DIME & EVIOTA LAW FIRM

Corporate Rescue and the New Financial Rehabilitation and Insolvency Act of 2010
[A DLDTE LAW CLIENT PAPER]
Ronald B. Dime

2010

2/F MIDWAY

COURT BLDG.,

241

EDSA MAND. CITY, PHILS.

Corporate Rescue and the New Financial Rehabilitation and Insolvency Act of 2010
I. INTRODUCTION: A BRIEF HISTORY

2010

For a long time, a distressed corporation in the Philippines had no other real recourse than to commit legal seppuku, whether or not its financial condition was due to the fundamental unsoundness of its business or merely a temporary run in with bad luck. This lack of any real corporate rescue vehicle characterized the legal environment that prevailed under the regime of Act No. 1956 (otherwise known as the “Insolvency Law”) from the time of its enactment on 20 May 1909 until the early 1980s1. Act 1956 by itself introduced major changes to corporate law and removed the distinction in the Spanish system between “insolvency” and “bankruptcy.” Nonetheless, the Insolvency Law’s approach to corporate rescue was simply to provide a “solvent but illiquid” debtor temporary relief from payment of its debts while an “insolvent” corporation was forced to undertake a gradual and organized liquidation process2.

The Insolvency Law of the Philippines is in fact a derivative of even older laws from other jurisdictions, such as the California Insolvency Law of 1895 and the American bankruptcy Act of 1867 [See Sun Life Assurance Co. of Canada v. Frank B Ingersoll, et. al.; GR No. 164758 (November 1921)]
2

1

The three main remedies under Act 1956 are:

a) Petitions for the suspension of payments by an individual, sociedad or corporation under Section 2 of the Insolvency Law: Section 2. The debtor who, possessing sufficient property to cover all his debts, be it an individual person, be it a sociedad or corporation, foresees the