QuestionsQuestions (Republic Act No. 10142)
FRIA aims to encourage debtors and creditors to realistically resolve competing claims through a timely, fair, transparent, effective, and efficient rehabilitation or liquidation, preserving and maximizing the debtor’s assets, recognizing creditor rights and priority of claims, and ensuring equitable treatment of similarly situated creditors.
Proceedings under FRIA are in rem. Jurisdiction over all persons affected is considered acquired upon publication of the notice of commencement in a newspaper of general circulation in the Philippines, following rules to be promulgated by the Supreme Court.
The “commencement date” is the date the court issues the Commencement Order, which is retroactive to the date the petition was filed for voluntary or involuntary proceedings.
A “claim” includes all claims or demands against the debtor or its property of whatever nature or character, whether for money or otherwise, liquidated or unliquidated, fixed or contingent, matured or unmatured, disputed or undisputed—including government claims (taxes, tariffs, customs duties) and certain claims against directors/officers arising from acts within their functions, with a proviso that this does not bar personal-capacity suits by third parties.
Banks, insurance companies, pre-need companies, and national/local government agencies or units are excluded. However, government financial institutions other than banks and government-owned or controlled corporations are covered unless their specific charters provide otherwise.
A creditor or group of creditors with at least PHP 1,000,000.00 or at least 25% of subscribed capital stock or partners’ contributions (whichever is higher) may file if: (1) no genuine issue of fact/law exists on the claim and due/demandable payments have not been made for at least 60 days or the debtor fails generally to meet liabilities as they fall due; or (2) a creditor has initiated foreclosure proceedings that will prevent payment as they fall due or will render the debtor insolvent.
The petition must establish insolvency and viability of rehabilitation and include at minimum identification and principal activities/addresses; facts/causes of insolvency; specific relief sought and grounds; schedule of debts/liabilities and list of creditors with amounts and collaterals; inventory of assets and receivables/claims; a Rehabilitation Plan; and names of at least three nominees for rehabilitation receiver, plus other documents required by the rules.
Proceedings commence upon issuance of the Commencement Order. The Order identifies the debtor and summarizes grounds and relief, declares the debtor under rehabilitation, directs publication and service requirements, appoints a rehabilitation receiver, sets deadlines for establishing claims, may direct BIR action, prohibits certain creditor actions, authorizes administrative expenses, schedules initial hearing (not more than 40 days), makes copies available, and includes a Stay/Suspension Order.
It vests rehabilitation powers as provided in FRIA; voids/blocks extrajudicial efforts to seize/sell/enforce claims after commencement unless allowed; nullifies setoff after commencement; nullifies perfection of liens after commencement; consolidates resolution of legal proceedings by and against the debtor in the FRIA court, subject to limited continuation of certain other cases the debtor initiated.
Examples: (1) suspend all actions/proceedings to enforce claims against the debtor; (2) suspend enforcement of judgments, attachments, or provisional remedies against the debtor; (3) prohibit the debtor from selling/encumbering/transferring/disposing of property except in ordinary course of business; (4) prohibit the debtor from making any payment of liabilities outstanding as of commencement date except as provided in FRIA; plus other specific effects under Section 17.
Exceptions include: cases already pending appeal in the Supreme Court as of commencement date; certain specialized courts/quasi-judicial agencies capable of faster resolution (final/executory judgments treated as non-disputed claims); enforcement of claims against sureties and solidarily liable persons and accommodation mortgagors/issuers of letters of credit unless the property is necessary for rehabilitation; actions of customers to recover assets entrusted to securities market participants; broker/dealer sale of pledged securities under securities pledge/margin agreements; clearing/settlement and reimbursement actions of duly authorized clearing agencies; and criminal actions against an individual debtor/owner/partner/director/officer.
The creditor will not be entitled to participate in the rehabilitation proceedings, but remains entitled to receive distributions arising from the proceedings.
Within the timeframe provided, the court may: (1) give due course if debtor is insolvent and there is substantial likelihood of successful rehabilitation; (2) dismiss if debtor is not insolvent, or the petition is a sham filing, or materially false/misleading statements exist, or fraud/misrepresentation occurred; or (3) convert to liquidation if debtor is insolvent and there is no substantial likelihood of successful rehabilitation.
Core duty: preserve and maximize the value of the debtor’s assets, determine viability of rehabilitation, prepare/recommend the Rehabilitation Plan, and implement the approved plan. Powers include verifying allegations/assets/debts/claims; taking custody/control and preserving property; suing/recovering amounts/property owed to the debtor or transferred in fraud/undue preference (with court approval); accessing business information; monitoring operations to prevent improper payments/transfers; engaging professionals with court approval; recommending/revising the Rehabilitation Plan; and submitting status reports.