Corporate Rehabilitation in the Philippines
With the increased media coverage this past months regarding businesses undergoing corporate rehabilitation (e.g., College Assurance Plan [CAP] and Pacific Plans, Inc. [PPI]), even the general pubic has started asking questions about corporate rehabilitation, a legal option that is available to distressed corporations.
Philippine corporate rehabilitation, which is similar to Chapter 11 reorganization in the United States of America, is distinct and separate from insolvency. Rehabilitation is intended to enable a distressed corporation to gain a new lease on life, so to speak, and to continue its business as a going concern. On the other hand, insolvency is intended to close and liquidate an insolvent corporation.
Jurisdiction over petitions for corporate rehabilitation was previously lodged with the Securities and Exchange Commission (SEC), pursuant to Presidential Decree (”P.D.“) No. 902-A, as amended by P.D. 1758 and P.D. 1799. While Republic Act No. 8799 (otherwise known as the “Securities Regulations Code of 2000“) transferred this jurisdiction to regular courts, P.D. 902-A remains to be the governing law on corporate rehabilitations. The procedure is set forth in the Interim Rules of Procedure on Corporate Rehabilitation (”Interim Rules).
Thrust of rehabilation. - Rehabilitation contemplates a continuance of corporate life and activities in an effort to restore and reinstate the corporation to its former position of successful operation and solvency.
Issuance of Stay Order. - If the court is convinced that the petition is sufficient in form and substance, it will issue a Stay Order, which shall include, among other things, the appointment of a Receiver and the suspension of ALL pending claims against the corporation under rehabilitation.
Pari passu treatment of creditors. - All assets of a corporation under rehabilitation receivership are held in trust for the equal benefit of all creditors to preclude one from obtaining an advantage or preference over another by the expediency of attachment, execution or otherwise. All the creditors ought to stand on equal footing, with due regard to the rights of secured creditors.
Corporate rehabilitation is theoretically expeditious, but actual practice shows it could be otherwise. We had an ocassion to write the Supreme Court about these problems and, hopefully, the Supreme Court’s referral to the rules committee will bear fruit in the immediate future.
