CORPORATE REHABILITATION

Interim Rules of Procedure on Corporate Rehabilitation

(A ! No ""#$#%"#&C' effecti(e )ecember %*+ ,"""

What is corporate rehabilitation? Corporate rehabilitation as a process to try to conserve and administer [the corporations assets in the hope that it may eventually be able to return from financial stress to solvency. It contemplates of the continuation of corporate life and activities so that it may be able to return to its former condition of successful operations and financial stability. Blacks Law Dictionary Rehabilitation contemplates a continuance of corporate like and activities in an effort to restore and reinstate the corporation to its former position of successful operation and solvency. Ruby Industrial Corp v. CA (284 CRA 44!"

Distinction between rehabilitation and liquidation Li uidation! connotes a "indin# up of affairs or settin# "ith creditors and debtors. It is the "indin# up of a corporation so that assets are distributed to those entitled to receive them. It is the process of reducin# assets to cash$ dischar#in# liabilities and dividin# surplus or loss. %n the opposite end of the spectrum is rehabilitation "hich connotes a reopenin# or reor#ani&ation. Rehabilitation contemplates a continuance of corporate like and activities in an effort to restore and reinstate the corporation to its former position of successful operation and solvency! the concept of li uidation is diametrically opposed or contrary to the concept of rehabilitation #$ %&il '(t(rans Bank )*ploy((s +nion v. '(,a (-R ./!0142 2//."

I.

Scope 'hese rules shall apply to( ). *etitions for rehabilitation filed by corporations$ partnerships$ and associations pursuant to *+ ,-./) as amended 0. Cases for rehabilitation transferred from the 12C to the R'Cs pursuant to the 1ecurities Re#ulation Code 3Rule I$ 1ecs. 4 and .5

II.

Nature of Proceedings

In rem 6urisdiction over all those affected by the proceedin#s shall be considered as ac uired upon publication of the notice of the commencement of the proceedin#s in any ne"spaper of #eneral circulation in the *hilippines in the manner prescribed by these rules. ). Summary and Non-adversarial *rohibited pleadin#s( 4. 7otion to dismiss8 .. 7otion for a bill of particulars8 9. 7otion for ne" trial or for reconsideration :. *etition for relief8 ;. 7otion for e<tension8 =. 7emorandum8 >. 7otion for postponement8 ?. Reply or Re@oinder8 ,. 'hird party complaint8 and 4-. Intervention 0. Executory Nature of Orders )ny order issued by the court under these Rules is immediately e<ecutory. ) petition for revie" or an appeal therefrom shall not stay the e<ecution of the order unless restrained or en@oined by the appellate court. C. Construction 'hese rules shall be lib(rally constru(d( 4. 'o carry out the ob@ectives of sections ;3d5$ =3c5$ and =3d5 of *+ ,-./)$ as amended8 and .. 'o assist the parties in obtainin# a @ust$ e<peditious$ and ine<pensive determination of cases. 9. Ahere applicable$ the R%C shall apply suppletorily to proceedin#s under these Rules.

III.

Who

ay Petition

'he follo"in# may petition the proper Re#ional 'rial Court havin# @urisdiction over the territory "here the debtors principal office is located$ to have the debtor placed under rehabilitation( ). )ny debtor "ho foresees the impossibility of meetin# its debts "hen they respectively fall due8 or 0. )ny Creditor or creditors holdin# at least t"enty/five percent 3.;B5 of the debtors total liabilities

I!.

Contents of Petition ). Petition "iled #y the $e#tor 7ust be verified and must set forth "ith sufficient particularity all the follo"in# material facts( 4. the name and business of the debtor8 .. the nature of the business of the debtor8 9. the history of the debtor8 :. the cause of its inability to pay its debts8 ;. all the pendin# actions or proceedin#s kno"n to the debtor and the courts or tribunals "here they are pendin#8 =. threats or demands to enforce claims or liens a#ainst the debtor8 and

>. the manner by "hich the debtor may be rehabilitated and ho" such rehabilitation may benefit the #eneral body of creditors$ employees$ and stockholders. 0. 'he petition shall be accompanied by the follo"in# documents( 4. )n audited financial statement of the debtor at the end of its last fiscal year8 .. Interim financial statements as of the end of the month prior to the filin# of the petition8 9. 1chedule of +ebts and Liabilities "hich lists all the creditors of the debtor indicatin# the name and address of each creditor$ the amount of each claim as to principal$ interest$ or penalties due as of the date of filin#$ the nature of the claim$ and any pled#e$ lien$ mort#a#e @ud#ment$ or other security #iven for the payment thereof8 :. )n Inventory of )ssets "hich must list "ith reasonable specificity all the assets of the debtor$ statin# the nature of each asset$ the location and condition thereof$ the book value or market value of the asset$ and attachin# the correspondin# certificate of title therefore in case of real property$ or the evidence of title or o"nership in case of movable property$ the encumbrances$ liens or claims thereon$ if any$ and the identities and addresses of the lienholders and claimants. 'he Inventory shall include a 1chedule of )ccounts Receivable "hich must indicate the amount of each$ the persons from "hom due$ the date of maturity$ and the de#ree of collectibility cate#ori&in# them as hi#hly collectible to remotely collectible8 ;. ) rehabilitation plan "hich conforms to the minimal re uirements set out by these rules8 =. ) 1chedule of *ayments and disposition of assets "hich the debtor may have effected "ithin three 395 months immediately precedin# the filin# of the petition8 >. ) 1chedule of the Cash Clo" of the debtor for three 395 months immediately precedin# the filin# of the petition$ and a detailed schedule of the pro@ected cash flo" for the succeedin# three 395 months8 ?. ) 1tatement of *ossible Claims by or a#ainst the debtor "hich must contain a brief statement of the facts "hich mi#ht #ive rise trot e claim and an estimate of the probable amount thereof8 ,. )n )ffidavit of Deneral Cinancial Condition 4-. )t least three 395 nominees for the position of Rehabilitation Receiver as "ell as their ualifications and addresses$ includin# but not limited to their telephone numbers$ fa< numbers and e/mail address8 and 44. ) Certificate attestin#$ under oath$ that 3a5 the filin# of the petition has been duly authori&ed8 and 3b5 the directors and stockholders have irrevocably approved anEor consented to$ in accordance "ith e<istin# la"s$ all actions or matters necessary and desirable to rehabilitate the debtor includin#$ but not limited to$ amendments to the articles of incorporation and by/ la"s or articles of partnership8 increase or decrease in the authori&ed capital stock8 issuance of bonded indebtedness8 alienation$ transfer$ or encumbrance of assets of the debtor8 and modification of shareholders ri#hts. 4.. Cive 3;5 copies of its petition shall be filed "ith the court. C. Petition "iled #y the Creditor Ahere the petition is filed by a creditor or creditors$ it is sufficient that the petition is accompanied by( 4. ) Rehabilitation *lan .. ) list of nominees to the position of Rehabilitation Receiver 9. Ferified s"orn statement that the affiant has read the petition and that its contents are true and correct of his personal kno"led#e or based on authentic records obtained from the debtor.

!.

%eha#ilitation Plan +. Contents of &he %eha#ilitation Plan 'he rehabilitation plan shall include( 4. the desired business tar#ets or #oals and the duration and covera#e of the rehabilitation8 .. the terms and conditions of such rehabilitation "hich shall include the manner of its implementation$ #ivin# due re#ard to the interests of secured creditors8 9. the material financial commitments to support the rehabilitation plan8 :. the means for the e<ecution of the rehabilitation plan$ "hich may include conversion of the debts or any ortion thereof to e uity$ restructurin# of the debts$ dacion en pa#o$ or sale of assets or of the controllin# interest8 ;. a li uidation analysis that estimates the proportion of the claims that the creditors and shareholders "ould receive if the debtors properties "ere li uidated8 and =. such other relevant information to enable a reasonable investor to make an informed decision on the feasibility of the rehabilitation plan. 2. odification of the Proposed %eha#ilitation Plan 4. 'he debtor may modify its rehabilitation plan in the li#ht of the comments of the Rehabilitation Receiver and creditors or any interested party and submit a revised or substitute rehabilitation plan for the final approval of the court. .. 1uch rehabilitation plan must be submitted to the court not later than one 345 year from the date of the initial hearin#.

C. 'pproval of the %eha#ilitation Plan 4. 'he court may approve a rehabilitation plan even over the opposition of creditors holdin# a ma@ority of the total liabilities of the debtor if$ in its @ud#ment$ the rehabilitation of the debtor is feasible ad the opposition of the creditors is manifestly unreasonable. .. In determinin# "hether or not the opposition of the creditors is manifestly unreasonable$ the court shall consider the follo"in#( a. 'hat the plan "ould likely provide the ob@ectin# class of creditors "ith compensation #reater than that "hich they "ould have received if the assets of the debtor "ere sold by a li uidator "ithin a three/month period8 b. 'hat the shareholders or o"ners of the debtor lose at least their controllin# interest as a result of the plan8 and c. 'he Rehabilitation Receiver has recommended approval of the plan. 9. In approvin# the rehabilitation plan$ the court shall 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 monitorin# thereof may reasonably re uire$ or for the protection and preservation of the interests of the creditors should the plan fail. D. Effects of the %eha#ilitation Plan 4. 'he plan and its provisions shall be bindin# upon the debtor and all persons "ho may be affected by it$ includin# the creditors$ "hether or not such persons have participated in the proceedin#s or opposed the plan or "hether or not their claims have been scheduled8

.. 'he debtor shall comply "ith the provisions of the plan and shall take all actions necessary to carry out the plan8 9. *ayments shall be made to the creditors in accordance "ith the provisions of the plan8 :. Contracts and other arran#ements bet"een the debtor and its creditors shall be interpreted as continuin# to apply to the e<tent that they do not conflict "ith the provisions of the plan8 and ;. )ny compromises on amounts or reschedulin# of timin# of payments by the debtor shall be bindin# on creditors re#ardless of "hether or not the plan is successfully implemented. G. %evocation of the %eha#ilitation Plan on (rounds of "raud %n motion or motu proprio$ "ithin ninety 3,-5 days from the approval of the rehabilitation plan$ and after notice and hearin#$ the court may revoke the approval thereof on the #round that the same "as secured throu#h fraud. I. 'lteration or odification of the %eha#ilitation Plan )n approved rehabilitation plan may$ on motion$ be altered or modified if$ in the @ud#ment of the court$ such alteration or modification is necessary to achieve the desired tar#ets or #oals set forth therein.

!I. 6.

Stay Order Stay Order If the court finds the petition to be sufficient in form and substance$ it shall$ not later than five 3;5 days from the filin# of the petition$ issue an %rder( 4. appointin# a Rehabilitation Receiver and fi<in# his bond8 .. stayin# enforcement of all claims$ "hether for money or other"ise and "hether such enforcement is by court action or other"ise$ a#ainst the debtor$ its #uarantors and sureties not solidarily liable "ith the debtor8 9. prohibitin# the debtor from sellin#$ encumberin#$ transferrin#$ or disposin# in any manner any of its properties e<cept in the ordinary course of business8 :. prohibitin# the debtor from makin# any payment of its liabilities outstandin# as of the date of filin# of the petition8 ;. prohibitin# the debtors suppliers of #oods or services from "ithholdin# supply of #oods and services in the ordinary course of business for as lon# as the debtor makes payments for the services and #oods supplied after the issuance of the stay order8 =. directin# the payment in full of all administrative e<penses incurred after the issuance of the stay order8 >. fi<in# the initial hearin# on the petition not earlier than forty/five 3:;5 days but not later than si<ty 3=-5 days from the filin# thereof8 ?. directin# the petitioner to publish the %rder in a ne"spaper of #eneral circulation in the *hilippines once a "eek for t"o 3.5 consecutive "eeks8 ,. directin# all creditors and all interested parties 3includin# the 12C5 to file and serve on the debtor a verified comment on or opposition to the petition$ "ith supportin# affidavits and documents$ not later than ten 34-5 days before the date of the initial hearin# and puttin# them on notice that their failure to do so "ill bar them from participatin# in the proceedin#s8 and

4-. directin# the creditors and interested parties to secure from the court copies of the petition and its anne<es "ithin such time as to enable themselves to file their comment on or opposition to the petition and to prepare for the initial hearin# of the petition. H. Service of Stay Order 'he petitioner shall immediately serve a copy of the stay order on the Rehabilitation Receiver appointed by the court$ "ho shall manifest his acceptance or non/ acceptance of his appointment not later than ten 34-5 days from receipt of the order. L. Period of the Stay Order 4. 'he stay order shall be effective from the date of its issuance until the dismissal or the petition or the termination of the rehabilitation proceedin#s. .. 'he petition shall be dismissed if no rehabilitation plan is approved by the court upon the lapse of 4?- days from the date of the initial hearin#. 9. 'he court may #rant an e<tension beyond this period only if it appears by convincin# and compellin# evidence that the debtor may successfully be rehabilitated. :. In no instance$ ho"ever$ shall the period for approvin# or disapprovin# a rehabilitation plan e<ceed 4? months from the date of filin# of the petition. 7. %elief from) odification) or &ermination of Stay Order 4. 'he court may$ on motion or motu proprio$ terminate$ modify$ or set conditions for the continuance of the stay order$ or relieve a claim from the covera#e thereof upon sho"in# that( a. any of the alle#ations in the petition$ or any of the contents of any attachment$ or the verification thereof has ceased to be true8 b. a creditor does not have ade uate protection over property securin# its claim8 or c. the debtors secured obli#ation is more than the fair market value of the property sub@ect of the stay and such property is not necessary for the rehabilitation of the debtor. .. 'he creditor shall lack ade uate protection if it can be sho"n that( 4. the debtor fails or refuses to honor a pre/e<istin# a#reement "ith the creditor to keep the property insured8 .. the debtor fails or refuses to take commercially reasonable steps to maintain the property8 or 9. the property has depreciated to an e<tent that the creditor is undersecured. 9. Ipon sho"in# of a lack of ade uate protection$ the court shall order the rehabilitation receiver to 4. make arran#ements to provide for the insurance or maintenance of the property$ or .. to make payments or other"ise provide additional or replacement security such that the obli#ation is fully secured 9. if such arran#ements are not feasible$ the court shall modify the stay order to allo" the secured creditor lackin# ade uate protection to enforce its claim a#ainst the debtor :. *rovided$ ho"ever$ that the court may deny the creditor the remedies in this para#raph if such remedies "ould prevent the continuation of the debtor as a #oin# concern or other"ise prevent the approval ad implementation of a rehabilitation plan.

!II.

!oida#ility of Illegal &ransfers and Preferences

J. Ipon motion or motu proprio$ the court may declare void any( 4. 'ransfer of property .. )ny other conveyance 9. 1ale :. *ayment ;. )#reement %. 7ade in violation of its stay order or in violation of these Rules.

!III.

Concept of $e#tor-in-Place

'he Rehabilitation Receiver shall not take over the mana#ement and control of the debtor but shall closely oversee and monitor the operations of the debtor durin# the pendency of the proceedin#s.

I*.

Po+ers of %eha#ilitation %eceiver ). 'he Rehabilitation Receiver shall have the po"ers$ duties and functions of a receiver under *+ ,-./)$ as amended$ and the Rules of Court. 0. 'he Rehabilitation Receiver shall be considered as an officer of the court. Ge shall be primarily tasked to study the best "ay to rehabilitate the debtor and to ensure that the value of the debtors property is reasonably maintained pendin# the determination of "hether or not the debtor should be rehabilitated$ as "ell as implement the rehabilitation plan after its approval. )ccordin#ly$ he shall have the follo"in# po"ers and functions( 4. 'o verify the accuracy of the petition$ includin# its anne<es such as the 1chedule of +ebts and Liabilities and the Inventory of )ssets submitted in support of the petition8 .. 'o accept and incorporate "hen @ustified$ amendments to the 1chedule of +ebts and Liabilities8 9. 'o recommend to the court the disallo"ance of claims and re@ection of amendments to the 1chedule of +ebts and Liabilities that lack sufficient proof and @ustification8 :. 'o submit to the court and make available for revie" by the creditors$ a revised 1chedule of +ebts and Liabilities8 ;. 'o investi#ate the acts$ conduct$ properties$ liabilities$ and financial condition of the debtor$ the operation of its business and the desirability of the continuance thereof8 and$ any other matter relevant to the proceedin# or to the formulation of a rehabilitation plan8 =. 'o e<amine under oath the directors and officers of the debtor ad any other "itnesses that he may deem appropriate8 >. 'o make available to the creditors documents and notices necessary for tem to follo" and participate in the proceedin#s8 ?. 'o report tot eh court any fact ascertained by him pertainin# to the causes of the debtors problems$ fraud$ preferences$ dispositions$ encumbrances$ misconduct$ mismana#ement$ and irre#ularities committed by the stockholders$ directors$ mana#ement$ or any other person a#ainst the debtor8 ,. 'o employ such person or persons such as la"yers$ accountants$ appraisers$ and staff as are necessary in performin# his functions and duties as Rehabilitation Receiver8 4-. 'o monitor the operations of the debtor and to immediately report to the court any material adverse chan#e in the debtors business8

44. 'o evaluate the e<istin# assets and liabilities$ earnin#s and operations of the debtor8 4.. 'o determine and recommend to the court the best "ay to salva#e and protect the interests of the creditors$$ stockholders$ and the #eneral public8 49. 'o study the rehabilitation plan proposed by the debtor or any rehabilitation plan submitted durin# the proceedin#s$ to#ether "ith any comments made there9on8 4:. 'o prohibit and report to the court any encumbrance$ transfer$ or disposition of the debtors property outside of the ordinary course of business or "hat is allo"ed by the court8 4;. 'o prohibit and report to the court any payments outside of the ordinary course of business8 4=. 'o have unlimited access to the debtors employees$ premises$ books$ records$ ad financial documents durin# business hours8 4>. 'o inspect$ copy$ photocopy$ or photo#raph any document$ paper$ book$ account$ or letter$ "hether in the possession of the debtor or other persons. 4?. 'o #ain entry into any property for the purpose of inspectin#$ measurin#$ surveyin#$ or photo#raphin# it or any desi#nated relevant ob@ect or operation thereon8 4,. 'o take possession$ control$ and custody of the debtors assets8 .-. 'o notify counterparties and the court as to contracts that the debtor has decided to continue to perform or breach8 .4. 'o be notified of$ and to attend all meetin#s of the board of directors and stockholders of the debtor8 ... 'o recommend any modification of an approved rehabilitation plan as he may deem appropriate8 .9. 'o brin# to the attention of the court any material chan#e affectin# the debtors ability to meet the obli#ations under the rehabilitation plan8 .:. 'o recommend the appointment of a mana#ement committee in the cases provided for under *+ ,-./)$ as amended8 .;. 'o recommend the termination of the proceedin#s and the dissolution of the debtor if he determines that the continuance in business of such entity is no lon#er feasible or profitable or no lon#er "orks to the best interest of the stockholders$ parties/liti#ants$ creditors$ or the #eneral public8 .=. 'o apply to the cout for any order or directive that he may deem necessary or desirable to aid him in the e<ercise of his po"ers and performance of his duties and functions8 and .>. 'o e<ercise such other po"ers as may from time to time be conferred upon him by the court.

*.

&ermination of Proceedings *. &ermination of Proceedings 'he court shall upon motion$ motu proprio$ or upon the recommendation of the Rehabilitation Receiver$ terminate the proceedin#s in case of( 4. Cailure of the debtor to submit the rehabilitation plan .. +isapproval of the rehabilitation plan by the court 9. Cailure of the rehabilitation of the debtor because of failure to achieve the desired tar#ets or #oals as set forth therein :. Cailure of said debtor to perform its obli#ations under the said plan ;. +etermination that the rehabilitation plan may no lon#er be implemented in accordance "ith its terms$ conditions$ restrictions$ or assumptions =. Ipon successful implementation of the rehabilitation plan

K. $ischarge of the %eha#ilitation %eceiver 4. Ipon termination of the rehabilitation proceedin#s$ the Rehabilitation Receiver shall submit his final report and accountin# "ithin such period of time as the court "ill allo" him. .. Ipon approval of his report and accountin#$ the court shall order his dischar#e.

Outline of the INTERI! R-LE& O. PROCE)-RE .OR INTRA#CORPORATE CONTRO/ER&IE& (under RA $011' Administrati(e !atter No "%#,#"2#&C !arch %3+ ,""%
I. CO!E%'(E Civil Cases to "hich these rules apply( ). +evicesEschemes employed by$ or any act of$ the of directors$ business associates$ officers or partners$ amountin# to fraud or misrepresentation$ detrimental to the interest of the public andEor of the stockholders$ partners$ or members of any corporation$ partnership$ or association8 0. Controversies arisin# out of intra/corporate$ partnership$ or association relations$ bet"een and amon# stockholders$ members$ or associates8 and bet"een$ any or all of them and the corporation$ partnership$ or association of "hich they are stockholders$ members$ or associates$ respectively8 C. Controversies in the election or appointment of directors$ trustees$ officers$ or mana#ers of corporations$ partnerships$ or associations8 +. +erivative suits8 and 2. Inspection of corporate books 3section 4[aL$ Rule 45.

II.

N,IS'NCE S,I&S ). Juisance and harassment suits are prohibited. 'hey may be dismissed by the court moto proprio or upon motion. 0. Cactors to consider to determine "hether one is a nuisanceEharassment suit( 4. 'he e<tent of the shareholdin# or interest of the initiatin# stockholder or member8 .. 1ub@ect matter of the suit8 9. Le#al and factual basis of the complaint8 :. )vailability of appraisal ri#hts for the act or acts complained of8 and ;. *re@udice or dama#e to the corporation$ partnership$ or association in relation to the relief sou#ht 3section 4[bL$ Rule 45.

III.

CONS&%,C&ION 'he Rules shall be liberally construed to promote their ob@ective of securin# a @ust$ summary$ speedy and ine<pensive determination of every action or proceedin# 3section 9$ Rule 45.

I!.

N'&,%E O" $ECISION 'N$ O%$E%S )ll decisions and orders 3under these rules5 are immediately e<ecutory. Jo appeal or petition shall stay the enforcement or implementation of the decision or order$ unless restrained by an appellate court. Interlocutory orders shall not be sub@ect to appeal 3section :$ Rule 45.

!.

!EN,E Fenue shall be in the Re#ional 'rial Court "ith @urisdiction over the principal office of the corporation$ partnership$ or association concerned. Ahere the principal office is re#istered in the 1ecurities and 2<chan#e Commission as 7etro 7anila$ the action must be filed in the city or municipality "here the head office is located 3section ;$ Rule 45.

!I. ). 0. C. +. 2.

P%O-I.I&E$ P/E'$IN(S0 7otion to dismiss8 7otion for a bill of particulars8 7otion for ne" trial$ or for reconsideration of @ud#ment or order$ or for re/openin# of trial8 7otion for e<tension of time. 1uch motions must be verified and under oath8 and 7otion for postponement and other motions of similar intent$ e<cept those filed due to clearly compellin# reasons. 1uch motion must be verified and under oath 3section ?$ Rule 45. "O% O" CO P/'IN& 3applicable to both stock and non/stock corporations5 0

FII.

). 2lection *rotest 4. )n election protest is any controversy or dispute involvin# title or claim to any elective office in a stock or non/stock corporation$ the validation of pro<ies$ the manner and validity of elections$ and the ualifications of candidates 3includin# the proclamation of "inners$ to the office of director$ trustee or other officer directly elected by the stockholders in a close corporation or by members of a non/stock corporation "here the articles of incorporation or by/la"s so provide5. .. 'he complaint must state( a. 'hat it "as filed "ithin fifteen 34;5 days from the date of the election if the by/la"s of the corporation do not provide for a procedure for resolution of the controversy$ or "ithin fifteen 34;5 days from the resolution of the controversy by the corporation as provided in its by/la"s8 and b. 'hat the plaintiff has e<hausted all intra/corporate remedies in election cases as provided for in the by/la"s of the corporation. 9. Aithin t"o 3.5 days from the filin# of the complaint$ the court may dismiss the complaint if insufficient in form and substance$ or order the issuance of summons if sufficient. :. +efendant must file ans"er "ithin ten 34-5 days from service of summons and receipt of the complaint 3Rule =5. 0. Inspection Ri#ht.

4. If the complaint is for enforcement of ri#ht to inspect Corporate 0ooks and Records$ it must state that( a. 'he case is for the enforcement of the ri#ht of inspection under 1ections >: and >; of the Corporation Code of the *hilippines8 b. ) demand for inspection and copyin# of books and records andEor to be furnished "ith financial statements made by the plaintiff upon defendant8 c. 'he refusal of defendant to #rant the demands of the plaintiff and the reasons #iven for such refusals$ if any8 and d. 'he reasons "hy the refusal of defendant to #rant the demands of the plaintiff is un@ustified and ille#al$ statin# the la" and @urisprudence in support thereof. .. +efendant must file his ans"er to the complaint "ithin ten 34-5 days from the service of summons and the complaint. 9. 'he ans"er must state( a. 'he #rounds for the refusal of defendant to #rant the demands of the plaintiff$ statin# the la" and @urisprudence in support thereof8 b. 'he conditions or limitations on the e<ercise of the ri#ht to inspect "hich should be imposed by the court8 and c. 'he cost of inspection$ includin# manpo"er and photocopyin# e<penses$ if the ri#ht to inspect is #ranted 3Rule >5. :. If defendant fails to file ans"er "ithin "ithin ten 34-5 days$ the court shall render @ud#ment as "arranted by the alle#ations of the complaint. ;. 'he court shall render a decision "ithin fifteen 34;5 days from receipt of the last pleadin# 3Rule ?5. R. +erivative 1uit If the action is in the nature of a derivative suit$ plaintiff must sho" that( 4. Ge "as a stockholder or member at the time the acts or transactions sub@ect of the action occurred and the time the action "as filed8 .. Ge e<erted all reasonable efforts 3he must alle#e the same "ith particularity5 to e<haust all remedies available 9. Jo appraisal ri#hts are available for the acts or acts complained of8 and :. 'he suits is not a nuisance or harassment suit 3Rule ?5.

!II.

'N'(E EN& CO

I&&EE

). ) mana#ement committee may be applied for if there is imminent dan#er of( 4. +issipation$ loss$ "asta#e or destruction of assets or other properties8 and .. *araly&ation of its business operations "hich may be pre@udicial to the interest of the minority stockholders$ parties/liti#ants or the #eneral public 3section 4$ Rule ,5. 0. If the application is sufficient in form and substance$ the court shall issue an order8 4. appointin# a receiver of kno"n probity$ inte#rity and competence and "ithout any conflict of interest as hereunder defined to immediately take over the corporation$ partnership or association$ specifyin# such po"ers as it may deem appropriate under the circumstances$ includin# any of the po"ers specified in 1ection ; of this Rule8 .. fi<in# the bond of the receiver8

9. directin# the receiver to make a report as to the affairs of the entity under receivership and on other relevant matters "ithin si<ty 3=-5 days from the time he assumes office8 :. prohibitin# the incumbent mana#ement of the company$ partnership or association from sellin#$ encumberin#$ transferrin# or disposin# in any manner any of its properties e<cept in the ordinary course of business8 and ;. directin# the payment in full of all administrative e<penses incurred after the issuance of the order 3section 4$ Rule ,5. +. 'he court may appoint a mana#ement committee composed of three 395 members chosen by the court$ "ho shall be selected considerin# their( 4. 2<pertise and acumen to mana#e and operate a business similar in si&e and completely as that the corporation$ association or partnership sou#ht to be put under mana#ement committee8 .. Hno"led#e in mana#ement and finance8 9. Dood moral character$ independence and inte#rity8 :. ) lack of a conflict of interest as defined in these Rules8 and ;. Aillin#ness and ability to file a bond in such amount as may be determined by the court 3section :$ Rule ,5. 2. ) member of the mana#ement committee must not have any conflict of interest "ith the corporation. Ge is deemed to have a conflict of interest if( 4. Ge is en#a#ed in a line of business$ "hich competes "ith the one sou#ht to be placed under mana#ement8 .. Ge is a director$ officer or stockholder char#ed "ith mismana#ement$ dissipation or "asta#e of the properties of the entity under mana#ement8 or 9. Ge is related by consan#uinity or affinity "ithin the fourth civil de#ree to any director$ officer or stockholder char#ed "ith mismana#ement$ dissipation or "asta#e of the properties of the entity under mana#ement 3section :$ Rule ,5. C. 'he mana#ement committee shall have the po"er to take custody of and control all assets and properties o"ned or possessed by the entity under mana#ement. It shall take the place of the mana#ement and board of directors of the entity under mana#ement$ assume their ri#hts and responsibilities$ and preserve the entityMs assets and properties in its possession. 1pecifically$ it may( 4. investi#ate the acts$ conduct$ properties$ liabilities$ and financial condition of the corporation$ association or partnership under mana#ement8 .. e<amine under oath the directors and offices of the entity and any other "itnesses that it may deem appropriate8 9. Report to the court any fact ascertained by it pertainin# to the causes of the problems$ fraud$ misconduct$ mismana#ement and irre#ularities committed by the stockholders$ directors$ mana#ement or any other person8 :. employ such person or persons such as la"yers$ accountants$ auditors$ appraisers and staff as are necessary in performin# its functions and duties as mana#ement committee8 ;. report to the court any material adverse chan#e in the business of the corporation$ association or partnership under mana#ement8

=. evaluate the e<istin# assets and liabilities$ earnin#s and operations of the corporation$ association or partnership under mana#ement8 >. determine and recommended to the court the best "ay to salva#e and protect the interest of the creditors$ stockholders and the #eneral public$ includin# the rehabilitation of the corporation$ association or partnership under mana#ement8 ?. prohibit and report to the court any encumbrance$ transfer$ or disposition of the debtorMs property outside of the ordinary course of business or "hat is allo"ed by the court8 ,. prohibit and report to the court any payments made outside of the ordinary course of business8 4-. have unlimited access to the employees$ premises$ books$ records and financial documents durin# business hours8 44. inspect$ copy$ photocopy or photo#raph any document$ paper$ book$ account or letter$ "hether in the possession of the corporation$ association or partnership or other persons8 4.. #ain entry into any property for the purposes of inspectin#$ measurin#$ surveyin#$ or photo#raphin# it or any desi#nated relevant ob@ect or operation thereon8 49. brin# to the attention of the court any material chan#e affectin# the entityMs ability to meet its obli#ations8 4:. revoke resolutions passed by the 2<ecutive Committee or 0oard of +irectorsE'rustees or any #overnin# body of the entity under mana#ement and pass resolution in substitution of the same to enable it to more effectively e<ercise its po"ers and functions8 4;. modify$ nullify or revoke transactions comin# to its kno"led#e "hich it deems detrimental or pre@udicial to the interest of the entity under mana#ement8 4=. recommend the termination of the proceedin#s and the dissolution of the entity if determines that the continuance in business of such entry is no lon#er feasible or profitable or no lon#er "orks to the best interest of the stockholders$ parties/liti#ants$ creditors or the #eneral public8 4>. apply to the court for any order or directive that it may deem necessary or desirable to aid it in the e<ercise of its po"ers and performance of its duties and functions8 and 4?. e<ercise such other po"ers as may$ from time to time$ be conferred upon it by the court 3section ;$ Rule ,5. D. 'ransactions made by the previous mana#ement and directors shall be deemed fraudulent and are rescissible if made "ithin thirty 39-5 days prior to the appointment of the receiver or mana#ement committee or durin# their incumbency as receiver or mana#ement committee. G. 'he receiver and members of the mana#ement committee and the persons employed by them shall not be sub@ect to any action$ claim or demand in connection "ith any act done or omitted by them in #ood faith in the e<ercise of their functions and po"ers. )ll official acts and transactions of the receiver or mana#ement committee duly approved or ratified by the court shall render them immune from any suit in connection "ith such act or transaction. I. 'he mana#ement committee shall be dischar#ed and dissolved under the follo"in# circumstances( 4. Ahenever the court$ on motion of motu proprio$ has determined that the necessity for the mana#ement committee no lon#er e<ist8 .. 0y a#reement of the parties8 and 9. Ipon termination of the proceedin#s 3section 4.$ Rule ,5.

Legal effect of appointment of the appointment of a management committee/rehabilitation receiver 1ection =3c5 of *+ ,-./) provides that upon the appointment of a mana#ement committee$ rehabilitation receiver! all actions for claims a#ainst the corporation! under mana#ement or receivership pendin# before any court$ tribunal$ board or body shall be suspended accordin#ly. Ahich is kno"n in )merican bankruptcy parlance as the automatic stay. 'he 1C reversed its 4,,. rulin# and ruled that the automatic stay "ould be effective only upon the appointment of a mana#ement committee or a rehabilitation receiver on the basis of the clear lan#ua#e of *+ ,-./). 12C ac uires @urisdiction over the distressed companies upon the submission of a petition for suspension of payments. Ahen the le#al re uirements are complied "ith$ it has authority to issue in@unctive reliefs for the effective e<ercise of its @urisdiction. RCBC v. IAC (02/ CRA 234 .444"

Rationale for the automatic stay ) stay of e<ecution is "arranted by the fact that a petitioner corporation has been placed under rehabilitation receivership. 'his is to enable the rehabilitation receiver to effectively e<ercise its po"ers free from any @udicial or e<tra/@udicial interference that mi#ht unduly hinder the rescue of the distressed company. Al(*ars ibal 5 ons v. 6LRC (022 CRA 0/1 2///"

Creditors covered by the suspension order Ahen a distressed company is placed under rehabilitation$ the appointment of a mana#ement committee follo"s to avoid collision bet"een the previous mana#ement and creditors it mi#ht favor$ to the pre@udice of the other creditors( )ll assets of a corporation under rehabilitation receivership are held in trust for the e ual benefit of all creditors to preclude one from obtainin# an advanta#e if preference over another by the e<pediency of attachment$ e<ecution of other"ise. )s bet"een the creditors$ the key phrase is e uality in e uity. %nce the corporation threatened by bankruptcy is taken over by a receiver$ all the creditors ou#ht to stand in e ual footin#. Jot any one of them should be pad ahead of the others. 'his is precisely the reason for suspendin# all pendin# claims a#ainst the corporation under receivership. +nion Bank v. CA (24/ CRA .48 .448"