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Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.
AT A GLANCE:
Yes. An insolvent debtor may initiate voluntary rehabilitation proceedings if the same is approved by a majority vote of the board of directors or trustees and authorized by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock, or in case of nonstock corporation, by the vote of at least two-thirds (2/3) of the members, in a stockholder’s or member’s meeting duly called for the purpose.
(Section 12 of Financial Rehabilitation and Insolvency Act (FRIA) of 2010)
The law says –
It is the policy of the State to encourage debtors, both juridical and natural persons, and their creditors to collectively and realistically resolve and adjust competing claims and property rights. In furtherance thereof, the State shall ensure a timely, fair, transparent, effective and efficient rehabilitation or liquidation of debtors. The rehabilitation or liquidation shall be made with a view to ensure or maintain certainty and predictability in commercial affairs, preserve and maximize the value of the assets of these debtors, recognize creditor rights and respect priority of claims, and ensure equitable treatment of creditors who are similarly situated. When rehabilitation is not feasible, it is in the interest of the State to facilitate a speedy and orderly liquidation of these debtors’ assets and the settlement of their obligations. (Section 2 of Financial Rehabilitation and Insolvency Act (FRIA) of 2010)
Jurisprudence says –
Rehabilitation is “the restoration of the debtor to a condition of successful operation and solvency, if it is shown that its continuance of operation is economically feasible and its creditors can recover by way of the present value of payments projected in the plan, more if the debtor continues as a going concern than if it is immediately liquidated.” Rehabilitation proceedings are in rem in nature. and conducted in a summary and non-adversarial manner. Due to its commercial nature, rehabilitation proceedings must be resolved expeditiously for the benefit of all the parties concerned and the economy in general.||| (City Government of Taguig v. Shoppers Paradise Realty Development Corp., G.R. No. 246179, [July 14, 2021])
In case of Court-supervised Rehabilitation, shareholder approval is required to commence such proceedings. When approved by the owner in case of a sole proprietorship, or by a majority of the partners in case of a partnership, or, in case of a corporation, by a majority vote of the board of directors or trustees and authorized by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock, or in case of nonstock corporation, by the vote of at least two-thirds (2/3) of the members, in a stockholder’s or member’s meeting duly called for the purpose, an insolvent debtor may initiate voluntary proceedings by filing a petition for rehabilitation with the court and on the grounds hereinafter specifically provided.
Shareholder approval is also required to commence voluntary liquidation proceedings. The filing of the petition should be approved by stockholders representing at least two-thirds (2/3) of the outstanding capital stock, or in case of nonstock corporation, by the vote of at least two-thirds (2/3) of the members.(Section 12, FRIA) But in case of Pre Negotiated Rehabilitation and Out-of-Court Restructuring Agreements, shareholder approval is not applicable.
Read also: Saving a Corporation through Corporate Rehabilitation Proceedings
Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries regarding taxation and taxpayer’s remedies, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.
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