Nature of Proceedings
- Proceedings are in rem, affecting all persons upon publication of notice.
- Conducted summarily and non-adversarially under Supreme Court rules.
Key Definitions
- Covers terms such as administrative expenses, affiliates, claims, commencement date/order, control, court, creditor, debtor, liens, rehabilitation, liquidator, and others.
- Establishes strict definitions for creditor types, debtor types, liens, claims, and processes.
Exclusions from Coverage
- Excludes banks, insurance companies, pre-need companies, and government agencies.
- Government financial institutions covered unless charter specifies otherwise.
Court Designation and Procedural Rules
- Supreme Court designates courts and promulgates procedural rules for cases under this Act.
Consolidation Principles
- Juridical entities are separate but related enterprises may have commingled assets/liabilities under specific conditions.
Creditors’ Decisions and Representation
- Decisions follow Corporation or Civil Code provisions consistent with the Act.
- Creditors may designate representatives to act on their behalf.
Liability for Misconduct
- Individual debtors, owners, partners, directors, officers liable for double value of property disposed or embezzled if done in bad faith during proceedings.
Debt-Equity Conversion
- Banks may acquire equity in debtors in rehabilitation or liquidation plans, subject to ownership limits and disposal timelines.
Initiation of Rehabilitation Proceedings
- Debtors may initiate voluntarily with verified petition including identification, financial status, Rehabilitation Plan, nominees for rehabilitation receiver.
- Creditors may initiate involuntarily if claims exceed threshold and payment defaults exist or foreclosure threatens debtor viability.
Commencement of Proceedings
- Court acts on petitions within 5 working days.
- Upon finding sufficiency, issues Commencement Order which includes Stay or Suspension Order prohibiting enforcement actions against debtor.
- Sets initial hearing and publication requirements.
Effect and Exceptions of Commencement Order
- Freezes enforcement actions against debtor.
- Nullifies post-commencement extrajudicial actions, liens, and setoffs.
- Exceptions include pending Supreme Court appeals, certain quasi-judicial proceedings, criminal actions, actions against sureties, and regulated securities transactions.
Waiver of Government Taxes and Fees
- Taxes and fees of national and local government waived during rehabilitation until plan approval or petition dismissal.
Duration and Conditions for Rehabilitation Proceedings
- Commencement Order lasts while substantial likelihood of successful rehabilitation exists.
- Conditions include realistic Rehabilitation Plan, meaningful creditor meetings, good faith actions by debtor.
Initial Hearing Matters
- Court determines timely creditor claims, considers rehabilitation receiver appointments, directs creditor comments and rehabilitation receiver report.
Rehabilitation Receiver
- Qualified natural or juridical persons serve as rehabilitation receiver.
- Duties include asset preservation, claim validation, rehabilitation plan preparation and implementation, monitoring debtor operations.
- May assume management powers upon court order.
- Removal possible for incompetence, conflicts of interest, or misconduct.
Management Committee
- May be appointed to replace management if circumstances warrant.
- Members subject to qualification and duties defined by court procedural rules.
Employment of Professionals
- Rehabilitation receiver or management committee may employ experts with court approval.
Creditors’ Committees
- Organized by creditors for communication and liaison with rehabilitation receiver, but cannot bind creditors without consent.
Claims Determination
- Rehabilitation receiver prepares registry of claims.
- Challenges allowed within prescribed period; decisions appealable to court.
Debtor Management
- Existing management remains unless court directs otherwise; reimbursement and disposal of assets subject to receiver and court approval.
Use and Disposal of Assets
- Assets used or disposed only in ordinary course or to finance rehabilitation.
- Court may authorize sale of unencumbered property upon showing necessity.
- Sale or disposal of encumbered or third party assets with consent and court approval.
- Provisions to prevent depreciation of rapidly diminishing assets.
Treatment of Interest, Loans, Employees, and Contracts
- Interest rates in Rehabilitation Plan.
- Post-commencement loans considered administrative expenses.
- Compensation of employees for business continuity treated as administrative expense.
- Valid contracts continue unless terminated or not confirmed within 90 days after commencement.
Avoidance Proceedings
- Transactions before commencement may be rescinded/nullified if fraudulent or preferential.
- Rehabilitation receiver or creditors may initiate avoidance actions.
Treatment of Secured Creditors
- Secured creditor rights preserved; enforcement of liens may be suspended but allowed if property is not needed for rehabilitation.
- Adequate protection and value considerations govern continuation of suspension.
Rehabilitation Plan
- Must detail assumptions, financial goals, creditor classification, and methods of rehabilitation (e.g., debt forgiveness, equipment conversion).
- Requires creditor approval with specific voting thresholds.
- Court may confirm plan despite dissent if protections and compensations are ensured.
Confirmation and Implementation
- Upon confirmation, plan binds all relevant parties.
- Debtor must comply and payments made per plan.
- Non-compliance may cause termination or conversion to liquidation.
Termination of Rehabilitation
- Occurs on success or failure, dismissal, or breach.
- Failure leads to court orders including potential conversion to liquidation.
Pre-negotiated Rehabilitation
- Debtor and creditors may jointly file petition for court approval of pre-agreed plan involving major creditors.
- Court issues orders for publication, notification, and may approve plan within prescribed periods.
- Objections handled through hearings, with potential conversion to liquidation.
Out-of-Court/Informal Restructuring
- Informal plans recognized if meeting creditor approval thresholds.
- Standstill periods enforceable against all creditors with proper notice and limits.
- Court may assist in execution but does not stay plan implementation.
Liquidation of Juridical Debtors
- Voluntary or involuntary liquidation petitions with schedules, inventories, and nominees.
- Conversion from rehabilitation to liquidation allowed under conditions.
- Liquidation Order declares dissolution, vests title in liquidator, terminates contracts.
- Secured creditors preserve rights and may have claims adjusted based on collateral value.
- Liquidator elected by creditors or court-appointed; shall manage asset recovery and liquidation.
Liquidation Procedures
- Registry of claims prepared; challenges and appeal allowed.
- Avoidance of fraudulent or preferential transactions applies.
- Liquidation Plan includes asset schedules and payment priorities per law.
- Exempt property set aside.
- Sale of assets conducted by auction or court-approved private sale.
- Court orders removal of debtor from registries upon completion.
Insolvency of Individual Debtors
- Suspension of payments initiated by individual with petition and creditor meetings.
- Court may suspend executions, call creditors’ meeting for proposed agreement.
- Agreement approved by sufficient creditors binding on them but not on excluded creditors.
- Failure to perform agreement reverts rights to creditors.
- Voluntary or involuntary liquidation for insolvent individuals exceeding debt threshold.
- Court processes include orders to show cause, seizure of properties, and possible sale under execution.
Common Provisions
- Liquidation order effects include declaring insolvency, vesting property to liquidator, and halting claims enforcement.
- Liquidator duties parallel rehabilitation receiver with focus on asset liquidation and claim settlement.
- Liquidator reports quarterly and upon completion, subject to court accounting and discharge.
Ancillary and Cross-border Provisions
- Court assists in liquidation of financial institutions under state receivership.
- UN Model Law on Cross-Border Insolvency adopted.
- Courts may provide relief and coordinate with foreign insolvency proceedings.
Rehabilitation of Government-Owned Corporations
- Release of public funds subject to Congressional appropriation.
- Finance and Budget Departments to set use rules.
Penalties
- Violations including concealment, fraudulent transfers, falsification carry fines and imprisonment.
Application and Effectivity
- Governs all petitions filed post-effectivity.
- Applies to all debtor contracts regardless of date.
- Repeals previous insolvency laws.
- Provisions severable and effective fifteen days after publication.