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Passage of Corporate Recovery Bill is a timely measure--Saludo

MANILA, Feb. 4 (PNA)— Malacanang said on Thursday that the passage of the Corporate Recovery Bill of Congress is a timely measure that will help preserve jobs and growth amid business troubles caused by the global recession and the calamities of recent years.

Deputy Presidential Spokesman Ricardo Saludo said in a media briefing on Thursday, the Palace would look at the fine print of bill for presidential review of the legislation passed by Congress.

”But we fully agree with the intent of our lawmakers to widen the options for troubled enterprises seeking a way forward from their predicaments which would preserve enterprise value, provide for the welfare of workers, and restore competitiveness and profitably where possible,” Saludo said.

He also said, President Gloria Macapagal-Arroyo will exercise her prerogative to review the bill.

On Wednesday, Congress approved an overhaul of the century-old law governing the rehabilitation or liquidation of the cash-stripped firms.

The Financial Rehabilitation and Insolvency Act now requires courts to approve or reject corporate rehabilitation proposals within a year and gives firms more options on how to get out of financial trouble. Moreover, sole proprietorships may now avail themselves of rehabilitation just like corporations and partnerships.

The Corporate Recovery Act, which was approved by the Senate on Tuesday night, will replace the Insolvency Law of 1909 once President Arroyo signed it into law.

The House of Representatives passed it on third reading last Monday. Both versions are identical, removing the need for a bicameral committee and sending the bill straight to the President.

Debtors may opt for a court-supervised rehabilitation if they are able get more than 50 percent to 67 percent creditor approval. Courts are given a maximum period of one year to approve or reject a rehabilitation plan.

Alternately, firms and their creditors may negotiate and then secure court approval as long as more than 67 percent to 85 percent of creditors consent. The court is given only 120 days to approve or reject the plan. If a debtor secures more than 85 percent creditor approval, all parties may go for out-of-court or informal rehabilitation.

If creditors opt to forgive debts, the reduction in debt is not subject to tax on the part of either the creditor or the debtor. The last option is to liquidate the firm due to insolvency.

In the rules and procedures of corporate rehabilitation revised by the Supreme Court in 2008, options include only creditor-initiated rehabilitation, pre-negotiated rehabilitation, and the debtor-initiated rehabilitation, as well as liquidation.

Rehabilitation proceedings allow firms to obtain a court order stopping creditors from enforcing their claims, and provides for an orderly settlement of debts.

Aurora Representative Juan Edgardo Angara, sponsor of the bill in the lower house said, it will be good for business because there is limited period for the creditors and debtors.

Meanwhile, the Philippine Stock Exchange welcomed the passage of the Corporate Recovery bill.

"Congress’ approval of the bill is a significant leap forward in our goal to recover value for shareholders of listed firms that may have gone underwater because our vintage 1909 Insolvency Law was simply obsolete," the PSE said in a statement.

"This will prevent situations like the Uniwide Group rehabilitation where the dismissal of the petition takes place only after a significant number of years," the PSE also said.

Angara, on the other hand, said that “our banks and other lenders will be incentivized to lend at cheaper rates knowing in advance that their rights as creditors are protected and that there is a modern law that will facilitate an orderly and speedy debt resolution system.”

In another statement, outgoing PSE chief Francis Ed. Lim said that "investors are reluctant to invest in financially distressed companies because there is no adequate protection for the money that they put in to help rehabilitate the company."

“Individuals who suffer from liquidity problems can petition for suspension of payments or if their assets are less than their liabilities, they can ask for a discharge from their debts for a new lease on life, "Lim said. (PNA)
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