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Bankcons Lecture

11/13/2014 8:42:00 PM

BASIC ELEMENTS
Collective procedure
distinguishes insolvency proceedings from other legal procedure
accommodates all those affected and have interest in insolvent debtor
everyone has to participate for the purpose of saving the company
in Philippine system we have different kinds of creditors: secured creditors,
unsecured creditors, employees, fiscal creditors, guarantors of the debtor,
government, commercial and social institutions
Two types:
liquidation (winding-up, bankruptcy)
recuse/rehabilitation/conservatorship/liquidation
problem is time
theres possibility for additional investor
rehabilitation: conservatorship and receivership. if failed, go to liquidation.
only PDIC can only be given task of receivership for banks. considered as
statutory receiver. this is unlike ordinary companies
Liquidation
Insolvency Act has been repealed by FRIA
Process
1. Application to court or tribunal by corporation or by creditors
2. Order or judgment that corporation be liquidated
3. Appointment of independent person to conduct and administer
liquidation (in the Philippines, usually its the sheriff)
4. Immediate closure of business activities
5. Termination of powers of directors and employment
6. Sale of assets
7. Adjudication of claims by creditors
8. Distribution of funds to creditors
i. Preference of distribution
ii. Art 110 LC claims of employees highest priority
iii. SC employees claim only after preferred creditors
9. Ultimate dissolution

Economic theory behind liquidation


Competitive market, an enterprise is unable to compete has no place and
should be removed from market place
Insolvency is principal identifying mark of an uncompetitive enterprise
Another company will put up similar business market will still have G/S
provided by insolvent company
Legal theory
Liquidation process can only function effectively if it is regarded as collective
process from time of its inception
Ordered, civilized administration is necessary under which all creditors
should be bound and treated equally
Rescue
Provides for continuation and not liquidation of an insolvent corporate debtor
Composition (creditors and debtor agree to simple compounding of debt)
Instead of receiving in full, creditor may agree to receive 50% of
debt, extinguishing obligation and making debtor solvent again
Complex reorganization
Debt restructuring
Conversion of debt to equity
Sale of some non-core assets
Closure of non-profitable business
Implies that whatever form of plan, scheme or arrangement creditors will
eventually receive more than if corporation is liquidated
Does not imply that corporation or ownership and management will be
maintained
Only used in Philippines when PD 902-A was issued during time of Marcos
Essential Elements of rescue
1. Voluntary submission by corporation to process
2. Automatic and mandatory stay or suspension of actions and proceedings
against property of corporation affecting all creditors
a. Suspension order / stay order creditors cannot file any case,
decision cannot be executed against company
b. Company is given breathing space to rehabilitate

3.
4.
5.
6.
7.

c. Any kind of claim pecuniary, non-monetary claim, labor claim


d. Even in cases in upper courts are suspended except cases in SC
Continuation of business of corporation either by existing management,
independent manager or combination of both
Formulation of plan which proposes manner in which creditors, equity
holders and corporation will be treated
Consideration of and voting on acceptance of plan by creditors
Judicial sanction of accepted plan
a. Even if creditors reject plan, court can still accept plan
Implementation of plan

Economic theory behind rescue proceedings


Not all enterprises which fail should necessarily be liquidated
Corporation with reasonable prospect of survival should be given that
opportunity
Greater value and greater benefit for creditors in long term in keeping
essential business and other component parts of such corporation
Legal theory
Quick and easy access to process
Sufficient protection for all those involved in the process
Provides structure which permits negotiation of commercial plan
Enables majority of creditors in favor of plan or other course of action to
bind all other creditors by democratic exercise
Provides judicial or other supervision to ensure process is not subject to
unfair manipulation or abuse
Collective nature
DEBT RELIEF PROCEEDINGS
Deciding who to pay, in what order to pay and how much to pay
Efficient and equitable manner
Pro-debtor tries to protect interests of entrepreneurs, promote risk-taking
and investments
Pro-creditor encourages provision of liquidity to business

11/13/2014 8:42:00 PM
Not all banks will have effect on the economy depends on the size
Public confidence in banking system
When public loses confidence they will withdraw their money which will
result in bank run and affect the banking industry
Not much money for lending economic activity will be stagnant
BSP principal and main regulator in the banking industry
SED Supervision and Dept
Every year they will examine banks
Anti-Money Laundering Law
Look into how BSP and PDIC exercise supervisory and regulatory banks in
regulating banks
Ex. legacy group of companies,

11/13/2014 8:42:00 PM
Banks in Distress
Examination of a bank
Declare a bank holiday of 30 days (suspension of payment of
deposits continuously)
Possible that a bank may go immediately to receivership instead of going
first to conservatorship
Examination will happen if there is persistent reports of unsafe and unsound
banking business practices
If you want to question issuance of MB orders, only stockholders of record
representing majority of capital stock may bring petition for certiorari to
question MB order of conservatorship. Bank president cannot file petition
Actions of MB placing bank under conservatorship are final and executor and
thus cannot be restrained and set aside by courts
Order is not frustrated or defeated by incumbent board
Prevent public from knowing of such situation (so as not to create
panic)
Banks being placed under conservatorship and is therefore an exercise of
police power
Instances when conservatorship is terminated

MB is satisfied that institution can continue to operate on its own


MB determines that continuance in business would involve probable
loss to its depositors
MB resolution is summary in nature
Prior hearing will defeat the purpose and efficacy of receivership
Prior hearing will result in bank runs, panic
Procedural rights of bank should not take precedence over
substantive interests of depositors, creditors and stockholders
Effect of receivership

MB will summarily forbid bank from doing business in the


Philippines
One of the reasons of placing bank under receivership is to prevent
creditors from having advantage over assets of the bank
Majority stockholders assail
Remedy is injurious
Conservatorship administrative
Receivership judicial, appointment by court

Only PDIC should be the receiver = statutory receiver for BANKS


Within 90 days, PDIC will decide if they will take over
Duties of receiver
Immediately gather and take charge of all asset and liabilities
Administer assets and liabilities for benefit of creditors
Exercise general powers of receiver under ROC