This country-specific Q&A provides an overview of Lending & Secured Finance laws and regulations applicable in Philippines.
Do foreign lenders require a licence/regulatory approval to lend into your jurisdiction or take the benefit of security over assets located in your jurisdiction?
By itself, lending or taking the benefit of security over assets in the Philippines, does not require a license or regulatory approval. However, if by some other acts or activities being conducted in the Philippines the lender is deemed to be doing business, it will need to obtain a license to do business by establishing a subsidiary or a branch in the Philippines.
Some foreign loans require the prior approval of the Bangko Sentral ng Pilipinas (Central Bank of the Philippines or BSP) such as public sector loans and publicly-guaranteed foreign loans to the private sector. In addition, foreign loans/borrowings of the private section that are not publicly-guaranteed and which do not require prior BSP approval need to be registered with the BSP if these loans will be serviced with foreign exchange to be sourced from the banking system.
While there are no restrictions on the ability of foreign lenders to take the benefit of security over assets in the Philippines, there are some nationality or ownership restrictions that would apply upon enforcement of the security in the event of a default. For example, where the company, on which a security interest on its shares is constituted, is engaged in a nationalized or partly nationalized activities, the enforcement of the security interest must not breach the nationality restriction under the law and/or Constitution.
Are there any laws or regulations limiting the amount of interest that can be charged by lenders?
Currently, there are no laws or regulations (save on interest cap on credit card transactions) limiting the amount of interest that can be charged by the lenders. The parties to a loan agreement are free to stipulate on the interest that will be imposed. However, in some instances the courts can declare that a stipulated interest rate is unconscionable. In such a case, the rate due shall be the legal rate. Currently, the legal rate of interest is 6% per year.
Are there any laws or regulations relating to the disbursement of foreign currency loan proceeds into, or the repayment of principal, interest or fees in foreign currency from, your jurisdiction?
The BSP Manual of Regulations on Foreign Exchange Transactions (the “Manual”) specifies the foreign loans that will require prior BSP approval and/or registration and the requirements to obtain such approval and registration. Any application for approval of foreign loans that require approval shall be made at least 30 banking days prior to the signing of the loan agreement and that any such loan agreement that is signed/drawn or availed of prior to securing such BSP approval shall not be eligible for approval and registration. Thus, proceeds of foreign loans which require prior approval shall not be disbursed prior to securing the BSP approval. Moreover, generally, the registration of foreign loans that need to be serviced from foreign exchange sourced from the banking system must be made within 6 months from the utilization of the proceeds. Thus, to be able to source from the banks the foreign exchange needed to repay the loan, registration must be made within the period provided. The Manual provides for the requirements and documents to be submitted to source the foreign exchange from the banks for purposes of repayment.
Can security be taken over the following types of asset: i. real property (land), plant and machinery; ii. equipment; iii. inventory; iv. receivables; and v. shares in companies incorporated in your jurisdiction.
A security can be taken over immovable property and real rights over immovable property such as land, plant and machinery by executing a real estate mortgage over such property. To be binding on third parties, it is necessary that the real estate mortgage be in a public document and to register the same in the registry of deeds where the real property is located. Nevertheless, a real estate mortgage which is not registered is binding on the parties thereto.
Security can be taken over movables or personal properties such as equipment, inventory, receivables and shares by executing an agreement creating a security interest over such movable properties, which agreement must appear in a public document (i.e. notarized and, if executed abroad, must be authenticated or apostilled). The creation of a security over movables or personal property is governed by the Personal Property Security Act (PPSA).
The PPSA recognizes various modes in perfecting a security interest, i.e. possession, execution of a control agreement and registration in a central registry to be established by the Land Registration Authority (LRA). While the central registry is not yet constituted, the PPSA rules recognize the registration with the existing Chattel Mortgage registry in the registry of deeds of the principal place of office of the mortgagor and in the place where the assets are located.
Under the PPSA, the security interest over the equipment and inventory, for example, may also be perfected by the lender through possession. With respect to receivables, the security interest is also perfected through the execution of a control agreement (with the third-party bank, deposit taking institution, supplier or buyer). Perfection of security interest is required even in a pure sale or assignment of receivables transaction (factoring or discounting on a without recourse basis) to protect the interest of the buyer or assignee of receivables. With respect to the shares, the security interest is also perfected by the delivery of the stock certificates evidencing the shares to the lender or its agent.
The PPSA likewise provides priority rules. As a rule, a security interest perfected through possession is given priority over the execution of a control agreement. Either mode in turn is given priority over registration with the central registry.
While parties are free to stipulate that a foreign law shall govern the security agreement, the formalities required under Philippine law to create the security interest must be complied with and the enforcement therefore must be in accordance with Philippine law. As such, it is recommended that the security agreement covering real or personal assets in the Philippines be governed by Philippine law.
Can a company that is incorporated in your jurisdiction grant security over its future assets or for future obligations?
Yes, a real estate mortgage can be granted over future assets of the mortgagor/obligor and can secure future obligations. In the case of a real estate mortgage, any improvements introduced on the land after the execution of the real estate mortgage are automatically included in the mortgage, unless they had been expressly excluded. Also, the parties can stipulate in the real estate mortgage that future properties purchase in exchange for existing properties shall be covered by the mortgage. However, since registration of the mortgage is required for the security interest to be binding on third parties, the parties will have to take the step of registering the mortgage of such property after it has been acquired. Moreover, a real estate mortgage can secure not only a specific credit accommodation but can extend to all other present and future obligations of the debtor/obligor. Jurisprudence requires that future obligations must be fully described in the security agreement.
Unlike in the chattel mortgage law which has been repealed by the PPSA, future personal assets can secure present and future obligations of the debtor/obligor. Under the PPSA, there is no requirement to list down all the assets over which a security interest will be created or constituted. It is enough that the assets are sufficiently described or defined and that granting a security interest over assets to be acquired is expressly allowed under the PPSA. The security interest over future properties shall only be created upon the acquisition by the grantor of such future properties.
Can a single security agreement be used to take security over all of a company’s assets or are separate agreements required in relation to each type of asset?
A single security agreement can be used to take security over all of a company’s assets.
Are there any notarisation or legalisation requirements in your jurisdiction? If so, what is the process for execution?
Generally, acts and contracts which have for their object the creation, transmission, modification or extinguishment of real rights over immovable property, among others, must appear in a public document to be binding upon third parties.
In relation to creation of security interests over properties, whether real properties or personal properties, to be binding on third parties, the document must appear in a public document or must be notarized. For documents to be notarized, the signatories to the contract must sign and appear before the notary.
Contracts which must appear in a public document and are executed abroad must be authenticated before the Philippine embassy or consulate abroad or apostilled (f executed in a country which is a signatory to the Convention of 5 October 1961 Abolishing the Requirement of Legalisation for Foreign Public Documents or the 1961 Apostille Convention.
Are there any security registration requirements in your jurisdiction?
Security interest over real properties or immovables must be registered with the registry of deeds where the property is located while security interest over movables or personal properties must be registered in the central registry to be constituted by the LRA (or in the meantime in the chattel mortgage registry).
Are there any material costs that lenders should be aware of when structuring deals (for example, stamp duty on security, notarial fees, registration costs or any other charges or duties), either at the outset or upon enforcement?
Generally, the loan agreements and security agreements are subject to the following taxes and fees:
(a) the loan agreement or debt instrument is subject to documentary stamp taxes (DST) at the rate of 0.75% of the loan amount;
(b) the mortgage over real or personal property as security for a loan is subject to DST at the rate of 0.40% of the amount secured;
(c) there is a registration fee to be paid to the register of deeds for mortgage over real properties in the amount of Php 8,796 for the first Php 1,700,000.00 , plus Php 90.00 for every Php 20,000 or fractional part thereof, in excess of the Php 1,700,000 of the amount secured;
(d) the registration fee to be paid to the chattel mortgage registry is the same as the fee for the registration of the real estate mortgage in (c) above (and is payable to each registry where the mortgage will be registered , i.e., in each registry where the real property is located, in the principal place of office of the mortgagor and where the personal property is located if not in the principal place of office); and
(e) the registration fee to be paid to the central registry under the PPSA (once constituted in lieu of the registration fee to be paid in (d) above).
There is a notarial fee to be paid for documents that needs to be notarized. However, these notarial fees are nominal. The registry of deeds also imposes a nominal fee to cancel a registration of mortgage, notwithstanding that the LRA rules provide that the cancellation fee shall be the same as the registration fee.
Typically, the parties enter into an omnibus loan and security agreement to avoid paying DST twice (i.e. one on the loan and one on the security agreement). Moreover, some parties agree to stipulate on a lower amount to be secured by the security agreement (considering the actual value or amount of the assets to be given as security) to save on DST and registration fees which are based on the amount secured.
Can a company guarantee or secure the obligations of another group company; are there limitations in this regard?
A company can guarantee or secure the obligations of another company or group of company if the power to guarantee is provided in the primary purpose appearing in the articles of incorporation of such company. If the power to guarantee is provided as a secondary purpose in its articles of incorporation, the company can guarantee provided it is approved by its stockholders representing at least 2/3 of its outstanding capital stock aside from the usual board approval.
If the power to guarantee or secure the obligations of another party is not provided in the articles of incorporation of the company, it cannot guarantee or secure the obligations of another party. The Philippine Securities and Exchange Commission (“SEC”) has opined that such act would be ultra vires for being an act not within the express, implied and incidental powers of the corporation conferred by the law or its or articles of incorporation. Some practitioners have taken the position that while the power to guarantee is not provided in the article of incorporation and thus ultra vires, since it is not inherently illegal, it may be ratified by a vote of all stockholders. In lieu of ratification, it is recommended that the articles of incorporation be amended to include the express power to guarantee and such amendment will only require the vote of stockholders representing at least 2/3 of the outstanding capital stock.
Are there any issues that lenders should be aware of when requesting guarantees (for example, financial assistance or lack of corporate benefit)?
Lenders need to confirm that the power to guarantee is expressly provided in the articles of incorporation of the company which is being asked to provide a guarantee, otherwise, such act will be considered ultra vires. However, some practitioners have taken the position that a parent company guarantee of the obligations of a subsidiary, even without an express power to guarantee can be considered part of the incidental powers of the parent company because of the corporate benefit to the parent company especially if the parent company is a holding company, for example.
Are there any restrictions against providing security to support borrowings incurred for the purposes of acquiring shares: (i) of the company; (ii) of any company which directly/indirectly owns shares in the company; or (iii) in a related company?
Other than as mentioned above on the power to guarantee, there are no restrictions against providing guarantees or security to support borrowing incurred for the purposes of acquiring directly or indirectly shares of the company, shares of any company which directly or indirectly owns shares in the company or shares in a related company. However, to the extent that there are interlocking directors in the related companies or it is a contract between the company and an officer or director, in obtaining the corporate approvals the requirement under the Revised Corporation Code must be followed (i.e., on who can vote).
Can lenders in a syndicate appoint a trustee or agent to (i) hold security on the syndicate’s behalf, (ii) enforce the syndicate’s rights under the loan documentation and (iii) apply any enforcement proceeds to the claims of all lenders in the syndicate?
Lenders in a syndicate can appoint a trustee or agent to hold security on the syndicate’s behalf, enforce the syndicate’s rights under the loan documentation and apply any enforcement proceeds to the claims of all lenders in the syndicate.
If your jurisdiction does not recognise the role of an agent or trustee, are there any other ways to achieve the same effect and avoid individual lenders having to enforce their security separately?
The appointment of an agent or trustee in a syndicate is recognized in the Philippines.
Does withholding tax arise on (i) payments of interest to domestic or foreign lenders, or (ii) the proceeds of enforcing security or claiming under a guarantee?
Interest payments by a Philippine resident are considered income derived from the Philippines. The Philippines imposes tax on such income. Principal repayments or proceeds of the security up to the extent of the loan amount are not subject to tax.
The tax on interest income is generally subject to withholding tax, i.e., the borrower or guarantor who makes such interest payment must withhold and remit the corresponding tax to the Philippine Bureau of Internal Revenue (BIR). The withholding tax is final (FWT) if the lender is a non-resident, or a Philippine resident where the interest is regarded as its investment (or passive) income. On the other hand, the withholding tax is creditable (CWT) if the interest is regarded as its business (or active) income. In the latter case, the tax withheld is considered as a prepaid tax, which can be used as credit against the tax due, computed under the taxation rules (i.e., taxable income multiplied by the corresponding regular corporate income tax or where the lender is an individual, the graduated personal tax). The CWT is periodically set by the Department of Finance and provided in the withholding tax regulations. The law set the maximum limit of the CWT rate (i.e., 15%), which under the proposed legislation submitted to the President for approval, specifically the Corporate Recovery and Tax Incentives for Enterprises Act or CREATE, must be periodically revised considering the circumstances. The FWT rate is set by law and cannot be changed by the Department of Finance through the regulations.
The withholding tax regulations (which summarize all the FWT and CWT rates) provide the following withholding tax on interest:
(a) 25% FWT, on interest payments to a Non-resident Alien Individual Not Engaged in Trade or Business Within the Philippines (in general)
(b) 20% FWT, on interest payments to a Non-resident Foreign Corporation on account of Foreign Loans;
(c) 30% FWT (under CREATE, 25% FWT), on interest payments to a Non-resident Foreign Corporation on account of non-Foreign Loans;
(d) 20% FWT, on interest payments relating to deposit substitutes (i.e., 20 or more holders of debt instruments);
(e) 15% CWT, on interest payments relating to non-deposit substitutes ((i.e., less than 20 holders of debt instruments) where holders are Philippine residents; and
(f) 2% CWT, on interest payments by top withholding agents in favor of Philippine residents where such interest payments are considered as their business (or active) income and not arising from debt instruments (subject to 15% CWT as described in the preceding paragraph).
If payments of interest to foreign lenders are generally subject to withholding tax, what is the standard rate and what is the minimum rate possible under double taxation treaties?
The standard tax rates on interest payments are discussed in item 15. Tax treaties provide preferential tax rates on interest payments to residents of the Philippine’s counterparties to these treaties. The rates are between 10 % to 15%, depending on the particular tax treaty.
Are there any other tax issues that foreign lenders should be aware of when lending into your jurisdiction?
The income earned is not taxable in the Philippines solely because it is a loan to or guarantee and/or grant of a security from a Philippine company. The income is subject to tax in the Philippines if it is considered to have been sourced from the Philippines as far as non-resident foreign corporations are concerned. Law and jurisprudence provide basic source rules (i.e., when income is deemed derived in the Philippines). With regard to interest income, it is considered income from a Philippine source if paid by a Philippine resident.
Under the withholding tax regulations, the FWT or CWT must be withheld and remitted to BIR when the interest is paid or accrued, whichever is earlier. In a non-interest bearing debt transaction, the discount is considered interest. When the discount is recognized (typically, at the time of disbursement of loan proceeds), FWT or CWT shall be due.
The execution of these documents is subject to documentary stamp tax as discussed in item 9.
Are there any tax incentives available for foreign lenders lending into your jurisdiction?
There are currently no tax incentives for foreign lenders lending in the Philippines, except when extended by foreign governments, financing institutions owned, controlled or enjoying refinancing from foreign governments, international or regional financial institutions established by foreign governments.
Is there a history in your jurisdiction of financing structures being challenged by tax authorities, and if so, can you give examples.
Tax authorities scrutinize related company advances and withholding issues on tax interest income. The challenge comes in the form of tax assessments.
Interest Income. In a case decided by the Court of Tax Appeals (CTA), a company extended advances to its affiliates without charging interest. The BIR challenged the arrangement and applying the principle of arms’ length pricing, imputed interest on the advances using the BSP’s schedule of prevailing interest rates and assessed income tax on the imputed interest. The CTA affirmed the BIR’s assessment for interest income. The Supreme Court clarified, in another case, that there must be a written stipulation for interest payment. The BIR cannot impute interest in the absence of such written stipulation.
Timing of Withholding. In another case, the BIR assessed a company deficiency final withholding tax on interest in year 2000 for a loan agreement it executed with a lender on 5 January 2000 where the borrower undertakes to repay the loan in semi-annual installments commencing on 1 June 2002. The loan agreement provides that interest shall accrue from the date of the loan but fails to state the period for payment of interest. The assessment was eventually cancelled as the court ruled that, since the borrower’s liability for interest payment became due and demandable only on 1 June 2002, the BIR may not assess deficiency final withholding tax on income in 2000. However, this rule has been overturned by subsequent regulations issued by the BIR providing that the withholding of final tax commences “at the time an income payment is paid or payable, or the income payment is accrued or recorded as an expense or asset, whichever is applicable in the payor’s book, whichever comes first.”
Do the courts in your jurisdiction generally give effect to the choice of other laws (in particular, English law) to govern the terms of any agreement entered into by a company incorporated in your jurisdiction?
Under the autonomy of contracts under the Philippine Civil Code, parties to a contract are free to establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order or public policy. Accordingly, the choice of foreign law to govern the terms of an agreement entered into by a Philippine company will be recognized in the courts of the Philippines, subject to proof of the content of such law, failing which, the foreign law shall be presumed to be the same the Philippines law, provided that the applicable foreign law may not be enforced by Philippine courts if the application of such foreign law will result in the contravention of public policy, provided further that the courts may, in disregard of any provision of such foreign governing law, apply the laws of the Philippines with respect to: (i) matters bearing upon the capacity of the relevant party who is a Philippine national to enter into, and perform its obligations under, such agreement; (ii) determining compliance with all requirements of Philippine government approvals, authorizations and consents under the laws and regulations of the Philippines; and (iii) matters of procedural law in judicial proceedings in the Philippines. Further, the courts of the Philippines, before accepting such choice of law, might require a showing that the choice of such foreign law bears a reasonable relation to the parties or their transaction.
Do the courts in your jurisdiction generally enforce the judgments of courts in other jurisdictions and is your country a member of The Convention on the Recognition and Enforcement of Foreign Arbitral Awards?
Provided that a separate action to enforce a foreign judgment is filed with the proper courts of the Philippines, a final and conclusive judgment entered by a foreign court in any suit, action or proceeding arising out of or in connection with the transaction would be enforced by the courts of the Philippines without re-examination or re-litigation of the matters adjudicated upon, except that such foreign judgment may not be enforced if it is shown that (i) the foreign court did not have jurisdiction in accordance with its own jurisdictional rules, (ii) any of the parties was not notified of the proceedings, (iii) the foreign judgment was obtained through fraud or collusion, (iv) the foreign judgment was based on a clear mistake of law or fact, or (v) such foreign judgment is contrary to law, public order, public policy or good customs in the Philippines.
The Philippines is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
What (briefly) is the insolvency process in your jurisdiction?
The law governing insolvency in the Philippines is Republic Act No. 10142 or the “Financial Rehabilitation and Insolvency Act (FRIA) of 2010. The FRIA identifies the following debt relief processes: liquidation, rehabilitation, and insolvency of individual debtor.
Liquidation of juridical persons may be a voluntary or involuntary liquidation proceeding. Liquidation may also proceed from a rehabilitation proceeding that is converted into a liquidation proceeding after finding that the debtor is insolvent and there is no substantial likelihood for the debtor to be successfully rehabilitated.
Rehabilitation differs from a liquidation proceeding because rehabilitation presupposes that the debtor has the capacity to regain successful operations and solvency. If it is shown that the debtor’s continued operations is economically feasible and its creditors can recover by way of the present value of payments projected in a rehabilitation plan, a court will order its rehabilitation. If not, the debtor will be ordered liquidated.
In a voluntary liquidation proceeding involving juridical persons, the insolvent debtor files a petition with the court which must be approved by:
a. majority vote of the board of directors and authorized by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock in case of a stock corporation; or
b. majority vote of the board of or trustees and the vote of at least two-thirds (2/3) of the members in a non-stock corporation.
In an involuntary liquidation proceeding, the petition is filed by three (3) or more creditors with a claim or aggregate claim of at least One Million Pesos (₱1,000,000.00) or at least twenty-five percent (25%) of the value of the subscribed capital stock of the corporation, whichever is higher. These creditors may file against the insolvent juridical person if:
a.there is no genuine issue of fact or law on the claim/s of the creditor/s, and that the due and demandable payments thereon have not been made for at least one hundred eighty (180) days or the debtor has failed generally to meet its liabilities as they fall due; and
b.there is no substantial likelihood that the debtor may be rehabilitated.
What impact does the insolvency process have on the ability of a lender to enforce its rights as a secured party over the security?
If a petition for rehabilitation is filed and the court finds it sufficient in form and substance, a court includes a stay or suspension order in the commencement order. As a result, the lender is not able to freely exercise its right as a secured party over the security because the stay or suspension order directs the suspension of all actions or proceedings for the enforcement of claims, judgment, attachment or other provisional remedies. The stay or suspension order also prohibits the secured party from selling, encumbering, transferring or disposing its properties and making any payment of its liabilities as of the commencement date of the petition.
If, however, a petition for liquidation is filed and the court finds it meritorious, the court will issue a liquidation order which shall state the following among others:
a. declare the debtor insolvent;
b. order the liquidation of the debtor and, in the case of a juridical debtor, declare it as dissolved;
c. order the sheriff to take possession and control of all the property of the debtor, except those that may be exempt from execution;
d. order the publication of the petition or motion in a newspaper of general circulation once a week for two (2) consecutive weeks;
e. direct payments of any claims and conveyance of any property due the debtor to the liquidator;
f. prohibit payments by the debtor and the transfer of any property by the debtor;
g. direct all creditors to file their claims with the liquidator within the period set by the rules of procedure; and
h. set the case for hearing for the election and appointment of the liquidator.
The liquidation order has the following effects:
a. the juridical debtor shall be deemed dissolved and its corporate or juridical existence terminated;
b. legal title to and control of all the assets of the debtor, except those that may be exempt from execution, shall be deemed vested in the liquidator or, pending his election or appointment, with the court;
c. all contracts of the debtor shall be deemed terminated and/or breached, unless the liquidator, within ninety (90) days from the date of his assumption of office, declares otherwise and the contracting party agrees;
d. no separate action for the collection of an unsecured claim shall be allowed. Such actions already pending will be transferred to the liquidator for him to accept and settle or contest. If the liquidator contests or disputes the claim, the court shall allow, hear and resolve such contest except when the case is already on appeal. In such a case, the suit may proceed to judgment, and any final and executory judgment therein for a claim against the debtor shall be filed and allowed in court; and
e. no foreclosure proceeding shall be allowed for a period of one hundred eighty (180) days.
The liquidation order shall not affect the right of a secured creditor to enforce his lien in accordance with the applicable contract or law, unless he waives his right. Such secured creditor may waive his right to enforce his lien and participate in the liquidation proceeding by filing a waiver in public document with the court prior to the election of the liquidator.
In case the secured creditor maintains his rights under the security or lien, at his option:
a. the value of the property may be fixed in a manner agreed upon by the creditor and the liquidator;
b. the liquidator may sell the property and satisfy the secured creditor’s entire claim from the proceeds of the sale; or
c. the secured creditor may enforce the lien or foreclose on the property pursuant to applicable laws.
Please comment on transactions voidable upon insolvency.
Any transaction occurring prior to the issuance of the liquidation order (in liquidation proceedings), 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. A disputable presumption of fraud 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.
Is set off recognised on insolvency?
In liquidation, if the debtor and a creditor are mutually debtor and creditor of each other, one debt shall be set off against the other, and only the balance, if any, shall be allowed in the liquidation proceedings. With respect to rehabilitation, it appears from jurisprudence that the right of setoff may be exercised only prior to the filing of the rehabilitation petition. The commencement order shall retroact to the date of filing the petition. The commencement order shall serve as the legal basis for rendering null and void any set-off after the commencement date of the rehabilitation proceedings.
Can you comment generally on the success of foreign creditors in enforcing their security and successfully recovering their outstandings on insolvency?
Enforcement of security and recovery of claims are unlikely on insolvency because of the stay or suspension order which the court issues in the proceedings and the serious legal repercussions of enforcing the security in violation of an existing stay order. In cases that have reached the court involving the enforcement of a creditor’s security in rehabilitation proceedings, the court prefers to prioritize the rehabilitation and restructuring of the distressed company and minimize any burdens imposed by the creditor while the rehabilitation is ongoing, and to rescue the debtor. The Philippine Supreme Court has explained that priority is given to “expediting the rehabilitation of the distressed corporation by enabling the management committee or the rehabilitation receiver to effectively exercise its/his powers free from any judicial or extrajudicial interference that might unduly hinder or prevent the rescue of the debtor company.”
Are there any impending reforms in your jurisdiction which will make lending into your jurisdiction easier or harder for foreign lenders?
There are currently no impending reforms which will make lending into the Philippines easier or harder for foreign lenders.
What proportion of the lending provided to companies consists of traditional bank debt versus alternative credit providers (including credit funds) and/or capital markets, and do you see any trends emerging in your jurisdiction?
There is limited publicly available information for us to determine the proportion of the lending provided to companies of traditional bank debt as against alternative credit providers and/or capital markets. Traditional bank debt would be generally be more available to medium sized or small sized companies, while capital markets are generally being tapped more by the large companies or conglomerates in the Philippines.
Please comment on external factors causing changes to the drafting of secured lending documentation and the structuring of such deals such as (i) Brexit (ii) LIBOR transition and/or (iii) COVID 19
For now, we have not seen any external factors that appear to have caused changes to the drafting of secured lending documentation and the structuring of such deals in the Philippines.
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