Published 11 June 2018, The Daily Tribune
I continue my discussion on the remedies available to a financially distressed juridical debtor under FRIA. Court-supervised voluntary rehabilitation proceedings are initiated by the filing of the debtor of a petition for rehabilitation with the Regional Trial Court of the city where the debtor’s principal office is located. The basic issues in rehabilitation proceedings concern the viability and desirability of continuing the business operations of the distressed debtor, all with a view of effectively restoring it to a state of solvency or to its former healthy financial condition through the adoption of a rehabilitation plan. Philippine Asset Growth Two, Inc. and Planters Development Bank vs. Fastech Synergy Philippines Inc., et al. G.R. No. 206528, 28 June 2016. In the case of Viva Shipping Lines, Inc. v. Keppel Philippines Mining, Inc., G.R. No. 177382, February 17, 2016, the Court took note of the characteristics of an economically feasible rehabilitation plan : a )the debtor has assets that can generate more cash if used in its daily operations than if sold; b) liquidity issues can be addressed by a practicable business plan that will generate enough cash to sustain daily operations, and c ) the debtor has a definite source of financing for the proper and full implementation of a rehabilitation plan that is anchored on realistic assumptions and goals. The question is, given the various stakeholders of the insolvent debtor- the shareholders, creditors, and the State, is it better to rehabilitate the debtor than to carry out its liquidation.
If the petition is sufficient in form and substance, meaning, the petition makes a valid case that the debtor can be rehabilitated, the Court will issue a commencement order. The rehabilitation proceedings commence upon issuance by the Court of the commencement order. The commencement order, among others, appoints the rehabilitation receiver, and includes a stay order which shall suspend all actions or proceedings for the enforcement of claims against the debtor, as well as actions to enforce any judgment or attachment or provisional remedy against the debtor; prohibits disposition or encumbrance of property except in the ordinary course of business and prohibit debtor from making any payment except when authorized by the rules. The rationale of the stay order is to enable the rehabilitation receiver to focus on the rehabilitation of the debtor unhampered by court suits.
The stay order does not include, among others, cases on appeal with the Supreme Court, cases falling with a specialized court or quasi-judicial agency, enforcement of claims against surety and other persons solidarily liable with the debtor and third party or accommodation mortgagors as well as issuers of letter of credit, unless the property subject of third-party mortgage is necessary for the rehabilitation of the debtor as determined by the court and criminal action against the debtor.
The claims which cannot be enforced include “all claims or demands of whatever nature or character against the debtor or its property, whether for money or otherwise.” The following claims are considered enjoined upon issuance by the rehabilitation court of a stay order : principal and interest payments arising from a contract of loan, foreclosure of mortgage or pledge on the properties of the debtor, claim of a passenger against the debtor airline company for missing luggage, the claim of the educational plan-holders against the debtor pre-need company, claims on a policy issued by the debtor insurance company or breach of contract of carriage against the debtor common carrier and, judgment rendered by another court against the debtor prior the issuance to the issuance of the stay order but the court judgment attained finality during the effectivity of the stay order. What if the creditor bank applies the debtor’s deposit against its debt after the filing of the petition but prior to issuance of the stay order? The set-off may be nullified because the commencement order which includes the stay order retroacts to the date of the filing of the petition.
Still wondering why creditors dread a stay order?
