SC sets guidelines for financial rehabilitation proceedings

In order to avoid possible delays in rehabilitation courts, the Supreme Court (SC) on Thursday said it issued guidelines for the conduct of financial rehabilitation proceedings. 

In a 38-page decision, the SC en banc said the following guidelines are pursuant to the Financial Rehabilitation and Insolvency Act of 2010 (FRIA) and the Financial Rehabilitation Rules of Procedure (FR Rules):

• Upon the appointment of a rehabilitation receiver, the rehabilitation court shall instruct the former to notify all courts or tribunals before which the debtor has pending actions, by way of manifestation, of the following: the existence of the petition for rehabilitation; the court where the petition was filed; the date of filing; and the fact of the issuance of commencement and stay orders.
• In cases where the petitioner is the debtor, the courts to be notified shall be those indicated in the verified petition and affidavit of general financial condition, as required by Section 2(A)(7) and (10), Rule 2(A) of the FR Rules.
• In cases where the petitioner is the creditor, the rehabilitation court shall, together with the appointment of a rehabilitation receiver, instruct the latter to ascertain the existence of any pending actions or proceedings by or against the debtor.
• The rehabilitation court shall further require the rehabilitation receiver, should the latter learn of any other pending actions by or against the debtor, to notify such other court/tribunal of the following: the existence of the petition for rehabilitation, the court where the petition was filed; the date of its filing; and the fact of the issuance of commencement and stay orders, by way of manifestation within five calendar days from the rehabilitation receiver’s knowledge of such other actions. The rehabilitation receiver shall also report to the rehabilitation court of the former’s compliance within five calendar days.

The court issued the guidelines as it dismissed a petition for review on certiorari filed by a company. The petition sought to assail the ruling of the Court of Appeals (CA) that upheld the validity of a foreign judgment against it.

The petitioner said the CA ruling must be declared null and void as it was issued while the company was under rehabilitation, pursuant to the commencement order issued by the trial court. 

The commencement order directed that all actions or proceedings for the enforcement of claims against the company should be suspended.

However, in affirming the decision of the CA, the Supreme Court said the ruling in the present case cannot be rendered null and void as the appellate court was not informed of the trial court’s commencement order.

“The CA was thus not bound to take note of and consider the pendency of the rehabilitation proceedings, as the matter was not properly brought to its attention,” the SC said.

It further said the FRIA does not state that any action taken on pending actions against the debtor, including the rendition of a judgment, is automatically voided on the ground that it was issued after a commencement order.

“The mandate of the law is to simply consolidate the resolution of all legal proceedings by and against the debtor to the rehabilitation Court,” the high court said.

According to the Supreme Court, a stay order also only suspends all actions for claims against a corporation undergoing rehabilitation.

“It does not work to oust a court of its jurisdiction over a case properly field before it,” the SC said. —KBK, GMA Integrated News