The first option  is, of course, to secure other sources of funding to cover the financial requirements of the business. Being in a financial distress isn't necessarily bad, as certain managers even adhere to the principle of operating under perpetual crisis. Successful and big corporations also have debts, which shows that the existence of debt isn't necessarily a bad sign. Still, there are certain instances when a business entity couldn't simply cope with its liabilities and must seek more drastic remedies, including the following: 

 

1. Suspension of payments. This remedy is available to debtors who possesses sufficient property to cover all its debts but foresees the impossibility of meeting them when they respectively fall due. In addition, for corporations, partnerships and associations, it is also a remedy if it has no sufficient assets to cover its liabilities, but is under the management of a Rehabilitation Receiver or Management Committee created pursuant to PD 902-A. The purpose of suspension of payments is to suspend or stop the payment of debts in order for the debtor to convert some of its properties to cash and pay the creditors.

2. Corporate rehabilitation. As previously noted, this is similar to Chapter 11 reorganization in the U.S., and is intended to enable a distressed corporation to gain a new lease on life, so to speak, and to continue its business as a going concern. 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. Corporate rehabilitation is distinct and separate from insolvency, and is obviously not available to natural persons (as opposed to "juridical persons" like corporations and partnerships).

3. Insolvency. The debtor doesn't have enough assets to cover his liabilities in insolvency. The purpose of insolvency proceedings, which could either be voluntary (initiated by the debtor) or involuntary (initiated by the creditors), is to bring together all debts and properties in a single proceeding, and determining the portion to which each creditor is entitled. Since insolvency presupposes that properties are lesser than the debts, not all creditors could receive the entire amount of the debt. In fact, it's entirely possible that some creditors may be paid in full, while others will receive nothing, after applying the rules on concurrence and preference of credits. Another purpose of insolvency proceedings is to give the debtor a fresh start, to be discharged from his debts and to start his economic life anew. There are, of course, exceptions and nuances, all of which will be discussed in subsequent posts.

In all three options, the appropriate petition must be filed with the proper court, and the petition could be filed by the debtor or the creditors in certain instances. Each of these options -- suspension of payments, corporate rehabilitation, and insolvency -- will be discussed in subsequent posts.