Article 56Supplement v1, p. 56

COMMERCIAL LAWS SUPPLEMENT

accordance with the order prescribed under the rules of

concurrence and preference of credits.

SECTION 54. Post-commencement Interest. — The rate

and term of interest, if any, on secured and unsecured

claims shall be determined and provided for in the

approved Rehabilitation Plan.

SECTION

55.

Post-commencement

Loans

and

Obligations. — With the approval of the court upon the

recommendation

of

the

rehabilitation

receiver,

the

debtor, in order to enhance its rehabilitation, may:

(a) enter into credit arrangements; or

(b) enter into credit arrangements, secured by mortgages

of its unencumbered property or secondary mortgages of

encumbered property with the approval of senior secured

parties with regard to the encumbered property; or

(c) incur other obligations as may be essential for its

rehabilitation.

The

payment

of

the

foregoing

obligations

shall be

considered administrative expenses under this Act.

SECTION

56.

Treatment

of

Employees,

Claims.

—

Compensation of employees required to carry on the

business shall be considered an administrative expense.

Claims of separation pay for months worked prior to the

commencement

date

shall

be

considered

a

pre-commencement

claim.

Claims

for

salary

and

separation

pay

for

work

performed

after

the

commencement date shall be an administrative expense.

SECTION 57. Treatment of Contracts. — Unless cancelled

by virtue of a final judgment of a court of competent

jurisdiction

issued

prior

to

the

issuance

of

the

Commencement Order, or at anytime thereafter by the

court before which the rehabilitation proceedings are

pending, all valid and subsisting contracts of the debtor

with

creditors

and

other

third

parties

as

at

the

commencement

date

shall

continue

in

force:

Provided, That

within

ninety

(90)

days

following

the

commencement of proceedings, the debtor, with the

consent of the rehabilitation receiver, shall notify each

contractual counter-party of whether it is confirming the

particular contract. Contractual obligations of the debtor

arising or performed during this period, and afterwards

for

confirmed

contracts,

shall

be

considered

administrative expenses. Contracts not confirmed within

the required deadline shall be considered terminated.

Claims for actual damages, if any, arising as a result of the

election to terminate a contract shall be considered a

pre-commencement claim against the debtor. Nothing

contained

herein

shall

prevent

the

cancellation

or

termination of any contract of the debtor for any ground

provided by law.

(G) Avoidance Proceedings.

SECTION

58.

Rescission

or

Nullity

of

Certain

Pre-commencement Transactions. — Any transaction

occurring prior to commencement date entered into by

the debtor or involving its funds or assets may be

rescinded or declared null and void on the ground that

the same was executed with intent to defraud a creditor

or creditors or which constitute undue preference of

creditors. Without limiting the generality of the foregoing,

a disputable presumption of such design shall arise if the

transaction:

(a) provides unreasonably inadequate consideration to

the debtor and is executed within ninety (90) days prior to

the commencement date;

(b) involves an accelerated payment of a claim to a

creditor

within

ninety

(90)

days

prior

to

the

commencement date;

(c)

provides

security

or

additional

security executed

within ninety (90) days prior to the commencement date;

(d)

involves

creditors,

where a creditor obtained, or

received the benefit of, more than its pro rata share in

the assets of the debtor, executed at a time when the

debtor was insolvent; or

(e) is intended to defeat, delay or hinder the ability of the

creditors

to

collect

claims

where

the

effect

of the

transaction is to put assets of the debtor beyond the

reach of creditors or to otherwise prejudice the interests

of creditors.

Provided, however, That nothing in this section shall

prevent the court from rescinding or declaring as null

and void a transaction on other grounds provided by

relevant legislation and jurisprudence: Provided, further,

That the provisions of the Civil Code on rescission shall in

any case apply to these transactions.

SECTION 59. Actions for Rescission or Nullity. — (a) The

rehabilitation receiver or, with his conformity, any creditor

may initiate and prosecute any action to rescind, or

declare null and void any transaction described in Section

58 hereof. If the rehabilitation receiver does not consent

to the filing or prosecution of such action, any creditor

may seek leave of the court to commence said action.

(b) If leave of court is granted under subsection (a), the

rehabilitation receiver shall assign and transfer to the

creditor all rights, title and interest in the chose in action

or

subject

matter

of the proceeding, including any

document in support thereof.

(c) Any benefit derived from a proceeding taken pursuant

to subsection (a), to the extent of his claim and the costs,

belongs

exclusively

to

the

creditor

instituting

the

proceeding, and the surplus, if any, belongs to the estate.

(d) Where, before an order is made under subsection (a),

the rehabilitation receiver (or liquidator) signifies to the

court his readiness to institute the proceeding for the

benefit of the creditors, the order shall fix the time within

which he shall do so and, in that case, the benefit derived

from the proceeding, if instituted within the time limits

so fixed, belongs to the estate.

(H) Treatment of Secured Creditors.

SECTION 60. No Diminution of Secured Creditor Rights. —

The issuance of the Commencement Order and the

Suspension or Stay Order, and any other provision of this

Act, shall not be deemed in any way to diminish or impair

the security or lien of a secured creditor, or the value of

his lien or security, except that his right to enforce said

security or lien may be suspended during the term of the

Stay Order.

The

court, upon motion or recommendation of the

rehabilitation receiver, may allow a secured creditor to

enforce his security or lien, or foreclose upon property of

the debtor securing his/its claim, if the said property is

not necessary for the rehabilitation of the debtor. The

secured creditor and/or the other lien holders shall be

admitted to the rehabilitation proceedings only for the

balance of his claim, if any.

SECTION 61. Lack of Adequate Protection. — The court, on

motion or motu proprio, may terminate, modify or set

conditions for the continuance of suspension of payment,

or relieve a claim from the coverage thereof, upon

showing that:

(a) a creditor does not have adequate protection over

property securing its claim; or

(b) the value of a claim secured by a lien on property

which is not necessary for rehabilitation of the debtor

exceeds the fair market value of the said property.

For purposes of this section, a creditor shall be deemed to

lack adequate protection if it can be shown that:

(a) the debtor fails or refuses to honor a pre-existing

agreement

with

the

creditor

to

keep

the

property

insured;

(b) the debtor fails or refuses to take commercially

reasonable steps to maintain the property; or

© Compiled by RGL

56 of 203