Sen. Edgardo Angara said yesterday that there is a need to improve insolvency procedures in the country in order to ensure an effective debt recovery process in the wake of financial woes in the United States.
The lawmaker said the absence of an effective and orderly insolvency procedure can aggravate economic and financial crises.
“Without effective procedures that are applied in a consistent manner, creditors may be unable to collect on their claims, which will adversely affect the future availability of credit,” said Angara, who chairs the Senate committee on banks, financial institutions and currencies.
Last week, US insurer American International Group (AIG) revealed that it was facing liquidity problems while investment bank Lehman Brothers also filed for bankruptcy. Its rival Merrill Lynch & Co. agreed to be taken over by the Bank of America, also due to financial problems. These developments shook equities markets worldwide and has sent investors across the globe jittery.
Angara said that without orderly procedures, the rights of the debtors may not be adequately protected and different creditors may not be treated equitably.
He also said that the consistent application of orderly and effective insolvency procedures plays a critical role in fostering growth and competitiveness. It may also assist in the prevention and resolution of financial crises.
In 2000, the Securities Regulation Code transferred jurisdiction over petitions for suspension of payments and rehabilitation for corporations and partnerships from the SEC to the regular courts. Thereafter, the Supreme Court has released the rules of procedure for rehabilitation proceedings.
Angara said these outdated and long proceedings only worsen the problem.
“There were cases when the proceedings drag on to the extent of seriously threatening the survival of the subject companies,” Angara said.
As such, Angara filed Senate Bill 61 or the Corporate Recovery and Insolvency Act which aims to provide a clear framework for the insolvency proceedings for companies who are undergoing financial restructuring or rehabilitation or those unable to pay its liabilities or has liabilities greater than its assets.
“It will maximize the chances of survival of the ailing company through fast-track rehabilitation, court-supervised rehabilitation, pre-negotiated rehabilitation and dissolution-liquidation,” Angara said.