c. Cram Down Effect

Policy and Commencement Effects in Rehabilitation Proceedings

Under Republic Act No. 10142, it is the policy of the State to encourage debtors and their creditors to collectively and realistically resolve and adjust competing claims and property rights¹. In furtherance of this objective, the law mandates a timely, fair, transparent, effective, and efficient rehabilitation to ensure certainty and predictability in commercial affairs, preserve and maximize asset values, recognize creditor rights, respect priority of claims, and ensure the equitable treatment of creditors who are similarly situated¹.

Rehabilitation proceedings officially commence upon the court's issuance of a Commencement Order². This order declares that the debtor is under rehabilitation, identifies the debtor and its activities, summarizes the grounds and relief sought, directs required publications and service, and appoints a rehabilitation receiver².

Unless otherwise provided, the issuance of the Commencement Order produces significant legal effects to maintain the debtor's estate³:

• It vests the rehabilitation receiver with statutory powers and functions upon court approval of the required bond³;
• It prohibits and renders null and void the results of any extrajudicial activity or process to seize property, sell encumbered property, or otherwise attempt to collect or enforce a claim against the debtor after the commencement date, unless specifically allowed³;
• It serves as the legal basis for rendering null and void any setoff after the commencement date of any debt owed to the debtor by any creditor³;
• It renders null and void the perfection of any lien against the debtor's property after the commencement date³; and
• It consolidates the resolution of all legal proceedings by and against the debtor to the rehabilitation court, with narrow exceptions for cases allowed to continue in other courts³.