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AT A GLANCE:
The cram down effect provides that the court may approve a rehabilitation plan over the opposition of 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. (Section 23, Rule 4, Interim Rules of Procedure on Corporate Rehabilitation)
The “cram-down” power of the Rehabilitation Court has long been established and even codified under Section 23, Rule 4 of the Interim Rules, to wit:
Section 23. Approval of the Rehabilitation Plan. — The court may approve a rehabilitation plan over the opposition of 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.
Such prerogative was carried over in the Rehabilitation Rules, which maintains that the court may approve a rehabilitation plan over the objection of the creditors if, in its judgment, the rehabilitation of the debtors is feasible and the opposition of the creditors is manifestly unreasonable. The required number of creditors opposing such plan under the Interim Rules (i.e., those holding the majority of the total liabilities of the debtor) was, in fact, removed. Moreover, the criteria for manifest unreasonableness is spelled out, to wit:
SEC. 11. Approval of Rehabilitation Plan. — The court may approve a rehabilitation plan even over the opposition of creditors of the debtor if, in its judgment, the rehabilitation of the debtor is feasible and the opposition of the creditors is manifestly unreasonable. The opposition of the creditors is manifestly unreasonable if the following are present:
(a) The rehabilitation plan complies with the requirements specified in Section 18 of Rule 3; (b) The rehabilitation plan would provide the objecting class of creditors with payments whose present value projected in the plan would be greater than that which they would have received if the assets of the debtor were sold by a liquidator within a six (6)-month period from the date of filing of the petition; and
(c) The rehabilitation receiver has recommended approval of the plan.
In approving the rehabilitation plan, the court shall ensure that the rights of the secured creditors are not impaired. The court shall also issue the necessary orders or processes for its immediate and successful implementation. It may impose such terms, conditions, or restrictions as the effective implementation and monitoring thereof may reasonably require, or for the protection and preservation of the interests of the creditors should the plan fail.
This legal precept is not novel and has, in fact, been reinforced in recent decisions such as in Bank of the Philippine Islands v. Sarabia Manor Hotel Corporation, where the Court elucidated the rationale behind Section 23, Rule 4 of the Interim Rules, thus: SCADIT
Among other rules that foster the foregoing policies, Section 23, Rule 4 of the Interim Rules of Procedure on Corporate Rehabilitation (Interim Rules) states that a rehabilitation plan may be approved even over the opposition of the creditors holding a majority of the corporation’s total liabilities if there is a showing that rehabilitation is feasible and the opposition of the creditors is manifestly unreasonable. Also known as the “cram-down” clause, this provision, which is currently incorporated in the FRIA, is necessary to curb the majority creditors’ natural tendency to dictate their own terms and conditions to the rehabilitation, absent due regard to the greater long-term benefit of all stakeholders. Otherwise stated, it forces the creditors to accept the terms and conditions of the rehabilitation plan, preferring long-term viability over immediate but incomplete recovery.
as well as in Pryce Corporation v. China Banking Corporation, to wit:
In any case, the Interim Rules or the rules in effect at the time the petition for corporate rehabilitation was filed in 2004 adopts the cram-down principle which “consists of two things: (i) approval despite opposition and (ii) binding effect of the approved plan . . . . “
First, the Interim Rules allows the rehabilitation court to “approve a rehabilitation plan even over the opposition of 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.”
Second, it also provides that upon approval by the court, the rehabilitation plan and its provisions “shall be binding upon the debtor and all 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.”
Thus, the January 17, 2005 order approving the amended rehabilitation plan, now final and executory resulting from the resolution of BPI v. Pryce Corporation docketed as G.R. No. 180316, binds all creditors including respondent China Banking Corporation.
(Victorio-Aquino v. Pacific Plans, Inc., G.R. No. 193108, [December 10, 2014], 749 PHIL 790-822)
Read also: Is shareholder approval needed to commence rehabilitation proceedings?
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