Dear Atty. Gab,

Musta Atty! I’m writing to you because I’m in a bind and really need some legal advice. My small construction business did some work for a company that was supposed to pay us P500,000. However, before they could pay, I found out they filed for corporate rehabilitation. I received a notice about it but honestly, I didn’t fully understand the implications. I thought I could still pursue my claim.

Now, my lawyer tells me I can’t sue them to collect the debt because of this rehabilitation. I’m confused! Does this mean I’ll never get paid? How can a company just avoid its debts like this? I’m a small business; that money is crucial for my survival. I’m really worried about my family and my employees. Can you please shed some light on this? I’m not sure what my rights are in this situation.

Thank you so much for your time and expertise.

Sincerely,
Ricardo Cruz

Dear Ricardo,

Musta Ricardo! I understand your concern about the unpaid debt and the company’s rehabilitation proceedings. It’s definitely a stressful situation when your business’s finances are on the line. The core issue here revolves around the concept of a “stay order” in corporate rehabilitation, which temporarily suspends all claims against the company to allow it to reorganize its finances.

This doesn’t necessarily mean you’ll never get paid, but it does affect the process and timing of your claim. Let’s break down what this means for you.

Navigating the Corporate Rehabilitation Maze

When a company files for corporate rehabilitation, Philippine law provides a mechanism to help it recover financially. A key component of this process is the issuance of a stay order. This order effectively puts a temporary halt to all legal actions and claims against the distressed company. The primary purpose of this stay order is to allow the company to reorganize and create a plan for paying its debts without being overwhelmed by immediate legal pressures. This is designed to give the company breathing room to get back on its feet.

The reason behind this is to provide the distressed company some reprieve in order to effectively rehabilitate its finances. As the Supreme Court has explained:

“The justification for the suspension of actions or claims, without distinction, pending rehabilitation proceedings is to enable the management committee or rehabilitation receiver to effectively exercise its/his powers free from any judicial or extrajudicial interference that might unduly hinder or prevent the “rescue” of the debtor company.”

This stay order covers a broad range of claims, including those arising from contracts, labor disputes, and other financial obligations. The law makes it clear that the stay order applies to all creditors, regardless of whether they are secured or unsecured. This means that even if you have a valid claim for the work you performed, you are temporarily prevented from pursuing legal action to collect that debt.

The rehabilitation plan, once approved by the court, is binding on all parties involved, including creditors. This means that even if you disagree with the plan or did not participate in its creation, you are still obligated to abide by its terms. This aspect is explained by the Supreme Court in the following passage:

“To stress, the rehabilitation plan, once approved, is binding upon the debtor and all persons who may be affected by it, including the creditors, whether such persons have or have not participated in the proceedings or have opposed the plan or whether their claims have or have not been scheduled. With the approval by the Rehabilitation Court of the plan for the FDPHI Group of Companies, there is nothing left to be done but to enforce the terms and schedule of payment as provided in the said plan.”

The main goal of corporate rehabilitation is to help the company recover and continue operating, and the stay order is a tool to achieve this goal. However, this does not mean creditors are left without recourse. Your claim against the company is not extinguished; it is simply subject to the rehabilitation process.

You need to file your claim with the rehabilitation receiver or the court handling the rehabilitation proceedings. This ensures that your debt is recognized and included in the company’s rehabilitation plan. This plan will outline how the company intends to repay its debts, potentially involving a restructuring of payment terms, debt-to-equity conversions, or other arrangements.

Furthermore, the Supreme Court emphasized that any enforcement is suspended to allow the corporation to focus on its financial recovery:

“Thus, petitioner’s action to collect the sum owed to it is not exempted from the coverage of the stay order. The enforcement of petitioner’s claim through court action is likewise suspended to give way to the speedy and effective rehabilitation of the FDPHI Group of Companies.”

Filing your claim in the rehabilitation proceedings ensures you are part of the process and will potentially receive payment as outlined in the approved plan.

Practical Advice for Your Situation

• File Your Claim Immediately: Don’t delay in filing your claim in the rehabilitation proceedings. Time is often of the essence in these situations.
• Attend Creditors’ Meetings: Participate in any meetings of creditors to stay informed about the progress of the rehabilitation and to voice your concerns.
• Review the Rehabilitation Plan: Carefully examine the proposed rehabilitation plan to understand how your claim will be treated and what you can expect in terms of payment.
• Seek Legal Counsel: Given the complexities of corporate rehabilitation, it’s best to consult with your lawyer to ensure your rights are protected and to navigate the legal process effectively.
• Consider Negotiation: Explore the possibility of negotiating with the company or the rehabilitation receiver to reach a mutually agreeable resolution that aligns with the overall rehabilitation plan.

I understand this is a difficult situation, Ricardo, but remember that the rehabilitation process is designed to give the company a chance to recover while still addressing its obligations to creditors like you. By actively participating in the proceedings and seeking sound legal advice, you can increase your chances of recovering at least a portion of the debt owed to your business. In fact the goal of suspension of actions is to allow the rehabilitation receiver to effectively exercise his/her powers:

“To allow such other actions to continue would only add to the burden of the management committee or rehabilitation receiver, whose time, effort and resources would be wasted in defending claims against the corporation instead of being directed toward its restructuring and rehabilitation.”

Sincerely,
Atty. Gabriel Ablola

For more specific legal assistance related to your situation, please contact me through gaboogle.com or via email at connect@gaboogle.com.

Disclaimer: This correspondence is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please schedule a formal consultation.