PSE welcomes Supreme Court okay of corporate rehab rules

The Philippine Stock Exchange has welcomed the approval by the Supreme Court of the 2008 Rules of Procedure on Corporate Rehabilitation which will maximize the chances of survival of a financially-distressed company.

The new rules, which will take effect on Jan. 16, 2009, seek to improve and expedite court procedures for petitions for rehabilitation or reorganization of corporations, partnerships and associations with the aim of helping debtors recover from financial difficulties while at the same time attempting to ensure fair treatment of creditors.

“The passage of the new rules is perfectly timed as some of our companies may encounter financial difficulties as a result of the ongoing global recession. It is therefore important that our bankruptcy system is ready to help our companies get back on their feet if they find themselves in such a situation,” said PSE president Francis Lim in a statement.

Lim said the new rules will replace the Insolvency Act of 1909 and apply to companies unable to pay their liabilities.

One of the salient features of the Corporate Recovery is a new rule governing pre-negotiated rehabilitation plans. Under the rule, if the plan is approved by creditors holding at least two-thirds of the total liabilities of the debtor, including secured creditors holding more than 50 percent of the total secured claims and unsecured creditors holding more than 50 percent of the unsecured claims, both parties can go to court for approval of the plan.

The court is then given a maximum of 120 calendar days from the date of filing of the petition to make a decision on the petition. If the court fails to do so within the required period, the rehabilitation plan shall be deemed approved,” Lim said.

As far as ordinary petitions for rehabilitation are concerned, the new rules give the court a maximum period of one year to approve or disapprove the petition. The new deadline is intended to avoid delay in the disposition of rehabilitation cases, which has proven detrimental to the interest of both the debtor and its creditors.

Another major improvement is the recognition of foreign re-organization or rehabilitation proceedings which covers cases whereby assistance is sought in a Philippine court by a foreign court or representative, or assistance is sought in a foreign state in connection with a domestic proceeding, or a foreign proceeding and domestic proceedings are concurrently taking place.

“The new rule on foreign proceedings elevates our rehabilitation rules to global standards as it is almost a verbatim copy of the UNCITRAL model rules on recognition of foreign insolvency proceedings. This rule is intended to make our country attractive to foreign investors. A modern set of bankruptcy law is a big factor being considered by foreign investors when making investment decisions,” Lim said.