Y.O.U.R.S.

CORPORATE
REHABILITATION
[AM No. 00-8-10-SC. Nov 21, 2000]
I
COVERAGE
These Rules shall apply to
1. Petitions for rehabilitation filed by
corporations, partnerships, and
associations pursuant to PD 902-A.
2. Cases for rehabilitation transferred
fro the !"C to the RTCs pursuant to
RA #$99
II
NATURE OF
PROCEEDINGS
Any proceedin% initiated under these Rules shall
be&
1. 'n re. (urisdiction o)er all those
affected shall be considered as
ac*uired upon publication in any
ne+spaper of %eneral circulation
2. !uary and non-ad)ersarial in
nature. The follo+in% pleadin%s are
prohibited&
a. ,otion to disiss-
b. ,otion for a bill of particulars-
c. ,otion for ne+ trial or for
reconsideration-
d. Petition for relief-
e. ,otion for e.tension-
f. ,eorandu-
%. ,otion for postponeent-
h. Reply or Re/oinder-
i. Third party coplaint- and
/. 'nter)ention.
Any pleadin%, otion, opposition, defense, or
clai filed by any interested party shall be
supported by )erified stateents that the
affiant has read the sae and that the factual
alle%ations therein are true and correct of his
personal 0no+led%e or based on authentic records
and shall contain as anne.es such docuents as
ay be deeed by the party subittin% the sae
as supporti)e of the alle%ations.
III
PROCEDURE
A. !"#" $o F%&" P"$%$%o'
Petitions for rehabilitation shall be filed in the
RTC ha)in% /urisdiction o)er the territory +here
the debtor1s principal office is located.
B. !o M() P"$%$%o'
1. Any debtor +ho foresees the ipossibility
of eetin% its debts +hen they respecti)ely
fall due, or
2. Any creditor or creditors holdin% at least
223 of the debtor1s total liabilities
C. Co'$"'$* o+ P"$%$%o'
1. Debtor-initiated Petitions
The petition ust be )erified and ust set
forth&
4a5 the nae and business of the
debtor-
4b5 the nature of the business
4c5 the history of the debtor-
4d5 the cause of its inability to pay its
debts-
4e5 all the pendin% actions or
proceedin%s 0no+n to the debtor
and the courts or tribunals +here
they are pendin%-
4f5 threats or deands to enforce
clais or liens a%ainst the debtor-
and
4%5 the anner by +hich the debtor
ay be rehabilitated and ho+ such
rehabilitation ay benefit the
%eneral body of creditors,
eployees, and stoc0holders.
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Y.O.U.R.S.
The petition shall be accopanied by
the follo+in% docuents&
a. An audited financial stateent
as of its last fiscal year-
b. 'nteri financial stateents as
of the end of the onth prior
to the filin%
c. !chedule of Debts and
7iabilities
d. An 'n)entory of Assets The
'n)entory shall include a
!chedule of Accounts
Recei)able
e. A rehabilitation plan
f. A !chedule of Payents and
disposition of assets +hich the
debtor ay ha)e effected
+ithin B onths iediately
precedin% the filin% of the
petition-
%. A !chedule of the Cash Clo+ of
the debtor for B onths
iediately precedin% the
filin% of the petition, and a
detailed schedule of the
pro/ected cash flo+ for the
succeedin% B onths-
h. A !tateent of Possible Clais
by or a%ainst the debtor
i. An Affida)it of Aeneral
Cinancial Condition
/. At least B noinees for the
position of Rehabilitation
Recei)er
0. A Certificate attestin%, under
oath, that
- the filin% of the petition
has been duly authori<ed
- the directors and
stoc0holders ha)e
irre)ocably appro)ed
and>or consented to all
actions or atters
necessary and desirable to
rehabilitate the debtor
The petition ust be )erified by an
affida)it of a responsible officer
2. Creditor-initiated Petitions
't is sufficient that the petition is&
accopanied by a
rehabilitation plan and a list of
noinees to the position of
Rehabilitation Recei)er and
)erified by a s+orn stateent that
the affiant has read the petition and
that its contents are true and
correct of his personal 0no+led%e or
based on authentic records obtained
fro the debtor.
D. R"!(4%&%$($%o' P&('
1. Contents
The rehabilitation plan shall include
4a5 the desired business tar%ets or
%oals and the duration and
co)era%e of the rehabilitation-
4b5 the ters and conditions of such
rehabilitation
4c5 the aterial financial
coitents to support the
rehabilitation plan-
4d5 the eans for the e.ecution of
the rehabilitation plan
4e5 a li*uidation analysis that
estiates the proportion of the
clais that the creditors and
shareholders +ould recei)e if the
debtor1s properties +ere
li*uidated- and
4f5 other rele)ant inforation
2. Approval by Court
The court ay appro)e a rehabilitation plan
e)en o)er the opposition of creditors
holdin% a a/ority of the total liabilities of
the debtor if, in its /ud%ent, the
rehabilitation of the debtor is feasible and
the opposition of the creditors is anifestly
unreasonable.
'n deterinin% +hether or not the
opposition of the creditors is anifestly
unreasonable, the court shall consider the
follo+in%&
a. That the plan +ould li0ely pro)ide the
ob/ectin% class of creditors +ith
copensation %reater than that +hich
they +ould ha)e recei)ed if the assets
of the debtor +ere sold by a li*uidator
+ithin a three-onth period-
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Y.O.U.R.S.
b. That the shareholders or o+ners of
the debtor lose at least their
controllin% interest as a result of
the plan- and
c. The Rehabilitation Recei)er has
recoended appro)al of the plan.
3. Effects of the Rehabilitation Plan.
a. The plan and its pro)isions shall be
bindin% upon the debtor and all
persons +ho ay be affected by it
+hether or not such persons ha)e
participated in the proceedin%s or
opposed the plan or +hether or not
their clais ha)e been scheduled-
b. The debtor shall coply +ith the
pro)isions of the plan
c. Payents shall be ade to the
creditors in accordance +ith the
pro)isions of the plan-
d. Contracts and other arran%eents
bet+een the debtor and its
creditors shall be interpreted as
continuin% to apply to the e.tent
that they do not conflict +ith the
pro)isions of the plan- and
e. Any coproises on aounts or
reschedulin% of tiin% of payents
by the debtor shall be bindin% on
creditors re%ardless of +hether or
not the plan is successfully
ipleented.
4. Revocation of the Rehabilitation
Plan on Grounds of Fraud.
Dn otion or otu proprio, +ithin 90
days fro the appro)al of the
rehabilitation plan, and after notice and
hearin%, the court ay re)o0e the
appro)al thereof on the %round that the
sae +as secured throu%h fraud.
5. Alteration or Modification of the
Rehabilitation Plan.
An appro)ed rehabilitation plan ay,
on otion, be altered or odified if, in
the /ud%ent of the court, such
alteration or odification is necessary
to achie)e the desired tar%ets or %oals
set forth therein.
E. S$() O#,"#
'f the court finds the petition to be sufficient in
for and substance, it shall, not later than 2
days fro the filin% of the petition, issue an
Drder&
4a5 appointin% a Rehabilitation Recei)er and
fi.in% his bond-
4b5 stayin% enforceent of all clais, a%ainst
the debtor, its %uarantors and sureties not
solidarily liable +ith the debtor-
4c5 prohibitin% the debtor fro sellin%,
encuberin%, transferrin%, or disposin% of
its properties e.cept in the ordinary course
of business-
4d5 prohibitin% the debtor fro a0in% any
payent of its liabilities outstandin% as at
the date of filin% of the petition-
4e5 prohibitin% the debtor1s suppliers fro
+ithholdin% supply of %oods and ser)ices in
the ordinary course of business for as lon%
as the debtor a0es payents for such
after the issuance of the stay order-
4f5 directin% the payent in full of all
adinistrati)e e.penses
4%5 fi.in% the initial hearin% on the petition
4h5 directin% the petitioner to publish the Drder
in a ne+spaper of %eneral circulation in the
Philippines once a +ee0 for 2 consecuti)e
+ee0s-
4i5 directin% all creditors and all interested
parties to file and ser)e on the debtor a
)erified coent on or opposition to the
petition, and puttin% the on notice that
their failure to do so +ill bar the fro
participatin% in the proceedin%s- and
4/5 directin% the creditors and interested
parties to secure fro the court copies of
the petition and its anne.es
Epon otion or otu proprio, the court ay
declare )oid any transfer of property or any
other con)eyance, sale, payent, or a%reeent
ade in )iolation of its stay order or in )iolation
of these Rules.
The stay order shall be effecti)e fro the date
of its issuance until the disissal of the petition
or the terination of the rehabilitation
proceedin%s.
Suspension of Money Claims : PAL vs Spouses
Kurangking (2002)
Issue: WON the proceedings before the trial court (re
money claim vs PA for missing luggage! should have
been suspended after the court "as informed that a
rehabilitation receiver had been appointed#
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Y.O.U.R.S.
Ratio / Decision: %he interim rules must be read
and applied along "ith &ec '(c! of P( )*2+A,
directing that upon the appointment of a
management committee, rehabilitation receiver,
board or body pursuant to the decree, -all actions-
for claims against the distressed corporation
-pending before any court, tribunal, board or body
shall be suspended accordingly.-
/erily, the claim of private respondents against
petitioner PA is a money claim for the missing
luggages, a financial demand, that the la"
re0uires to be suspended pending the
rehabilitation proceedings. 1n 2.3. 4omes, 1nc. vs.
5A the 5ourt has ratiocinated:
-%he reason for suspending actions is not
really to enable the management committee
or the rehabilitation receiver to substitute the
defendant in any pending action against it.
%he real 6ustification is to enable the
management committee or rehabilitation
receiver to effectively e7ercise its8his po"ers
free from any 6udicial or e7tra 6udicial
interference that might unduly hinder or
prevent the 9rescue9 of the debtor company.
Non-suspension of claims against
guarantors / sureties solidarily liable with
debtor : !SS "s #away $%&&'(
&ec. '(b! of :ule 4 of the 1nterim :ules does not
en6oin the enforcement of all claims against
guarantors and sureties, but only those claims
against guarantors and sureties "ho are not
solidarily liable "ith the debtor.
%he prohibition under &ec. '(b! of :ule 4 of the
1nterim :ules does not apply to herein petitioner
as the prohibition is on the enforcement of claims
against guarantors or sureties of the debtors
"hose obligations are not solidary "ith the debtor.
%he participating ban;s9 obligation are solidary
"ith respondent <aynilad in that it is a primary,
direct, definite and an absolute underta;ing to pay
and is not conditioned on the prior e7haustion of
the debtor9s assets.
2eing solidary, the claims against them can be
pursued separately from and independently of the
rehabilitation case, as held in %raders :oyal 2an;
v. 5A and reiterated in Philippine 2looming <ills,
1nc. v. 5A "here "e said that property of the
surety cannot be ta;en into custody by the
rehabilitation receiver (&=5! and said surety can
be sued separately to enforce his liability as
surety for the debts or obligations of the debtor.
F. R"&%"+ +#o3 S$() O#,"#
The court ay
terinate
odify
set conditions for the continuance
of
or relie)e a clai fro the co)era%e of
the stay order
Epon sho+in% that
4a5 any of the alle%ations in the petition, or
any of the contents of any attachent,
or the )erification thereof has ceased
to be true-
4b5 a creditor does not ha)e ade*uate
protection o)er property securin% its
clai- or
4c5 the debtor1s secured obli%ation is ore
than the fair ar0et )alue of the
property sub/ect of the stay and such
property is not necessary for the
rehabilitation of the debtor.
The creditor shall lac0 ade*uate protection if it
can be sho+n that&
a. the debtor fails or refuses to honor
a pre-e.istin% a%reeent +ith the
creditor to 0eep the property insured-
b. the debtor fails or refuses to ta0e
coercially reasonable steps to
aintain the property- or
c. the property has depreciated to an
e.tent that the creditor is
undersecured.
Epon sho+in% of a lac0 of ade*uate protection,
the court shall order the rehabilitation recei)er
to
a. a0e arran%eents to pro)ide for the
insurance or aintenance of the
property, or
b. a0e payents or pro)ide additional
or replaceent security such that the
obli%ation is fully secured or
c. if such arran%eents are not feasible,
the court shall odify the stay order to
allo+ the secured creditor to enforce its
clai a%ainst the debtor-
The court ay deny the creditor these reedies
if such +ould pre)ent the continuation of the
debtor as a %oin% concern or other+ise pre)ent
the appro)al and ipleentation of a
rehabilitation plan.
G. Co.#$ A/$%o' o' $!" P"$%$%o'
'f, after the initial hearin%, the court is satisfied
that there is erit in the petition, it shall
iediately refer the petition to the
Rehabilitation Recei)er +ho shall e)aluate the
rehabilitation plan and subit his
recoendations to the court.
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Y.O.U.R.S.
The court shall li0e+ise re*uire the !"C to
coent on the petition. The Coission
shall coordinate +ith the %o)ernent
a%ency concerned in appropriate cases for
purposes of filin% its coent.
The petition shall be disissed if no
rehabilitation plan is appro)ed by the court
upon the lapse of 1#0 days fro the date
of the initial hearin%. The court ay %rant
an e.tension beyond this period only if it
appears by con)incin% and copellin%
e)idence that the debtor ay successfully
be rehabilitated. 'n no instance, ho+e)er,
shall the period for appro)in% or
disappro)in% a rehabilitation plan e.ceed
1# onths fro the date of filin% of the
petition.
H. T"#3%'($%o' o+ P#o/"",%'0*
'n case of the failure of the debtor to
subit the rehabilitation plan, or
the disappro)al of the plan or
the failure of the rehabilitation because
of failure to achie)e the desired
tar%ets or %oals, or
the failure of the debtor to perfor its
obli%ations under the plan, or
a deterination that the rehabilitation
plan ay no lon%er be ipleented
The court shall upon otion, otu proprio,
or upon the recoendation of the
Rehabilitation Recei)er, terinate the
proceedin%s.
The proceedin% shall also terinate upon
the successful ipleentation of the
rehabilitation plan.
Any order issued by the court under
these Rules is iediately
e.ecutory.
A petition for re)ie+ or an appeal
therefro shall not stay the
e.ecution of the order unless
restrained or en/oined by the
appellate court.
IV
REHABILITATION
RECEIVER
A. D%*6.(&%+%/($%o'*
A Rehabilitation Recei)er ay be deeed to
ha)e a conflict of interest if&
a. ?e is a creditor or stoc0holder of the
debtor-
b. ?e is en%a%ed in a line of business +hich
copetes +ith the debtor-
c. ?e is, or +as +ithin 2 years fro the filin%
of the petition, a director, officer, or
eployee of the debtor or any of its
present creditors, or the auditor or
accountant of the debtor-
d. ?e is, or +as +ithin 2 years fro the filin%
of the petition, an under+riter of the
outstandin% securities of the debtor-
e. ?e is related by consan%uinity or affinity
+ithin the fourth ci)il de%ree to any
creditor, stoc0holder, director, officer,
eployee, or under+riter of the debtor- or
f. ?e has any other direct or indirect aterial
interest in the debtor or any creditor.

B. Po2"#* (', F.'/$%o'*
The Rehabilitation Recei)er shall
not ta0e o)er the ana%eent and control
of the debtor but shall closely o)ersee and
onitor the operations of the debtor durin%
the pendency of the proceedin%s.
The Rehabilitation Recei)er shall be
considered as an officer of the court.
?e shall be priarily tas0ed to
study the best +ay to rehabilitate the
debtor and to ensure that the )alue of the
debtor1s property is reasonably aintained,
as +ell as ipleent the rehabilitation plan
after its appro)al.
Accordin%ly, he shall ha)e the follo+in% po+ers
and functions&
a. To )erify the accuracy of the petition
b. To accept and incorporate aendents to
the !chedule of Debts and 7iabilities-
c. To recoend to the court the
disallo+ance of clais and re/ection of
aendents to the !chedule of Debts and
7iabilities
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Y.O.U.R.S.
d. To subit a re)ised !chedule of Debts
and 7iabilities-
e. To in)esti%ate 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 rele)ant atter
f. To e.aine under oath the directors
and officers of the debtor and any
other +itnesses that he ay dee
appropriate-
%. To a0e a)ailable to the creditors
docuents and notices necessary for
the to follo+ and participate in the
proceedin%s-
h. To report to the court any fact
ascertained by hi pertainin% to the
causes of the debtor1s probles, fraud,
preferences, dispositions,
encubrances, isconduct,
isana%eent, and irre%ularities
coitted by the stoc0holders,
directors, ana%eent, or any other
person a%ainst the debtor-
i. To eploy such person or persons such
as la+yers, accountants, appraisers,
and staff as are necessary in
perforin% his functions
/. To onitor the operations of the debtor
0. To e)aluate the e.istin% assets and
liabilities, earnin%s and operations of
the debtor-
l. To deterine and recoend to the
court the best +ay to sal)a%e and
protect the interests of the creditors,
stoc0holders, and the %eneral public-
. To study the rehabilitation plan
n. To prohibit any encubrance, transfer,
or disposition of the debtor1s property
outside of the ordinary course of
business or +hat is allo+ed by the
court-
o. To prohibit any payents outside of
the ordinary course of business-
p. To ha)e unliited access to the
debtor1s eployees, preises, boo0s,
records, and financial docuents
durin% business hours-
*. To inspect, copy, photocopy, or
photo%raph any docuent, paper,
boo0, account, or letter,
r. To %ain entry into any property for the
purpose of inspectin%, easurin%,
sur)eyin%, or photo%raphin% it-
s. To ta0e possession, control, and
custody of the debtor1s assets-
t. To notify counterparties and the court as to
contracts that the debtor has decided to
continue to perfor or breach-
u. To be notified of, and to attend all eetin%s
of the board of directors and stoc0holders
of the debtor-
). To recoend any odification of an
appro)ed rehabilitation plan
+. To brin% to the attention of the court any
aterial chan%e affectin% the debtor1s
ability to eet its obli%ations
.. To recoend the appointent of a
ana%eent coittee
y. To recoend the terination of the
proceedin%s and the dissolution of the
debtor if he deterines that the
continuance in business of such entity is no
lon%er feasible or profitable or no lon%er
+or0s to the best interest of the
stoc0holders, parties-liti%ants, creditors, or
the %eneral public-
<. To apply to the court for any order or
directi)e that he ay dee necessary or
desirable
aa. To e.ercise such other po+ers as ay fro
tie to tie be conferred upon hi by the
court.
C. I33.'%$) +#o3 S.%$
The Rehabilitation Recei)er shall not be sub/ect
to any action, clai, or deand in connection
+ith any act done or oitted by hi in %ood
faith in the e.ercise of his functions and po+ers
herein conferred.
D. D%*3%**(& o+ R"!(4%&%$($%o' R"/"%v"#
A Rehabilitation Recei)er ay be disissed by
the court, upon otion or otu proprio, on
account of conflict of interest, or on any of the
%rounds for reo)in% a trustee under the
%eneral principles of trusts.
V
EFFECTIVIT7
These Rules shall ta0e effect on Dec 12, 2000.
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