In Re: Petition for Recognition of Foreign Proceeding SP Proc. Case No. 21-01799-SP

IN RE: PETITION FOR

RECOGNITION OF FOREIGN PROCEEDING

ORDER

Seeking recognition of the Chapter eleven case for voluntary relief commenced by debtor PAL before the U.S. Bankruptcy Court for the Southern District of New York, petitioner John F. Reid filed on twenty-four September twenty twenty-one a petition for recognition of foreign proceeding.

Pursuant to Section six, Rule five of Administrative Matter (A.M) No. twelve dash twelve dash eleven dash SC, the Financial Rehabilitation Rules of Procedure, this court acknowledged the fact of and issued notice on the filing of the petition by Foreign Representative John F. Reid, and ordered the publication of the notice in a newspaper of general circulation. The court also set the summary hearing on petitioner's application for provisional relief and the hearing on the main petition.

As prayed for, considering that his witnesses are non-resident foreign nationals and due to time constraints as well as existing travel restrictions brought about by the COVID-nineteen pandemic, petitioner was allowed to present his witnesses through videoconference.

During the summary hearing on four October twenty twenty-one, petitioner and counsels, Atty. Francisco Ed. Lim, Atty. Charlemagne P. Chavez, and Atty. Merceidez Ragaza appeared through Microsoft Teams videoconferencing. PAL's Chief Finance Officer Nilo Thaddeus Rodriguez, Vice President for Legal Affairs Ma. Clara C. De Castro, General Bankruptcy and Restructuring Counsel in the U.S. Bankruptcy Court Atty. Elie Worenklein, Aircraft Counsel Keith Sandilands, and expert witness Atty. Kyle Ortiz also joined.

Thereupon, petitioner presented proof of publication of the twenty-four September twenty twenty-one Notice of filing, as published in the Philippine Daily Inquirer on twenty-nine September twenty twenty-one. No opposition electronically or manually filed to the court within five days from publication.

In support of his application for provisional relief, petitioner showed the nine September twenty twenty-one Order issued by Honorable Shelley C. Chapman, the United States Bankruptcy Judge of the U.S. Bankruptcy Court for the Southern District of New York, confirming PAL's commencement of the Chapter eleven Case and authorizing the petitioner, Mr. John F. Reid, to act as PAL's "foreign representative" including the filing of this petition for recognition of the Chapter eleven case. He also showed the other nine September twenty twenty-one Order of the U.S. Bankruptcy Court confirming PAL's authority to continue to operate its business in the ordinary course and the implementation of the automatic stay.

Having sufficiently established the urgent need to protect the assets of debtor PAL as well as the interests of the creditors in the Philippines during the pendency of this petition for recognition and there being a prima facie showing that the petition is meritorious, petitioner's application for provisional relief was granted on five October twenty twenty-one.

Subsequently, during the hearing of the petition on eight October twenty twenty-one, petitioner, through Atty. Francisco Ed. Lim, reiterated on the following:

One. On three September twenty twenty-one, PAL commenced a Voluntary Petition for relief under Chapter eleven of the U.S. Bankruptcy Code before the United States Bankruptcy Court for the Southern District of New York, docketed as Case Number twenty-one dash one hundred fifteen six nine (SCC), Chapter eleven Case;

Two. The Voluntary Petition is a "foreign proceeding" as defined in Section five G, Rule one of the Financial Rehabilitation Rules of Procedures of twenty thirteen (FR Rules);

Three. The Chapter eleven Case is a foreign non-main proceeding as defined and understood under Section five I, Rule one of the FR Rules;

Four. On nine September twenty twenty-one, the U.S. Bankruptcy Court issued an Order, among others:

a. declaring the Voluntary Petition constitutes "foreign proceedings", as the term is used in Article two A of the Model Law on Cross-Border Insolvency adopted by the United Nations Commission on International Trade Law;

b. the Chapter eleven Case has been commenced by the filing of PAL's voluntary petition for relief on three September twenty twenty-one;

c. authorizing petitioner John F. Reid as the "foreign representative", pursuant to section one thousand five hundred five of the U.S. Bankruptcy Code, on behalf of PAL's estate;

d. as "foreign representative", petitioner is authorized and has the power to act in any way permitted by applicable foreign law, including seeking recognition of the Chapter eleven Case in the Philippines and provisional relief to protect the assets of PAL or the interests of the creditors; and e. respectfully requesting the Philippine Regional Trial Court as well as any other court, tribunal, regulatory body, or administrative body having jurisdiction in the Philippines to:

i. grant representative status to Mr. Reid in any foreign proceeding;

ii. to issue such orders and to provide such assistance to Mr. Reid as the foreign representative of PAL, and an officer of the Court, as may be necessary or desirable to give effect to this Order and all applicable provisions of the Bankruptcy Code;

iii. assist PAL, Mr. Reid (in his capacity as the foreign representative), and their respective agents in carrying out terms of this Order, (ii) any other order of this Court, and (iii) the provisions of the Bankruptcy Code, including, for the avoidance of doubt, the automatic stay pursuant to Section three hundred sixty-two of the Bankruptcy Code that was imposed upon the commencement of the Chapter eleven Case;

Five. The nine September twenty twenty-one Order constitutes the order commencing the foreign proceeding and appointing the foreign representative as provided in Section five, Rule five of the FR Rules;

Six. As stated in the nine September twenty twenty-one Order, petitioner is a "Foreign Representative" as defined in Section five J, Rule one of the FR Rules;

Seven. The Chapter eleven Case is not contrary to the public policy of the Philippines on rehabilitation proceedings;

Eight. The Chapter eleven case is similar to a pre-negotiated rehabilitation under Chapter three of the FRIA and Rule three of the FR Rules;

Nine. The Chapter eleven Case is entitled to recognition in the Philippines under the FRIA and FR Rules.

Petitioner emphasized his compliance with all the requirements under Section eight, Rule five of the FR Rules for recognition of foreign proceedings, and none of the grounds to refuse recognition under Section four of same Rule. PAL's General Bankruptcy and Restructuring Counsel in the U.S Bankruptcy Court, Atty. Elie Worenklein, affirmed and confirmed the commencement of the voluntary petition before the U.S. Bankruptcy Court and the issuance of the nine September twenty twenty-one Orders as well as the subsequent Orders, dated thirty September twenty twenty-one. He also attests to the compliance with the factors in granting relief under Section fourteen of same Rule.

He presented Atty. Kyle Ortiz, as an expert witness, who identified and presented the relevant provisions governing bankruptcy and rehabilitation proceedings in the United States of America, as well as protection of creditors, specifically on Chapter eleven reorganization proceeding under Chapter three hundred twenty-one, Chapter five hundred twenty-two, Chapter one thousand one hundred twenty-three, and Chapter one thousand five hundred twenty-four of the United States Bankruptcy Code, as amended, found in Title two of the United States Code.

Atty. Ortiz explained that nature of Chapter eleven, which, among other things, sets forth the requirements to confirm a chapter eleven plan of reorganization allowing a debtor to emerge from a chapter eleven protection as reorganized entity, with stronger balance sheet and positioned to continue to operate and contribute to society by providing jobs, goods, and services. Chapter five governs the rights of creditors, the debtor, and the debtor's estate during a chapter eleven, including provisions relating to filing, allowance, and relative priority of claims held by creditors.

He clarified that the main goal of chapter eleven is to rehabilitate financially distressed companies and emerge well positioned to survive and thrive as a viable entity in the future. Under the Bankruptcy Code, all creditors are entitled to notice of the commencement of the debtor's chapter eleven proceeding and certain key filings during the case, including any "bar date" order establishing deadlines to file proofs of claim, and the filing of a chapter eleven plan. It is a regular practice in the United States to publish notices in national newspaper and in the local papers where the company is located.

Petitioner presented proof of publication of the "Notice of Chapter eleven Filing to Creditors" published in the Philippine Daily Inquirer on twenty-nine September twenty twenty-one.

Atty. Ortiz also posits that the United States Bankruptcy Code requires that a Chapter eleven plan treat similarly situated creditors equally. It is generally blind as to the location of the creditors. As such, creditors in other jurisdictions have the same rights as creditors within the United States. There is no distinction, as all creditors are afforded the same rights and the same due process.

He further testified that Chapter fifteen of the Bankruptcy Code provides a mechanism pursuant to which the United States Bankruptcy Courts may recognize foreign rehabilitation proceedings pending in a foreign jurisdiction. As such, the United States

Bankruptcy Code and the United States Laws extend recognition to Philippine rehabilitation proceeding.

He emphasized that Chapter fifteen was enacted as part of the Bankruptcy Abuse Prevention and Consumer Protection Act in two thousand five basically to adopt the UNCITRAL Model Law on Cross-Border Insolvency.

Atty. Lim also pointed out that Section one hundred thirty-nine, Chapter eight of FRIA adopts as part thereof the Model Law on Cross-Border Insolvency of the United Nations Center for International Trade and Development.

Atty. Ma. Clara C. De Castro, PAL's Vice-President for Legal Affairs, attests to the urgent need to stay the enforcement and execution of claims against PAL in the Philippines so as protect PAL's assets to ensure enforcement of the nine September twenty twenty-one Orders in the Chapter eleven case.

Petitioner confirms that, as alleged in the petition, other than the Chapter eleven case in the United States, "no other foreign proceedings involving PAL is known to him". Pursuant to Section ten, Rule five of the FR Rules, he undertakes to promptly inform this court of any foreign proceeding concerning PAL that becomes known to him, and how may the changes and developments affect or have affected this petition.

Petitioner filed his formal offer of exhibits on thirteen October twenty twenty-one, which was admitted. Hence, the petition was submitted for decision.