Corporate rehabilitation, which is similar to Chapter 11 reorganization in the United States of America, is distinct and separate from insolvency. Rehabilitation 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. On the other hand, insolvency is intended to close and liquidate an insolvent corporation (please note that insolvency is also available to individuals or natural persons, while rehabilitation is available only to corporations, partnerships and associations).

 

With the increased media coverage these past months regarding businesses undergoing corporate rehabilitation (e.g., College Assurance Plan [CAP] and Pacific Plans, Inc. [PPI]), even the general public has started asking questions regarding this legal option that is available to distressed corporations.

 

Governing laws/Jurisdiction. - Jurisdiction over petitions for corporate rehabilitation WAS vested in the Securities and  Exchange Commission (SEC) under Presidential Decree (”P.D.”) No. 902-A, as amended by P.D. 1758 and P.D. 1799. While Republic Act No. 8799 transferred this jurisdiction to regular courts, P.D. 902-A remains to be the governing law on corporate rehabilitations. The Interim Rules of Procedure on Corporate Rehabilitation is, of course, the applicable set of rules.

Issuance of “Stay Order”. - If the court is convinced that the petition is sufficient in form and substance, it will issue a Stay Order, which shall include, among other things, the appointment of a Receiver and the suspension of ALL pending claims against the corporation under rehabilitation.

Thrust of rehabilation. - 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. It is entirely different from insolvency or liquidation, although the rehabilitation receiver, in a worst-case scenario, could very well recommend a liquidation if the rehabilitation plan is not working. Click here for more discussion.