Philippines

Screenshot 2020-09-08 at 3.20.00 PMBy Zyra G Montefolca, ACCRA Law

 

In light of the implementation of various community quarantine measures brought about by the COVID-19 pandemic, many business establishments were either prevented from operating or permitted with limited operational capacity. As a result, many entrepreneurs incurred significant financial losses. Due to the uncertainty of the resolution of the pandemic, and to thwart further losses, many businesses were constrained to cease their operation and finally close.

However, it is worthy to note that the law provides for a remedy other than business closure. Republic Act No. 10142, otherwise known as the Financial Rehabilitation and Insolvency Act of 2010, (FRIA) aims to encourage distressed business enterprises, including sole proprietorships, partnerships and corporations, as well as individual debtors, to undergo rehabilitation. The FRIA, however, is not applicable to banks or quasi-banks, insurance companies, and pre-need companies, which are governed by different laws and regulations.

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 (Wonder Book Corporation v. Philippine Bank of Communication, G.R. No. 187316, 2012)

Rehabilitation may be (a) court-supervised, which may either be voluntary, if initiated by the debtor, or involuntary, if initiated by the creditor, (b) by way of a pre-negotiated rehabilitation plan, or (c) through out-of-court or informal proceedings.

Court-supervised rehabilitation

If the business is insolvent and is unable to pay its obligations as they become due, an insolvent debtor may voluntarily initiate a court-supervised rehabilitation proceeding by filing a petition with the court.

The persons who can initiate the petition depends on the type of business organisation – it shall be the owner in case of a sole proprietorship, a majority of the partners in case of a partnership, or a majority vote of the board of directors or trustees and authorised by at least two-thirds (2/3) vote of the outstanding capital stock, in stock corporations, or of the members, in case of non-stock corporation.

On the other hand, involuntary court-supervised rehabilitation may be initiated by any creditor or group of creditors with a claim of, or the aggregate of whose claims is, at least PhP1,000,000.00 (c.US$20,394) or at least 25 percent of the subscribed capital stock or partners’ contributions, whichever is higher, by filing a petition with the court.

Involuntary court-supervised rehabilitation may be initiated if: (a) there is no genuine issue of fact or law on the claims of the petitioner, and that the due and demandable payments thereon have not been made for at least sixty (60) days or that the debtor has failed generally to meet its liabilities as they fall due; or (b) a creditor, other than the petitioner, has initiated foreclosure proceedings against the debtor that will prevent the debtor from paying its debts as they become due or will render it insolvent.

In both instances, a Rehabilitation Plan must be attached to the petition. This refers to a plan by which the financial well-being and viability of an insolvent debtor can be restored through various means, including, but not limited to, debt forgiveness, debt rescheduling, reorganisation or quasi-reorganisation, dacion en pago, debt-equity conversion and sale of the business (or parts of it) as a going concern, or setting-up of new business entity, or other similar arrangements as may be approved by the court or creditors.

Pre-negotiated rehabilitation

In pre-negotiated rehabilitation, an insolvent debtor by itself, or jointly with any of its creditors, may file a verified petition with the court for the approval of the pre-negotiated Rehabilitation Plan.

The pre-negotiated rehabilitation plan must have been endorsed or approved by creditors holding at least two-thirds (2/3) of the total liabilities of the debtor, including secured creditors holding more than fifty percent (50 percent) of the total secured claims of the debtor and unsecured creditors holding more than fifty percent (50 percent) of the total unsecured claims of the debtor.

Informal restructuring agreement

Lastly, an out-of-court or informal restructuring agreement and rehabilitation plan must meet the following minimum requirements to qualify: (a) the debtor must agree to it; (b) it must be approved by creditors representing at least sixty-seven (67 percent) of the secured obligations of the debtor; (c) it must be approved by creditors representing at least seventy-five percent (75 percent) of the unsecured obligations of the debtor; and (d) it must be approved by creditors holding at least eighty-five percent (85 percent) of the total liabilities, secured and unsecured, of the debtor.

Only when rehabilitation is no longer feasible, despite the appointment of a rehabilitation receiver and a rehabilitation committee, can liquidation of the debtor’s assets and the settlement of its obligations ensue as a matter of course.

Given the foregoing remedies for rehabilitation, distressed enterprises need not immediately resort to closure.  Through rehabilitation, there might be a possibility for a losing business to gain a new lease on life.

______________________________

This article, which first appeared in Business World (a newspaper of general circulation in the Philippines), is for general informational and educational purposes only and not offered as, and does not constitute, legal advice or legal opinion.
Zyra G. Montefolca is an Associate of the Davao Branch of the Angara Abello Concepcion Regala & Cruz Law Offices (ACCRALAW). She may be contacted through zgmontefolca@accralaw.com or (63) 2 8830 0000.

______________________________

ACCRALAW LOGO

W: www.accralaw.com

E: zgmontefolca@accralaw.com
T: (63) 2 8830 8000

 

Related Articles by Firm
Fine prints
Rights-holders must always be vigilant, exercise caution and, most of all, read and question the fine prints.
Travel restrictions, work permit and visa status of expats in the Philippines
While the coronavirus disease (Covid-19) knows no nationality or race, most countries have taken the approach, among others, of closing their respective borders to prevent it from spreading ...
Philippines: Pandemics, police power and private contracts
With the worsening coronavirus outbreak, President Rodrigo Duterte has shifted gears ...
Philippines: Coping with Covid-19
While Covid-19 is primarily a health issue, it cannot be denied that it has multi-faceted effects ...
Philippines: Work suspension during calamities
On January 12, 2020, the Taal volcano in the Philippines began erupting, causing numerous cities to experience ash fall and necessitating the evacuation of families living nearby ...
Philippines: Changing times for PEZA locators
The Philippines enticed into investors into its special economic zones with tax incentives, such as income tax holidays (ITH) or 5 percent gross income taxation (GIT), VAT zero-rated purchases and duty-free importations ...
The 2019 HCCH Judgments Convention and the enforcement of foreign judgments in the Philippines
In a world where cross-border transactions are commonplace, disputes inevitably arise. Thus, the recognition and enforcement of foreign court decisions is a key issue ...
Compulsory investment of branch offices in the Philippines
The Revised Corporation Code introduced amendments to the otherwise outdated Corporation Code.
Philippines: The POGO problem – Harmonising immigration, gaming and gambling
It is highly illegal to gamble in China save for a few state-run lotteries. To avoid this prohibition, gambling companies operate offshore so that they may continue catering to Chinese nationals who play casino and e-games online ...
Developments in the Philippine Competition Commission’s enforcement activities
Early this year, the Philippine Competition Commission (PCC) Enforcement Office launched a leniency/whistleblower programme offering immunity from suit and reduction of fines to cartel members who will provide information that will help the PCC investigate and prosecute cartels ...
Revisiting the AMLA in light of transnational money laundering
For several decades, money laundering has extended the reach of transnational organised crime throughout various nations ...
Revisiting important concepts in arbitration
Philippine courts are keen on making arbitration and other modes of ADR the staple in settling disputes domestically.
Keeping your mobile number for a lifetime
A new law facilitates the easy movement of subscribers from one service provider to another.
The right to know: Freedom of information in the Supreme Court
Like all other rights, the “right to know” is not an absolute right.
The Philippines 11th Foreign Investment Negative List and its impact on online businesses
A more liberalised foreign participation may change the internet-based business landscape in the Philippines ...
The Philippine Competition Commission bares its teeth
For the first time since its inception in 2015, the Commission has blocked a merger after conducting its review.
A peek into the revised Corporation Code of the Philippines
On February 20, 2019, President Rodrigo Duterte signed into law Republic Act No. 11232, otherwise known as the Revised Corporation Code of the Philippines (the New Code) ...
Philippines: Protecting indigenous knowledge systems and practices in intellectual property rights registration
Indigenous peoples (IPs) and indigenous cultural communities (ICCs), though explicitly protected under the constitution itself, sadly remain one of the most marginalised and forgotten sectors in Philippine society ...
Philippines: The right to know – Freedom of information in the Supreme Court
Freedom of Information is a right enshrined in our fundamental law ...
Investments for the environment
In a recent report released by the leading international body for assessment of climate change, the UN Intergovernmental Panel on Climate Change (UN IPCC), established a target global warming limit of 1.5°C ...
The PCC’s Joint Venture Guidelines
The Philippine Competition Commission must strive to strike a balance ...
How the Mental Health Act affects employees
Mental health conditions, which include anxiety and panic disorders, depression, eating disorders, substance abuse and addictions, have become a pervasive issue which permeates our present society ...
The Ease of Doing Business Act tapers red tape
RA 11032 is a welcome step towards achieving the quality government services that Filipinos deserve.
Much EndO about nothing
President Duterte says he has put an end to the “Endo” or the practice of engaging employees on a contractual basis. But has he?
Philippines: Proposed rules and regulations on crowdfunding
Crowdfunding (CF) platforms have proven to be a popular way to solicit charitable donations and to raise funds for projects or business ventures ...
Virtual currency in the Philippines: Recognition and regulation
Bitcoin is essentially a virtual currency (VC), which is any type of digital unit that is used as a medium of exchange — a veritable currency that exists in the digital world. Since it is electronic currency, VC is easily transferable ...
Protection of women employees in the Philippines
According to the World Economic Forum’s Global Gender Gap (GGG) Report conducted in 2016, the Philippines is the most gender-equal country in the Asia-Pacific region, having closed nearly 79 percent of its gender gap ...
Anti-Trust & Competition: Philippines - Towards robust yet balanced competition in the Philippines
The state of Philippine competition regulation has been slowly taking shape barely over two years after the passage of the Philippine Competition Act (RA 10667) ...
PHILIPPINES: The internet and doing business in the Philippines
Earlier this year, the Philippines Securities and Exchange Commission (SEC) issued an opinion stating that an online gaming system with absolutely no physical presence in the Philippines shall be considered as “doing business” in the Philippines and was thus required ...
Philippines: Psychological disorders in the workplace
The problem of mental health presents a particular conundrum under labour relations and standards ...
Clarifying the role of contractors and subcontractors
Recent changes to labour laws in the Philippines attempt to clarify the status of contractors and subcontractors in certain industries ...
Fake news and its web of legal issues in the post-truth era
Oxford Dictionaries’ Word of the Year for 2016 is “post-truth” — an adjective defined as “relating to or denoting circumstances in which objective facts are less influential in shaping public opinion than appeals to emotion and personal belief”. ...
Dollar-denominated securities in relation to Corporation Code’s provisions on capital
The Philippines Stock Exchange (PSE) issued rules on December 2, 2016 governing the listing, trading and settlement of US dollar-denominated securities (DDS)....
Cyber bullying in the Philippines
The pen is mightier than the sword or so the adage goes. When this was once said, it was to highlight the power of thoughts and ideas over brute force and violence as a way to effect change. Today, the ...
Uber/GrabCar drivers: Independent contractors or employees?
The buzz about the legality of Uber and GrabCar operating in the Philippines might have died down, but now there is another legal issue surrounding them: whether their drivers are employees or ...
Price fixing in the context of the Philippine Competition Act
In light of the enactment of the Philippine Competition Act (PCA) in 2015, competitors, manufacturers, retailers and sellers or suppliers, in general, should be ...
Implementation of the data privacy act in Philippines now in full swing
Since 2012, the Philippines has had a comprehensive law governing personal data privacy. However, full implementation ...
Taxability of service fees received by non-resident foreign companies from online advertising in the Philippines
The use of the internet for the promotion of goods and services, particularly social media (Facebook, Twitter and ...
Levelling the playing field in the Philippines
Before the enactment of the Philippine Competition Act in 2015, the Philippines was the only founding member of Asean that did not have a comprehensive competition law in place. Francisco Ed Lim, Patricia-Ann T Prodigalidad, Eric R Recalde of <...
Age discrimination in the workplace
Republic Act No. 10911 (also known as the ‘Anti-Age Discrimination in Employment Act’) lapsed into law on 21 July ...
Green jobs: greening the Philippine labour sector
With the threat of climate change, the international community created the Paris Agreement which aims to stop global warming and preserve ...
Interplay of domestic law on compulsory licensing and international agreements on medicine prices
The price of pharmaceutical products in the Philippines appears to be on the high side compared to that in other Asian ...
Restrictive covenants in employment contracts
One of the means of keeping afloat in today’s competitive market is to hire employees who are ‘fit’ for a particular job. However, before employers ...
Make our system work: litigation practice expedited
The perception that litigation is a slow and arduous process has drawn many of us closer to the idea of alternative modes of dispute resolution. ...
Department of Labor and Employment (DOLE) Department Order No. 18-A: The Rules and Regulations on Contracting
On December 4, 2011, Department of Labor and Employment (DOLE) Department Order No. 18-A (D.O. 18-A), the new Rules Implementing Articles 106 to 109 ...
An overview of Philippine Data Privacy Law
Republic Act No. 10173, or the Philippine Data Privacy Act of 2012 (RA10173), was signed into law on August 15, 2012. This is the ...
New competition law for the Philippines
The Philippine Competition Act (PCA) went into effect on August 5, 2015. The law applies not only to acts committed in the Philippines but ...
Related Articles
New regulation on the prohibition of sales of alcoholic beverages online
In line with evolving trends in technology, certain entrepreneurs and retailers have started using online channels to sell alcoholic beverages, which makes it difficult to ensure the sale of such beverages is in accordance with existing laws ...
Dubai Family Ownership of Common Property Law
The Law also aims to provide a legal framework for maintaining continuity of family ownership and avoiding division of businesses amongst family members ...
"You can’t manage what you don’t measure"
….so said a General Counsel in a recent discussion we had about the use of data in their legal department.
Related Articles by Jurisdiction
Compulsory investment of branch offices in the Philippines
The Revised Corporation Code introduced amendments to the otherwise outdated Corporation Code.
An overview of Philippine Data Privacy Law
Republic Act No. 10173, or the Philippine Data Privacy Act of 2012 (RA10173), was signed into law on August 15, 2012. This is the ...
Anti-Trust & Competition Special Report
Keeping Hong Kong competitive Rose Webb, chief executive officer of the Competition Commission of Hong Kong, talks about the city’s new Competition Ordinance.
Recent examples of consent decrees in Korea and their implications
Latest Articles
New regulation on the prohibition of sales of alcoholic beverages online
In line with evolving trends in technology, certain entrepreneurs and retailers have started using online channels to sell alcoholic beverages, which makes it difficult to ensure the sale of such beverages is in accordance with existing laws ...