) Gross mismanagement of the debtor, or fraud or other wrongful conduct on the part of, or gross or willful violation of this Act by, existing management of the debtor or the owner, partner, director, officer or representative/s in management of the debtor.
In case the court appoints the rehabilitation receiver to assume the powers of management of the debtor, the court may:
- (1) require the rehabilitation receiver to post an additional bond;
- (2) authorize him to engage the services or to employ persons or entities to assist him in the discharge of his managerial functions; and
- (3) authorize a commensurate increase in his compensation.
In case the rehabilitation receiver is a juridical person, the acts of its designated representative shall be presumed to be carried out in accordance with the authority vested in him by the juridical entity which he represents. In case of conflict, the decision of the governing body of the juridical entity shall prevail. However, the rehabilitation receiver and its representative/s shall remain solidarily liable for all obligations and responsibilities, subject to the right of withdrawal prior to the implementation of the disputed decision.
M. ROLE OF THE REHABILITATION RECEIVER UPON ASSUMPTION OF MANAGEMENT OF THE DEBTOR
When directed by the court to assume management of the debtor as provided in the foregoing section, the rehabilitation receiver shall continue to exercise the same powers under Section 26 of this Rule in addition to those powers and duties expressly given to the management committee as provided in the succeeding section or those necessarily implied therefrom.
N. EMPLOYMENT OR USE OF PROFESSIONALS
The rehabilitation receiver or the management committee shall submit the identities and other personal circumstances of the professionals or experts they want to engage or to assist them in the exercise of their powers and functions. Court approval shall be made after notice and hearing, taking into account the following factors, among others:
- reasons for the appointment;
- disclosure of conflict of interest;
- compensation, fees, or other arrangements;
- scope of work involved;
- the specific area of expertise of the person to be appointed;
- expected work time to be spent in relation to the engagement and extent of services required; and
- other arrangements, as the court may deem appropriate.
The persons engaged by the rehabilitation receiver or the management committee may be considered either employees or independent contractors, as the case may be.
O. IMMUNITY FROM SUIT
The rehabilitation receiver, the members of the management committee, and all persons they engage shall not be subject to any action, claim or demand for any act or omission in good faith in the exercise of their powers and functions under the FRIA, these Rules, or other actions approved by the court.