(Effective December 15, 2000)
Steps:
1. Filing of a verified petition with the appropriate RTC by:
a) corporate debtor who foresees the impossibility of meeting its debts when they respectively fall due, or
b) creditors holding at least 25% of the debtor’s total liabilities;
2. The following shall be annexed to the petition:
a) audited financial statement at the end of its last fiscal year;
b) interim financial statement;
c) schedule of debts and liabilities;
d) inventory of assets;
e) rehabilitation plan;
f) schedule of payments and disposition of assets effected within 3 months preceding the filing of the petition;
g) schedule of cash flow for the last 3 months;
h) statement of possible claims;
i) affidavit of general financial condition;
j) at least 3 nominations for rehabilitation receiver;
k) certificate under oath that directors and
stockholders have irrevocably
approved/consented to all actions/matters necessary under the rehabilitation plan.
3. The court shall issue the stay order not later than 5 days from the filing of the petition, which among others, shall:
4. Publication of the stay order in a newspaper of a general circulation once a week for 2 consecutive weeks;
5. Referral of rehabilitation plan to rehabilitation receiver;
6. Meetings between corporate debtor with creditors and discussions on the rehabilitation plan;
7. Submission of final rehabilitation plan to the RTC for approval;
8. The petition shall be dismissed (which results into the automatic lifting of the stay order unless RTC ordered otherwise) if no rehabilitation plan is approved after 180 days from initial hearing;
9. Approval or disapproval of the rehabilitation plan by the RTC.
What is the scope of the rules? (Rule 1, Sec. 2)
The rules apply to petitions for rehabilitation filed by corporations, partnerships and associations pursuant to PD 902-A, as amended.
How should the rules be construed? (Rule 2, Sec. 2) The rules are to be liberally construed in order to carry out the objectives of Sections 5(d) and 6(c) and (d) of PD 902-A, and to assist the parties in obtaining a just, expeditious and inexpensive determination of cases.
What is the nature of the proceedings under the rules?
(Rule 3)
The proceedings under the rules shall be in rem.
Jurisdiction over all those affected by the proceedings shall be considered as acquired upon publication of the notice of the commencement of the proceedings in a newspaper of a general circulation in the Philippines.
The proceedings shall also be summary and non-adversarial in nature. For example-
(a) motions to dismiss, for bills of particulars, for new trail or for reconsideration, among others, are prohibited (Rule 3,Sec. 1);
(b) the court may decide matters on the basis of affidavits and other documentary evidence ( Rule 3, Sec. 1);
(c) pleadings and documents may be filed with the court or served on the other parties, when so authorized by the court, by facsimile transmission (fax) or electronic mail (email) (Rule 3, Sec. 3);
(d) incase of voluminous pleading or document, the court may, motu proprio or upon motion, waive the requirement of service, provided that a copy thereof, together with all its attachments, is duly filed with the court and made available for examination and reproduction by any party, and provided, further that a notice of such filing and availability is duly served on the parties (Rule 3, Sec. 5); and
(e) any order issued by the court under the rules is immediately executory, and a petition for review or appeal therefrom shall not stay the execution of the order unless restrained or enjoined by the appellate court (Rule 3, Sec. 5).
Who may petition for rehabilitation? (Rule 4, Sec. 1) (a) any debtor who foresees the impossibility of meeting
its debts when they respectively fall due; or
(b) any creditor or creditors holding at least 25% of the debtor’s total liabilities.
Where should a petition for rehabilitation be filed?
(Rule 3 Sec. 2)
Petitions for rehabilitation shall be filed in the appropriate Regional Trial Court having jurisdiction over the territory where the debtor’s principal office is located.
Are the Rules of Court applicable to the proceedings?
(Rule 2, Sec. 2)
Yes, the Rules of Court, where appropriate, shall apply suppletorily to proceedings under the rules.
What are the contents of the petition filed by the debtor? (Rule 4, Sec. 2)
(a) name and business of the debtor;
(b) nature of debtor’s business;
(c) history of the debtor;
(d) cause of the debtor’s inability to pay its debts;
(e) all the pending actions or proceedings known to the debtor and the courts or tribunals where they are pending;
(f) threats or demands to enforce claims or liens against the debtor;
(g) the manner by which the debtor may be rehabilitated and how such rehabilitation may benefit the general body of creditors, employees and stockholders.
What should be attached to the petition filed by the debtor?(Rule 4, Sec.4)
(a) audited financial statements as of the end of the debtor’s last fiscal year;
(b) interim financial statements as of the end of the month prior to the filing of the petition;
(c) schedule of debts and liabilities;
(d) inventory of assets;
(e) rehabilitation plan;
(f) schedule of the debtor’s cash flow;
(g) affidavit of general financial condition;
(h) names of at least three nominees for the position of rehabilitation receiver, including their qualifications and contact information;
(i) certificate under oath attesting to the fact that (i) the filing has been duly authorized, and (ii) the directors and stockholders have irrevocably approved and/or consented to all actions or matters necessary and desirable to rehabilitate the debtor including, but not limited to, amendments to the articles of incorporation and by-laws (or articles of partnership);
increase or decrease in the authorized capital stock;
issuance of bonded indebtedness; alienation, transfer or encumbrance of assets of the debtor, and modification of shareholder’s rights.
What are the attachments to the petition filed by creditor(s)? (Rule 4 Sec. 4)
(a) rehabilitation plan;
(b) list of nominees to the position of rehabilitation receiver;
Under what circumstance could the petition be dismissed? (Rule 4, Sec. 11)
The petition shall be dismissed if no rehabilitation plan is approved by the court upon the lapse of 180 days from the date of initial hearing. The court may grant an extension beyond this period if it appears by convincing and compelling evidence that the debtor may be rehabilitated. In no instance, however, shall the period for approving or disapproving a rehabilitation plan exceed 18 months from the date of filing of the petition.
What are the contents of the order that the court shall issue if it finds the petition for rehabilitation to be sufficient in form and substance? (Rule 4, Sec. 6 and 11)
If the court finds the petition to be sufficient in form and substance, it shall, not later than 5 days from the filing of the petition issue an order which shall, among others:
(a) appoint a rehabilitation receiver and fix his bond;
(b) stay enforcement of all claims, whether for money or otherwise and whether such enforcement is by court action or otherwise, against the debtor, its guarantors and sureties not solidarily liable with the debtor;
(c) prohibit the debtor from selling, encumbering, transferring or disposing in any manner any of its properties except in the ordinary course of business;
(d) prohibit the debtor from making any payment of its outstanding liabilities as of the date of filing of the petition;
(e) prohibit the debtor’s suppliers of goods or services from withholding supply of goods or services in the ordinary course or business for as long as the debtor makes payments from the services and goods supplied after the issuance of the stay order;
(f) fix the initial hearing on the petition not earlier than 45 days but not later than 60 days from the filing thereof;
(g) direct the petitioner to publish the order in a newspaper of general circulation in the Philippines once a week for two consecutive weeks;
(h) direct all creditors and interested parties (including the SEC) to file and serve on the debtor a verified comment or opposition to the petition, with supporting affidavits and documents, not later than 10 days before the date of the initial hearing and putting them on notice that their failure to do so will bar them from participating in the proceedings.
For how long the stay holder to be effective?(Rule 4, Sec. 11)
The stay order shall be effective from the date of its issuance until the dismissal of the petition or termination of the rehabilitation proceedings.
Could the stay order be modified or terminated? Could conditions be set for its continuance? Could a claim be relieved from the coverage of the order?(Rule 4, Sec 12)
Yes, to all the questions. The court may, on motion or motu proprio, terminate, modify, or set conditions for the continuance of the stay order, or relieve a claim from the coverage thereof, upon showing that- (a) any of the allegations of the petition, or any of the contents of any attachment, or the verification thereof, has ceased to be true;
(b) a creditor does not have adequate protection over property securing its claim; or
(c) the debtor’s secured obligation is more than the fair market value of the property subject of the stay and such property is not necessary for the rehabilitation of the debtor.
What is the concept of adequate protection over property?(Rule 4, Sec 12)
A creditor does not have adequate protection over property securing its claim if it can be shown that- (a) the debtor fails or refuses to honor a pre-existing agreement with the creditor to keep the property insured;
(b) the debtor fails or refuses to take commercially reasonable steps to maintain the property; or
(c) the property has depreciated to the extent that the creditor is undersecured.
What are the contents of the rehabilitation plan? (Rule 4, Sec 5)
(a) the desired business targets or goal, and the duration and coverage of the rehabilitation;
(b) the terms and conditions of such rehabilitation;
(c) the material financial commitments to support the rehabilitation plan;
(d) the means for the execution of the rehabilitation plan, e.g. conversion of debts into equity, restructuring the debts, dacion en pago, sale of assets or controlling interest;
(e) liquidation analysis, i.e. an estimate of the proportion of the claims that the creditors and stockholders would receive if the debtor’s properties were liquidated;
(f) other relevant information to enable a reasonable investor to make an informed decision on the feasibility of the rehabilitation plan.
What is the power of the court to cram down a rehabilitation plan?(Rule 4, Sec. 23)
The power of the court to cram down a rehabilitation plan refers to its authority to approve a rehabilitation plan even over the opposition of the creditors holding a majority of the total liabilities of the debtor if, in its judgment, the rehabilitation of the debtor is feasible and the opposition of the creditors is manifestly unreasonable. In determining whether or not the opposition of the creditor is manifestly unreasonable, the court shall consider the following:
(a) the plan would likely provide the objecting class of the creditors with compensation greater than that which they would have received if the assets of the debtor were sold by the liquidator within a three-month period;
(b) that the shareholders or owners of the debtor lost at least their controlling interest as a result of the plan;
and
(c) that the rehabilitation receiver has recommended approval of the plan.
What is the effect of the approval of the court of the rehabilitation plan on the debtor and creditors?(Rule 4, Sec. 24)
The approval of the rehabilitation plan by the court shall result, among other effects, in the said plan and its provisions being binding upon the debtor and all the persons who may be affected by it, including the creditors, whether or not such persons have participated in the proceedings or opposed the plan or whether or not their claims have been scheduled.
What is the primary task of the rehabilitation receiver?
Does he take over the management and control of the debtor? (Rule 4, Sec 14)
The rehabilitation receiver implements the rehabilitation plan after its approval by the court. His primary task is to study the best way to rehabilitate the debtor and to ensure that the value of the debtor’s property is reasonably maintained pending the determination of whether or not the debtor should be rehabilitated.
He does not take over the management and control of the debtor but simply oversees and monitors closely the operations of the debtor during the pendency of the proceedings. This reflects the concept of debtor-in-place. For this purpose, he has been granted the powers, duties and functions of a receiver under PD 1402-A, as amended, and the Rules of Court.
RULE I
GENERAL PROVISIONS
SECTION 1. (a) Cases covered. - These Rules shall govern the procedure to be observed in civil cases involving the following:
(1) Devices or schemes employed by, or any act of, the board of directors, business associates, officers or partners, amounting to fraud or misrepresentation which may be detrimental to the interest of the public and/or of the stockholders, partners, or members of any corporation, partnership, or association;
(2) Controversies arising out of intra-corporate, partnership, or association relations, between and among stockholders, members, or associates; and between, any or all of them and the corporation, partnership, or association of which they are stockholders, members, or associates, respectively;
(3) Controversies in the election or appointment of directors, trustees, officers, or managers of corporations, partnerships, or associations;
(4) Derivative suits; and
(5) Inspection of corporate books.
(b) Prohibition against nuisance and harassment suits.
- Nuisance and harassment suits are prohibited. In determining whether a suit is a nuisance or harassment suit, the court shall consider, among others, the following:
(1) The extent of the shareholding or interest of the initiating stockholder or member;
(2) Subject matter of the suit;
(3) Legal and factual basis of the complaint;
(4) Availability of appraisal rights for the act or acts complained of; and
(5) Prejudice or damage to the corporation, partnership, or association in relation to the relief sought.
In case of nuisance or harassment suits, the court may, motu proprio or upon motion, forthwith dismiss the case.
SEC. 2. Suppletory application of the Rules of Court. - The Rules of Court, in so far as they may be applicable and are not inconsistent with these Rules, are hereby adopted to form an integral part of these Rules.
SEC. 3. Construction. - These Rules shall be liberally construed in order to promote their objective of securing a just, summary, speedy and inexpensive determination of every action or proceeding.
SEC. 4. Executory nature of decisions and orders. - All decisions and orders issued under these Rules shall immediately be executory. No appeal or petition taken therefrom shall stay the enforcement or implementation of the decision or order, unless restrained by an appellate court. Interlocutory orders shall not be subject to appeal.
SEC. 5. Venue. - All actions covered by these Rules shall be commenced and tried in the Regional Trial Court which has jurisdiction over the principal office of the corporation, partnership, or association concerned.
Where the principal office of the corporation, partnership or association is registered in the Securities and Exchange Commission as Metro Manila, the action must be filed in the city or municipality where the head office is located.
SEC. 6. Service of pleadings. - When so authorized by the court, any pleading and/or document required by these Rules may be filed with the court and/or served upon the other parties by facsimile transmission (fax) or electronic mail (e-mail). In such cases, the date of transmission shall be deemed to be prima facie the date of service.
SEC. 7. Signing of pleadings, motions and other papers. - Every pleading, motion, and other paper of a party represented by an attorney shall be signed by at least one attorney of record in the attorney’s individual name, whose address shall be stated. A party who is not represented by an attorney shall sign the pleading, motion, or other paper and state his address.
The signature of an attorney or party constitutes a certification by the signer that he has read the pleading, motion, or other paper; that to the best of his knowledge, information, and belief formed after reasonable inquiry, it is well grounded in fact and is warranted by existing law or a good faith argument for the extension, modification, or reversal of existing jurisprudence; and that it is not interposed for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation.
If a pleading, motion, or other paper is not signed, it shall be stricken off the record unless it is promptly signed by the pleader or movant, after he is notified of the omission.
SEC. 8. Prohibited pleadings. - The following pleadings are prohibited:
(1) Motion to dismiss;
(2) Motion for a bill of particulars;
(3) Motion for new trial, or for reconsideration of judgment or order, or for re-opening of trial;
(4) Motion for extension of time to file pleadings, affidavits or any other paper, except those filed due to clearly compelling reasons. Such motion must be verified and under oath; and
(5) Motion for postponement and other motions of similar intent, except those filed due to clearly compelling reasons. Such motion must be verified and under oath.
SEC. 9. Assignment of cases. - All cases filed under Proposed Interim Rules Of Procedure
Governing Intra-Corporate Controversies Under R.A. No. 8799
A.M. No. 01-2-04-SC (Effective April 1, 2001)
these Rules shall be tried by judges designated by the Supreme Court to hear and decide cases transferred from the Securities and Exchange Commission to the Regional Trial Courts and filed directly with said courts pursuant to Republic Act No. 8799, otherwise known as the Securities and Regulation Code.
RULE 2
COMMENCEMENT OF ACTION