Rehabilitation, under the 

FRIA, refers to the restoration of the debtor to a condition of

successful operation and solvency, if it is shown that its continuance of operation is
economically feasible and its creditors can recover by way of the present value of payments
projected in the plan, more if the debtor continues as a going concern than if it is immediately
liquidated.

A court supervised rehabilitation may be voluntarily or involuntarily instituted.

So who may file Court-Supervised Rehabilitation?

For voluntary

1. In case of a sole proprietorship, it can be filed by the owner.

2. In case of a partnership, it can be filed by the majority of the partners.
3. If it is a corporation, the board of directors or trustees, through a majority vote, as
authorized by the vote of the authorized stockholders representing at least 2/3 of the
outstanding capital stock or at least 2/3 of the members in a non-stock corporation.

For involuntary

1. Any creditor or group of creditors with a claim of, or the aggregate of whose claim
is at least 1M pesos or at least 25% of the subscribed capital stock or partners’
contributions, whichever is higher, may initiate involuntary proceedings.
We should take note that:

● The reason why it’s called involuntary is because it is not the debtor itself who decides that I need to be
rehabilitated it is the creditors of that juridical debtor who would now file a petition and say this business needs
to be rehabilitated.

● Result: You would lose management of your business because there would be a rehabilitation receiver or
management committee.

● It may be filed by any creditor or group of creditors

Rehabilitation Plan shall refer to a plan by which the financial well-being and viability
of an insolvent debtor can be restored using various means including, but not limited
to, debt forgiveness, debt rescheduling, reorganization or quasi-reorganization,
dacion en pago, debt-equity conversion and sale of the business (or parts of it) as a
going concern, or setting-up of new business entity, or other similar arrangements as
may be approved by the court or creditors.

Moving on to the grounds of filing, the grounds for filing a Court-Supervised Rehabilitation are the following:

For Voluntary:
1. The insolvency of the debtor or the inability to pay its obligations as they become due; and
2. The viability of its rehabilitation.

For Involuntary:
1. There is no genuine issue of fact or law on the claim or claims of the petitioner, and that the due and
demandable payments thereon have not been made for at least 60 days.
2. The debtor has failed generally to meet its liabilities as they fall due.
3. At least one creditor, other than the petitioners has initiated foreclosure proceedings against the debtor
that will prevent the debtor from paying its debt as they become due or will render it insolvent.

EFFECTS of Court-supervised rehabilitation

If the court finds a petition sufficient, it will issue a commencement order that includes a
stay or suspension order. The latter will:

 suspend all actions or proceedings, in court or otherwise, for the enforcement of

claims against the debtor
 suspend all actions to enforce any judgment, attachment, or other provisional
remedies against the debtor
 prohibit the debtor from selling, encumbering, transferring, or disposing in any
manner of its properties except in the ordinary course of business
 prohibit the debtor from making any payment of its liabilities outstanding as of the
commencement date, except as may be provided therein

A rehabilitation receiver assists the court in formulating and

implementing the rehabilitation plan of a financially distressed debtor
undergoing rehabilitation.
Who may serve as a Rehabilitation Receiver?

Any qualified natural or juridical person may serve as a rehabilitation receiver. A rehabilitation receiver who is
a juridical entity must designate, as its representative, a natural person who possesses all the qualifications and
none of the disqualifications. The juridical entity and the representative are solidarily liable for all the
obligations and responsibilities of a rehabilitation receiver.

A corporation is usually managed by a Board of Directors / Trustees. If a company would enter into a
rehabilitation, there would be a rehabilitation receiver. If this person will be charged on how to implement the
rehabilitation plan then it is just but reasonable that this receiver has the qualifications and none the
disqualifications. He will be the person that will be instrumental in the transformation and rehabilitation of the
distressed juridical debtor.

We should take note that a Juridical rehabilitation receiver → the entity itself is solidarily liable with the
representative who is acting / discharging the function as rehabilitation receiver.

Natural person (first box) → let’s say he is the most qualified but there seems to be a perception of conflict
with respect to one aspect, maybe he has done business in the past. That can be waived by the person who may
be prejudiced by the perceived conflict.
Natural person (second box) → so ideally it kinda sort of describe a lawyer but it does not
necessarily need to be a lawyer.

POWERS AND DUTIES OF A REHABILITATION RECEIVER

So you can see here why he has to have integrity, no conflict and be fair because he will be collating all
available assets, approving and confirming the valuations. So he has to have those qualifications.

6 → because he needs to know which rehabilitation plan to be implemented and whether the
rehabilitation plan presented by the debtor is feasible.

8 → let’s say the rehabilitation plan submitted by the debtor is found by the rehabilitation receiver not feasible
but he still believes that the debtor is capable of being rehabilitated, then a new rehabilitation plan may be
submitted.

Please take note that it is possible for the rehabilitation receiver to implement the rehabilitation plan. If the
rehabilitation is successful, at a certain point, the management and operation of the corporation / juridical
debtor would be returned to the owner, partners or to the Board of Directors. It is not perpetual. It is just to
implement the plan and to move the juridical debtor towards recovery and financial health

WE SHOULD ALSO TAKE NOTE THAT

The rehabilitation receiver may be removed at any time by the court either motu proprio or upon motion by
any creditor/s holding more than fifty percent (50%) of the total obligations of
the debtor, on such grounds as the rules of procedure may provide.

Opposition or Challenge of Claims

Within thirty (30) days from the expiration of the period for the filing of claims , the debtor, creditors,
stakeholders and other interested parties may submit a challenge to claim/s to the court, serving a certified
copy on the rehabilitation receiver and the creditor holding the challenged claim/so Upon the expiration of the
thirty (30)-day period, the rehabilitation receiver shall submit to the court the registry of claims which shall
include undisputed claims that have not been subject to challenge

Appeal
Any decision of the rehabilitation receiver regarding a claim may be appealed to the court

Now, there is a failure of rehabilitation in the following cases:

(a) Dismissal of the petition by the court;

(b) The debtor fails to submit a Rehabilitation Plan;

(c) Under the Rehabilitation Plan submitted by the debtor, there is no substantial likelihood that the debtor can
be rehabilitated within a reasonable period;

(d) The Rehabilitation Plan or its amendment is approved by the court but in the implementation thereof, the
debtor fails to perform its obligations thereunder or there is a failure to realize the objectives, targets or goals
set forth therein, including the timelines and conditions for the settlement of the obligations due to the creditors
and other claimants;
(e) The commission of fraud in securing the approval of the Rehabilitation Plan or its
amendment; and

(f) Other analogous circumstances as may be defined by the rules of procedure.

Atty Fabella, ive come to bargain, can you give an incentive to the person who can answer my question?

WHO MAY FILE A VOLUNTARY COURT SUPERVISED REHABILATION IN CASE OF A

CORPORATION