Saturday, December 15, 2012

Stay Order

What is a stay order?

A stay order is a temporary order issued by a court to temporarily suspend or stop the execution of a judicial proceeding (court judgment).

Why does an insurance company or a pre-need company receive a stay order?

When an insurance or pre-need company is going bankrupt, losing its business, or having more debts than profits, the company would file for bankruptcy. When a preneed company has too much liabilities, the goverment might stop the company from selling new plans, which would eventually lead to bankruptcy in most cases. To legally file for bankruptcy, the losing company submits legal papers to a court saying that its business is going bankrupt. After the court receives the paper documents from the company that is going bankrupt, the court will then issue a stay order. Other cases where a company receives stay order is when it has a proposal for corporate rehabilitation (a more favorable option than liquidation).

What happens to the company that received a stay order? What are the effects of a stay order to a company?

The company who filed a bankruptcy and received a stay order will temporarily not pay its debt. The company is not allowed to pay its liabilities. The company is also prevented from disposing (selling, leasing, transferring, giving up) any of its properties. The company's suppliers of goods and services are prohibited from witholding (refusing to give, holding back, suppressing) the supply of goods and services. The company is required to pay administrative expenses incurred after the issuance of a stay order. Creditors and collection agencies are stopped from collecting debt payments by virtue of the stay order issued by the court.

What does a stay order mean to a planholder? What are the effects of a stay order to a planholder?

If you are a planholder in a company and the company filed for bankruptcy and as a result, receives a stay order, you will not receive any money even if you terminate or cancel your plan. It does not matter whether you partially paid or fully paid your plan, you will not receive any money upon cancellation or termination because the stay order is still in effect. Claims of planholders will be stopped. However, plan holders who terminated or cancelled their plans BEFORE the stay order was issued can receive claims and be given back their money invested. Planholders, creditors, stockholders, and other stakeholders are directed by the court or insurance commission authority to file comments, suggestions, oppositions, or to attend hearings and consultations. The court also requires the company to post the stay order in its offices, gates, doors, etc. where people can clearly see it. The company has to publish the stay order in a newspaper of general circulation and to publish, post, and make the stay order available for download in the company's website.

What can a plan holder do when his insurance or pre-need company is issued a stay order?

Stay order issued by a Court or an Insurance Commission is usually 4 to 5 months in duration. When the date of the stay order is reached, the court will decide and pass judgement as to what happens to the bankruptcy case or rehabilitation plan proposal filed by the company. Therefore, the planholder has to wait for the decision of the court. When the court says that the insurance company has to give back the premiums of planholders that cancelled plans, then that is what the company is legally required to do. It would be unfortunate if plan holders do not receive 100% of what they contributed. Risks such as this (not getting back all the money that you invested) are ever present and often high in pre-need, pension, education, retirement, and insurance companies. So, you have to be very careful when investing. You might be better off putting your money in your bank than investing and ending up losing money, not to mention the taxes and headaches, pains, and griefs, associated to these investments.

What does it mean to "Lift a Stay Order"?

When a court lifts a stay order, it means that the stay order is no longer in effect. The company will follow what is ordered by the court in its judgment regarding the bankruptcy case or rehabilitation plan proposal filed.    

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