TOPICS: FRIA

1. Define rehabilitation -Restoration of debtor to condition of solvency and successful operation provided
that:

a) continuation of operation is economically feasible and;

b) creditors can recover more if the debtor continues as a going concern instead of being liquidated

2. Explain nature rehab/liquid/suspension

Liquidation- selling of insolvents assets and thereof to creditors

Suspension of payment - remedy available to INDIVIDUAL DEBTOR to suspend payments outside of

necessary expenses while proceedings are pending.
-not available to corporations, partnerships, etc.
-individual debtor possesses SUFFICIENT PROPERTY to pay debts but foresees impossibility of meeting
them when they fall dues.
-ILLIQUIDITY, not Bankruptcy
-petition for suspension of payment is always VOLUNTARY

3. 2 fold purpose corp rehab

two-pronged purpose, namely: (a) to efficiently and equitably distribute the assets of the insolvent
debtor to its creditors; and (b) to provide the debtor with a fresh start

4. Doctrine equality is equity - During rehabilitation receivership, the assets are held in trust for the
equal benefit of all creditors to preclude one from obtaining an advantage or preference over another
by the expediency of an attachment, execution or otherwise.

As between the creditors, the key phrase is "equality is equity." When a corporation threatened by
bankruptcy is taken over by a receiver, all the creditors should stand on equal footing. Not anyone
of them should be given any preference by paying one or some of them ahead of the others.

5. Can you file rehab after liquid? Vice versa?

Rehab to liquidation: YES

A) The court may convert the rehab proceedings into one for the liquidation of the debtor upon a finding
that:
(1) the debtor is insolvent; and
(2) there is no substantial likelihood for the debtor to be successfully rehabilitated as determined in
accordance with the rules to be promulgated by the Supreme Court.

B) If no Rehabilitation Plan is confirmed within the said period, the proceedings may upon motion or motu
propio, be converted into one for the liquidation of the debtor
C) FOR VOLUNTARY REHAB PROCEEDINGS, he debtor may also initiate liquidation proceedings by
filing a motion in the same court where the rehabilitation proceedings are pending to convert the
rehabilitation proceedings into liquidation proceedings.

D)That if the termination of proceedings is due to failure of rehabilitation or dismissal of the petition for
reasons other than technical grounds, the proceedings shall be immediately converted to liquidation as
provided in Section 92 of this Act.

NO liquidation to rehab. (no basis, but because of its nature)

8. VOTING REQUIREMENTS

Court supervised rehab voting req

Section 12. Petition to Initiate Voluntary Proceedings by Debtor. -

-When approved by the owner in case of a sole proprietorship,
-or by a majority of the partners in case of a partnership,
-or in case of a corporation, by a majority vote of the board of directors or trustees and authorized by the
vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock,
-or in case of nonstock corporation, by the vote of at least two-thirds (2/3) of the members, in a
stockholder's or member's meeting duly called for the purpose

9. Pre-negotiated rehab voting req

Section 76. Petition by Debtor. -

An insolvent debtor, by itself or jointly with any of its creditors,
-endorsed or approved by creditors holding at least two-thirds (2/3) of the total liabilities of the debtor,
including secured creditors holding more than fifty percent (50%) of the total secured claims of the
debtor and unsecured creditors holding more than fifty percent (50%) of the total unsecured claims of
the debtor.

10. Out of court rehab voting req

Section 84. Minimum Requirements of Out-of-Court or Informal Restructuring Agreements and

Rehabilitation Plans.-
(a) The debtor must agree to the out-of-court or informal restructuring/workout agreement or
Rehabilitation Plan;
(b) It must be approved by creditors representing at least sixty-seven (67%) of the secured obligations of
the debtor;
(c) It must be approved by creditors representing at least seventy-five percent (75%) of the unsecured
obligations of the debtor; and
(d) It must be approved by creditors holding at least eighty-five percent (85%) of the total liabilities,
secured and unsecured, of the debtor.

CORPO
1)Narra Nickel Mining vs Redmont, 2015: Grandfather Rule may be Applied Cumulatively with the
Control Test in Determining the Ownership of Corporations Engaged in Nationalized Activities

The Strict Rule or the Grandfather Rule pertains to the portion in Paragraph 7 of the 1967 SEC Rules which
states, but if the percentage of Filipino ownership in the corporation or partnership is less than 60%,
only the number of shares corresponding to such percentage shall be counted as of Philippine
nationality. Under the Strict Rule or Grandfather Rule Proper, the combined totals in the Investing
Corporation and the Investee Corporation must be traced (i.e., grandfathered) to determine the total
percentage of Filipino ownership.

2) Apparent Authority: Under the rule, the principal is bound by the acts of his agent with the apparent
authority which he knowingly permits the agent to assume, or which he holds to the agent out to the
public as possessing.

What is business judgment rule?

General Rule: Courts will not interfere in the decisions made by the BOD as regards the internal affairs of
the corporation

Exception: Unless such contracts are so unconscionable and oppressive as to amount to a wanton
destruction of rights of the minority.

The corporate opportunity doctrine is the legal principle providing that directors, officers, and
controlling shareholders of a corporation must not take for themselves any business opportunity that
could benefit the corporation. The corporate opportunity doctrine is one application of the fiduciary
duty of loyalty.

3) If that act is one which is lawful in itself, and not otherwise prohibited, is done for the purpose of serving
corporate ends, and is reasonably tributary to the promotion of those ends, in a substantial, and not in a
remote and fanciful, sense,

The test to be applied is whether the act in question is in direct and immediate furtherance of the
corporations business, fairly incident to the express powers and reasonably necessary to their exercise.
If so, the corporation has the power to do it; otherwise, not.

4) Trust Fund Doctrine - the subscribed capital stock of the corporation is a trust fund for the payment of
debts of the corporation which the creditors have the right to look up to satisfy their credits. Corporations
may not dissipate this and the creditors may sue the stockholders directly for their unpaid subscriptions.

5) Can corporation recover moral damages?

As a rule, moral damages are not awarded to a corporation unless it enjoyed good reputation that the
offender debased and besmirched by his actuations. the grant of moral damages to corporations, it is not
automatically granted there must still be proof of the existence of the factual basis o! the damage and its
causal relation to the defendants acts.

6) piercing the corporate veil.

-when the corporation is just an alter ego of a person or of another corporation.
- to perpetuate fraud, defeat public convenience, justify wrong,
- evade a just and valid obligation or defend a crime.