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Resolving Insolvency in

Philippines

Below is a description of the time, cost and outcome of the most common insolvency proceeding in each economy under the case study assumptions, as well as the strengths and weaknesses in existing insolvency regulations in four areas: commencement of proceedings, management of debtor’s assets, reorganization proceedings and creditor participation.

This information was collected as part of the Doing Business project, which measures and compares regulations relevant to the life cycle of a small- to medium-sized domestic business in 190 economies. The most recent round of data collection was completed in June 2016.

Compare Philippines to 189 other economies.

  • Indicator Explanation Answer
    Recovery rate (cents on the dollar) 21.3
    Proceeding The most likely procedure applicable to our case study would be a reorganization, which will then be converted into a liquidation. Mirage may use the reorganization proceeding to gain time, find a new investor, or renegotiate its debt. Insolvency proceedings will therefore start with Mirage (debtor) filing for court-supervised reorganization with the Regional Trial Court. The court will appoint a rehabilitation receiver who is in charge of determining the viability of Mirage and preparing a Rehabilitation Plan. However, it is very likely that this plan is not approved, and that the case will be converted into liquidation. liquidation (after an attempt at reorganization)
    Outcome The hotel will stop operating and Mirage assets will be sold piecemeal in a public auction upon the completion of the liquidation proceeding. piecemeal sale
    Time (in years) A reorganization procedure that is then converted into liquidation will approximately take 2.7 years in total. According to the Financial Rehabilitation and Insolvency Act (FRIA) of 2010, the court shall have a maximum period of one (1) year from the date of the filing of the petition to confirm a Rehabilitation Plan. If the Rehabilitation plan is not approved, the case will then be converted into liquidation, which can take up to 2 additional years (until the proceeds of the sale are finally distributed among creditors). 2.7
    Cost (% of estate) The costs associated with the case would amount to approximately 32% of the value of the debtor's estate. Cost incurred during the entire insolvency process mainly include attorney fees (10%), official receiver fees (10%), liquidator fees (10%) and fees of auctioneers (1-5%). 32.0
    Answer Score
    Strength of insolvency framework index (0-16) 14.0
    Commencement of proceedings index (0-3) 2.5
    What procedures are available to a DEBTOR when commencing insolvency proceedings? (a) Debtor may file for both liquidation and reorganization 1.0
    Does the insolvency framework allow a CREDITOR to file for insolvency of the debtor? N/A 0.5
    What basis for commencement of the insolvency proceedings is allowed under the insolvency framework? (c) Both (a) and (b) options are available, but only one of them needs to be complied with 1.0
    Management of debtor's assets index (0-6) 5.5
    Does the insolvency framework allow the continuation of contracts supplying essential goods and services to the debtor? Yes 1.0
    Does the insolvency framework allow the rejection by the debtor of overly burdensome contracts? Yes 1.0
    Does the insolvency framework allow avoidance of preferential transactions? Yes 1.0
    Does the insolvency framework allow avoidance of undervalued transactions? Yes 1.0
    Does the insolvency framework provide for the possibility of the debtor obtaining credit after commencement of insolvency proceedings? Yes 1.0
    Does the insolvency framework assign priority to post-commencement credit? (a) Yes over all pre-commencement creditors, secured or unsecured 0.5
    Reorganization proceedings index (0-3) 3.0
    Which creditors vote on the proposed reorganization plan? (b) Only creditors whose rights are affected by the proposed plan 1.0
    Does the insolvency framework require that dissenting creditors in reorganization receive at least as much as what they would obtain in a liquidation? Yes 1.0
    Are the creditors devided into classes for the purposes of voting on the reorganization plan, does each class vote separately and are creditors in the same class treated equally? Yes 1.0
    Creditor participation index (0-4) 3.0
    Does the insolvency framework require approval by the creditors for selection or appointment of the insolvency representative? Yes 1.0
    Does the insolvency framework require approval by the creditors for sale of substantial assets of the debtor? No 0.0
    Does the insolvency framework provide that a creditor has the right to request information from the insolvency representative? Yes 1.0
    Does the insolvency framework provide that a creditor has the right to object to decisions accepting or rejecting creditors' claims? Yes 1.0