Rules of Procedure on Corporate Recovery

December 21, 1999 RULES OF PROCEDURE ON CORPORATE RECOVERY RULE I Definition of Terms and Construction SECTION 1-1. Definition of terms . For purposes of these Rules: " Administrative expense " shall refer to those expenses incurred in the ordinary course of business after the issuance of the order suspending payments of the debtor, excluding interest payable to creditors. " Affidavit of General Financial Condition " shall refer to a verified statement on the general financial condition of the debtor required in Section 4-2 of these Rules. " Board of Directors " shall include the executive committee or the management of a partnership or association. " Claim " shall include all claims or debts of whatever character against a debtor or its property, whether secured or unsecured. " Creditor " shall mean the holder of any claim. " Commission " shall refer to the Securities & Exchange Commission, or to a Commissioner, officer, or panel authorized by the Commission to hear a particular case or an incident thereof. In case of a panel, it shall decide by a majority vote of its members. " Commissioner " shall refer to the Chairman or any of the Associate Commissioners of the Securities & Exchange Commission. " Debtor " shall mean any partnership, association or corporation, whether stock or non-stock, on whose behalf a petition has been filed under these Rules. " Stockholder " shall include a member of a non-stock corporation or association, or a partner in a partnership. SECTION 1-2. Construction . These Rules shall be liberally construed to carry out the objectives of P.D. 902-A, as amended, and to assist the parties in obtaining a just, expeditious and inexpensive settlement of cases. Unless explicitly or implicitly contradicted by these Rules, the New Rules of Procedure of the Commission shall apply to the proceedings under these Rules. RULE II Common Provisions SECTION 2-1. Parties-in-interest . All actions filed under Rules must be prosecuted or defended in the name of the debtor in whose behalf or for whose benefit the petition is filed. SECTION 2-2. Venue of hearings . All actions brought under these Rules shall be commenced and heard in the main office of the Commission. However, an action involving a debtor whose principal office is within a region where the Commission has an extension office may be commenced and heard in such extension office. SECTION 2-3. Service of Pleadings and Documents . When the parties so agree, pleadings and documents required to be filed with the Commission may be served by fax or electronic mail (e-mail). In such case the date of transmission shall be deemed to be the date of service. In case of a voluminous pleading or document, the Commission may, motu proprio or upon motion, waive the requirement of service provided a copy thereof together with all its attachments is duly filed with the Commission and is made available for examination and reproduction by any party, and provided, further , that a notice of such filing and availability is duly served on the parties. SECTION 2-4. Permissive intervention . On motion and for good cause shown, the Commission may permit any interested party to intervene generally or with respect to any specified matter. SECTION 2-5. Orders immediately executory . Every order issued by the Commission under these Rules is immediately executory. A petition for review or an appeal therefrom shall not stay the execution of the order unless restrained or enjoined. The review of any order or decision or an appeal therefrom shall be in accordance with the provisions of P.D. 902-A and the Rules of Procedure of the Commission. SECTION 2-6. Conflict of interest . Without limiting the generality of the following, a receiver or liquidator may be deemed to have a conflict of interest if: a. He is a creditor or stockholder of the debtor; b. He is engaged in a competing line of business as the debtor; c. He is, or was within two (2) years from the filing of the petition, a director, officer or employee of the debtor or any of its present creditors, or the auditor or accountant of the debtor; d. He is, or was within two (2) years from the filing of the petition, an underwriter of the outstanding securities of the debtor; e. He is related by consanguinity or affinity within the fourth civil degree to such creditor, stockholder, director, officer, employee or underwriter of the debtor; f. He has a conflict of interest, by reason of any other direct or indirect material interest in the debtor or any creditor. SECTION 2-7. Dismissal of Receiver or Liquidator . A receiver, or liquidator may be dismissed by the Commission, upon motion or motu proprio , on account of conflict of interest, or on any of the grounds for removing a trustee under the general principles of trusts. SECTION 2-8. Decision by creditors . Whenever a number of creditors is required in these Rules for a decision to be taken, for an act to be done, or for the rejection of a proposal, the said number shall refer to the total amount of their claims counted separately by each class of creditors. SECTION 2-9. Trade secrets and other confidential information . On motion or on its own initiative, the Commission may issue an order to protect trade secrets or other confidential research, development, or commercial information belonging to the debtor. SECTION 2-10. Classification of creditors . For purposes of these Rules, creditors shall be classified into secured or unsecured. SECTION 2-11. Obligation of suppliers to adhere to contracts . The failure by the debtor to make payments prior to the issuance of the suspension order shall not justify the refusal of the debtor's suppliers to supply goods or services under the applicable contract which shall continue to be binding, provided the debtor makes payments for the services and goods supplied after the issuance of the suspension order. SECTION 2-12. Voidability of illegal transfers and preferences . The Commission may, motu proprio or upon motion, declare void any transfer of property or any other arrangement made by or on behalf of the debtor in violation of a suspension order or in violation of these Rules. RULE III Suspension of Payments SECTION 3-1. Suspension of Payments . Any debtor which possesses sufficient property to cover all its debts but foresees the impossibility of meeting them when they respectively fall due may petition the Commission that it be declared in the state of suspension of payments. SECTION 3-2. Contents of petition . The petition must be verified and must allege with sufficient particularity all material facts to prove the solvency of the petitioner and the existence and nature of the temporary cause of its inability to meet its obligations and must be accompanied by the following documents: a. The audited financial statement of the petitioner as at the end of the last fiscal year; b. The interim financial statement as at the end of the month prior to the filing of the petition; c. The Schedule of Debts and Liabilities which lists all the creditors of the petitioner indicating the name and address of each creditor, the amount of each claim as to principal, interest or penalties due as of the date of filing, the nature of the claim, how, when and where such claim was incurred, and any pledge, lien, mortgage, or other security given for the payment thereof; d. The Inventory of Assets which must list all the assets of the petitioner stating the nature of each asset, the location and condition thereof, the book value or market value thereof, and attaching the corresponding TCT, OCT, CTC or CCT therefor in case of real property, or the evidence of title or ownership in case of movable property, the encumbrances, liens or claims thereon, if any, and the identities and addresses of the lienholders or claimants. The inventory shall include a Schedule of Accounts Receivables which must indicate the nature and amount of each receivable, the persons from whom due, and the dates of maturity; LexLib e. The Repayment Schedule which shall indicate the plan of the petitioner at recovering its liquidity during the time the suspension order is in effect, the date the petitioner will resume payment of its liabilities, and the corresponding schedule therefor; f. A schedule of payments and dispositions of assets which the petitioner may have effected within three (3) months immediately preceding the filing of the petition; g. A detailed schedule of the cash flow of the petitioner for three (3) months immediately preceding the filing of the petition, and a detailed schedule of the projected cash flow for the succeeding three (3) months; h. Certification by the Bureau of Internal Revenue and the Bureau of Customs, if proper, as to the outstanding tax liability of the petitioner; and i. A list of possible claims by or against the petitioner which must contain a brief statement of the facts which might give rise to the claim and an estimate of the probable amount thereof; j. An Affidavit of General Financial Condition which shall contain answers to the questions or matters prescribed in Annex "A" hereof. SECTION 3-3. Effect of failure to submit attachments . If the petition is wanting in any or all of the foregoing documents, it shall not be dismissed on that ground alone. Instead, an order shall be issued requiring the petitioner to submit them within such time as the Commission will direct. In any event, the petitioner may be required to submit any other document which the Commission may deem necessary to evaluate the true financial condition of the petitioner. SECTION 3-4. Effect of filing of petition . Upon the filing of the petition, an order shall be issued by the Commission suspending all actions and proceedings to enforce payment of all claims against the petitioner for a period of thirty (30) days from the issuance thereof but enjoining the petitioner during such period from selling, encumbering or transferring any of its properties in any manner and for whatever purpose, or from making any payment or any application thereof, without the approval of the Commission. The older shall be automatically vacated upon the lapse of the said period unless extended or the petition is granted. Its life may be extended only upon proof that petitioner will suffer irreparable injury unless so extended. In any event, the total period of the extension allowed may not exceed six (6) months. SECTION 3-5. Initial hearing . The order referred to in the preceding section shall also fix the date of the initial hearing of the petition where the petitioner will prove its entitlement to the relief prayed for and where any creditor or interested party may appear, oppose or otherwise be heard thereon. The hearing shall be held not later than twenty (20) days from the filing of said petition. The said order shall be published at least once in two (2) newspapers of general circulation in the country and a copy thereof together with the petition and its attachments shall be served on each and every creditor appearing on the Schedule of Debts and Liabilities not later than five (5) days before the date of the said hearing. The initial hearing shall not proceed until the fact of such publication and service is duly established. SECTION 3-6. Opposition or comment to the petition . Every creditor of the petitioner or any interested party shall file his opposition or comment to the petition not later than the date of the initial hearing. After such time, no creditor or interested party shall be allowed to file any opposition or comment thereto without leave of the Commission. SECTION 3-7. Proving claims against petitioner . Claims against the petitioner of parties not included in the Schedule of Debts and Liabilities submitted by petitioner may be filed in the proceedings without need of a motion for intervention. When such claim, however, is denied or disputed by the petitioner, proof thereof as a valid claim shall be heard as a separate incident of the proceedings and shall not delay the decision on the petition. The amount of such claim, however, shall be included in the total liabilities of the petitioner only when the Commission is convinced that there is prima facie proof of the validity thereof after conducting summary proceedings for the purpose. SECTION 3-8. Suspension Order . If, after hearing, the solvency of the petitioner and the temporary inability to pay are established, the Commission shall issue an order suspending payment of all claims against the petitioner, and all actions and proceedings to enforce the same, during the period of temporary inability which in no case shall exceed one (1) year from the filing of the petition. The order shall also direct the petitioner to resume payment of its obligations upon the lapse of said period in accordance with the Repayment Schedule approved by the Commission. The order may impose on the petitioner such terms and conditions as are necessary for the protection of the creditors and shall cover all actions for the recovery of property being used by the petitioner in the normal course of its business operations even though such property belongs to a creditor. In any event, the petition shall be deemed ipso facto denied and dismissed if no decision was taken thereon by the Commission after the lapse of two hundred and forty (240) days from the filing thereof. In such case, all orders issued in the proceedings are deemed automatically vacated. SECTION 3-9. Creation of Oversight Committee . Upon filing of the petition the Commission shall, unless the petitioner and all the creditors have agreed upon a different arrangement, create an Oversight Committee to ensure that the assets and business of the petitioner are conserved while a suspension order is in effect. SECTION 3-10. Composition of the Oversight Committee . The Oversight Committee shall be composed of a representative of the secured creditors, a representative of the unsecured creditors and a representative of the debtor. The Committee shall decide and act by the vote of at least two (2) members. The members of the Oversight Committee shall not be entitled to any compensation except for reasonable per diems . SECTION 3-11. Powers of the Oversight Committee . The Committee shall have the power to oversee the day to day operations of the petitioner which, however, shall remain in the hands of the incumbent management. In case of a disagreement between the Committee and the incumbent management, the matter shall be resolved by the Commission after due notice and hearing. The Oversight Committee shall, at all times, be allowed access to all records and transactions of the petitioner and to receive notice of, and attend all meetings of the board of directors or of the stockholders. The members of the committee may participate in the deliberation of the board of directors or stockholders but shall have no right to vote. In case of disagreement the Oversight Committee may apply for the appropriate relief with the Commission. SECTION 3-12. Technical insolvency of petitioner . If it is established that the inability of the petitioner to pay, although temporary, will last for a period longer than one (1) year from the filing of the petition, the petitioner shall be considered technically insolvent and the petition shall be dismissed accordingly. SECTION 3-13. Supervening insolvency or violation of Suspension Order . If at any time during the pendency of the proceedings, the petitioner has become or is shown to be insolvent, whether actual or technical, or that it has violated any of the conditions of the suspension order, or has failed to make payments on its obligations in accordance with the approved Repayment Schedule, the Commission shall terminate the proceedings and dismiss the petition. Instead of terminating the proceedings, however, the Commission may, upon motion, treat the petition as one for rehabilitation of the debtor. Thereupon, the pertinent provisions of the succeeding Rule shall govern the proceedings. SECTION 3-14. Termination of the proceedings . Unless terminated earlier in accordance with these Rules, the proceedings under this Rule shall terminate when the Repayment Schedule has been fully implemented. Until the proceedings are terminated, the parties may apply for relief with the Commission by filing in the same proceedings the appropriate pleading therefor. RULE IV Rehabilitation SECTION 4-1. Who may petition . A debtor which is insolvent because its assets are not sufficient to cover its liabilities, or which is technically insolvent under Section 3-12 of these Rules, but which may still be rescued or revived through the institution of some changes in its management, organization, policies, strategies, operations, or finances, may petition the Commission to be placed under rehabilitation. Any of the creditors or stockholders of the debtor may file the petition on its behalf. SECTION 4-2. Contents of the petition . The petition filed by the debtor must be verified and must set forth with sufficient particularity all the following material facts: (a) the name and business of the debtor, (b) the nature of the business of the debtor, (c) the history of the debtor, (d) the cause of its actual or technical insolvency, the reasons why despite such insolvency, the debtor may still be rehabilitated, and how such rehabilitation will benefit the general body of creditors and stockholders, (e) all the pending actions or proceedings known to the debtor and the courts or tribunals where they are pending, (f) threats or demands to enforce claims or liens against the debtor, and (g) the status of any Repayment Schedule if one has been approved by the Commission under the preceding Rule. llcd The petitioner shall attach to the petition all the documents enumerated in Section 3-2 of these Rules except that a Rehabilitation Plan shall be submitted in lieu of the Repayment Schedule. The petition shall include the names of at least three (3) nominees for Interim Receiver and their respective qualifications and addresses including their telephone or fax numbers and e-mail addresses, if any. As regards the submission of the foregoing documents, Section 3-3 of these Rules shall equally apply. SECTION 4-3. Verification by debtor . The petition filed by the debtor must be verified by an affidavit of a responsible officer of the debtor and shall be in a form substantially as follows: "I ________________________, (position) of (name of petitioner), do solemnly swear that the petitioner has been duly authorized to file the petition. There is no petition for insolvency filed with any other body, court, tribunal affecting the petitioner. The Inventory of Assets and the Schedule of Debts and Liabilities contain a full, correct and true description of all debts and liabilities and of all goods, effects, estate, and property of whatever kind or class belonging to petitioner. The Inventory also contains a full, true and correct statement of all debts owing or due to petitioner, or to any person or persons in trust for petitioner and of all securities and contracts whereby any money may hereafter become due or payable to petitioner or by or through which any benefit or advantage may accrue to petitioner. The petition contains a clear outline of the facts giving rise, or which might give rise, to any cause of action in favor of petitioner. Petitioner has no land, money, stock, expectancy, or property of any kind, except those set forth in the Inventory of Assets. Petitioner has in no instance created or acknowledged a debt for a greater sum than the true and correct amount. Petitioner, its officers, directors, and stockholders have not, directly or indirectly, concealed, fraudulently sold, or otherwise fraudulently disposed of, any part of petitioner's real or personal property, estate, effects, or rights of action, and petitioner, its officers, directors and stockholders, have not in any way compounded with any of its creditors in order to give preference to such creditors, or to receive or to accept any profit or advantage therefrom, or to defraud or deceive in any manner any creditor to whom petitioner is indebted. Petitioner, its officers, directors and stockholders have been acting in good faith and with due diligence." SECTION 4-4. Effect of filing of the petition . Immediately upon the filing of a petition, the Commission shall issue an Order (a) appointing an Interim Receiver and fixing his bond; (b) suspending all actions and proceedings for claims against the debtor; (c) prohibiting the debtor from selling, encumbering, transferring or disposing in any manner any of its properties except in the normal course of business in which the debtor is engaged; (d) prohibiting the debtor from making any payment of its liabilities outstanding as at the date of filing of the petition; (e) directing the payment in full of all administrative, expenses incurred after the filing of the petition; (f) fixing the initial hearing on the petition not later than forty five (45) days from the filing thereof; (g) directing the debtor to publish the Order once a week for two consecutive weeks in a newspaper of general circulation in the Philippines, and (h) directing the debtor to serve on each of the parties on the list of creditors the following documents at least ten days before the date of the said hearing: 1. A copy of the Order; 2. A copy of the petition; 3. A copy of the Schedule of Debts and Liabilities; and 4. A notification that copies of the other documents filed with the Commission may be obtained therefrom or from the Interim Receiver. SECTION 4-5. Initial hearing . Not later than forty-five (45) days from the issuance of the Order the Commission shall hold a hearing where the entitlement of the petitioner to the relief prayed for shall be proved and where any creditor, or interested party may appear to oppose, file a claim against the debtor, or otherwise be heard thereon. SECTION 4-6. Dismissal of petition . The Commission may dismiss the petition on any of the following grounds: a. The petition is not sufficient in form or substance; b. Falsification of the verification of the petition; c. Willful misrepresentation of any material fact in support of the petition; d. The debtor is under the regulatory jurisdiction of another government agency and the consent of such agency has not been obtained; prcd e. Submission of documents containing materially false information in support of the petition; f. Willful refusal to obey any order of the Commission; or g. The rehabilitation of the debtor is not feasible. The pendency of the motion to dismiss shall not stay the proceedings and the Commission shall conduct summary hearing by affidavits and other documentary evidence and shall resolve the incident before the expiration of the period of the suspension order. SECTION 4-7. Opposition or comment to the petition . Every creditor of the debtor, or any interested party shall file his opposition or comment to the petition or his claim against the debtor not later than the date of the initial hearing. After such time, no creditor, or interested party shall be allowed to file any claim against the debtor, or submit any opposition or comment to the petition without prior leave from the Commission. SECTION 4-8. Proving claims against the debtor . Claims against the debtor of parties not included in the Schedule of Debts and Liabilities submitted by the debtor may be filed in the rehabilitation proceedings without need of a motion for intervention. When such a claim, however, is denied or disputed by the debtor, Interim Receiver or any creditor, proof thereof as a valid claim shall be heard as a separate incident of the rehabilitation proceedings and shall not delay the approval or implementation of the rehabilitation plan. The amounts of such claim shall be included in the total liabilities of the debtor only when the Commission is convinced that there is prima facie proof of the validity thereof after conducting summary proceedings for the purpose. SECTION 4-9. Period of suspension order . The suspension order shall be effective for a period of sixty (60) days from the date of its issuance. The order shall be automatically vacated upon the lapse of the sixty-day period unless extended by the Commission. Upon motion, the Commission may grant an extension thereof for a period of not more than sixty (60) days in each application if the Commission is satisfied that the debtor and its officers have been acting in good faith and with due diligence, and that the debtor would likely be able to make a viable rehabilitation plan. After the lapse of one hundred and eighty (180) days from the issuance of the suspension order, no extension of the said order shall be granted by the Commission if opposed in writing by a majority of any class of creditors. The Commission may grant an extension beyond one hundred eighty (180) days only if it appears by convincing evidence that there is a good chance for the successful rehabilitation of the debtor and the opposition thereto by the creditors appears manifestly unreasonable. In any event, the petition is deemed ipso facto denied and dismissed if no Rehabilitation Plan was approved by the Commission upon the lapse of the order or the last extension thereof. In such case the debtor shall come under the dissolution and liquidation proceedings of Rule V of these Rules. SECTION 4-10. Relief from, modification, or termination of Suspension Order . The Commission may, on motion or motu proprio , terminate, modify, or set conditions for the continuance of the suspension order, or relieve a claim from the coverage thereof upon showing that (a) any of the allegations in the petition, or any of the contents of any attachment, or the verification thereof has ceased to be true, (b)) a creditor does not have adequate protection over property securing its claim, or (c) the debtor's secured obligation is more than the fair market value of the property subject of the stay and such property is not necessary for the rehabilitation of the debtor. For purposes of this section, the creditor shall lack adequate protection if it can be shown that: a. the debtor is not honoring pre-existing agreement with the creditor to keep the property insured; b. the debtor is failing to take commercially reasonable steps to maintain the property; or c. depreciation of the property is increasing to the extent that the creditor is undersecured. Upon showing of a lack of adequate protection, the Commission shall order the debtor to (a) make arrangements to provide for the insurance or maintenance of the property, (b) to make payments or otherwise provide an additional or replacement lien to the creditor to offset the extent that the depreciation of the property is increasing the extent that the creditor is undersecured. Provided, however, that the Commission may deny the creditor the remedies in this paragraph if such remedies would prevent the continuation of the debtor as a going concern or otherwise prevent the approval and implementation of a Rehabilitation Plan. SECTION 4-11. Qualifications of the Interim Receiver . In the appointment of the Interim Receiver the following qualifications shall be taken into consideration by the Commission: a. Expertise and acumen to manage and operate a business similar in size and complexity as that of the debtor; b. Knowledge in management, finance and rehabilitation of distressed companies; c. General familiarity with the rights of creditors in a suspension of payments; d. General understanding of the duties and obligations of a rehabilitation receiver; e. Absence of any criminal record; f. Good moral character, independence and integrity; g. Conflict of interest as defined in these Rules, and h. Willingness and ability to file a bond in such amount as may be determined by the Commission. SECTION 4-12. Powers and functions of the Interim Receiver . The Interim Receiver shall closely monitor the debtor during the pendency of the proceedings, and for this purpose shall have the powers, duties and functions of a receiver under P.D. 902-A and the Rules of Court. The Interim Receiver shall not take over the control and management of the business operations of the debtor which shall remain with the incumbent board of directors thereof. However, the incumbent board of directors may not, outside the ordinary course of business, dispose, encumber, or apply any of the properties of the debtor, or pay, condone, or compromise any debt, liability, or obligation of the debtor, or incur any obligation or enter into any relation, contractual or otherwise, on behalf of the debtor without the approval by the Commission. The Interim Receiver shall be considered as an officer of the Commission. He shall be primarily tasked to study the best way to rehabilitate the debtor and to ensure that the value of the debtor's property is reasonably maintained pending the determination of whether or not the debtor will be placed under rehabilitation. Accordingly, he shall have the following powers and functions: a. To verify the accuracy of the petition, including its annexes such as the Schedule of Debts and Liabilities and the Inventory of Assets submitted in support of the petition; b. To accept and incorporate, when justified, amendments to the Schedule of Debts and Liabilities; c. To recommend to the Commission the disallowance of claims and rejection of amendments to the Schedule of Debts and Liabilities that lack sufficient proof and justification; d. To submit to the Commission and make available for review by the creditors, a revised Schedule of Debts and Liabilities not later than thirty (30) days after the filing of the petition; e. To investigate the acts, conduct, properties, liabilities, and financial condition of the debtor, the operation of its business and the desirability of its continuance thereof, any other manner relevant to the proceeding or to the formulation of a rehabilitation plan; f. To examine under oath the directors and officers of the debtor and any other witnesses concerning any of the foregoing matters; g. To make available to the creditors documents and notices necessary for them to follow and participate in the proceedings; h. To report to the Commission any fact ascertained by him pertaining to the causes of the debtor's problems, fraud, preferences, dispositions, encumbrance, misconduct, mismanagement and irregularities committed by the stockholders, directors, management or any other person against the debtor; i. To employ such person or persons as are necessary in performing his functions and duties under this Rule; j. To monitor the operations of the debtor and to immediately report to the Commission any material adverse change in the debtor's business; k. To evaluate the existing assets and liabilities, earnings and operations of the debtor; l. To determine and recommend to the Commission the best way to salvage and protect the interest of the creditors, stockholders and the general public; prcd m. To study the rehabilitation plan proposed by the debtor or any rehabilitation plan submitted during the proceedings, together with any comments made thereon; n. To prohibit and report to the Commission any encumbrance, transfer, or disposition of the debtor's property outside of what is allowed by the Commission; o. To prohibit and report to the Commission any payments outside of what the Commission has allowed; p. To have unlimited access to the debtor's employees, premises, books, records and financial documents and have notice of and attend all meetings of the board of directors, or stockholder meetings; q. To inspect, copy, photocopy or photograph any document, paper, book, account or letter, whether in the possession of the debtor or other persons; r. To gain entry into any property for the purpose of inspecting, measuring, surveying, or photographing it or any designated relevant object or operation thereon; s. To take possession, control and custody of the debtor's assets, if authorized by the Commission; t. To render at the earliest practicable date, but no later than the submission of the rehabilitation plan for the approval of the Commission, a report on the foregoing; u. To apply with the Commission for any order or directive that he may deem necessary or desirable to aid him in the exercise of his powers and performance of his duties and functions; v. To notify counter-parties and the Commission as to contracts that the debtor has decided to continue to perform or breach; and w. To exercise such other powers and functions as may from time to time be granted him by the Commission. SECTION 4-13. Oath and Bond . Before entering upon his powers, duties and functions, the Interim Receiver must be sworn to perform them faithfully, and must post a bond executed in favor of the debtor in such sum as the Commission may direct, to guarantee that he will faithfully discharge his duties and obey the orders of the Commission. He shall also declare under oath that he will perform of the duties of a trustee of the assets of the debtor, will act honestly and in good faith, and deal with the assets of the debtor in a commercially reasonable manner. SECTION 4-14. Fees and Expenses . The Interim Receiver and the professionals hired by him shall be entitled to reasonable professional fees and reimbursement of expenses which shall be considered an administrative expense. SECTION 4-15. Immunity from Suit . The Interim Receiver shall not be subject to any action, claim or demand in connection with any act done or omitted to be done by him in good faith in the exercise of his functions and in connection with the exercise of his powers herein conferred. SECTION 4-16. Reports . The Interim Receiver shall report every three months to the Commission or as often as the Commission may require on the general condition of the debtor. SECTION 4-17. Discharge of the Interim Receiver . Unless discharged by the Commission sooner or for another reason, the Interim Receiver is deemed discharged upon the appointment and qualification of the Rehabilitation Receiver. Unless appointed as the Rehabilitation Receiver, the Interim Receiver shall deliver to the Rehabilitation Receiver the records and properties of the debtor in his custody and control and shall submit to the Commission not later than thirty (30) days from his discharge, his final report and accounting. SECTION 4-18. Rehabilitation Plan . The petitioner shall attach to the petition the proposed rehabilitation plan. If not so attached, the petitioner shall submit it within such time as the Commission may allow serving notice to each creditor of record that the Rehabilitation Plan has been filed with the Commission and that a copy thereof served on the Interim Receiver is available for examination and reproduction. The Rehabilitation Plan shall include (a) the desired business targets or goals and the duration and coverage of the rehabilitation, (b) the terms and conditions of such rehabilitation which shall include the manner of its implementation, (c) the material financial commitments to support the Rehabilitation Plan, (d) a repayment plan for all debts and liabilities including the source of repayment, (e) the means for the execution of the Rehabilitation Plan, which may include conversion of the debts or any portion thereof to equity, restructuring of the debts, dacion en pago , or sale of assets or of the controlling interest, and (f) such other relevant information to enable a reasonable investor to make an informed decision on the feasibility of the Rehabilitation Plan. SECTION 4-19. Comments or opposition to the Rehabilitation Plan . Upon receipt of the notice that the Rehabilitation Plan has been filed with the Commission, every creditor, or interested party of record shall have a period of fifteen (15) days from service thereof to file his comments or opposition to the proposed rehabilitation plan. The Commission shall conduct summary proceedings to receive evidence, if necessary, in hearing the comments and opposition to the Plan. SECTION 4-20. Approval of the Rehabilitation Plan . No Rehabilitation Plan shall be approved by the Commission if opposed by a majority of any class of creditors. The Commission may, upon motion, however, override said disapproval if such is manifestly unreasonable. The Rehabilitation Plan shall be deemed ipso facto disapproved and the petition dismissed if the Commission fails to grant the motion to override within thirty (30) days from the time it is subject for resolution. In approving the Rehabilitation Plan, the Commission 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 monitoring thereof may reasonably require, or for the protection and preservation of the interests of the creditors should the Plan fail. SECTION 4-21. Effect of the approval of the Rehabilitation Plan on the rights of creditors . The approval of the Rehabilitation Plan shall suspend the creditors' claims against the debtor in accordance therewith. Payments to the creditors shall be allowed to the extent called for by the plan. Contracts and other arrangements between the debtor and its creditors shall be interpreted as continuing insofar as they are not in conflict with the provisions of the Plan. Claims incurred after the approval of the Plan and in the implementation thereof are not subject to any suspension order. SECTION 4-22. Revocation of the Rehabilitation Plan on grounds of fraud . On motion or motu proprio , within ninety (90) days from the approval of the Rehabilitation Plan, and after notice and hearing, the Commission may revoke the approval thereof on the ground of fraud. In such case the debtor shall come under the dissolution and liquidation proceedings under Rule V of these Rules. SECTION 4-23. Alteration or modification of the Rehabilitation Plan . An approved Rehabilitation Plan may, on motion, be altered or modified if, in the judgment of the Commission, such alteration or modification is necessary to achieve the desired targets or goals set forth therein. No alteration or modification of an approved Rehabilitation Plan shall be allowed if opposed by a majority of any class of creditors unless such opposition is manifestly unreasonable. SECTION 4-24. Appointment of Rehabilitation Receiver . Unless the Rehabilitation Plan provides a different manner, or the debtor and the creditors have agreed otherwise, the Commission shall appoint a Rehabilitation Receiver to monitor the implementation of the Rehabilitation Plan. In the appointment of the Rehabilitation Receiver, the Commission shall take into consideration the same qualifications as in the case of an Interim Receiver. The provisions of Section 4-13 to Section 4-16 of these Rules shall equally apply to a Rehabilitation Receiver. SECTION 4-25. Powers and Functions of the Rehabilitation Receiver . The Rehabilitation Receiver shall be considered an officer of the Commission tasked to monitor the implementation of Rehabilitation Plan. He shall have the following powers and functions: a. To be notified of, and to attend all meetings of the board of directors or of the stockholders of the debtor; b. To recommend any modification of the Rehabilitation Plan as he may deem appropriate; c. To bring to the attention of the Commission any material change affecting the debtor's ability to meet the obligations under the Plan; d. To recommend the termination of the proceedings and the dissolution of the debtor if it determines that the continuance in business of such entity is no longer feasible or profitable or no longer works to the best interest of the stockholders, parties-litigants, creditors or the general public; e. With prior approval of the commission, to employ the services of accountants, lawyers, appraisers and other professionals to assist him in the performance of his duties and functions under reasonable terms; and f. To exercise such other powers as may from time to time be conferred upon him by the commission. SECTION 4-26. Termination of proceedings . In case of the failure of the debtor to submit the Rehabilitation Plan, or the disapproval thereof by the commission, or the failure of the rehabilitation of the debtor because of failure to achieve the desired targets or goals as set forth therein, or the failure of the said debtor to perform its obligations under the said Plan, or a determination that the Rehabilitation Plan may no longer be implemented in accordance with its terms, conditions, restrictions, or assumptions, the Commission shall upon motion, motu proprio or upon the recommendation of the Interim or Rehabilitation Receiver terminate the proceedings. The proceedings shall also terminate upon the successful implementation of the Rehabilitation Plan. Until the proceedings are terminated, the parties may apply for relief with the Commission by filing in the same proceedings the appropriate pleading therefor. Upon the termination thereof for reason other than the success of rehabilitation, the debtor shall be dissolved and liquidated in accordance with the succeeding Rule. cdll SECTION 4-27. Discharge of the Rehabilitation Receiver . Upon termination of the rehabilitation, the Rehabilitation Receiver shall submit his final report and accounting within such period of time as the Commission will allow him. Upon approval of his report and accounting, the Commission shall order his discharge. RULE V Management Committee SECTION 5-1. Creation of a Management Committee . Upon agreement of the parties, or upon showing that there is imminent danger of dissipation, loss, wastage or destruction of the debtor's assets or those in its legal possession, or paralization of its business operations, the commission may create a Management Committee for the debtor at any time during, the pendency of the petition for suspension of payments or for rehabilitation. SECTION 5-2. Composition of the Management Committee . Unless the parties have agreed otherwise, the Management Committee shall be composed of three (3) members chosen as follows: a. A representative of the secured creditors nominated by the seven (7) creditors holding the largest secured claims; b. A representative of the unsecured creditors nominated by the seven (7) creditors holding the largest unsecured claims; and c. A representative of the debtor nominated by its board of directors. SECTION 5-3. Powers, Functions and Internal Management of the Management Committee . The Management Committee shall have the power to take custody and control of all assets owned or possess by the debtor. It shall take the place of the management and board of directors of the debtor and assume their rights and responsibilities to the extent necessary to operate the business of the debtor and preserve its assets and those in its possession. The Management Committee may overrule or revoke the actions of the previous management or board of directors of the debtor notwithstanding any provisions of law, articles of incorporation, or by-laws to the contrary. The Management Committee shall also discharge the powers of the Oversight Committee, Interim Receiver, or Rehabilitation Receiver, as the case may be. A majority of the members shall be necessary for the Management Committee to act or make a decision. The Chairman or the Management Committee shall be chosen by the members from among themselves. The Committee may delegate its management functions as may be necessary to operate the business of the debtor and preserve its assets. Within a period of thirty days from the appointment of its members, the Management Committee shall make a report to the Commission on whether the current proceedings should be maintained, terminated, or converted to alternative proceedings under these Rules. The Committee may employ the services of accountants, lawyers, appraisers and other professionals to assist it in the performance of its powers and functions under such terms and conditions as it may deem appropriate. The provisions of Section 4-13 to Section 4-16 shall equally apply to the members of the Management Committee. SECTION 5-4. Removal and replacement of a member of the Management Committee . A member of the Management Committee may be removed through the appointment by the Commission of his replacement nominated by the party represented by such member and chosen in accordance with Section 5-2 of these Rules. SECTION 5-5. Discharge of the Management Committee . The Management Committee shall be discharged and dissolved under the following circumstances: a. Whenever the Commission, on motion or motu proprio , has determined that the necessity for the Management Committee no longer exists; b. Upon the appointment of a liquidator under these Rules; c. By agreement of the parties; d. Upon termination of the proceedings. Upon its discharge and dissolution the Management committee shall submit its final report and render an accounting of its management within such reasonable time as the Commission may allow. RULE VI Dissolution and Liquidation SECTION 6-1. Order of dissolution . In case of termination of the proceedings under the foregoing Rule, for a reason other than the success thereof, the commission may, motu proprio , or upon motion by any interested party, or on the basis of the findings and recommendation of the Management committee, Interim Receiver, or Rehabilitation Receiver, as the case may be, that the continuance in business of the debtor is no longer feasible or profitable, or no longer works to the best interest of the stockholders, parties-litigants, creditors, or the general public, order the dissolution of the debtor and the liquidation of its remaining assets appointing a Liquidator for the purpose. SECTION 6-2. Effect of the order of dissolution . Upon issuance of the order of dissolution all the business operations of the debtor shall cease and payments on all its obligations shall be withheld except those which the commission may allow for the maintenance of the value of the properties of the debtor. All of the debtor's property shall be deemed to have been conveyed to the Liquidator in trust for the benefit of creditors, stockholders and other persons in interest. Any lien on or preference to any property shall be recognized by the Liquidator in favor of the security or lienholder, to the extent allowed by law, in the implementation of the liquidation plan. SECTION 6-3. Qualification of Liquidator . The Commission may appoint as Liquidator the Interim Receiver, the Rehabilitation Receiver or any other person who is in the practice of law, accounting or management and who has no conflict of interest as provided in Section 2-6 of these Rules. SECTION 6-4. Powers and functions of the Liquidator . The Liquidator appointed under these Rules shall have the following powers and functions: a. Receive and preserve all assets of the debtor and cause the valuation thereof; b. Submit to the commission within sixty (60) days from his qualification an inventory of all the assets of the debtor describing with sufficient particularity the nature, condition and value thereof; c. Submit to the commission within thirty (30) days from the end of the period for filing of claims a list of all the obligations of the debtor indicating with sufficient particularity the names of the creditors, the nature of the obligations, the amounts thereof and the security given therefor; d. Take the necessary steps to ensure that only just and valid claims against the debtor are paid; e. Take the necessary action to ensure that all moneys or properties belonging to the debtor in the hands of other persons are collected or recovered; f. Submit to the Commission a Liquidation Plan not later than ninety (90) days from his qualification as such Liquidator; g. Represent the debtor in any transaction or conveyance of property or in any case filed by or against the debtor in any tribunal; h. Bring any action on behalf of the debtor to collect, recover or preserve any of its assets, or to resist or defend against any claim; i. To employ such persons as are necessary in the performance of his duties and functions; and j. To perform such other duties and functions as the Commission may from time to time impose on him. The provisions of Section 4-13 through Section 4-16 of these Rules shall apply to the Liquidator whenever appropriate. SECTION 6-5. Order for filing of claims . Immediately upon the qualification of the Liquidator, the Commission shall issue an order fixing the period, the manner, and the place for filing of claims against the debtor. The order shall be served on all creditors or claimants of record and shall be published in at least two (2) newspapers of general circulation in the country at least thirty (30) days before the end of such period. All claims not filed with the Liquidator at the end of such period shall be deemed barred. All claims listed in the Schedule of Debts and Liabilities or filed in the proceedings under Rule III and Rule IV are deemed automatically filed with the Liquidator for the unpaid portion thereof. SECTION 6-6. Liquidation plan . The Liquidation Plan shall set forth in detail the time and manner by which the assets of the debtor are to be liquidated and the time and manner of applying the proceeds thereof. The application of any moneys or property of the debtor as payment for its obligations shall be governed by the provisions of the Civil Code on the concurrence and preference of credits. SECTION 6-7. Hearing on Liquidation Plan . Upon receipt of the Liquidation Plan, the Commission shall issue an order setting a hearing thereon, informing the creditors that said Plan has been submitted and is available for examination and copying, and directing all creditors of record to submit their comment or opposition thereto not later than fifteen (15) days before the date of the hearing. SECTION 6-8. Approval of Liquidation Plan . After considering all the comments or opposition to the Liquidation Plan, the Commission shall issue an order approving it in full or with modification, or returning the same to the Liquidator for revision, imposing such terms and conditions as the Commission may deem appropriate. No part of the Plan shall be altered, or any payment made not in accordance therewith or in violation thereof, without prior approval of the Commission. SECTION 6-9. Disputed claims . A claim which is denied or disputed by the Liquidator shall be determined by the Commission as a separate incident of the proceedings and shall not stay or delay the approval of the Liquidation Plan. The Liquidator, however, shall make provisions for all obligations which are disputed, conditional, or contingent. In case some or all the disputed claims are disallowed, the amounts allotted to them shall revert to the general pool of funds available for payment to all the creditors. SECTION 6-10. Liquidation of property . Every disposition of any property for the purpose of liquidating it shall be with prior approval of the Commission. Provided that nothing in this Rule shall prohibit the liquidator, in accordance with an approved Liquidation Plan, from making a legal transfer of all or some of the property of the debtor into a newly-created, wholly-owned subsidiary of the debtor, for purposes of continuing the operations of the enterprise, or part of it, and selling the shares of the subsidiary in order to pay off creditors of the debtor whenever such conversion of property will work to the best interest of the creditors and stockholders. SECTION 6-11. Termination of proceedings . Upon application of all the assets to all the obligations, the proceedings shall terminate and the Liquidator shall render his final accounting not later than sixty (60) days from such termination. SECTION 6-12. Unclaimed payments . In case the payment for an obligation which was filed and allowed has remained unclaimed for one (1) year from the time it was tendered, the Commission shall cause the publication of a notice in at least two (2) newspapers of general circulation in the country, ordering the creditor to claim his payment during such time and in such place as the Commission may direct and putting him under notice that his failure to do so shall be deemed a condonation of the obligation owing him. In such event, the Commission shall order the Liquidator to make an allocation of the condoned obligation to all the other creditors if their respective claims are not yet fully paid. In case all such other claims have been fully paid, or there is an excess in the condoned obligation after full payment thereof, the excess shall be disposed of in accordance with the Corporation Code. RULE VII Final Provisions SECTION 7-1. Extension of time; adjournment . The Commission may, only upon good cause shown, extend the filing of pleadings and claims or postpone or adjourn a hearing or meeting to another date and time; Provided, however, that such period or periods of extensions or adjournment shall not cause the extension of the maximum period of the suspension order or approval of the rehabilitation plan prescribed in these Rules. SECTION 7-2. Draft decision or orders . Any party applying for or opposing the issuance of an order, resolution, ruling or decision shall attach to his last pleading a draft of the order, ruling, resolution or decision which he desires of the Commission to issue. SECTION 7-3. Severability . Any declaration of invalidity of any of the provisions of these Rules shall not affect the others. SECTION 7-4. Effectivity . These Rules shall be effective fifteen (15) days after the last date of the publication thereof in two (2) newspapers of general circulation in the Philippines. cdll APPROVED: (SGD.) PERFECTO R. YASAY, JR. Chairman (SGD.) FE ELOISA C. GLORIA (SGD.) EDIJER A. MARTINEZ Commissioner Commissioner (SGD.) ROSALINDA U. CASIGURAN (SGD.) DANILO L. CONCEPCION Commissioner Commissioner ANNEX A AFFIDAVIT OF GENERAL FINANCIAL CONDITION 1) Are you an officer of the corporation referred to in these proceedings? 2) What is your full name and what position do you hold in the corporation? 3) What is the full name of the corporation and what is the address of its head office? 4) When was it incorporated? 5) What is the authorized capital of the corporation? 6) What amount of the capital has been subscribed and what amount of the subscribed capital has been paid in full? 7) What amount was paid in cash and what was the consideration for any other issue of the share capital? 8) Does the corporation have a share register containing particulars of the allotment, issue and transfer of all shares? 9) Does it disclose the amount paid on each share of the corporation whether by cash or otherwise? 10) What is the amount, if any, unpaid on the shares of the corporation and by whom are such amounts owing? 11) What are the names of the principal shareholders recorded in the register? 12) Do any of these people hold the shares in trust for others? 13) What are the names of the directors and officers of the corporation? 14) Has the corporation any wholly owned subsidiary corporation? If so, give particulars. 15) Has the corporation or any of its subsidiaries previously made any settlement with creditors? 16) When did the corporation commence business? 17) What is the nature of its business? 18) Has a proper set of books been maintained and are they written up to date? 19) Were the books audited annually? 20) If so, what is the name of the auditor and when was the last audited statement drawn up? 21) Have all proper returns been made to the various government agencies requiring same? 22) When did the corporation first become aware of its problems? 23) Has the corporation made any payments, returned any goods, delivered any property or given any security to any of its creditors in the year period prior to the date of the Petition, except in the normal course of business? 24) Has the corporation within the twelve months preceding the date of this Petition? a) executed any bill of sale or chattel mortgage or pledged any of its property? b) sold, disposed of or removed any of its property except in the ordinary course of trade? If so, give particulars . 25) Has the corporation sold any merchandise at less than fair market value or purchased merchandise or services at more than fair market value? 26) Has the corporation billed and recorded all sales or dispositions of assets in its accounts? 27) Has the corporation made or been a party to any settlement of property within the five years preceding the date of the Petition? If so, give particulars. 28) What are cause of the problems of the corporation? 29) When did you first notice these problems and what action did the corporation take to rectify them? 30) What were the sales for the last three years and what percentage of the sales represented the profit or mark-up? 31) What were the profits or losses for the corporation for the last three years? 32) Have employee wages and salaries been kept current? If not, how much are in arrears and what time period do the arrears represent? 33) Have obligations to the government and its agencies been kept current? If not, how much is in arrears and what time period do the arrears represent? 34) Was there a cash flow profit in any of the last three years? If so, how much?