Financial Rehabilitation and Insolvency Act FRIA of 2010 PDF

**Financial Rehabilitation and Insolvency Act FRIA of 2010** **Republic Act 10142** **Purpose** It is the policy of the State to **encourage debtors, both juridical and natural persons, and their creditors to collectively and realistically resolve and adjust competing claims and property rights.*...

**Financial Rehabilitation and Insolvency Act FRIA of 2010** **Republic Act 10142** **Purpose** It is the policy of the State to **encourage debtors, both juridical and natural persons, and their creditors to collectively and realistically resolve and adjust competing claims and property rights.** The **rehabilitation or liquidation** shall be made with a view to ensure or maintain certainly and predictability in commercial affairs, preserve and maximize the value of the assets of these debtors, recognize creditor rights and respect priority of claims, and ensure equitable treatment of creditors who are similarly situated. When **rehabilitation is not feasible**, it is in the interest of the **State to facilities a speedy and orderly** **liquidation of these debtor\'s assets and the settlement of their obligations.** **Proceedings** The proceedings under this Act shall be in **rem - binding to the whole world. Upon publication** of the **notice of the commencement of the proceedings** in **any newspaper** of general circulation in the Philippines **Definition of Terms used in this Act** ***Claim*** shall refer to all claims or demands of whatever nature or character against the debtor or its property, whether for money or otherwise, liquidated or unliquidated, fixed or contingent, matured or unmatured, disputed or undisputed, including, but not limited to; (1) all claims of the government, whether national or local, including taxes, tariffs and customs duties; and (2) claims against directors and officers of the debtor arising from acts done in the discharge of their functions falling within the scope of their authority: *Provided,* That, this inclusion does not prohibit the creditors or third parties from filing cases against the directors and officers acting in their personal capacities. ***Ordinary course of business*** shall refer to transactions in the pursuit of the individual debtor\'s or debtor\'s business operations prior to rehabilitation or insolvency proceedings and on ordinary business terms. ***Commencement date*** shall refer to the date on which the court issues the Commencement Order, which shall be retroactive to the date of filing of the petition for voluntary or involuntary proceedings. ***Debtor* **shall refer to, unless specifically excluded by a provision of this Act, (**1) a sole proprietorship duly registered with the Department of Trade and Industry (DTI)**, **(2) a partnership duly registered with the Securities and Exchange Commission (SEC)**, **(3) a corporation duly organized and existing under Philippine laws**, **(4) or an individual debtor who has become insolvent as defined herein.** ***Creditor*** shall refer to a natural or juridical person which has a claim against the debtor that arose on or before the commencement date. ***Insolvent*** shall refer to the financial condition of a debtor that is generally unable to pay its or his liabilities as they fall due in the ordinary course of business or has liabilities that are greater than its or his assets.  ***Rehabilitation* **shall refer to the restoration of the debtor to a condition of successful operation and solvency, if it is shown that its continuance of operation is economically feasible and its creditors can recover by way of the present value of payments projected in the plan, more if the debtor continues as a going concern than if it is immediately liquidated. ***Bankruptcy*** is a proceeding where a judge and court-appointed [trustee examine the assets](https://www.debt.org/bankruptcy/what-does-bankruptcy-trustee-investigate/) and liabilities of individuals, partnerships and businesses who've concluded they can't pay their debts.  ***Insolvent debtor\'s estate*** shall refer to the estate of the insolvent debtor, which includes all the property and assets of the debtor as of commencement date, plus the property and assets acquired by the rehabilitation receiver or liquidator after that date, as well as all other property and assets in which the debtor has an ownership interest, whether or not these property and assets are in the debtor\'s possession as of commencement date: *Provided,* That trust assets and bailment, and other property and assets of a third party that are in the possession of the debtor as of commencement date, are excluded therefrom. ***Liabilities*** shall refer to monetary claims against the debtor, including stockholder\'s advances that have been recorded in the debtor\'s audited financial statements as advances for future subscriptions. ***Lien*** shall refer to a **statutory or contractual claim or judicial charge on real or personal property that legality entities a creditor to resort to said property for payment of the claim or debt secured by such lien.** ***Rehabilitation Plan*** shall refer to a plan by which the **financial well-being and viability of an insolvent debtor** can **be restored** using various means including, but not limited to, **debt forgiveness, debt rescheduling, reorganization or quasi-reorganization, dacion en pago, debt-equity conversion and sale of the business (or parts of it) as a going concern, or setting-up of new business entity** as prescribed in Section 62 hereof, or other similar arrangements as may be approved by the court or creditors. ***Rehabilitation receiver*** shall refer to the person or persons, natural or juridical, appointed as such by the court pursuant to this Act and which shall be entrusted with such powers and duties as set forth herein. ***Powers, Duties and Responsibilities of the Rehabilitation Receiver*** a. To verify the accuracy of the factual allegations in the petition and its annexes; b. To verify and correct, if necessary, the inventory of all of the assets of the debtor, and their valuation; c. To verify and correct, if necessary, the schedule of debts and liabilities of the debtor; (d)To evaluate the validity, genuineness and true amount of all the claims against the debtor; d. To take possession, custody and control, and to preserve the value of all the property of the debtor; e. To sue and recover, with the approval of the court, all amounts owed to, and all properties pertaining to the debtor;To have access to all information necessary, proper or relevant to the operations and business of the debtor and for its rehabilitation; f. To sue and recover, with the. approval of the court, all property *or *money of the debtor paid, transferred or disbursed in fraud of the debtor or its creditors, or which constitute undue preference of creditor/s; g.  To monitor the operations and the business of the debtor to ensure that no payments or transfers of property are made other than in the ordinary course of business; h.  With the court\'s approval, to engage the services of or to employ persons or entities to assist him in the discharge of his functions; i. To determine the manner by which the debtor may be best rehabilitated, to review) revise and/or recommend action on the Rehabilitation Plan and submit the same or a new one to the court for approval; **TYPES OF REHABILITATION** 1. **COURT-SUPERVISED REHABILITATION** A. *Voluntary Proceedings by Debtor (Debtor Initiate)* When approved by the **owner in case of a sole proprietorship**, or by a **majority of the partners in case of a partnership**, or in case of a **corporation**, by a **majority vote of the board of directors or trustees and authorized by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock**, or in case of **nonstock corporation**, by the vote of at least two-thirds **(2/3) of the members**, in a stockholder\'s or member\'s meeting duly called for the purpose, an insolvent debtor may initiate voluntary proceedings under this Act by filing a petition for rehabilitation with the court and on the grounds hereinafter specifically provided. B. *Involuntary Proceedings (Creditors Initiate)* Any creditor or group of creditors with a **claim** of, or the aggregate of whose claims is, **at least One Million Pesos (Php1,000,000.00) or at least twenty-five percent (25%) of the subscribed capital stock or partners\' contributions, whichever is higher**, may initiate involuntary proceedings against the debtor by filing a petition for rehabilitation with the court if: a. b. ***Qualifications of a Rehabilitation Receiver.** *- The rehabilitation receiver shall have the following minimum qualifications: a. A citizen of the Philippines b. Of good moral character c. Has the requisite knowledge of insolvency and other relevant commercial laws, rules and procedures, as well as the relevant training and/or experience that may be necessary to enable him to properly discharge the duties and obligations of a rehabilitation receiver; d. Has no conflict of interest  2. **PRE-NEGOTIATED REHABILITATION** *Petition by Debtor.* - An **insolvent debtor, by itself or jointly with any of its creditors, may file a verified petition with the court for the approval of a pre-negotiated Rehabilitation Plan** which has been **endorsed or approved by creditors** holding at least two-thirds **(2/3) of the total liabilities of the debtor, including secured creditors holding more than fifty percent (50%) of the total secured claims of the debtor and unsecured creditors holding more than fifty percent (50%) of the total unsecured claims of the debtor** 3. **OUT-OF-COURT OR INFORMAL RESTRUCTURING AGREEMENTS OR REHABILITATION PLANS** Requirements: a. The debtor must agree to the out-of-court or informal restructuring/workout agreement or Rehabilitation Plan; b. It must be approved by creditors representing at least sixty-seven (67%) of the secured obligations of the debtor; c. It must be approved by creditors representing at least seventy-five percent (75%) of the unsecured obligations of the debtor; and d.  It must be approved by creditors holding at least eighty-five percent (85%) of the total liabilities, secured and unsecured, of the debtor. ***Standstill period*** does not exceed one hundred twenty (120) days from the date of effectivity. ***Court Assistance**.* - The insolvent debtor and/or creditor may seek court assistance for the execution or implementation of a Rehabilitation Plan under this Chapter, under such rules of procedure as may be promulgated by the Supreme Court. **LIQUIDATION OF INSOLVENT JURIDICAL DEBTORS** 1. Voluntary Liquidation \- An insolvent debtor may apply for liquidation by filing a petition for liquidation with the court. The petition shall be verified, shall establish the insolvency of the debtor and shall contain, whether as an attachment or as part of the body of the petition; a **schedule of the debtor\'s debts and liabilities**,  **inventory of all its assets**,  **names of at least three (3) nominees to the position of liquidator** 2. Involuntary Liquidation -Three (3) or more creditors the aggregate of whose claims is at least either One million pesos (Php1,000,000,00) or at least twenty-five percent (25%0 of the subscribed capital stock or partner\'s contributions of the debtor, whichever is higher, may apply for and seek the liquidation of an insolvent debtor by filing a petition for liquidation of the debtor with the court **INSOLVENCY OF INDIVIDUAL DEBTORS** 1. Voluntary Insolvency 2. Involuntary Insolvency **REMEDIES AVAILABLE** A. **INDIVIDUAL DEBTOR** - Suspension of Payments (delay in payment) \- order of the court \- suspends payment of debts \- upon petition of the debtor who: A. B. (**ONLY INDIVIDUAL DEBTOR CAN FILE PETITION FOR SUSPENSION OF PAYMENTS - REGIONAL TRIAL COURT**) - Voluntary Liquidation (discharge from his debts and liabilities) -An individual debtor whose properties are not sufficient to cover his liabilities, and owing debts exceeding Five hundred thousand pesos (Php500,000.00), may apply to be discharged from his debts and liabilities by filing a verified petition with the court of the province or city in which he has resided for six (6) months prior to the filing of such petition. He shall attach to his petition a schedule of debts and liabilities and an inventory of assets. The filing of such petition shall be an act of insolvency. - Involuntary Liquidation \- Any creditor or group of creditors with a claim of, or with claims aggregating at least Five hundred thousand pesos (Php500, 000.00) may file a verified petition for liquidation with the court of the province or city in which the individual debtor resides. B. **JURIDICAL DEBTOR** - Rehabilitation - Liquidation (Voluntary or Involuntary)