Rehabilitation, suspension of actions for claims against corporations

The law on rehabilitation and suspension of actions for claims against corporations is Presidential Decree (PD) 902-A, as amended. In January 2004, Republic Act No. 8799 (RA 8799), otherwise known as the Securities Regulation Code, amended Section 5 of PD 902-A, and transferred to the Regional Trial Courts (RTCs) the jurisdiction of the Securities and Exchange Commission (SEC) over petitions of corporations, partnerships or associations to be declared in the state of suspension of payments in cases where the corporation, partnership or association possesses property to cover all its debts but foresees the impossibility of meeting them when they respectively fall due OR in cases where the corporation, partnership or association has no sufficient assets to cover its liabilities, but is under the management of a rehabilitation receiver or a management committee.

In the meantime, on December 15, 2000, the Supreme Court promulgated A.M. No. 00-8-10-SC, or the Interim Rules of Procedure on Corporate Rehabilitation, which applies to petitions for rehabilitation filed by corporations, partnerships and associations pursuant to PD 902-A, and which was declared applicable in the case of De La Torre v. Primetown (G.R. No. 221932, February 14, 2018).

Corporate rehabilitation contemplates a continuance of corporate life and activities in an effort to restore and reinstate the corporation to its former position of successful operation and solvency, the purpose being to enable the company to gain a new lease on life and allow its creditors to be paid their claims out of its earnings.[1] An essential function of corporate rehabilitation is the Stay Order which is a mechanism of suspension of all actions and claims against the distressed corporation upon the due appointment of a management committee or rehabilitation receiver.[2]Rule 4, Section 6 of the Interim Rules states:
Sec. 6. Stay Order. - If the court finds the petition to be sufficient in form and substance, it shall, not later than five (5) days from the filing of the petition, issue an Order (a) appointing a Rehabilitation Receiver and fixing his bond; (b) staying 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 solidarity liable with the debtor; (c) prohibiting the debtor from selling, encumbering, transferring, or disposing in any manner any of its properties except in the ordinary course of business; (d) prohibiting the debtor from making any payment of its liabilities outstanding as at the date of filing of the petition; (e) prohibiting the debtor's suppliers of goods or services from withholding supply of goods and services in the ordinary course of business for as long as the debtor makes payments for the services and goods supplied after the issuance of the stay order; (f) directing the payment in full of all administrative expenses incurred after the issuance of the stay order; (g) fixing the initial hearing on the petition not earlier than forty five (45) days but not later than sixty (60) days from the filing thereof; (h) directing the petitioner to publish the Order in a newspaper of general of general circulation in the Philippines once a week for two (2) consecutive weeks; (i) directing all creditors and all interested parties (including the Securities and Exchange Commission) to file and serve on the debtor a verified comment on or opposition to the petition, with supporting affidavits and documents, not later than ten (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; and (j) directing the creditors and interested parties to secure from the court copies of the petition and its annexes within such time as to enable themselves to file their comment on or opposition to the petition and to prepare for the initial hearing of the petition.
Under the above-quoted Section, it is provided that if the RTC finds the petition to be sufficient in form and substance, it shall issue, not later than five (5) days from the filing of the petition, an Order as follows:
(a) APPOINTMENT. Appointing a Rehabilitation Receiver and fixing his bond;

(b) STAY ORDER. Staying 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 solidarity liable with the debtor;

(c) FREEZE ORDER. Prohibiting the debtor from selling, encumbering, transferring, or disposing in any manner any of its properties except in the ordinary course of business;

(d) STOP PAYMENT. Prohibiting the debtor from making any payment of its liabilities outstanding as at the date of filing of the petition; x x x.
In addition, it is also stated under the same Section that all creditors and all interested parties are directed to file and serve on the debtor a verified comment on or opposition to the petition not later than ten (10) days before the date of the initial hearing and their failure to do so will bar them from participating in the proceedings.

[1] Town and Country Enterprises, Inc. v. Hon. Quisumbing, Jr., et al., supra, at 12-13, citing Castillo v. Uniwide Warehouse Club, Inc., 634 Phil. 41, 49 (2010).

[2] Veterans Philippine Scout Security Agency, Inc. vs. First Dominion Prime Holdings, Inc., 693 Phil. 336, 346 (2012).

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