Smooth bankruptcy proceedings | Business Seeker

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The stars appear to be aligning themselves with Philippine Airlines (PAL) efforts to keep flying despite the problems the COVID-19 pandemic continues to plague the airline industry.

PAL’s recent Chapter 11 petition in New York bankruptcy court is going smoothly.

In a Chapter 11 filing, a financially troubled business asks the court for an order prohibiting its creditors from demanding prompt payment of their loans or foreclosure of its assets in the event of default.

As a corollary to this request, the company submits to the court a reorganization plan or the line of conduct it envisages to return to profitability and be able to meet the financial obligations that would be outstanding.

Reportedly, the New York Bankruptcy Court responded favorably to PAL’s request for access, among other things, to the $ 20 million initial loan from a 505 debtor-in-chief financing agreement (DIP). million dollars and continue its regular activities.

In standard bankruptcy actions, existing lenders are generally opposed to the business taking additional loans as this can worsen its already strained financial situation.

But if a DIP deal could facilitate financial recovery and the company has a good track record of meeting financial obligations in the past, the court may allow it over the objections of lenders.

In PAL’s case, the DIP lenders would be run by its owner, business mogul Lucio Tan.

Upon release from pardon, PAL said the DIP loan would be converted to equity or long-term debt.

This DIP loan can, in fact, be considered as a shareholder advance intended to give the airline a financial respite in these troubled times.

The court action is good news for PAL employees, its suppliers of goods and services, and others who do business with it in other areas. It would be business as usual for the country’s national carrier.

It is not surprising how quickly the US court acted on PAL’s petition. Bankruptcy law has been part of the US legal system since the 1800s, so the rules and regulations for its application, including court proceedings, are firmly in place.

Depending on the relief sought, there is already a model on what should be specified in a bankruptcy petition, i.e. facts and figures on the financial situation of the company, amounts and periods of due date of financial obligations, consent (or disagreement) of creditors and the terms of the reorganization or reorganization plan.

Bankruptcy, financial reorganization or liquidation cases are heard by US courts specifically organized to resolve them. With this setup, the parties are assured that the presiding judges are up to the task of deciding legal and factual issues.

A review of bankruptcy cases in the United States shows that courts, on the whole, are guided by the principle that if a company’s financial problems are not the fault or negligence of its management and that, on the basis of his to recover his financial health, he should be given the opportunity to rehabilitate himself.

This new lease of life is however subject to the condition that it scrupulously executes its recovery plan which, according to its terms, would be supervised by the court or a rehabilitation manager appointed by the court.

The practice of bankruptcy law is quite lucrative in the United States. So much so that there are lawyers who only deal with bankruptcy or related matters, and large law firms have lawyers who specialize in this area.

This is not the case in the Philippines. Although Republic Law No.10142, or the Financial Rehabilitation and Insolvency Law, has been in effect since 2010, which is equivalent to the Bankruptcy Code of the United States, this area of ​​law does not attract practice. extent.

Rehabilitation cases in the country are far and in between. Some of the companies that could avail themselves of this remedy probably think that it is better to go out of business than to go through a process which, due to the existing court system, would take years to complete. INQ

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