After reading this article about ways to impede business closure, read also: ROLE OF EMPLOYERS AND WORKERS IN THE WORKPLACE DURING COVID-19
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Insolvency is when debtors are incapable to pay their liabilities as they fall due or when their liabilities are greater than their assets
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There are remedies available to insolvent debtors/creditors to save their business
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These remedies are either voluntary or involuntary
Managing the business which is or one among the source(s) of bread and butter is obviously being challenged this time of Covid-19 Pandemic.
Would you rather save your business establishment knowing that there are ways and there are employees who depend on its operation, or would you rather close it to avoid future and serious losses?
Suppose a businessman or an employer who is an insolvent yet opted to save its business, are there any legal tools to support him save his business venture?
The law says:
Yes.
In fact, the remedy depends on whether the employer who wants to save the business is an individual or a corporation. The remedies are the following:
1. Suspension of Payments
– This remedy is available to individual debtors and is done by filing a Petition for Suspension of Payments before the court. This is proper when the individual debtor has assets that exceed his liabilities, but foresees the impossibility of paying his debts when they fall due. It may be voluntarily filed by the individual debtor himself or may be filed by his creditors.
– In such suspension of payments, the payment of debts will be deferred until such time that the debtor possesses sufficient property to cover all its debts and is able to convert such assets into cash or otherwise acquires the cash necessary to pay its debts.
2. Financial Rehabilitation
– It is done by filing a Petition for Rehabilitation. This remedy or proceeding aims to restore the debtor to its former healthy financial condition, if it is shown that its continuance of operation is economically feasible and its creditors can recover by way of the present value of payments as projected in the Rehabilitation Plan.
There are three kinds of Rehabilitation proceedings:
a. Court-Supervised Rehabilitation
– As the title connotes, the rehabilitation is coursed through courts by filing of a Petition for Rehabilitation, which must be accompanied by a Rehabilitation Plan. In the Rehabilitation Plan, the insolvent debtor should lay down or specify his plan in bringing back the establishment or entity to its former healthy financial condition. If the court is satisfied, it will appoint a Rehabilitation Receiver who shall be deemed the officer of the court with the principal duty of preserving and maximizing the value of the assets of the debtor. The petition may be filed either by the insolvent debtor or his creditors.
What are the benefits of this kind of rehabilitation proceeding to the debtor?
Among the benefits are the following:
• Actions to enforce claims against the debtor may be suspended or prohibited
• The debtor is exempt from the payment of taxes and fees, including penalties, interest and charges, to the government
• The debtor is allowed to maintain its assets instead of being liquidated
• The debtor is given a chance to re-engage the market, hopefully with more vigor and enlightened services, having learned from a painful experience
b. Pre-Negotiated Rehabilitation
¬- It is done by filing a Petition with the court for the approval of a Pre-Negotiated Rehabilitation Plan. This is a proceeding which involves the confirmation by the court of a Rehabilitation Plan that was already pre-negotiated by the debtor and its creditors. The Petition may be filed by the debtor or jointly with its creditors.
c. Out-of-Court Rehabilitation or Informal Agreement or Rehabilitation Plan
– Obviously, this remedy does not involve the use of court processes. Thus, the insolvent debtor and its creditors can still save themselves from additional expenses that they may incur by reason of involvement in court proceedings. In addition, it has the following minimum requirements:
• The debtor must agree to the out-of-court or informal restructuring/workout agreement or Rehabilitation Plan
• It must be approved by creditors representing at least sixty-seven (67%) of the secured obligations of the debtor
• It must be approved by the creditors representing at least seventy-five (75%) of the unsecured obligations of the debtor; and
• It must be approved by the creditors holding at least eighty-five (85%) of the total liabilities, secured and unsecured, of the debtor
– This remedy does not need the appointment of a Rehabilitation Receiver as the negotiations will be conducted by the parties independently.
Having presented you the tools in saving the business, would you still opt to close the same?
Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.
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