Question & AnswerQ&A (Republic Act No. 10142)
Republic Act No. 10142 is titled "Financial Rehabilitation and Insolvency Act (FRIA) of 2010."
The policy of the State is to encourage debtors and creditors to collectively resolve claims and property rights, ensuring timely, fair, transparent, and efficient rehabilitation or liquidation to preserve assets, recognize creditor rights, and ensure equitable treatment.
Proceedings are directed against the property or status of the debtor, and jurisdiction over all persons affected is acquired upon publication of the notice of commencement in a newspaper of general circulation.
Administrative expenses refer to reasonable and necessary expenses incurred from the filing of a petition, conduct of the proceedings, ordinary course of debtor business after commencement, fees for rehabilitation receiver or liquidator, and other authorized expenses by the Act or Supreme Court rules.
A debtor includes a sole proprietorship registered with DTI, a partnership registered with SEC, a corporation organized under Philippine laws, or an individual debtor who has become insolvent, except those specifically excluded such as banks and insurance companies.
Banks, insurance companies, pre-need companies, and national and local government agencies or units are excluded from the term 'debtor.'
A Rehabilitation Receiver must be a Philippine citizen or resident, of good moral character, knowledgeable in insolvency and commercial laws, without conflict of interest unless waived, and must meet other qualifications set by procedural rules.
It vests the court's jurisdiction, prohibits extrajudicial enforcement actions post-commencement date, consolidates legal proceedings against the debtor to the court, and suspends enforcement of claims against the debtor during the rehabilitation process.
Upon evidence of imminent danger of asset dissipation, paralysis of business operations, gross mismanagement, fraud, wrongful conduct, or gross violation of the Act by existing management or owners, the court may displace management and appoint a Rehabilitation Receiver.
The plan must specify financial goals and procedures, compare expected creditor recovery under the plan versus liquidation, establish creditor classes, describe rehabilitation methods (debt forgiveness, rescheduling, etc.), ensure equal treatment within classes, maintain security interests, and include provisions for dispute resolution and taxes, among others.
The court has a maximum period of one year from the filing of the petition to confirm the Rehabilitation Plan.
An insolvent debtor may file a petition for voluntary rehabilitation, subject to approval by the owner (sole proprietorship), majority of partners (partnership), or two-thirds (2/3) vote of stockholders or members (corporation or nonstock corporation).
Voluntary proceedings are initiated by the debtor, while involuntary proceedings are initiated by creditors meeting certain claim thresholds and conditions specified in the Act.
They may be fined up to One million pesos and imprisoned from three months to five years for each offense.