FINANCIAL

REHABILITATION AND
INSOLVENCY ACT
(FRIA) OF 2010 AND
RULES OF PROCEDURE
RA 10142 and A.M. No. 12-12-11 SC

Carla Camille Rada

 Pre-Negotiated
Rehabilitation
The proceeding involves the confirmation of
the Court of a Rehabilitation Plan that was
already pre-negotiated by the debtor and its
creditors. A Petition may be filed by the
debtor or jointly with its creditors.
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.
PROCESS:
Petition by Debtor Approval of Plan

Objection to Petition
Issuance Order
or Rehabilitation Plan

Publication of Order Hearing on the

Objections
 The Pre-Negotiated Rehabilitation
Petition by Debtor Plan must be endorsed or approved
by creditors holding at least 2/3 of
the total liabilities of the debtor,
Requirements of Pre- including:
negotiated Secured creditors holding
more than 50% of the total
Rehabilitation 01 secured claims of the
debtor

Unsecured creditors

02 holding more than 50%

of the total unsecured
claims of the debtor
Shall include the following:

Schedule of the debtor's Inventory of the

debts and liabilities debtor's assets

Pre-negotiated Summary of disputed claims

Rehabilitation Plan against the debtor and a report on
the provisioning of funds
ISSUANCE OF
ORDER
Direct the publication
Identify the debtor, its principal
of the Order in a
business of activity/ies and its
newspaper of general
principal place of business
circulation

Declare that the debtor is

under rehabilitation Direct the service by
personal delivery of a copy
Summarize the grounds for the of the petition
filling of the petition
 ISSUANCE OF ORDER

State that copies of the petition

and the Rehabilitation Plan are
available for examination and Appoint a rehabilitation
copying byany interested party receiver

State that creditors and other

Include a Suspension or Stay
interested parties opposing
Order
the petition or Rehabilitation
Plan may file their objections
Approval of Plan
The court shall approve the Rehabilitation Plan within 10
days from the date of the second publication of the Order.

- Unless a creditor or other interested party submits an

objection.
 Approval of Plan
Period Effect

The court shall have a Approval of a Plan shall have

maximum period of 120 days the same legal effect as
from the date of the filing of confirmation of a Plan.
the petition to approve the
Rehabilitation Plan.
 Objection to the Petition or
Rehabilitation Plan

01 The allegations in the petition

or the Rehabilitation Plan or
the attachments thereto are
02 The majority of any class of
creditors do not in fact
support the Rehabilitation
materially false or
Task Name Plan
misleading.

03
The Rehabilitation Plan fails to
accurately account for a claim
Task Name
against the debtor and the
04 The support of the creditors,
or any of them was induced
by fraud
claim in noncategorical
declared as a contested claim
 Hearing on the
Objections
If the court finds merit in the objection, it shall direct the debtor,
when feasible to cure the defect within a reasonable period.
If the court determines that the debtor or creditors supporting the
Rehabilitation Plan acted in bad faith, or that the objection is non-
curable, the court may order the conversion of the proceedings
into liquidation.
A finding by the court that the objection has no substantial merit,
or that the same has been cured shall be deemed an approval of
the Rehabilitation Plan.
 OUT-OF-COURT OR INFORMAL
RESTRUCTURING AGREEMENTS OR
REHABILITATION PLANS

1. Debtor must agree to the out-of-

2. Approved by creditors
court or informal
representing at least 67% of the
restructuring/workout agreement or
secured obligations of the debtor
Rehabilitation Plan

4. Approved by creditors holding at

3. Approved by creditors
least 85% of the total liabilities,
representing at least 75% of the
secured and unsecured, of the
unsecured obligations of the debtor
debtor
Standstill Period agreed upon by the debtor and its
creditors to enable them to negotiate and

Period enter into an out-of-court or informal

agreement.

Agreement approved by more

Not to exceed 120 days
than 50% of total liabilities

Notice published in a newspaper of

general circulation once a week for 2
consecutive weeks
 1.Salient provisions of the
OCRA

2. Available for inspection

3. Number of secured creditors

4. Number of unsecured

Publication of creditors

the OCRA
5. Total number of creditors

6. OCRA and its provisions

7. Payments
8. Manner and other requirements
for the amendment
 Cram Down Effect

A restructuring/workout agreement or
Rehabilitation Plan that is approved pursuant to
an informal workout framework shall have the
same legal effect as confirmation of a Plan.
 Amendment
1.
Conforms to the manner and other
requirements specified by the parties for the
amendment of the OCRA

2. Complies with the requirements of OCRA

 Court Assistance
The insolvent debtor and/or creditor may seek court
assistance for the execution or implementation of a
Rehabilitation Plan, as may be promulgated by the
Supreme Court.
 Identity of the debtor, principal
business of activity and principal
01
place of business
Identity of the creditor and
Petition for Court 02
principal place of business
Assistance Identity and addresses of the
03 parties

Date of standstill agreement or

04
OCRA
Allegation that the requisite creditor
approval for a stanstill agreement/OCRA
05
has been obtained
 Petition for Court
Assistance
Allegation that the notice of the
06 standstill agreement/OCRA has
been duly published

Salient provisions of the

07
standstill agreement/OCRA
Specific form of assistance or
08
relief sought
 Petition for an Annulment of
OCRA
Identity of the debtor, principal business or
1.
activities and its principal place of business

2. Ground for the petition

SERVICE OF SUMMONS

Court shall immediately shall issue the

summons to the respondents within 5 days
from receipt of the petition.
Summons shall direct the respondent to file a
comment and/or opposition to the petition
within non-extendible period of 5 days from
receipt of the summons.
 Court Order on Petition
If the court determines that there is no
genuine issue of material facts, the court
shall rule whether the petition shall be
granted.
The court shall issue the order within 5 days
from receipt of the comment or opposition.
 Summary Hearing
Court shall conduct a summary hearing
not later than 20 days from the filling of
the petition.
The court shall render judgement not
later than 60 days from the filing of the
petition.
The judgement in any action involving
OCRA shall be final within 10 days from
receipt of the decision and is
immediately executory.
 LIQUIDATION

Juridical Persons Individual Debtors

Voluntary Suspension of Payments

Involuntary Voluntary
Involuntary
LIQUIDATION OF INSOLVENT JURIDICAL DEBTORS
Voluntary Liquidation
An insolvent debtor may apply for
liquidation by filing a petition for
liquidation with the court.
The petition shall be verified,
establish the insolvency the debtor
and shall contain the following:
1. Schedule of the
debtor's debts and
liabilities
2. Inventory of all its
assets including
receivables and claims
against third parties
3. Names of at least 3
nominees to the
position of liquidator
Voluntary Liquidation
The debtor may also initiate liquidation proceedings by
filing a motion in the same court where the
rehabilitation proceedings are pending to convert the
rehabilitation proceedings into liquidation proceedings.
The motion shall be:
Verified
Contain or set forth the same matters required
State that the debtor is seeking immediate
dissolution and termination of its corporate
existence
Involuntary Liquidation
3 or more creditors the aggregate
of whose claims is:
at least either P1M
at least 25% of the subscribed
capital stock or partner's
contributions of the debtor
Petition:
No genuine issue of fact or law on
the claims/s of the petitioner/s
Due and demandable payments
thereon have not been made for
at least 180 days
Debtor has failed generally to
meet its liabilities as they fall due
No substantial likelihood that the
debtor may be rehabilitated
 Involuntary Liquidation
3 or more creditors the
aggregate of whose claims is:
at least either P1M
Motion
at least 25% of the
subscribed capital stock or
Verified
partner's contributions of the Contain or set forth
debtor the same matters
required
may also initiate liquidation State that the
proceedings by filing a motion in the
movants are seeking
same court where the rehabilitation
proceedings are pending to convert the immediate
the rehabilitation proceedings into liquidation of the
liquidation proceedings debtor
 The court shall issue an order:

Directing the Directing the debtor and all

publication of the
petition or motion in a
newspaper of general
circulation once a week
for 2 consecutive weeks
creditors who are not the
petitioners to file their
comment on the petition or
motion within15 days from
the date of last publication
Conversion by the In those cases authorized by
Court into law
Liquidation
Proceedings At any other time upon the
recommendation of the
rehabilitation receiver or
management committee
that the rehabilitation of the
debtor is no longer feasible
 LIQUIDATION OF INSOLVENT
INDIVIDUAL DEBTORS
Suspension of Payments
Question of liquidity
Only applicable to individual debtors – natural person who
is a resident and citizen of the Philippines who has become
insolvent
 Suspension of Payments
An individual debtor
possessing sufficient property to cover all his debts
but foreseeing the impossibility of meeting them when
they respectively fall due
- may file a verified petition that he be declared in the state of
suspension of payments

He shall attach to his petition, as a minimum:

Schedule of debts and liabilities
Inventory of assess
Proposed agreement with his creditors
 Suspension of Payments
Limitations:
That properties held as security by secured creditors shall not be the subject of such
suspension order.
The suspension order shall lapse when 3 months shall have passed without the
proposed agreement being accepted by the creditors or as soon as such agreement is
denied.
No creditor shall sue or institute proceedings to collect his claim from the debtor from
the time of the filing of the petition for suspension of payments and for as long as
proceedings remain pending except:
those creditors having claims for:
personal labor
maintenance
expense of last illness
funeral of the wife or children of the debtor incurred in the 60 days
immediately prior to the filing of the petition
secured creditors.
 Voluntary Liquidation

Who may apply a petition to be discharged from his debts

and liabilities:
An individual debtor whose properties are not sufficient
to cover his liabilities, and owing debts exceeding
P500,000
He shall attach to his petition:
Schedule of debts and liabilities
Inventory of assets
Involuntary Liquidation
1
Any creditor or group
of creditors with a
Person is about to depart or
has departed from the
Republic of the Philippines,
with intent to defraud his
creditors

claim of, or with claims That being absent from the

2 Republic of the Philippines,
aggregating at least with intent to defraud his
creditors, he remains absent
P500,000 may file a
He conceals himself to avoid
verified petition for the service of legal process
liquidation. 3 for the purpose of hindering
or delaying the liquidation or
of defrauding his creditors
Involuntary Liquidation
He conceals, or is removing,
any of his property to avoid
4 its being attached or taken
on legal process
He has suffered his property
to remain under attachment
or legal process for 3 days
5 for the purpose of hindering
or delaying the liquidation or
of defrauding his creditors
He has confessed or offered
to allow judgment in favor of
any creditor or claimant for
6 estate, property, rights or
the purpose of hindering or
delaying the liquidation or of
defrauding any creditors or
claimant
He has willfully suffered
judgment to be taken
7 against him by default for the
purpose of hindering or
delaying the liquidation or of
defrauding his creditors
He has suffered or procured
8 his property to be taken on
legal process with intent to
give a preference to one or
more of his creditors and
thereby hinder or delay the
liquidation or defraud any
one of his creditors
He has made any
assignment, gift, sale,
9 conveyance or transfer of his
credits with intent to hinder
or delay the liquidation or
defraud his creditors
Involuntary Liquidation
He has, in contemplation
10 of insolvency, made any
payment, gift, grant, sale,
conveyance or transfer of
his estate, property,
rights or credits
Being a merchant or
tradesman, he has
11 generally defaulted in
the payment of his
current obligations for a
period of 30 days
For a period of 30 days,
12 he has failed, after
demand, to pay any
moneys deposited with
him or received by him in
a fiduciary
An execution having
13 been issued against him
on final judgment for
money, he shall have
been found to be without
sufficient property
subject to execution to
satisfy the judgment
 LIQUIDATION ORDER
Declare the debtor
insolvent
Order the liquidation of the
debtor and, in the case of a
juridical debtor, declare it as
dissolved
Order the sheriff to take
possession and control of all
the property of the debtor,
except those that may be
exempt from execution
Order the publication of the
petition or motion in a
newspaper of general
circulation once a week for 2
consecutive weeks
Direct payments of any
claims and conveyance of
any property due the debtor
to the liquidator
Prohibit payments by the
debtor and the transfer of
any property by the debtor
 LIQUIDATION ORDER
Direct all creditors to file
their claims with the
liquidator within the
period set by the rules of
procedure
Authorize the payment
of administrative
expenses as they
become due
State that the debtor and
creditors who are not
petitioner/s may submit
the names of other
nominees to the position of
liquidator
Set the case for hearing for
the election and
appointment of the
liquidator, which date shall
not be less than 30 days nor
more than 45 days from the
date of the last publication
 R.A. No. 10142

CHAPTER VII

PROIVISIONS COMMON TO
LIQUIDATION IN INSOLVENCY
OF INDIVIDUAL AND JURIDICAL DEBTORS

Mia F. San Lorenzo

R.A. NO. 10142

REHABILITATION LIQUIDATION

Court-Supervised INDIVIDUAL JURIDICAL

Pre-negotiated Suspension of Payments Voluntary

Voluntary Involuntary
Out-of-court
Involuntary
 Effects of the Liquidation Order
(a) JURIDICAL DEBTOR = SHALL BE DEEMED DISSOLVED
= CORPORATE & JURIDICAL
EXISTENCE TERMINATED

(b) LEGAL TITLE TO AND CONTROL SHALL BE DEEMED VESTED

OF ALL DEBTOR'S ASSETS = IN THE LIQUIDATOR
EXPN: EXEMPT FROM EXECUTION, OR PENDING HIS
ELECTION OR APPOINTMENT, WITH THE COURT

(c) ALL CONTRACTS OF = SHALL BE DEEMED TERMINATED AND/OR BREACH

THE DEBTOR
UNLESS THE LIQUIDATOR WITHIN 90 DAYS FROM THE
DATE OF HIS ASSUMPTION OF OFFICE, DECLARES
OTHERWISE & THE CONTRACTING PARTY AGREES;
 Effects of the Liquidation Order
(d) NO SEPARATE ACTION FOR THE COLLECTION OF AN
UNSECURED CLAIM SHALL BE ALLOWED;

ANY PENDING = WILL BE TRANSFERRED TO THE

LIQUIDATOR

IF CLAIM NOT ACCEPTED = COURT SHALL HEAR

& RESOLVE EXCEPT WHEN CASE IS ALREADY ON
APPEAL

(e) NO FORECLOSURE PROCEEDING SHALL BE ALLOWED

FOR A PERIOD OF 180 DAYS
 Sec. 114 Rights of Secured Creditors
-SHALL NOT AFFECT ITS RIGHT TO ENFORCE LIEN

a b
HE MAY WAIVE HIS RIGHT
UNDER THE SECURITY OR
LIEN
PROVE HIS CLAIM IN THE
LIQUIDATION PROCEEDINGS
SHARE IN THE
DISTRIBUTION OF DEBTOR'S
ASSETS
MAINTAIN HIS RIGHTS
UNDER THE SECURITY OR
LIEN:
VALUE MAY BE FIXED AS
AGREED
LIQUIDATOR MAY SELL
SECURED CREDITOR MAY
ENFORCE LIEN OR
FORECLOSE
THE LIQUIDATOR

ELECTION:

Allowed To Vote:

Only creditors who have filed their

claims within the period set by the
court, and whose claims are not
barred by the statute of limitations
THE LIQUIDATOR

ELECTION:
NOT Allowed To Vote:

Secured Creditor
EXPN:
(a) he waives his security or lien; or

(b) has the value of the property subject

of his security or lien fixed by agreement
with the liquidator, and is admitted for
the balance of his claim.
THE LIQUIDATOR

ELECTION:
The creditors entitled to vote will elect the liquidator
in open court.

Question:
Who shall be appointed?
THE LIQUIDATOR

ELECTION:
The creditors entitled to vote will elect the liquidator
in open court.

Who shall be appointed?

The nominee receiving the highest number of
votes cast in terms of amount of claims; and
Who is qualified pursuant to Section 118 hereof,
shall be appointed as the liquidator.
THE LIQUIDATOR
Qualifications of Liquidation
SECTION 118
qualifications enumerated in Section 29 hereof:

(a)A citizen of the Philippines or a resident of the Philippines

in the 6 months immediately preceding his nomination;
(b)Of good moral character and with acknowledged integrity,
impartiality and independence;
(c)knowledge of insolvency and other relevant commercial
laws, rules and procedures, as well as the relevant training
and/or experience; and
(d)Has no conflict of interest
THE LIQUIDATOR
Qualifications of Liquidation
SECTION 118

Other qualifications and disqualification’s shall be

set forth in procedural rules:
considerations:
nature of the business of the debtor
need to protect the interest of all
stakeholders concerned
THE LIQUIDATOR
Qualifications of Liquidation
SECTION 118

He may be removed at any time by the court for

cause, either motu propio or upon motion of any
creditor entitled to vote for the election of the
liquidator..
SECTION 116
(A) (B)
on the date set for the creditors who
Court-Appointed the election of the attend, fail or
liquidator, the refuse to elect a
Liquidator creditors do not liquidator;
attend;

(E) (D) (C)

Provided further, That nothing
in this section shall be
construed to prevent a
rehabilitation receiver, who
was administering the debtor
prior to the commencement
of the liquidation, from being
appointed as a liquidator.
a vacancy occurs for any after being
reason whatsoever, In elected, the
any of the cases
liquidator fails to
provided herein= court
may set another qualify; or
hearing of the election
SECTION 117

Oath and Bond of the Liquidator

Prior to entering upon his powers, duties and

responsibilities, the liquidator shall take an oath
and file a bond
THE LIQUIDATOR

SECTION 119 POWERS, DUTIES, AND RESPONSIBILITIES:

an officer of the court with the principal duty
of:
preserving and maximizing the value
recovering the assets of the debtor, with
the end of liquidating them
and discharging to the extent possible all
the claims against the debtor.
 to sue and recover all the assets, debts and
a
claims, belonging or due to the debtor;

The powers, duties to take possession of all the property of the

b
debtor;
and responsibilities
of the liquidator to sell, with the approval of the court, any
shall include, but c property of the debtor which has come into his
possession or control;
not limited to:
d to redeem all mortgages and pledges

to settle all accounts between the debtor

e and his creditors, subject to the approval of
the court;
 to recover any property or its value,
f
fraudulently conveyed by the debtor;

The powers, duties to recommend to the court the creation of a

g
creditors' committee
and responsibilities
of the liquidator upon approval of the court, to engage such
shall include, but h professional as may be necessary and reasonable
to assist him in the discharge of his duties.
not limited to:
take all reasonable steps to manage and
i
dispose of the debtor's assets

Other duties of the liquidator in accordance

j with this section may be established by
procedural rules.
THE LIQUIDATOR

COMPENSATION

reasonable compensation as may determined by the

liquidation court, which shall not exceed the maximum
amount as may be prescribed by the Supreme Court.
THE LIQUIDATOR

REPORTING REQUIREMENTS

The liquidator shall make and keep a record of all

moneys received and all disbursements made by
him or under his authority as liquidator.
Quarterly report to the court and to all interested
parties.
Submit such reports as may be required by the court
from time to time as well as a final report at the end
of the liquidation proceedings.
 DISCHARGE OF LIQUIDATOR

1 - Notify 2 - File 3 - Hearing 4 - Discharge

the liquidator The liquidator will The accounting If the court finds
will notify all the file a final the same in order,
will be set for
creditors accounting with the court will
hearing.
the court, with discharge the
proof of notice to liquidator.
all creditors.
 DETERMINATION OF CLAIMS

SECTION 123. REGISTRY OF CLAIMS

WITHIN TWENTY (20) DAYS THE LIQUIDATOR SHALL:
PREPARE A PRELIMINARY REGISTRY OF CLAIMS OF
SECURED AND UNSECURED CREDITORS.
MAKE THE REGISTRY AVAILABLE FOR PUBLIC INSPECTION
PROVIDE PUBLICATION NOTICE ON WHERE AND WHEN
THEY MAY INSPECT IT
SECTION 124. RIGHT OF SET-OFF

SECTION 125. - OPPOSITION OR CHALLENGE TO CLAIMS. -

WITHIN 30 DAYS FROM THE EXPIRATION OF THE PERIOD FOR
FILING OF APPLICATIONS FOR RECOGNITION OF CLAIMS,
INTERESTED PARTIES MAY SUBMIT A CHALLENGE TO CLAIM OR
CLAIMS TO THE COURT
SUCH CLAIMS SHALL BECOME FINAL UPON THE FILLING OF
THE REGISTER
EXPN: ON GROUNDS OR FRAUD, ACCIDENT, MISTAKE OR
INEXCUSABLE NEGLECT.

SECTION 126. SUBMISSION OF DISPUTED TO THE COURT. -

THE LIQUIDATOR SHALL RESOLVE DISPUTED CLAIMS AND
SUBMIT HIS FINDINGS THEREON TO THE COURT FOR FINAL
APPROVAL. THE LIQUIDATOR MAY DISALLOW CLAIMS.
 Avoidance Proceedings

Section 127. Rescission or Nullity of Certain Transactions. -

Any transaction occurring prior to the issuance of the
Liquidation Order, may be rescinded or declared null and
void
On What Ground??
-That the same was executed with intent to defraud a
creditor/s or which constitute undue preference of
creditors. The presumptions set forth in Section 58 hereof
shall apply.
 Avoidance Proceedings

Section 128. Actions for Rescission or Nullity. -

(a) If the liquidator does not consent to the filling or
prosecution of such action, any creditor may seek leave of
the court to commence said action.

(b) if leave of court is granted = the liquidator shall assign

and transfer to the creditor all rights, title and interest in
the chose in action or subject matter of the proceeding,
including any document in support thereof.
 Avoidance Proceedings

Section 128. Actions for Rescission or Nullity. -

(c) Any benefit derived from a proceeding taken pursuant to
subsection (a) hereof, to the extent of his claim and the costs,
belongs exclusively to the creditor instituting the proceeding, and
the surplus, if any, belongs to the estate.

(d) Where, before an orders is made under subsection (a) hereof,

the liquidator signifies to the court his readiness to the institute
the proceeding for the benefit of the creditors, the order shall fix
the time within which he shall do so and, in that case the benefit
derived from the proceedings, if instituted within the time limits
so fixed, belongs to the estate.
THE LIQUIDATION
PLAN
 THE LIQUIDATION PLAN
WITHIN THREE (3) MONTHS FROM HIS ASSUMPTION
INTO OFFICE, THE LIQUIDATOR SHALL SUBMIT A
LIQUIDATION PLAN TO THE COURT.

INCLUDES THE FOLLOWING:

ALL THE ASSETS OF THE DEBTOR;
SCHEDULE OF LIQUIDATION OF THE ASSETS;
PAYMENT OF THE CLAIMS.
SECTION 130. EXEMPT PROPERTY TO BE SET APART. - IT
SHALL BE THE DUTY OF THE COURT, UPON PETITION AND
AFTER HEARING, TO EXEMPT AND SET APART, FOR THE
USE AND BENEFIT OF THE SAID INSOLVENT, SUCH REAL
AND PERSONAL PROPERTY AS IS BY LAW EXEMPT FROM
EXECUTION, AND ALSO A HOMESTEAD;Communication
 SALE OF ASSETS IN LIQUIDATION
THE LIQUIDATOR MAY SELL THE UNENCUMBERED ASSETS OF THE
DEBTOR AND CONVERT THE SAME INTO MONEY. THE SALE SHALL
BE MADE AT PUBLIC AUCTION.
HOWEVER, A PRIVATE SALE MAY BE ALLOWED WITH THE APPROVAL
OF THE COURT IF;

(A) THE GOODS TO BE SOLD ARE OF A PERISHABLE NATURE

(B) THE PRIVATE SALE IS FOR THE BESTCommunication
INTEREST OF THE
DEBTOR 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 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.