Published 08 June 2018, The Daily Tribune
As mentioned in my previous column, I will tackle the remedies available to juridical debtors under FRIA. These juridical debtors are sole proprietorships, partnerships, and corporations. Depending on whether their objective is to be restored to their former state of financial health and successful operations or equitably distribute their properties to their creditors after dissolution, their remedies are to initiate rehabilitation proceedings and file petition for liquidation.
Rehabilitation proceedings may be further classified under the following frameworks: a) Court supervised rehabilitation; b) pre-negotiated rehabilitation, and c) out of court or informal restructuring agreement/rehabilitation plan. Court-supervised rehabilitation and pre-negotiated rehabilitation require court intervention and necessarily, the engagement of a legal counsel. The out-of-court rehabilitation plan, the name itself, connotes mere agreement of the parties sans the need for court approval, except when the parties seek court assistance for the implementation of the rehabilitation plan under such rules of procedure as may be promulgated by the Supreme Court. Since one of the thrusts of this column is to empower laymen, let me give particular attention to the debtor’s remedy to pursue an out-of-court informal restructuring agreement/rehabilitation plan.
To effect this remedy, the debtor must agree to the out-of-court or informal restructuring/workout agreement or rehabilitation plan. It must be approved by the creditors representing at least sixty-seven percent (67%) of the secured obligations of the debtor; by the creditors representing at least seventy five percent (75%) of the unsecured obligations of the debtor; and, by the creditors holding at least eighty five percent (85%) of the total liabilities, secured and unsecured, of the debtor.
It means the among the secured and unsecured creditors as well as the total number of creditors, there is an approval threshold percentage of liabilities. The approval is based on the amount of liabilities and not necessarily on the number of creditors.
Unique to this remedy is the chance available to the debtor to bind all his creditors to a standstill agreement by simply getting the approval of the creditors/s representing more than fifty percent of the debtor’s total liabilities. The standstill period that may be agreed upon by the parties pending negotiation and finalization of the ot-pf-court or informa restructuring/workout agreement or rehabilitation plan shall be effective and enforceable not only against the contracting parties but also against the other creditors: Provided, that (a) the requisite Majority vote specified above is obtained; (b) notice thereof is publishing in a newspaper of general circulation in the Philippines once a week for two consecutive weeks; and, (c) the standstill period does not exceed 120 days from the date of effectivity. The notice must invite creditors to participate in the negotiation for out-of-court rehabilitation or restructuring agreement will be binding on all creditors if the required majority votes are met (Section 85 of FRIA). A restructuring/workout agreement or rehabilitation plan that is approved pursuant to an informal workout framework shall have the same legal effect as confirmation of a rehabilitation plan approved by the court (Section 86 of FRIA). Any court action or other proceedings arising from, or relating to, the out-of-court or informal restructuring/workout agreement or rehabilitation plan shall not stay its implementation unless the relevant party is able to secure a temporary restraining order or injunctive relief from the Court of Appeals (Section 88 of FRIA).
It may be inferred from these provisions that even pending the negotiation and finalization of the out-of-court or informal restructuring agreement, the debtor may be entitled to a 120-day reprieve provided he obtains the conformity of the creditors representing more than 50% of the total liabilities and follows the prescribed procedures under FRIA. By standstill, it can only mean that the other creditors of the debtor cannot enforce their claim against the debtor during the 120-day standstill period. The law does not seem to exempt the secured creditors from the effects of the standstill agreement. Thus, following the “equality is equity” principle in rehabilitation, even the mortgagee and pledgee should not be allowed to enforce their lien on the properties of the debtor at least during the standstill period. Under this principle, the properties of the debtor are held in trust for the benefit of all creditors, secured or unsecured, and that all creditors ought to stand on equal footing. One hundred twenty days, if maximized by the debtor, may provide him adequate time to convince the creditors to agree to the out-of-court restructuring agreement/rehabilitation plan or consider other options or plan his legal strategies.
So, to the creditors, under the informal out-of-court restructuring agreement mode of rehabilitation, the question is, so you stand still or will you (still) stand to enforce your claim?