ANGARA: GLOBAL FINANCIAL INSECURITY CALLS FOR EFFECTIVE INSOLVENCY PROCEDURE

With the absence of effective and orderly insolvency procedures for ailing companies, Senator Edgardo J. Angara reiterated his call for investor protection and rehabilitation of troubled companies through better insolvency procedures.

The Corporate Recovery and Insolvency Act was approved by the Senate last night on second reading. The bill seeks to provide a comprehensive, systematic, speedy and cost-effective framework for insolvency procedures through a four-pronged approach: fast-track rehabilitation, court-supervised rehabilitation, pre-arranged rehabilitation, or liquidation.

"This bill will modernize our archaic, 100-year old insolvency law and give ailing companies a second chance at life. The quick resolution of financial dilemmas is especially important now, in the wake of the global financial crisis that has caused many companies to go under," said Angara, author and sponsor of the bill.

He added, "The inadequacy and unresponsiveness of the current insolvency proceedings - against the backdrop of a rapidly modernizing business environment - threatens the survival of troubled companies. They have no choice but to liquidate."

The present insolvency regime provides limited solutions to business entities and is thus unable to rescue enterprises from financial turmoil, as well as to safeguard the rights to claim of many clients.

According to Senate Bill no. 61, an insolvent debtor may apply for and seek rehabilitation. If the court finds the petition to be sufficient in form and substance, it shall, within five working days from the filing of the petition, issue a Commencement Order, it will then fall under for suspension or stay order.

Within forty days from the initial hearing, and with or without the comments of the creditors, rehabilitation receiver shall submit a report to the court stating preliminary findings and recommendations on whether:

(a)The debtor is insolvent and if so, the causes thereof and any unlawful or irregular act or acts committed by directors or officers in contemplation of the insolvency of the debtor or which may have contributed to the insolvency of the debtor;

(b) The underlying assumptions, the financial goals and the procedures to accomplish such goals as stated in the petitioner's rehabilitation plan are realistic, feasible and reasonable;

(c) There is a substantial likelihood for the debtor to be successfully rehabilitated;

(d) The petition should be dismissed;

(e) The debtor should be dissolved and liquidated.

The court then will either dismiss or converse the proceeding. In line with the nitty-gritty proceeding, parties that are involved will be placed on a criteria based to ensure equity and fairness through out the proceeding.

Angara emphasized, "Without effective procedures that are applied in a consistent manner, creditors may be unable to collect on their claims, which will adversely affect the future availability of credit. Without orderly procedures, the rights of the debtors may not be adequately protected and different creditors may not be treated equitably."

"The Corporate Recovery and Insolvency Act shall provide the remedies that have already proven to be effective in other jurisdictions. By resolving corporate financial difficulties and salvaging financially distressed enterprises, the measure will foster growth and competitiveness," said Angara, who chairs the Senate Committee on Finance.