Rules of Procedure on Corporate Rehabilitation

Section 1

For purpose of these Rules: "Administrative Expenses" shall refer to (a) reasonable and necessary expenses that are incurred in connection with the filing of the petition; (b) expenses incurred in the ordinary course of business after the issuance of the stay order, excluding interest payable to the creditors for loans and credit accommodations existing at the time of the issuance of the stay order, and (c) other expenses that are authorized under this Rules. "Affidavit of General Financial Condition" shall refer to a verified statement on the general financial condition of the debtor required in Section 2, Rule 4 of these Rules. "Affiliate" is a corporation that directly or indirectly, through one or more intermediaries, is controlled by, or is under the common control of another corporation, which thereby becomes its parent corporation. "Asset" is anything of value that can be in the form of money, such as cash at the bank or amounts owed; fixed assets such as property or equipment; or intangibles including intellectual property, the book value of which is shown in the last three audited financial statement immediately preceding the filing of the petition, In case the debtor is less than three years in operation, it is sufficient that the book value is based on the audited financial statement\s for the years or year immediately preceding the filing of petition, as the case may be. "Board of Directors" shall include the executive committee or the management of partnership or association "Claim" shall include all claims or demands of whatever nature or charter against a debtor or its property, whether for money or otherwise "Control" is the power of a parent corporation to direct or govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. Control is presumed to exit when the parent owns, directly or indirectly though subsidiaries, more than one - half (½) of the voting power of the voting power of an enterprise unless, unless, in exceptional circumstances, it can clearly be demonstrated that such own ship does not constitute control. Control also exits even when the parents owns one-half (1/2) or less of the voting power of an enterprise when there is power. (A) Over more than one-half (½) of agreement with investors; (B) To direct or govern the financial and operating policies of the enterprise under a statute or agreement; (C) To appoint or remove the majority of the member of the board of directors or equivalent governing body; or (D) To cast the majority votes at meeting of the board of directors or equivalent governing body. "Creditor" shall mean any holder or a Chain "Court" shall refer to the proper Regional Trial Court designated to hear and decide the cases contemplated contemplated under these Rules. "Days" shall refer to calendar days unless otherwise provided in these Rules. "Debtor" shall mean any corporation, partnership or association or a group of companies, whether supervised or regulated by the Securities and Exchange Commission or other government agencies, on whose behalf a petition for rehabilitation has been filed under these rules. "Foreign count" means a judicial or other authority competent to control or supervise a foreign proceeding. "Foreign proceeding" means a collective judicial or administrative proceeding in a foreign State, interim proceeding, pursuant to a law re solvency in which proceeding the assets and affairs of the debtor are subject to control or supervision by a foreign count, for the purpose of rehabilitation or re-organization. "Foreign Representative" means person or entity, including one appointed on an interim basis, authorized in a foreign proceeding to administer the reorganization or rehabilitation of the debtor or act as a representative of the foreign proceeding. "Group of companies" refers to, and can cover only, corporation that are financially refers to, and can cover only, corporations that are financially rated to one another as parent corporation, subsidiaries and affiliates. When the petition covers a group of companies, all reference under these Rules to "debtor" shall include and apply include and apply to the group of companies. "Liabilities" shall refer to monetary claims against the debtor, including stockholders advances that have been recorded in the debtor's audited financial statements as advances for subscription. "Parent" is a corporation directly or indirectly though one or more intermediaries. "Rehabilitation" shall mean the restoration of the debtor to a position of successful operation and solvency, 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 projected in the plan more if the corporation continues as a going concern than if it immediately liquidated. "Secured claim" shall refer to any clan whose payment or fulfillment is secured by contract or by law, including any clam or credit enumerated under Articles 2241 and 2242 of the civil Code and Article 110, as amended, of the Labor code of the Philippines. "Subsidiary" mean a corporation more than fifty percent (50%) of the voting stock of which is owned or controlled directly or indirectly though one or more intermediaries by another corporation "Unsecured clan" shall mean any clan other than a seared claim.

Section 1

Any proceeding initiated under these Rules shall be considered in rem. Jurisdiction over all persons affected by the proceeding shall be considered as acquired upon publication of the notice of the commencement of the proceedings in any newspaper or general circulation in the Philippines in the manner prescribed by these rules. The proceedings shall also be summary and non-adversarial in nature. The following pleading are prohibited: (a) Motion to dismiss; (b) Motion for a bill of particulars: (c) Petition for relief; (d) Motion for extension; (e) Motion for postponement (f) Third-party complaint; (g) Intervention; (h) Motion to hear affirmative defenses; and (I) Any pleading or motion which is similar to or of like effect as any of the foregoing. Any pleading, motion, opposition, defense or claim filed by any interested party shall be supported by verified statements that the affiant has read same and that the factual allegations therein are true and correct of his personal knowledge or based on authentic records, and correct of his personal knowledge or based on authentic records, and shall contain as annexes such documents as may be deemed by the party court may be decide matters on the basis of affidavits and other documentary evidence. Where necessary, the court shall conduct clarificatory hearings before resolving any matter submitted to it for resolution.

Section 2

These Rules shall be liberally construed to carry out the objectives of Section 5(d), 6(d) and 6(d) of Presidential Decree No. 902-A, as amended, and to assist the parties in obtaining a jut, expeditious and inexpensive determination of case. Where applicable, the Rules of Court shall apply supplementary to proceedings under these Rules. RULES 3 GENERAL PROVISIONS

Section 2

Petitions for rehabilitation pursuant to these Rules shall be filed in the regional trial court which has jurisdiction over the principal office of the debtor as specified in its articles of incorporation or partnership. Where the principal office of the corporation, partnership or association is registered in the Securities and Exchange Commission as Metro Manila, the action must be filed in the regional trial court of the city or municipality where the head office is located. A joint petition by a group of companies shall be filed in the Regional Trial Court which has jurisdiction over the principal office of the parent company, as specified in its Articles of Incorporation.

Section 3

When so authorized by the court, any pleading and/or document required by these Rules may be filed with the court and/or served upon the other parties by facsimile transmission (fax) or electronic mail (e-mail). In such cases, the date of transmission shall be deemed to be the date of service. Where the pleading or document is voluminous, the court may, upon motion, waive the requirement of service; provided that a copy thereof together with all its attachments is duly filed with the court and is made available for examination and reproduction by any party, and provided, further, that a notice of such filing and availability is duly served on the parties.

Section 4

Upon motion, the court may issue an order to protect trade secrets or other confidential research, development or commercial information belonging to the debtor.

Section 5

Any order issued by the court under these Rules is immediately executory. A petition to review the order shall not stay the execution of the order unless restrained or enjoined by the appellate court. Unless otherwise provided in these Rules, the review of any order or decision of the court or an appeal therefrom shall be in accordance with the Rules of Court; provided, however, that the reliefs ordered by the trial or appellate courts shall take into account the need for resolution of proceedings in a just, equitable and speedy manner.

Section 6

Upon motion the court may nullify any transfer of property or any other conveyance, sale, payment or agreement made in violation of its stay order or in violation of these Rules.

Section 7

If the court finds the petition to be sufficient in form and substance, it shall; not later than five (5) working days from the filing of the petition, issue an order: (a) appointing a rehabilitation receive and fixing his bond; (b) staying enforcement of all claims, whether for money or otherwise and whether such enforcement is by court action or otherwise, against the debtor, its guarantors and persons not solidarily liable with the debtor; provided, that the stay order shall not cover claims against letters of credit and similar security arrangements issued by a third party to secure the payment of the debtor's obligations; provided, further, that the stay order shall not cover foreclosure by a creditor of property not belonging to a debtor under corporate rehabilitation; provided, however, that where the owner of such property sought to be foreclosed is also a guarantor or one who is not solidarily liable, said owner shall be entitled to the benefit of excussion as such guarantor; (c) prohibiting the debtor from selling, encumbering, transferring, or disposing in any manner any of its properties except in the ordinary course of business; (d) prohibiting the debtor from making any payment of its liabilities except as provided in items (e), (f) and (g) of this Section or when ordered by the court pursuant to Section 10 of Rule 3; (e) prohibiting the debtor's suppliers of goods or services from withholding supply of goods and services in the ordinary course of business for as long as the debtor makes payments for the services and goods supplied after the issuance of the stay order; (f) directing the payment in full of all administrative expenses incurred after the issuance of the stay order; (g) directing the payment of new loans or other forms of credit accommodations obtained for the rehabilitation of the debtor with prior court approval; (h) fixing the dates of the initial hearing on the petition not earlier than forty-five (45) days but not later than sixty (60) days from the filing thereof; (i) directing the petitioner to publish the Order in a newspaper of general circulation in the Philippines once a week for two (2) consecutive weeks; (j) directing the petitioner to furnish a copy of the petition and its annexes, as well as the stay order, to the creditors named in the petition and the appropriate regulatory agencies such as, but not limited to, the Securities and Exchange Commission, the Bangko Sentral ng Pilipinas, the Insurance Commission, the National Telecommunications Commission, the Housing and Land Use Regulatory Board and the Energy Regulatory Commission; (k) directing the petitioner that foreign creditors with no known addresses in the Philippines be individually given a copy of the stay order at their foreign addresses; (l) directing all creditors and all interested parties (including the regulatory agencies concerned) to file and serve on the debtor a verified comment on or opposition to the petition, with supporting affidavits and documents, not later than fifteen (15) days before the date of the first initial hearing and putting them on notice that their failure to do so will bar them from participating in the proceedings; and (m) directing the creditors and interested parties to secure from the court copies of the petition and its annexes within such time as to enable themselves to file their comment on or opposition to the petition and to prepare for the initial hearing of the petition. The issuance of a stay order does not affect the right to commence actions or proceedings insofar as it is necessary to preserve a claim against the debtor.

Section 8

The petitioner shall immediately serve a copy of the stay order on the rehabilitation receiver appointed by the court, who shall manifest his acceptance or non-acceptance of his appointment not later than ten (10) days from receipt of the order.

Section 9

The stay order shall be effective from the date of its issuance until the approval of the rehabilitation plan or the dismissal of the petition.

Section 10

Relief from, Modification, or Termination of Stay Order. (a) The court may, upon motion, terminate, modify, or set conditions for the continuance of the stay order, or relieve a claim from the coverage thereof upon showing that (1) any of the allegations in the petition, or any of the contents of any attachment, or the verification thereof has ceased to be true; (2) a creditor does not have adequate protection over property securing its claims; (3) the debtor's secured obligation is more than the fair market value of the property subject of the stay and such property is not necessary for the rehabilitation of the debtor; or (4) the property covered by the stay order is not essential or necessary to the rehabilitation and the creditor's failure to enforce its claim will cause more damage to the creditor than to the debtor. (b) For purposes of this Section, the creditor lacks adequate protection if it can be shown that: (1) The debtor fails or refuses to honor a pre-existing agreement with the to keep the property insured; (2) The debtor fails or refuses to take commercially reasonable steps to maintain the property; or (3) The property has depreciated to an extent that the creditor is undersecured (c) Upon showing the creditor's lack of adequate protection, the court shall order the rehabilitation receiver to (1) make arrangements to provide for the insurance or maintenance of the property, or (2) to make payments or otherwise provide additional or replacement security such as that the obligation is fully secured. If such arrangements are not feasible, the court shall modify the stay order to allow the secured creditor lacking adequate protection to enforce its claim against the debtor; provided, however, that the court may deny the creditor the remedies in this paragraph if such remedies would prevent the continuation of the debtor as a going concern or otherwise prevent the approval and implementation of a rehabilitation plan.

Section 11

Qualifications of Rehabilitation Receiver. (a) In the appointment of the rehabilitation receiver, the following qualifications shall be taken into consideration by the court: (1) Expertise and acumen to manage and operate a business similar in size and complexity to that of the debtor; (2) Knowledge in management, finance and rehabilitation of distressed companies; (3) General familiarity with the rights of creditors in suspension of payments or rehabilitation and general understanding of the duties and obligations of a rehabilitation receiver; (4) Good moral character, independence and integrity; (5) Lack of conflict of interest as defined in this Section; and (6) Willingness and ability to file a bond in such amount as may be determined by the court. (b) Without limiting the generality of the following, a rehabilitation receiver may be deemed to have a conflict of interest if: (1) He is creditor or stockholder of the debtor; (2) He is engaged in a line of business which competes with the debtor; (3) He is, or was within two (2) years from the filing of the petition, a director, officer, or employee or the auditor or accountant of the debtor; (4) He is or was within two (2) years from the filing of the petition, an underwriter of the outstanding securities of the debtor; (5) He is related by consanguinity or affinity within the fourth civil degree to any creditor, stockholder, director, officer, employee, or underwriter of the debtor; or (6) He has any other direct or indirect material interest in the debtor or any creditor.

Section 12

The rehabilitation receiver shall not take over the management and control of the debtor but shall closely oversee and monitor the operations of the debtor during the pendency of the proceedings. For this purpose, the rehabilitation receiver shall have the powers, duties and functions of a receiver under Presidential Decree No. 902-A, as amended, and the Rules of Court. The rehabilitation receiver shall be considered as an officer of the court. He shall be primarily tasked to study the best way to rehabilitate the debtor and to ensure that the value of the debtor's property is reasonably maintained pending the determination of whether or not the debtor should be rehabilitated, as well as implement the rehabilitation plan after its approval. Accordingly, he shall have the following powers and functions: (a) To verify the accuracy of the petition, including its annexes such as the Schedule of Debts and Liabilities and the Inventory of Assets submitted in support to the petition; (b) To accept and incorporate, when justified, amendments to the Schedule of Debts and Liabilities; (c) To recommend to the court the disallowance of claims and rejection of amendments t the Schedule of Debts and Liabilities that lack sufficient proof and justification; (d) To submit to the court and make available for review by the creditors, a revised Schedule of Debts and Liabilities; (e) To investigate the acts, conduct, properties, liabilities and financial condition of the debtor, the operation of its business and the desirability of the continuance thereof; and, any other matter relevant to the proceeding or to the formulation of a rehabilitation plan; (f) To examine under oath the directors and officers of the debtor and any other witnesses that he may deem appropriate; (g) To make available to the creditors documents and notices necessary for them to follow and participate in the proceedings; (h) To report to the court any fact ascertained by him pertaining to the causes of the debtor's problems, fraud, preferences, dispositions, encumbrances, misconduct, mismanagement and irregularities committed by the stockholders, directors, management,, or any other person against the debtor; (i) To employ such person or persons such as lawyers, accountants, appraisers and staff are necessary in performing his functions and duties as rehabilitation receiver; (j) To monitor the operations of the debtor and to immediately report to the court any material adverse change in the debtor's business; (k) To evaluate the existing assets and liabilities, earnings and operations of the debtor; (l) To determine and recommend to the court the best way to salvage and protect the interests of the creditors, stockholders and the general public; (m) To study the rehabilitation plan proposed by the debtor or any rehabilitation plan submitted during the proceedings, together with any comments made thereon; (n) To prohibit and report to the court any encumbrance, transfer or disposition of the debtor's property outside of the ordinary course of business or what is allowed by the court; (o) To prohibit and report to the court any payments outside of the ordinary course of business; (p) To have unlimited access to the debtor's employees, premises, books, records and financial documents during business hours; (q) To inspect, copy, photocopy or photograph any document, paper, book, account or letter, whether in the possession of the debtor or other persons; (r) To gain entry into any property for the purpose of inspecting, measuring, surveying or photographing it or any designated relevant object or operation thereon; (s) To take possession, control and custody of the debtor's assets; (t) To notify counterparties and the court as to contracts that the debtor has decided to continue to perform the breach; (u) To be notified of and to attend all meetings of the board of directors and stockholder of the debtor; (v) To recommend any modification of an approved rehabilitation plan as he may deem appropriate; (w) To bring to the attention of the court any material change affecting the debtor's ability to meet the obligations under the rehabilitation plan; (x) To recommend the appointment of a management committee in the cases provided for under Presidential Decree No. 902-A, as amended; (y) To recommend the termination of the proceedings and the dissolution of the debtor if he determines that the continuance in business of such entity is no longer feasible or profitable or no longer works to the best interest of the stockholders, parties-litigants, creditors or the general public; (z) To apply to the court for any order or directive that he may deem necessary or desirable to aid him in the exercise of his powers and performance of his duties and functions; and (aa) To exercise such other powers as may from time to time be conferred upon him by the court.

Section 13

Before entering upon his powers, duties and functions, the rehabilitation receiver must be sworn in to perform them faithfully, and must post a bond executed in favor of the debtor in such sum as the court may direct, to guarantee that he will faithfully discharge his duties and obey the orders of the court. If necessary, he shall also declare under oath that he will perform the duties of a trustee of the assets of the debtor, will act honestly and in good faith, and deal with the assets of the debtor on a commercially reasonable manner.

Section 14

The rehabilitation receiver and the persons hired by him shall be entitled to reasonable professional fees and reimbursement of expenses which shall be considered as administrative expenses.

Section 15

The rehabilitation receiver shall not be subject to any action, claim or demand in connection with any act done or omitted by him in good faith in the exercise of his functions and powers herein conferred.

Section 16

The rehabilitation receiver shall file a written report every three (3) months to the court or as often as the court may require on the general condition of the debtor. The report shall include, at the minimum, interim financial statements of the debtor.

Section 17

A rehabilitation receiver may, upon motion, be dismissed by the court on the following grounds: (a) if he fails, without just cause, to perform any of his powers and functions under these Rules; or (b) on any of the grounds for removing a trustee under the general principles of trusts.

Section 19

If the rehabilitation plan extends the period for the debtor to pay its contractual obligations, the new period should not extend beyond fifteen (15) years from the expiration of the stipulated term existing at the time of filing of the petition.

Section 20

The approval of the rehabilitation plan by the court shall result in the following: (a) The plan and its provisions shall be binding upon the debtor and all persons who may be affected thereby, including the creditors, whether or not such persons have participated in the proceedings or opposed the plan or whether or not their claims have been scheduled; (b) The debtor shall comply with the provisions of the plan and shall take all actions necessary to carry out the plan; (c) Payments shall be made to the creditors in accordance with the provisions of the plan; (d) Contracts and other arrangements between the debtor and its creditors shall be interpreted as continuing to apply to the extent that they do not conflict with the provisions of the plan; and (e) Any compromises on amounts or rescheduling of timing of payments by the debtor shall be binding on creditors regardless of whether or not the plan is successfully implemented.

Section 21

Upon motion, within ninety (90) days from the approval of the rehabilitation plan, and after notice and hearing, the court may revoke the approval thereof on the ground that the same was secured through fraud.

Section 22

An approved rehabilitation plan may, upon motion, be altered or modified if, in the judgement of the court, such alteration or modification is necessary to achieve the desired targets or goals set forth therein.

Section 23

The court shall, upon motion or upon recommendation of the rehabilitation receiver, terminate the proceeding in any of the following cases: (a) Dismissal of the petition; (b) Failure of the debtor to submit the rehabilitation plan; (c) Disapproval of the rehabilitation plan by the court; (d) Failure to achieve the desired targets or goals as set forth in the rehabilitation plan; (e) Failure of the debtor to perform its obligations under the plan; (f) Determination that the rehabilitation plan may no longer be implemented in accordance with its terms, conditions, restrictions or assumptions; or (g) Successful implementation of the rehabilitation plan.

Section 24

Upon termination of the rehabilitation proceedings, the rehabilitation receiver shall submit his final report and accounting with such period of time as the court will allow him. Upon approval of his report and accounting, the court shall order his discharge.