FRIA

foresees the impossibility of paying his debts when they

respectively fall due. Suspension of payments may be
voluntary (filed by the debtor) or involuntary (filed by the
creditors). The available remedy for corporations and other
1. What is the purpose of FRIA?
juridical debtors is financial rehabilitation, discussed below.
● to encourage debtors, both juridical and natural persons,
2. Financial Rehabilitation - Rehabilitation is the
and their creditors to collectively and realistically resolve
restoration of the juridical debtor to a condition of
and adjust competing claims and property rights.
successful operation and solvency, if it is shown that its
● ensure a timely, fair, transparent, effective and efficient
continuance of operation is economically feasible and its
rehabilitation or liquidation of debtors.
creditors can recover by way of the present value of
● to ensure or maintain certainty and predictability in
commercial affairs, preserve and maximize the value of the payments projected in the plan, more if the debtor
assets of these debtors, recognize creditor rights and continues as a going concern than if it is immediately
respect priority of claims, and ensure equitable treatment liquidated. There are three kinds of rehabilitation
of creditors who are similarly situated. proceedings, covered by separate set of rules:
● When rehabilitation is not feasible, it is in the interest of the ● (i) Court-supervised rehabilitation, which may be voluntary
State to facilitate a speedy and orderly liquidation of these
debtors’ assets and the settlement of their obligations. or involuntary

2. What is the nature of the proceedings? ● (ii) Pre-negotiated rehabilitation

1. In Rem: The proceedings under this Act shall be in rem.
● (iii) Out-of-court or Informal Agreement or Rehabilitation
Jurisdiction over all persons affected by the proceedings
shall be considered as acquired upon publication of the Plan
notice of the commencement of the proceedings in any
newspaper of general circulation in the Philippines in the
manner prescribed by the rules of procedure to be 3. Liquidation - An insolvent juridical debtor may file a
promulgated by the Supreme Court. verified petition for liquidation in the Regional Trial Court
*In Rem - against a thing *In Rem Jurisdiction – power of which has jurisdiction over its principal office as specified in
the court over an item of real or personal property its articles of incorporation or partnership. Liquidation of
insolvent juridical debtors may be voluntary (filed by the
2. Summary/Non-Adversarial: The proceedings shall be debtor) or involuntary (filed by creditors).
conducted in a summary and nonadversarial manner
consistent with the declared policies of this Act and in 5. Definition of Terms (in brief)
accordance with the rules of procedure that the Supreme A. Administrative expenses
Court may promulgate. *Non-adversarial – working - shall refer to those reasonable and necessary expenses:
together co-operatively to reach the best resolution for (1) incurred or arising from the filing of a petition under the
everyone. (“Win-win”) provisions of this Act;
(2) arising from, or in connection with, the conduct of the
3. What is the scope of FRIA? proceedings under this Act, including those incurred for the
rehabilitation or liquidation of the debtor;
❖ Governs the rehabilitation or liquidation of (3) incurred in the ordinary course of business of the debtor
debtors, may it be a sole proprietorship duly after the commencement date;
registered with the Department of Trade and (4) for the payment of new obligations obtained after the
Industry (DTI), a partnership duly registered with commencement date to finance the rehabilitation of the
the Securities and Exchange Commission (SEC), a debtor;
corporation duly organized and existing under (5) incurred for the fees of the rehabilitation receiver or
liquidator and of the professionals engaged by them; and
Philippine laws, or an individual debtor who has
(6) that are otherwise authorized or mandated under this
become insolvent as defined herein. Act or such other expenses as may be allowed by the
Supreme Court in its rules.
❖ Insolvent – refer to the financial condition of a
debtor that is generally unable to pay its or his B. Affiliate
liabilities as they fall due in the ordinary course of - Shall refer to a corporation that directly or indirectly,
business or has liabilities that are greater than its through one or more intermediaries, is controlled by, or is
or his assets. under common control of another corporation.
❖ The term debtor DOES NOT INCLUDE banks,
insurance companies, pre-need companies, and C. Claim
national and local government agencies or units. - shall refer to all claims or demands of whatever nature or
Provided, that government financial institutions character against the debtor or its property, whether for
other than banks and government-owned or money or otherwise, liquidated or unliquidated, fixed or
controlled corporations shall be covered by this contingent, matured or unmatured, disputed or
Act, unless their specific charter provides undisputed, including, but not limited to;
otherwise. 1.) all claims of the government, whether national or local,
including taxes, tariffs and customs duties; and
4. What are the 3 distinct remedies available to insolvent 2.) claims against directors and officers of the debtor arising
debtors/creditors under the FRIA? from acts done in the discharge of their functions falling
1. Suspension of Payments - Only individual debtors within the scope of their authority: Provided, That, this
(natural persons) may file a petition for suspension of inclusion does not prohibit the creditors or third parties
payments. This remedy is available when the individual from filing cases against the directors and officers acting in
debtor has assets that exceed his/her liabilities, but their personal capacities.

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 D. Commencement Date N. Group of debtors
- shall refer to the date on which the court issues the - (n) Group of debtors shall refer to and can cover only:
Commencement Order, which shall be retroactive to the (1) corporations that are financially related to one
date of filing of the petition for voluntary or involuntary another as parent corporations, subsidiaries or
proceedings. affiliates; (2) partnerships that are owned more than
fifty percent (50%) by the same person; and (3) single
E. Commencement Order proprietorships that are owned by the same person.
- shall refer to the order issued by the court under When the petition covers a group of debtors, all
Section 16 of this Act. reference under these rules to debtor shall include and
apply to the group of debtors.
F. Control
- shall refer to the power of a parent corporation to O. Individual debtor
direct or govern the financial and operating policies of - (o) Individual debtor shall refer to a natural person
an enterprise so as to obtain benefits from its activities. who is a resident and citizen of the Philippines that has
Control is presumed to exist when the parent owns, become insolvent as defined herein.
directly or indirectly through subsidiaries or affiliates,
more than one-half (1/2) of the voting power of an P. Insolvent
enterprise unless, in exceptional circumstances, it can - (p) Insolvent shall refer to the financial condition of a
clearly be demonstrated that such ownership does not debtor that is generally unable to pay its or his
constitute control. Control also exists even when the liabilities as they fall due in the ordinary course of
parent owns one-half (1/2) or less of the voting power business or has liabilities that are greater than its or his
of an enterprise when there is power: assets.
1.) over more than one-half (1/2) of the voting rights by virtue
of an agreement with investors; Q. Insolvent debtor's estate
2.) to direct or govern the financial and operating policies of - Insolvent debtor's estate shall refer to the estate of the
the enterprise under a statute or an agreement; insolvent debtor, which includes all the property and
3.) to appoint or remove the majority of the members of the assets of the debtor as of commencement date, plus the
board of directors or equivalent governing body; or property and assets acquired by the rehabilitation receiver
4.) to cast the majority votes at meetings of the board of or liquidator after that date, as well as all other property
directors or equivalent governing body. and assets in which the debtor has an ownership interest,
whether or not these property and assets are in the
G. Court debtor's possession as of commencement date: Provided,
SEC 4. (g) Court shall refer to the court designated by the That trust assets and bailment, and other property and
Supreme Court to hear and determine, at the first assets of a third party that are in the possession of the
instance, the cases brought under this Act. debtor as of commencement date, are excluded
therefrom.
H. Creditor
(h) Creditor shall refer to a natural or juridical person R. Involuntary proceedings
which has a claim against the debtor that arose on or - Involuntary proceedings shall refer to proceedings
before the commencement date. initiated by creditors.

I. Date of liquidation S. Liabilities

(i) Date of liquidation shall refer to the date on which the - Liabilities shall refer to monetary claims against the
court issues the Liquidation Order. debtor, including stockholder's advances that have been
recorded in the debtor's audited financial statements as
J. Days advances for future subscriptions.
(J) Days shall refer to calendar days unless otherwise -
specifically stated in this Act. T. Lien
- Lien shall refer to a statutory or contractual claim or
K. Debtor judicial charge on real or personal property that legality
(k) Debtor shall refer to, unless specifically excluded by a entities a creditor to resort to said property for payment
provision of this Act, a sole proprietorship duly registered of the claim or debt secured by such lien.
with the Department of Trade and Industry (DTI), a
partnership duly registered with the Securities and U. Liquidation
Exchange Commission (SEC), a corporation duly organized - shall refer to the proceedings under Chapter V of this Act.
and existing under Philippine laws, or an individual debtor - (Converting all assets of the debtor into cash)
who has become insolvent as defined herein.
V. Liquidation Order
L. Encumbered property
- (l) Encumbered property shall refer to real or personal (acc to lawphil: Liquidation Order shall refer to the Order issued by
property of the debtor upon which a lien attaches. the court under Section 112 of this Act.)
Section 112. Liquidation Order. - The Liquidation Order shall:
M. General unsecured creditor (a) declare the debtor insolvent;
- (m) General unsecured creditor shall refer to a (b) order the liquidation of the debtor and, in the case of a juridical
creditor whose claim or a portion thereof its neither debtor, declare it as dissolved;
secured, preferred nor subordinated under this Act.
Quitiol, Exxa Cheska S.
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(c) order the sheriff to take possession and control of all the property held by the debtor, a secured creditor, the
property of the debtor, except those that may be exempt from rehabilitation receiver, liquidator or any other juridical or
execution; natural person who stands to be benefited or injured by
(d) order the publication of the petition or motion in a newspaper of
the outcome of the proceedings and whose notice of
general circulation once a week for two (2) consecutive weeks;
(e) direct payments of any claims and conveyance of any property appearance is accepted by the court.
due the debtor to the liquidator; CC. Possessory lien
(f) prohibit payments by the debtor and the transfer of any property Possessory lien shall refer to a lien on property, the
by the debtor; possession of which has been transferred to a creditor or a
(g) direct all creditors to file their claims with the liquidator within representative or agent thereof.
the period set by the rules of procedure; DD. Proceedings
(h) authorize the payment of administrative expenses as they
Proceedings shall refer to judicial proceedings commenced
become due;
(i) state that the debtor and creditors who are not petitioner/s may by the court's acceptance of a petition filed under this Act.
submit the names of other nominees to the position of liquidator; EE. Property of others
and Property of others shall refer to property held by the
(j) set the case for hearing for the election and appointment of the debtor in which other persons have an ownership interest.
liquidator, which date shall not be less than thirty (30) days nor FF. Publication notice
more than forty-five (45) days from the date of the last publication. Publication in a newspaper of general circulation in the
- (Acc sa law insider dictionary) liquidation order means an Philippines on a business day for two (2) consecutive
order of a Court whereby the estate of a debtor is placed weeks.
under liquidation and includes a provisional liquidation GG. Rehabilitation
order when it has not been set aside Restoration of the debtor to a condition of successful
- The liquidation order declares the insolvency, and orders operation and solvency.
the liquidation of the debtor. Upon issuance, the debtor is HH. Rehabilitation receiver
deemed dissolved and its corporate existence terminated. Shall refer to the person or persons, natural or
It prohibits payments and transfers of any property by the juridical, appointed as such by the court pursuant to this
debtor, and requires the sheriff to take possession and Act and which shall been trusted with such powers and duties as set
control of all properties of the debtor, with the legal title forth herein.
and control over the same vested upon the court-
appointed liquidator, except those exempt from II. Rehabilitation Plan
execution. All contracts of the debtor shall be deemed Plan by which the financial well-being and viability of an
terminated, unless the liquidator declares otherwise and insolvent debtor can be restored using various means
the contracting parties agree. including but not limited to, debt forgiveness, debt
rescheduling, reorganization or quasi-reorganization,
W. Liquidator dacion en pago, debt-equity conversion and sale of the
Liquidator- shall refer to the natural person or juridical entity business (or parts of it) as a going concern, or setting-up of
appointed as such by the court and entrusted with such powers and new business entity
duties as set forth in this Act: Provided, That, if the liquidator is a as prescribed in Section 62 hereof, or other similar
juridical entity, it must designated a natural person who possesses arrangements as may be
all the qualifications and none of the disqualifications as its approved by the court or creditors.
representative, it being understood that the juridical entity and the JJ. Secured claim
representative are solidarity liable for all obligations and A claim that is secured by a lien.
responsibilities of the liquidator. KK. Secured creditor
X. Officer - refer to a creditor with a secured claim
-shall refer to a natural person holding a management LL. Secured party
position described in or contemplated by a juridical - refer to a secured creditor or the agent or
entity's articles of incorporation, bylaws or equivalent representative of such secured creditor
documents, except for the corporate secretary, the MM. Securities market participant
assistant corporate secretary and the external auditor. - refer to a broker, dealer, underwriter, transfer agent
Y. Ordinary course of business or other juridical persons transacting securities in the
-shall refer to transactions in the pursuit of the individual capital market.
debtor's or debtor's business operations prior to NN. Stakeholder
rehabilitation or insolvency proceedings and on ordinary - refer, in addition to a holder of shares of a
business terms. corporation, to a member of a nonstock corporation
or association or a partner in a partnership
Z. Ownership interest OO. Subsidiary
-refer to the ownership interest of third parties in property - refer to a corporation more than fifty percent (50%)
held by the debtor, including those covered by trust of the voting stock of which is owned or controlled
receipts or assignments of receivables. directly or indirectly through one or more
intermediaries by another corporation, which thereby
AA. Parent becomes its parent corporation
Parent shall refer to a corporation which has control over PP. Unsecured claim
another corporation either directly or indirectly through - claim that is not secured by a lien.
one or more intermediaries. QQ. Unsecured creditor
BB. Party to the proceedings - a creditor with an unsecured claim.
Party to the proceedings shall refer to the debtor, a RR. Voluntary proceedings
creditor, the unsecured creditors' committee, a - proceedings initiated by the debtor.
stakeholder, a party with an ownership interest in SS. Voting creditor
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 - a creditor that is a member of a class of creditors, the liabilities; (b) an inventory of assess; and (c) a proposed agreement
consent of which is necessary for the approval of a with his creditors.
Rehabilitation Plan under this Act.
Section 95. Action on the Petition. - If the court finds the petition
6. Summarize the procedure for Suspension of Payments sufficient in form and substance, it shall, within five (5) working days
The procedures for handling the insolvency of individual debtors can from the filing of the petition, issue an Order:
be summarized with important numerical details: (a) calling a meeting of all the creditors named in the schedule
of debts and liabilities at such time not less than fifteen
1. Filing for Suspension of Payments (Section 94): (15) days nor more than forty (40) days from the date of
➢ Individual debtor files a petition. such Order and designating the date, time and place of the
➢ Resides in the area for at least six (6) months. meeting;
➢ Attachments to the petition: (b) directing such creditors to prepare and present written
- Schedule of debts and liabilities. evidence of their claims before the scheduled creditors'
- Inventory of assets. meeting;
- Proposed agreement with creditors. (c) directing the publication of the said order in a newspaper
2. Action on the Petition (Section 95): of general circulation published in the province or city in
➢ Court issues an order within five (5) working days. which the petition is filed once a week for two (2)
➢ Meeting of creditors is called, to be held within 15 to 40 consecutive weeks, with the first publication to be made
days. within seven (7) days from the time of the issuance of the
➢ Publication of the order in a local newspaper for two (2) Order;
consecutive weeks. (d) directing the clerk of court to cause the sending of a copy
➢ Clerk of court sends a copy of the order to creditors by of the Order by registered mail, postage prepaid, to all
registered mail. creditors named in the schedule of debts and liabilities;
➢ Individual debtor is prohibited from selling, transferring, or (e) forbidding the individual debtor from selling, transferring,
disposing of property. encumbering or disposing in any manner of his property,
➢ Individual debtor cannot make payments except for except those used in the ordinary operations of commerce
necessary business expenses. or of industry in which the petitioning individual debtor is
engaged so long as the proceedings relative to the
3. Creditors' Meeting (Section 97): suspension of payments are pending;
➢ Presence of creditors with claims amounting to at least (f) prohibiting the individual debtor from making any
three-fifths (3/5) of the liabilities is required. payment outside of the necessary or legitimate expenses
➢ Two-thirds (2/3) of creditors voting must unite on the of his business or industry, so long as the proceedings
same proposition. relative to the suspension of payments are pending; and
➢ Claims represented by the majority vote should amount to (g) appointing a commissioner to preside over the creditors'
at least three-fifths (3/5) of the total liabilities. meeting.

4. Objections (Section 100): Section 96. Actions Suspended. - Upon motion filed by the individual
➢ Creditors who dissent from the majority vote can file debtor, the court may issue an order suspending any pending
objections within ten (10) days. execution against the individual debtor. Provide, That properties
held as security by secured creditors shall not be the subject of such
5. Effects of Approval of Proposed Agreement (Section 101): suspension order. The suspension order shall lapse when three (3)
➢ The court upholds the approval if no opposition or months shall have passed without the proposed agreement being
objections are raised. accepted by the creditors or as soon as such agreement is denied.
➢ The order confirming the agreement is binding on
creditors in the debtor's schedule of debts, with No creditor shall sue or institute proceedings to collect his claim
exceptions for specific creditors. from the debtor from the time of the filing of the petition for
suspension of payments and for as long as proceedings remain
6. Failure to Perform Agreement (Section 102): pending except:
➢ If the debtor fails to perform the agreement, creditors (1) those creditors having claims for personal labor,
regain their rights. maintenance, expense of last illness and funeral of the
➢ The debtor may be subject to insolvency proceedings as wife or children of the debtor incurred in the sixty (60)
outlined by the law. days immediately prior to the filing of the petition; and
(2) secured creditors.
These numerical details highlight the specific timeframes and
requirements involved in the procedures for handling insolvency of Section 97. Creditors' Meeting. - The presence of creditors holding
individual debtors. claims amounting to at least three-fifths (3/5) of the liabilities shall
be necessary for holding a meeting. The commissioner appointed by
CHAPTER VI the court shall preside over the meeting and the clerk of court shall
INSOLVENCY OF INDIVIDUAL DEBTORS act as the secretary thereof, subject to the following rules:
(A) Suspension of Payments. (a) The clerk shall record the creditors present and amount of their
Section 94. Petition. - An individual debtor who, possessing respective claims;
sufficient property to cover all his debts but foreseeing the (b) The commissioner shall examine the written evidence of the
impossibility of meeting them when they respectively fall due, may claims. If the creditors present hold at least three-fifths (3/5) of
file a verified petition that he be declared in the state of suspension the liabilities of the individual debtor, the commissioner shall
of payments by the court of the province or city in which he has declare the meeting open for business;
resides for six (6) months prior to the filing of his petition. He shall
attach to his petition, as a minimum: (a) a schedule of debts and
Quitiol, Exxa Cheska S.
BSAC 3 - ACA
(c) The creditors and individual debtor shall discuss the The Order confirming the approval of the proposed agreement or
propositions in the proposed agreement and put them to a any amendment thereof made during the creditors' meeting shall be
vote; binding upon all creditors whose claims are included in the schedule
(d) To form a majority, it is necessary: of debts and liabilities submitted by the individual debtor and who
(1) that two-thirds (2/3) of the creditors voting unite upon the were properly summoned, but not upon: (a) those creditors having
same proposition; and claims for personal labor, maintenance, expenses of last illness and
(2) that the claims represented by said majority vote amount funeral of the wife or children of the debtor incurred in the sixty (60)
to at least three-fifths (3/5) of the total liabilities of the days immediately prior to the filing of the petition; and (b) secured
debtor mentioned in the petition; and creditors who failed to attend the meeting or refrained from voting
(3) After the result of the voting has been announced, all therein.
protests made against the majority vote shall be drawn up,
and the commissioner and the individual debtor together Section 102. Failure of Individual Debtor to Perform Agreement. - If
with all creditors taking part in the voting shall sign the the individual debtor fails, wholly or in part, to perform the
affirmed propositions. agreement decided upon at the meeting of the creditors, all the
rights which the creditors had against the individual debtor before
No creditor who incurred his credit within ninety (90) days prior to the agreement shall revest in them. In such case the individual
the filing of the petition shall be entitled to vote. debtor may be made subject to the insolvency proceedings in the
manner established by this Act.
Section 98. Persons Who May Refrain From Voting. - Creditors who
are unaffected by the Suspension Order may refrain from attending 7. Rehabilitation
the meeting and from voting therein. Such persons shall not be A. Definition
bound by any agreement determined upon at such meeting, but if Rehabilitation shall refer to the restoration of the debtor to a
they should join in the voting they shall be bound in the same condition of successful operation and solvency, if it is shown that its
manner as are the other creditors. continuance of operation is economically feasible and its creditors
can recover by way of the present value of payments projected in
Section 99. Rejection of the Proposed Agreement. - The proposed the plan, more if the debtor continues as a going concern than if it is
agreement shall be deemed rejected if the number of creditors immediately liquidated.
required for holding a meeting do not attend thereat, or if the two B. Types (describe and discuss in summary the procedure
(2) majorities mentioned in Section 97 hereof are not in favor for each type)
thereof. In such instances, the proceeding shall be terminated (1) Court Supervised Rehabilitation
without recourse and the parties concerned shall be at liberty to (2) Pre-negotiated rehabilitation
enforce the rights which may correspond to them. (3) Out-of-court or informal restructuring agreements or
rehabilitation plans
Section 100. Objections. - If the proposal of the individual debtor, or
any amendment thereof made during the creditors' meeting, is Court Supervised Rehabilitation
approved by the majority of creditors in accordance with Section 97 - Inititiation proceedings:
hereof, any creditor who attended the meeting and who dissented Court Supervised Rehabilitation
from and protested against the vote of the majority may file an 1. Initiation proceedings:
objection with the court within ten (10) days from the date of the Voluntary: When approved by the owner in case of a sole
last creditors' meeting. The causes for which objection may be made proprietorship, or by a majority of the partners in case of a
to the decision made by the majority during the meeting shall be: (a) partnership, or in case of a corporation, by a majority vote of the
defects in the call for the meeting, in the holding thereof and in the board of directors or trustees and authorized by the vote of the
deliberations had thereat which prejudice the rights of the creditors; stockholders representing at least two-thirds (2/3) of the
(a) fraudulent connivance between one or more creditors and outstanding capital stock, or in case of nonstock corporation, by
the individual debtor to vote in favor of the proposed the vote of at least two-thirds (2/3) of the members, in a
agreement; or stockholder's or member's meeting duly called for the purpose,
(b) fraudulent conveyance of claims for the purpose of insolvent debtor may initiate voluntary proceedings under this
obtaining a majority. The court shall hear and pass upon Act by filing a petition for rehabilitation with the court and on
such objection as soon as possible and in a summary the grounds hereinafter specifically provided. The petition shall
manner. be verified to establish the insolvency of the debtor and the
viability of its rehabilitation, and include, whether as an
In case the decision of the majority of creditors to approve the attachment or as part of the body of the petition, as a minimum
individual debtor's proposal or any amendment thereof made during the following:
the creditors' meeting is annulled by the court, the court shall (a) Identification of the debtor, its principal activities and
declare the proceedings terminated and the creditors shall be at its addresses;
liberty to exercise the rights which may correspond to them. (b) Statement of the fact of and the cause of the debtor's
insolvency or inability to pay its obligations as they
Section 101. Effects of Approval of Proposed Agreement. - If the become due;
decision of the majority of the creditors to approve the proposed (c) The specific relief sought pursuant to this Act;
agreement or any amendment thereof made during the creditors' (d) The grounds upon which the petition is based;
meeting is uphold by the court, or when no opposition or objection (e) Other information that may be required under this Act
to said decision has been presented, the court shall order that the depending on the form of relief requested;
agreement be carried out and all parties bound thereby to comply (f) Schedule of the debtor's debts and liabilities including
with its terms. a list of creditors with their addresses, amounts of
claims and collaterals, or securities, if any;
The court may also issue all orders which may be necessary or (g) An inventory of all its assets including receivables and
proper to enforce the agreement on motion of any affected party. claims against third parties;
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 (h) A Rehabilitation Plan; 1. Initiation: An insolvent debtor, by itself or jointly with any of its
(i) The names of at least three (3) nominees to the creditors, may file a verified petition with the court for the
position of rehabilitation receiver; and approval of a pre-negotiated Rehabilitation Plan which has been
(j) Other documents required to be filed with the petition endorsed or approved by creditors holding at least two-thirds
pursuant to this Act and the rules of procedure as may (2/3) of the total liabilities of the debtor, including secured
be promulgated by the Supreme Court. creditors holding more than fifty percent (50%) of the total
secured claims of the debtor and unsecured creditors holding
A group of debtors may jointly file a petition for rehabilitation under more than fifty percent (50%) of the total unsecured claims of
this Act when one or more of its members foresee the impossibility the debtor. The petition shall include as a minimum:(a) a
of meeting debts when they respectively fall due, and the financial schedule of the debtor's debts and liabilities;(b) an inventory of
distress would likely adversely affect the financial condition and/or the debtor's assets;(c) the pre-negotiated Rehabilitation Plan,
operations of the other members of the group and/or the including the names of at least three (3) qualified nominees for
participation of the other members of the group is essential under the rehabilitation receiver; and (d) a summary of disputed claims
terms and conditions of the proposed Rehabilitation Plan. against the debtor and a report on the provisioning of funds to
account for appropriate payments should any such claims be
Involuntary: Any creditor or group of creditors with a claim of, or the ruled valid or their amounts adjusted.
aggregate of whose claims is, at least One Million Pesos
(Php1,000,000.00) or at least twenty-five percent (25%) of the 2. Within five (5) working days, and after determination that the
subscribed capital stock or partners' contributions, whichever is petition is sufficient in form and substance, the court shall issue
higher, may initiate involuntary proceedings against the debtor by an Order, which shall:
filing a petition for rehabilitation with the court if:
(a) identify the debtor, its principal business of activity/ies and
(a) there is no genuine issue of fact on law on the claim/s of the its principal place of business;
petitioner/s, and that the due and demandable payments (b) declare that the debtor is under rehabilitation;
thereon have not been made for at least sixty (60) days or that (c) summarize the ground./s for the filling of the petition;
the debtor has failed generally to meet its liabilities as they fall (d) direct the publication of the Order in a newspaper of
due; or general circulation in the Philippines once a week for at
(b) a creditor, other than the petitioner/s, has initiated foreclosure least two (2) consecutive weeks, with the first publication
proceedings against the debtor that will prevent the debtor from to be made within seven (7) days from the time of its
paying its debts as they become due or will render it insolvent. issuance;
(e) direct the service by personal delivery of a copy of the
The creditor/s' petition for rehabilitation shall be verified to establish petition on each creditor who is not a petitioner holding at
the substantial likelihood that the debtor may be rehabilitated, and least ten percent (10%) of the total liabilities of the debtor,
include: as determined in the schedule attached to the petition,
within three (3) days;
(a) identification of the debtor its principal activities and its address; (f) state that copies of the petition and the Rehabilitation Plan
(b) the circumstances sufficient to support a petition to initiate are available for examination and copying by any interested
involuntary rehabilitation proceedings under Section 13 of this party;
Act; (g) state that creditors and other interested parties opposing
(c) the specific relief sought under this Act; the petition or Rehabilitation Plan may file their objections
(d) a Rehabilitation Plan; or comments thereto within a period of not later than
(e) the names of at least three (3) nominees to the position of twenty (20) days from the second publication of the Order;
rehabilitation receiver; (h) appoint a rehabilitation receiver, if provided for in the Plan;
(f) other information that may be required under this Act and
depending on the form of relief requested; and (i) include a Suspension or Stay Order as described in this Act.
(g) other documents required to be filed with the petition pursuant
to this Act and the rules of procedure as may be promulgated by 3. Approval of plan: Within ten (10) days from the date of the second
the Supreme Court. publication of the Order, the court shall approve the Rehabilitation
Plan unless a creditor or other interested party submits an objection
2. Action on the Petition and Commencement of Proceedings. to it in accordance with the next succeeding section.
• If the court finds the petition for rehabilitation to be sufficient in
form and substance, it shall, within five (5) working days from 4. Objection to the Petition or Rehabilitation Plan. - Any creditor or
the filing of the petition, issue a Commencement Order. other interested party may submit to the court a verified objection to
• If, within the same period, the court finds the petition deficient the petition or the Rehabilitation Plan not later than eight (8) days
in form or substance, the court may, in its discretion, give the from the date of the second publication of the Order mentioned in
petitioner/s a reasonable period of time within which to amend Section 77 hereof
or supplement the petition, or to submit such documents as may
be necessary or proper to put the petition in proper order. 5. Hearing on the Objections. After receipt of an objection, the court
➢ In such case, the five (5) working days provided above shall set the same for hearing. The date of the hearing shall be no
for the issuance of the Commencement Order shall be earlier than twenty (20) days and no later than thirty (30) days from
reckoned from the date of the filing of the amended or the date of the second publication of the Order mentioned in Section
supplemental petition or the submission of such 77 hereof.
documents.
• The rehabilitation proceedings shall commence upon the If the court finds merit in the objection, it shall direct the
issuance of the Commencement Order, debtor, when feasible to cure the detect within a reasonable period.
If the court determines that the debtor or creditors supporting the
Pre-Negotiated Rehabilitation Rehabilitation Plan acted in bad faith, or that the objection is non-
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curable, the court may order the conversion of the proceedings into Section 15. Action on the Petition. - If the court finds the petition
liquidation. A finding by the court that the objection has no for rehabilitation to be sufficient in form and substance, it shall,
substantial merit, or that the same has been cured shall be deemed within five (5) working days from the filing of the petition, issue a
an approval of the Rehabilitation Plan. Commencement Order. If, within the same period, the court finds
the petition deficient in form or substance, the court may, in its
6. Period for Approval of Rehabilitation Plan. - The court shall have discretion, give the petitioner/s a reasonable period of time within
a maximum period of one hundred twenty (120) days from the date which to amend or supplement the petition, or to submit such
of the filing of the petition to approve the Rehabilitation Plan. If the documents as may be necessary or proper to put the petition in
court fails to act within the said period, the Rehabilitation Plan shall proper order. In such case, the five (5) working days provided above
be deemed approved. for the issuance of the Commencement Order shall be reckoned
from the date of the filing of the amended or supplemental petition
Out-Of-Court Or Informal Restructuring Agreements Or or the submission of such documents.
Rehabilitation Plans
2.) Contents?
1. For an out-of-court or informal restructuring/workout agreement Section 16. Commencement of Proceedings and Issuance of a
or Rehabilitation Plan to qualify under this chapter, it must Commencement Order. - The rehabilitation proceedings shall
meet the following minimum requirements: commence upon the issuance of the Commencement Order, which
shall:
(a) The debtor must agree to the out-of-court or informal (a) identify the debtor, its principal business or activity/ies and its
restructuring/workout agreement or Rehabilitation Plan; principal place of business;
(b) It must be approved by creditors representing at least sixty- (b) summarize the ground/s for initiating the proceedings;
seven (67%) of the secured obligations of the debtor; (c) state the relief sought under this Act and any requirement or
(c) It must be approved by creditors representing at least seventy- procedure particular to the relief sought;
five percent (75%) of the unsecured obligations of the debtor; (d) state the legal effects of the Commencement Order, including
and those mentioned in Section 17 hereof;
(d) It must be approved by creditors holding at least eighty-five (e) declare that the debtor is under rehabilitation;
percent (85%) of the total liabilities, secured and unsecured, of (f) direct the publication of the Commencement Order in a
the debtor. newspaper of general circulation in the Philippines once a week
for at least two (2) consecutive weeks, with the first publication
2. Standstill Period. - A standstill period that may be agreed upon by to be made within seven (7) days from the time of its issuance;
the parties pending negotiation and finalization of the out-of-court or (g) If the petitioner is the debtor direct the service by personal
informal restructuring/workout agreement or Rehabilitation Plan delivery of a copy of the petition on each creditor holding at
contemplated herein shall be effective and enforceable not only least ten percent (10%) of the total liabilities of the debtor as
against the contracting parties but also against the other creditors: determined from the schedule attached to the petition within
Provided, That (a) such agreement is approved by creditors five (5) days; if the petitioner/s is/are creditor/s, direct the
representing more than fifty percent (50%) of the total liabilities of service by personal delivery of a copy of the petition on the
the debtor; (b) notice thereof is publishing in a newspaper of general debtor within five (5) days;
circulation in the Philippines once a week for two (2) consecutive (h) appoint a rehabilitation receiver who may or not be from
weeks; and (c) the standstill period does not exceed one hundred among the nominees of the petitioner/s and who shall exercise
twenty (120) days from the date of effectivity. The notice must invite such powers and duties defined in this Act as well as the
creditors to participate in the negotiation for out-of-court procedural rules that the Supreme Court will promulgate;
rehabilitation or restructuring agreement and notify them that said (i) summarize the requirements and deadlines for creditors to
agreement will be binding on all creditors if the required majority establish their claims against the debtor and direct all creditors
votes prescribed in Section 84 of this Act are met. to their claims with the court at least five (5) days before the
initial hearing;
3. Cram Down Effect. - A restructuring/workout agreement or (j) direct Bureau of internal Revenue (BIR) to file and serve on the
Rehabilitation Plan that is approved pursuant to an informal workout debtor its comment on or opposition to the petition or its
framework referred to in this chapter shall have the same legal effect claim/s against the debtor under such procedures as the
as confirmation of a Plan under Section 69 hereof. The notice of the Supreme Court provide;
Rehabilitation Plan or restructuring agreement or Plan shall be (k) prohibit the debtor's suppliers of goods or services from
published once a week for at least three (3) consecutive weeks in a withholding the supply of goods and services in the ordinary
newspaper of general circulation in the Philippines. The course of business for as long as the debtor makes payments
Rehabilitation Plan or restructuring agreement shall take effect upon for the services or goods supplied after the issuance of the
the lapse of fifteen (15) days from the date of the last publication of Commencement Order;
the notice thereof. (l) authorize the payment of administrative expenses as they
become due;
4. Amendment or Modification. - Any amendment of an out-of-court (m) set the case for initial hearing, which shall not be more than
restructuring/workout agreement or Rehabilitation Plan must be forty (40) days from the date of filing of the petition for the
made in accordance with the terms of the agreement and with due purpose of determining whether there is substantial likelihood
notice on all creditors. for the debtor to be rehabilitated;
(n) make available copies of the petition and rehabilitation plan for
C. Commencement Order
examination and copying by any interested party;
Commencement Order shall refer to the order issued by
(o) indicate the location or locations at which documents regarding
the court under Section 16 of this Act.
the debtor and the proceedings under Act may be reviewed
and copied;
1.) When issued?
(p) state that any creditor or debtor who is not the petitioner, may
submit the name or nominate any other qualified person to the
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 position of rehabilitation receiver at least five (5) days before (d) The rehabilitation receiver submits a report, based on preliminary
the initial hearing; evaluation, stating that the underlying assumptions and the goals
(q) includes Stay or Suspension Order which shall: stated in the petitioner's Rehabilitation Plan are realistic and
(1) suspend all actions or proceedings, in court or otherwise, reasonable or if not, there is, in any case, a substantial likelihood for
for the enforcement of claims against the debtor; the debtor to be successfully rehabilitated because, among others:
(2) suspend all actions to enforce any judgment, attachment
or other provisional remedies against the debtor; (1) there are sufficient assets with/which to rehabilitate the debtor;
(3) prohibit the debtor from selling, encumbering, transferring (2) there is sufficient cash flow to maintain the operations of the
or disposing in any manner any of its properties except in debtor;
the ordinary course of business; and (3) the debtor's, partners, stockholders, directors and officers have
(4) prohibit the debtor from making any payment of its been acting in good faith and which due diligence;
liabilities outstanding as of the commencement date (4) the petition is not s sham filing intended only to delay the
except as may be provided herein. enforcement of the rights of the creditors or of any group of
creditors; and
3.) Effects? (5) the debtor would likely be able to pursue a viable Rehabilitation
Plan;
Section 17. Effects of the Commencement Order. - Unless otherwise
provided for in this Act, the court's issuance of a Commencement (e) The petition, the Rehabilitation Plan and the attachments thereto
Order shall, in addition to the effects of a Stay or Suspension Order do not contain any materially false or misleading statement;
described in Section 16 hereof:
(f) If the petitioner is the debtor, that the debtor has met with its
(a) vest the rehabilitation with all the powers and functions creditor/s representing at least three-fourths (3/4) of its total
provided for this Act, such as the right to review and obtain records obligations to the extent reasonably possible and made a good faith
to which the debtor's management and directors have access, effort to reach a consensus on the proposed Rehabilitation Plan if the
including bank accounts or whatever nature of the debtor subject to petitioner/s is/are a creditor or group of creditors, that/ the
the approval by the court of the performance bond filed by the petitioner/s has/have met with the debtor and made a good faith
rehabilitation receiver; effort to reach a consensus on the proposed Rehabilitation Plan; and

(b) prohibit or otherwise serve as the legal basis rendering null and (g) The debtor has not committed acts misrepresentation or in fraud
void the results of any extrajudicial activity or process to seize of its creditor/s or a group of creditors.
property, sell encumbered property, or otherwise attempt to
collection or enforce a claim against the debtor after
commencement date unless otherwise allowed in this Act, subject to D. When is the stay or suspension order issued? What are
the provisions of Section 50 hereof; the exceptions to the order?
If the court finds the petition for rehabilitation to be sufficient in
(c) serve as the legal basis for rendering null and void any setoff after form and substance, it shall, within five (5) working days from the
the commencement date of any debt owed to the debtor by any of filing of the petition, issue a Commencement Order.
the debtor's creditors;
The Commencement Order shall include a Stay or Suspension Order
(d) serve as the legal basis for rendering null and void the perfection which shall:
of any lien against the debtor's property after the commencement
date; and (1) suspend all actions or proceedings, in court or otherwise, for the
enforcement of claims against the debtor;
(e) consolidate the resolution of all legal proceedings by and against (2) suspend all actions to enforce any judgment, attachment or other
the debtor to the court Provided. However, That the court may allow provisional remedies against the debtor;
the continuation of cases on other courts where the debtor had (3) prohibit the debtor from selling, encumbering, transferring or
initiated the suit. disposing in any manner any of its properties except in the ordinary
course of business; and
4.) Effectivity and duration
(4) prohibit the debtor from making any payment of its liabilities
Section 21. Effectivity and Duration of Commencement Order. - outstanding as of the commencement date except as may be
Unless lifted by the court, the Commencement Order shall be for the provided herein. (Section 16)
effective for the duration of the rehabilitation proceedings for as
long as there is a substantial likelihood that the debtor will be Section 18. Exceptions to the Stay or Suspension Order. - The Stay or
successfully rehabilitated. In determining whether there is Suspension Order shall not apply:
substantial likelihood for the debtor to be successfully rehabilitated,
the court shall ensure that the following minimum requirements are (a) to cases already pending appeal in the Supreme Court as of
met: commencement date Provided, That any final and executory
judgment arising from such appeal shall be referred to the court for
(a) The proposed Rehabilitation Plan submitted complies with the appropriate action;
minimum contents prescribed by this Act;
(b) subject to the discretion of the court, to cases pending or filed at
(b) There is sufficient monitoring by the rehabilitation receiver of the a specialized court or quasi-judicial agency which, upon
debtor's business for the protection of creditors; determination by the court is capable of resolving the claim more
quickly, fairly and efficiently than the court: Provided, That any final
(c) The debtor has met with its creditors to the extent reasonably and executory judgment of such court or agency shall be referred to
possible in attempts to reach consensus on the proposed the court and shall be treated as a non-disputed claim;
Rehabilitation Plan;
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(c) to the enforcement of claims against sureties and other persons F. What is the management committee? The qualifications
solidarily liable with the debtor, and third party or accommodation of the members?
mortgagors as well as issuers of letters of credit, unless the property
subject of the third party or accommodation mortgage is necessary Section 37.Role of the Management Committee. – When appointed
for the rehabilitation of the debtor as determined by the court upon pursuant to the foregoing section, the management committee shall
recommendation by the rehabilitation receiver; take the place of the management and the governing body of the
debtor and assume their rights and responsibilities.
(d) to any form of action of customers or clients of a securities
market participant to recover or otherwise claim moneys and The specific powers and duties of the management committee,
securities entrusted to the latter in the ordinary course of the latter's whose members shall be considered as officers of the court, shall be
business as well as any action of such securities market participant or prescribed by the procedural rules.
the appropriate regulatory agency or self-regulatory organization to
pay or settle such claims or liabilities;
Section 38.Qualifications of Members of the Management
(e) to the actions of a licensed broker or dealer to sell pledged Committee. - The qualifications and disqualifications of the members
securities of a debtor pursuant to a securities pledge or margin of the management committee shall be set forth in the procedural
agreement for the settlement of securities transactions in accordance rules, taking into consideration the nature of the business of the
with the provisions of the Securities Regulation Code and its debtor and the need to protect the interest of all stakeholders
implementing rules and regulations; concerned.

(f) the clearing and settlement of financial transactions through the G. What is a Rehabilitation Plan?
facilities of a clearing agency or similar entities duly authorized, A plan by which the financial well-being and viability of an insolvent
registered and/or recognized by the appropriate regulatory agency debtor can be restored using various means including, but not limited
like the Bangko Sentral ng Pilipinas (BSP) and the SEC as well as any to, debt forgiveness, debt rescheduling, reorganization or quasi-
form of actions of such agencies or entities to reimburse themselves reorganization, dacion en pago, debt-equity conversion and sale of
for any transactions settled for the debtor; and 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
(g) any criminal action against individual debtor or owner, partner, arrangements as may be approved by the court or creditors.
director or officer of a debtor shall not be affected by any
proceeding commend under this Act. Dacion en pago - (dacion in payment) property is alienated to the
creditor in satisfaction of a debt in money.

E. Who is a rehabilitation receiver and what are the H. What are the contents of a rehabilitation plan?
qualifications to be appointed as such?
Section 62.Contents of a Rehabilitation Plan. – The Rehabilitation Plan
Section 28.Who May Serve as a Rehabilitation Receiver. - Any shall, as a minimum:
qualified natural or juridical person may serve as a rehabilitation
receiver: Provided, That if the rehabilitation receiver is a juridical a. specify the underlying assumptions, the financial goals and
entity, it must designate a natural person/s who possess/es all the the procedures proposed to accomplish such goals;
qualifications and none of the disqualification’s as its representative, b. compare the amounts expected to be received by the
it being understood that the juridical entity and the representative/s creditors under the Rehabilitation Plan with those that they
are solidarily liable for all obligations and responsibilities of the will receive if liquidation ensues within the next one
rehabilitation receiver. hundred twenty (120) days;
c. contain information sufficient to give the various classes of
Section 29.Qualifications of a Rehabilitation Receiver. - The
creditors a reasonable basis for determining whether
rehabilitation receiver shall have the following minimum
supporting the Plan is in their financial interest when
qualifications:
compared to the immediate liquidation of the debtor,
including any reduction of principal interest and penalties
(a) A citizen of the Philippines or a resident of the Philippines
payable to the creditors;
in the six (6) months immediately preceding his nomination;
d. establish classes of voting creditors;
(b) Of good moral character and with acknowledged integrity, e. establish subclasses of voting creditors if prior approval has
impartiality and independence; been granted by the court;
f. indicate how the insolvent debtor will be rehabilitated
(c) Has the requisite knowledge of insolvency and other including, but not limited to, debt forgiveness, debt
relevant commercial laws, rules and procedures, as well as rescheduling, reorganization or quasi-reorganization.
the relevant training and/or experience that may be dacion en pago, debt-equity conversion and sale of the
necessary to enable him to properly discharge the duties business (or parts of it) as a going concern, or setting-up of
and obligations of a rehabilitation receiver; and a new business entity or other similar arrangements as may
be necessary to restore the financial well-being and
(d) Has no conflict of interest: Provided, That such conflict of visibility of the insolvent debtor;
interest may be waived, expressly or impliedly, by a party g. specify the treatment of each class or subclass described in
who may be prejudiced thereby. subsections (d) and (e);
h. provide for equal treatment of all claims within the same
Other qualifications and disqualification’s of the rehabilitation class or subclass, unless a particular creditor voluntarily
receiver shall be set forth in procedural rules, taking into consideration agrees to less favorable treatment;
the nature of the business of the debtor and the need to protect the i. ensure that the payments made under the plan follow the
interest of all stakeholders concerned. priority established under the provisions of the Civil Code

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 on concurrence and preference of credits and other Involuntary Liquidation - a company is forced by a court of law to stop
applicable laws; doing business because it owes money and cannot pay its debts.
j. maintain the security interest of secured creditors and
preserve the liquidation value of the security unless such Voluntary Liquidation - when a company decides to dissolve itself on
has been waived or modified voluntarily; its own terms, as approved by the shareholders of the company. The
k. disclose all payments to creditors for pre-commencement decision usually occurs when a company decides that it has no reason
debts made during the proceedings and the justifications for operating anymore, or if it is not feasible to operate anymore. The
thereof; key factor here is that the dissolution of the company is not ordered
l. describe the disputed claims and the provisioning of funds by a court.
to account for appropriate payments should the claim be
ruled valid or its amount adjusted; C. Conversion of rehabilitation to Liquidation proceedings
m. identify the debtor's role in the implementation of the Plan;
n. state any rehabilitation covenants of the debtor, the breach During the pendency of court-supervised or pre-negotiated
of which shall be considered a material breach of the Plan; rehabilitation proceedings, the court may order the conversion of
o. identify those responsible for the future management of rehabilitation proceedings to liquidation proceedings pursuant to
the debtor and the supervision and implementation of the ● Section 25(c) of this Act; or
Plan, their affiliation with the debtor and their ● Section 72 of this Act; or
remuneration; ● Section 75 of this Act; or
p. address the treatment of claims arising after the ● Section 90 of this Act; or at any other time upon the
confirmation of the Rehabilitation Plan; recommendation of the rehabilitation receiver that the
q. require the debtor and its counter-parties to adhere to the rehabilitation of the debtor is not feasible. Thereupon, the
terms of all contracts that the debtor has chosen to confirm; court shall issue the Liquidation Order mentioned in
r. arrange for the payment of all outstanding administrative Section 112 hereof.
expenses as a condition to the Plan's approval unless such
condition has been waived in writing by the creditors D. What is a Liquidation order? What are the effects?
concerned;
s. arrange for the payment" of all outstanding taxes and The liquidation order declares the insolvency, and orders the
assessments, or an adjusted amount pursuant to a liquidation of the debtor. Upon issuance, the debtor is deemed
compromise settlement with the BlR Or other applicable tax dissolved and its corporate existence terminated. It prohibits
authorities; payments and transfers of any property by the debtor, and requires
t. include a certified copy of a certificate of tax clearance or the sheriff to take possession and control of all properties of the
evidence of a compromise settlement with the BIR; debtor, with the legal title and control over the same vested upon
u. include a valid and binding r(,solution of a meeting of the the court-appointed liquidator, except those exempt from
debtor's stockholders to increase the shares by the required execution. All contracts of the debtor shall be deemed terminated,
amount in cases where the Plan contemplates an additional unless the liquidator declares otherwise and the contracting parties
issuance of shares by the debtor; agree.
v. state the compensation and status, if any, of the
rehabilitation receiver after the approval of the Plan; and No separate action for the collection of unsecured claims is allowed,
w. contain provisions for conciliation and/or mediation as a and actions already pending shall be transferred to the liquidator to
prerequisite to court assistance or intervention in the event accept and settle, or contest. No foreclosure proceeding is allowed
of any disagreement in the interpretation or for 180 days from date of issuance of the liquidation order.
implementation of the Rehabilitation Plan.

The Liquidation Order shall:

I. What is cram down effect ● declare the debtor insolvent;
● order the liquidation of the debtor and, in the case of a
A restructuring/workout agreement or Rehabilitation Plan that is juridical debtor, declare it as
approved pursuant to an informal workout framework referred to in ● dissolved;
this chapter shall have the same legal effect as confirmation of a Plan ● order the sheriff to take possession and control of all the
under Section 69 hereof. The notice of the Rehabilitation Plan or property of the debtor,
restructuring agreement or Plan shall be published once a week for at ● except those that may be exempt from execution;
least three (3) consecutive weeks in a newspaper of general ● order the publication of the petition or motion in a
circulation in the Philippines. The Rehabilitation Plan or restructuring newspaper of general circulation
agreement shall take effect upon the lapse of fifteen (15) days from ● once a week for two (2) consecutive weeks;
the date of the last publication of the notice thereof. ● direct payments of any claims and conveyance of any
property due the debtor to the
8. Liquidation ● liquidator;
● prohibit payments by the debtor and the transfer of any
A. Definition property by the debtor;
Liquidation is the process of selling off assets and using the proceeds ● direct all creditors to file their claims with the liquidator
to pay off creditors and shareholders. It is triggered when a company within the period set by the
is insolvent and is unable to pay its debts. Liquidation can also be ● rules of procedure;
voluntary, when the company decides to go out of business and ● authorize the payment of administrative expenses as they
liquidate its assets. become due;
● state that the debtor and creditors who are not
B. Types of Liquidation and summarily discuss and describe petitioner/s may submit the names of other nominees to
each type the position of liquidator; and
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 ● set the case for hearing for the election and appointment The court-appointed liquidator is a natural or juridical entity; must
of the liquidator, which date shall not be less than thirty be a Philippine citizen, or resident in the six months immediately
(30) days nor more than forty-five (45) days from the date preceding the nomination; possesses knowledge about insolvency
of the last publication. and relevant commercial laws; of good moral character and with
Effects of the Liquidation Order. - Upon the issuance of the acknowledged integrity, impartiality and independence; and has no
Liquidation Order: conflict of interest.
● the juridical debtor shall be deemed dissolved and its
corporate or juridical existence terminated; The liquidator is mandated to preserve and maximise the value of
● legal title to and control of all the assets of the debtor, the debtor’s assets, with the end of liquidating the assets to
except those that may be exempt from execution, shall be discharge, to the extent possible, all the claims against the debtor.
deemed vested in the liquidator or, pending his election or
appointment, with the court;
● all contracts of the debtor shall be deemed terminated G. Define claim and how it is determined
and/or breached, unless the liquidator, within ninety (90)
days from the date of his assumption of office, declares Claim shall refer to all claims or demands of whatever
otherwise and the contracting party agrees; nature or character against the debtor or its property, whether for
● no separate action for the collection of an unsecured claim money or otherwise, liquidated or unliquidated, fixed or contingent,
shall be allowed. Such actions already pending will be matured or unmatured, disputed or undisputed, including, but not
transferred to the Liquidator for him to accept and settle limited to;
or contest. If the liquidator contests or disputes the claim, (1) all claims of the government, whether national or local,
the court shall allow, hear and resolve such contest except including taxes, tariffs and customs duties; and
when the case is already on appeal. In such a case, the suit (2) claims against directors and officers of the debtor arising
may proceed to judgment, and any final and executor from acts done in the discharge of their functions falling within the
judgment therein for a claim against the debtor shall be scope of their authority:
filed and allowed in court; and Provided, That, this inclusion does not prohibit the creditors
● no foreclosure proceeding shall be allowed for a period of or third parties from filing cases against the directors and officers
one hundred eighty (180) days. acting in their personal capacities.
E. What are the rights of secured creditors? ARISSA
Determination of Claims
The Liquidation Order shall not affect the right of a secured creditor
to enforce his lien in accordance with the applicable contract or law. Section 123. Registry of Claims. Within twenty (20) days
A secured creditor may: from his assumption into office the liquidator shall prepare a
● waive his right under the security or lien, prove his claim in preliminary registry of claims of secured and unsecured creditors.
the liquidation proceedings and share in the distribution of Secured creditors who have waived their security or lien, or have fixed
the assets of the debtor; or the value of the property subject of their security or lien by
● maintain his rights under the security or lien: If the agreement with the liquidator and are admitted as a creditor for the
secured creditor maintains his rights under the security or balance, shall be considered as unsecured creditors.
lien:
○ the value of the property may be fixed in a The liquidator shall make the registry available for public
manner agreed upon by the creditor and the inspection and provide publication notice to creditors, individual
liquidator. When the value of the property is less debtors owner/s of the sole proprietorship-debtor, the partners of
than the claim it secures, the liquidator may the partnership-debtor and shareholders or members of the
convey the property to the secured creditor and corporation-debtor, on where and when they may inspect it. All
the latter will be admitted in the liquidation claims must be duly proven before being paid.
proceedings as a creditor for the balance. If its
value exceeds the claim secured, the liquidator Section 124. Right of Set-off. If the debtor and creditor are
may convey the property to the creditor and mutually debtor and creditor of each other one debt shall be set off
waive the debtor's right of redemption upon against the other, and only the balance, if any shall be allowed in the
receiving the excess from the creditor; liquidation proceedings.
○ the liquidator may sell the property and satisfy
the secured creditor's entire claim from the Section 125. Opposition or Challenge to Claims. Within
proceeds of the sale; or thirty (30 ) days from the expiration of the period for filing of
○ the secure creditor may enforce the lien or applications for recognition of claims, creditors, individual debtors,
foreclose on the property pursuant to applicable owner/s of the sole proprietorship-debtor, partners of the
laws. partnership-debtor and shareholders or members of the corporation
-debtor and other interested parties may submit a challenge to claim
F. Who is a Liquidator? or claims to the court, serving a certified copy on the liquidator and
the creditor holding the challenged claim.
A liquidator is a natural person or juridical entity appointed as such
by the court and entrusted with such powers and duties as set forth Upon the expiration of the (30) day period, the
under the FRIA. If the liquidator is a juridical entity, it must designate rehabilitation receiver shall submit to the court the registry of claims
a natural person who possesses all the qualifications and none of the containing the undisputed claims that have not been subject to
disqualifications as its representative, it being understood that the challenge. Such claims shall become final upon the filling of the
juridical entity and the representative are solidarity liable for all register and may be subsequently set aside only on grounds of fraud,
obligations and responsibilities of the liquidator. accident, mistake or inexcusable neglect.

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 Section 126. Submission of Disputed to the Court. The 9. Benefits of FRIA
liquidator shall resolve disputed claims and submit his findings A. What are the benefits of FRIA to the debtor?
thereon to the court for final approval. The liquidator may disallow
claims. The following are the benefits of FRIA to the DEBTOR;
● Actions to enforce claims against the debtor may be
H. Liquidation plan and its contents suspended or prohibited.
● Waiver of taxes and fees, including penalties, interest and
Section 129. The Liquidation Plan. Within three (3) months charges, to the government.
from his assumption into office, the Liquidator shall submit a ● Measures that allow the debtor to maintain its assets
Liquidation Plan to the court. The Liquidation Plan shall, as a instead of being liquidated.
minimum, enumerate all the assets of the debtor and a schedule of ● All proceedings against the debtor may be consolidated
liquidation of the assets and payment of the claims. with the Court making it easier for the debtor to answer all
claims.
Additional Info: ● Any compromises of amounts or rescheduling of payments
by the debtor shall be binding on creditors regardless of
Section 130. Exempt Property to be Set Apart. It shall be whether the Rehabilitation Plan is implemented.
the duty of the court, upon petition and after hearing, to exempt and ● It gives the debtor a chance to re-engage the market,
set apart, for the use and benefit of the said insolvent, such real and hopefully with more vigor and enlightened services, having
personal property as is by law exempt from execution, and also a learned from a painful experience.
homestead; but no such petition shall be heard as aforesaid until it is
first proved that notice of the hearing of the application therefor has B. What are the benefits of FRIA to the creditor?
been duly given by the clerk, by causing such notice to be posted it at
least three (3) public places in the province or city at least ten (10) The following are the benefits of FRIA to the CREDITOR;
days prior to the time of such hearing, which notice shall set forth the ● Measures that preserve the assets of the debtor and directs
name of the said insolvent debtor, and the time and place appointed the same towards efforts to rehabilitate the debtor.
for the hearing of such application, and shall briefly indicate the ● Consolidation of all proceedings against the debtor
homestead sought to be exempted or the property sought to be set prevents a scenario of several courts issuing various writs
aside; and the decree must show that such proof was made to the over the same assets.
satisfaction of the court, and shall be conclusive evidence of that fact. ● Creditors are to be paid equitably.
Section 131. Sale of Assets in Liquidation. The liquidator ● The Court shall not impair the security or lien of secured
may sell the unencumbered assets of the debtor and convert the creditors.
same into money. The sale shall be made at public auction. However, ● Secured creditors are given more defined leverage.
a private sale may be allowed with the approval of the court if; (a) the ● Assured creditors’ participation.
goods to be sold are of a perishable nature, or are liable to quickly ● More protection to the creditors to equitably and fairly
deteriorate in value, or are disproportionately expensive to keep or address their concerns.
maintain; or (b) the private sale is for the best interest of the debtor ● Allows for present value recovery for creditors.
and his creditors. With the approval of the court, unencumbered
property of the debtor may also be conveyed to a creditor in
satisfaction of his claim or part thereof

Section 132. Manner of Implementing the Liquidation

Plan. The Liquidator shall implement the Liquidation Plan as approved
by the court. Payments shall be made to the creditors only in
accordance with the provisions of the Plan

Section 133. Concurrence and Preference of Credits. The

Liquidation Plan and its Implementation shall ensure that the
concurrence and preference of credits as enumerated in the Civil
Code of the Philippines and other relevant laws shall be observed,
unless a preferred creditor voluntarily waives his preferred right. For
purposes of this chapter, credits for services rendered by employees
or laborers to the debtor shall enjoy first preference under Article
2244 of the Civil Code, unless the claims constitute legal liens under
Article 2241 and 2242 thereof.

Section 134. Order Removing the Debtor from the List of

Registered Entitles at the Securities and Exchange Commission.
Upon determining that the liquidation has been completed according
to this Act and applicable law, the court shall issue an Order approving
the report and ordering the SEC to remove the debtor from the
registry of legal entities.

Section 135. Termination of Proceedings. Upon receipt of

evidence showing that the debtor has been removed from the
registry of legal entities at the SEC. The court shall issue an Order
terminating the proceedings.

Quitiol, Exxa Cheska S.

BSAC 3 - ACA