Published 11 December 2023, The Daily Tribune
Last 30 November 2023, the Supreme Court published its guidelines on financial rehabilitation proceedings, specifically on the matter of actual notice to concerned courts or tribunals.
These guidelines were provided in the SC En Banc’s Decision, penned by Chief Justice Alexander Gesmundo, in the case of Pacific Cement Company v. Oil and Natural Gas Commission (G.R. 229471, 11 July 2023).
The SC En Banc issued the guidelines after denying Pacific Cement’s Petition for Review, challenging the rulings of the Court of Appeals, which upheld the validity of a foreign judgment to be enforced against Pacific Cement.
This foreign judgment was in relation to an arbitral award granted in favor of the Government of India’s Oil and Natural Gas Commission but subject to the ongoing financial rehabilitation proceedings involving Pacific Cement.
Pacific Cement claimed that the CA ruling must be rendered null and void as it was issued while Pacific Cement was under rehabilitation, pursuant to the commencement order issued by the trial court acting as a rehabilitation court. In denying Pacific Cement’s Petition, the SC first stressed that a vital function of rehabilitation proceedings is the mechanism of suspension of all actions and claims against the distressed corporation.
The High Court described that a stay order incorporated in a commencement order shall suspend all actions or proceedings, in court or otherwise, for the enforcement of claims against the debtor, subject to certain exceptions.
In the present case, however, the Court emphasized that while the commencement order had already been issued by the rehabilitation court by the time the CA resolved the case on the validity of the foreign judgment, the CA ruling cannot be rendered null and void because the appellate court had not been informed of the commencement order. It was only after the CA had already promulgated its decision that it was apprised of the rehabilitation proceedings.
To avoid the possibility of separate suits or appeals questioning orders or judgments rendered in violation of a commencement/stay order, which will only delay the consolidation of all legal proceedings in the rehabilitation court, the High Court formulated guidelines on the matter of actual notice to the concerned court or tribunal, as follows:
- Upon the appointment of a rehabilitation receiver, the rehabilitation court shall instruct the former to notify all courts or tribunals before which the debtor has pending actions, by way of manifestation, of the following:
a) The existence of the petition for rehabilitation;
b) The court where the petition was filed;
c) The date of filing; and
d) The fact of the issuance of commencement and stay orders - In cases where the petitioner is the debtor, the courts to be notified shall be those indicated in the verified petition and affidavit of general financial condition, as required by Section 2(A)(7) and (10), Rule 2(A) of the FR Rules.
- In cases where the petitioner is the creditor, the rehabilitation court shall, together with the appointment of a rehabilitation receiver, instruct the latter to ascertain the existence of any pending actions or proceedings by or against the debtor.
- The rehabilitation receiver shall report its compliance to the rehabilitation court on the initial hearing date.
- The rehabilitation court shall further require the rehabilitation receiver, should the latter learn of any other pending actions by or against the debtor, to notify such other court/tribunal of the following:
a) The existence of the petition for rehabilitation,
b) The court where the petition was filed, the date of its filing, and
c) The fact of the issuance of commencement and stay orders, by way of manifestation within five calendar days from the rehabilitation receiver’s knowledge of such other actions.
The rehabilitation receiver shall also report the former’s compliance to the rehabilitation court within five calendar days.
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