Press Release
December 7, 2008

Financial Reforms should continue

Sen. Edgardo J. Angara said today that the failure of the country to institute financial reforms including the needed changes in the country's insolvency proceedings could be harmful to the Philippine economy and financial system especially during this time of Global Financial Crisis.

"The Insolvency Law of 1909 is as old as the University of the Philippines (UP), and will reach century mark next year. This underscores the urgent need to institute effective and orderly insolvency procedures, especially during these times of economic and financial crises. Without effective procedures that are applied in a consistent manner, creditors may be unable to collect on their claims, which will adversely affect the future availability of credit," said Angara who chairs the Senate Committee on Banks, Financial Institutions and Currencies.

He added, "Without orderly procedures, the rights of the debtors may not be adequately protected and different creditors may not be treated equitably. On the other hand, the consistent application of orderly and effective insolvency procedures plays a critical role in fostering growth and competitiveness and may also assist in the prevention and resolution of financial crises."

According to the 2008 Doing Business survey of World Bank and the International Finance Corp, the Philippines is lagging behind its Asian counterparts in terms of ease in doing business. The country's ranking went down to 140th from 133rd in terms of the ease of doing business which looked at 181 nations from June 2007 to June 2008.

One of the areas wherein the Philippines lagged was in the time and cost of closing down a business.

An outdated Insolvency Law, which was passed in 1909, guides the insolvency proceedings in the Philippines. It vested the courts with jurisdiction over petitions for insolvency and suspension of payments. Subsequently, Presidential Decree No 902-A ("PD 902-A"), passed in 1976 and amended in 1981, vested the Securities and Exchange Commission ("SEC") with jurisdiction over petitions for suspension of payments and rehabilitation filed by corporations, partnerships, and associations.

The Securities Regulation Code, which took effect on August 8, 2000, transferred jurisdiction over petitions for suspension of payments and rehabilitation for corporations and partnerships from the SEC to the regular courts. Thereafter, the Supreme Court has released the rules of procedure for rehabilitation proceedings.

"The legislative framework of our insolvency proceedings is sorely outdated. Likewise, it is inadequate and unresponsive to the modern business trends and it is generally unable to provide quick resolution of financial dilemmas," said Angara.

He noted that during the economic crisis of 1997 and 1998 the inadequacy and unresponsiveness of the outdated insolvency proceedings were deeply felt when long-drawn out proceedings following corporate failures caused immense waste of resources.

Angara recently filed a bill which seeks to establish a more systematic framework for insolvency proceedings and provide equitable treatment to all parties involved in a financial restructuring or rehabilitation, Through the updated insolvency law, chances for the survival of the company concerned is maximized by providing an ailing enterprise four different remedies including fast-track rehabilitation; court-supervised rehabilitation; pre-negotiated rehabilitation; and dissolution-liquidation.

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