FRIA_PH

• Rehabilitation


  Restoration of the debtor to a condition of successful operation and solvency, if it is shown that its continuance of operation is economically feasible and its creditors can recover by way of the present value of payments projected in the plan, more if the debtor continues as a going concern than if it is immediately liquidated
• Pari en passu


  All are considered equal before the liquidation proceeding
• Insolvent


  The financial condition of a debtor that is generally unable to pay its or his liabilities as they fall due in the ordinary course of business or has liabilities that are greater than its or his assets
• Rehabilitation receiver


  The person or persons, natural or juridical, appointed as such by the court pursuant to this Act and which shall be entrusted with such powers and duties as set forth herein
• Exclusions from the term 'debtor'

  • Banks
  • Insurance companies
  • Pre-need companies
  • National and local government agencies or units
• Bank


  Any duly licensed bank or quasi-bank that is potentially or actually subject to conservatorship, receivership or liquidation proceedings under the New Central Bank Act (Republic Act No. 7653) or successor legislation
• Insurance company


  Those companies that are potentially or actually subject to insolvency proceedings under the Insurance Code (Presidential Decree No. 1460) or successor legislation
• Pre-need company


  Any corporation authorized/licensed to sell or offer to sell pre-need plans
• It is the policy of the State to encourage debtors, both juridical and natural persons, and their creditors to collectively and realistically resolve and adjust competing claims and property rights
• The State shall ensure a timely, fair, transparent, effective and efficient rehabilitation or liquidation of debtors
• The rehabilitation or liquidation shall be made with a view to ensure or maintain certainly and predictability in commercial affairs, preserve and maximize the value of the assets of these debtors, recognize creditor rights and respect priority of claims, and ensure equitable treatment of creditors who are similarly situated
• When rehabilitation is not feasible, it is in the interest of the State to facilities a speedy and orderly liquidation of these debtor's assets and the settlement of their obligations
• Authorization to Exchange Debt for Equity

  Any bank, whether universal or not, may acquire and hold an equity interest or investment in a debtor or its subsidiaries when conveyed to such bank in satisfaction of debts pursuant to a Rehabilitation or Liquidation Plan approved by the court
• Voluntary Proceeding


  1. Petition to Initiate Voluntary Proceedings by Debtor

  2. Grounds: Insolvency of the debtor, Viability of rehabilitation

  3. Petition must contain: Schedule of debts and liabilities, Inventory of assets, Rehabilitation Plan, Names of at least 3 rehabilitation receiver nominees
• Involuntary Proceeding


  1. Circumstances Necessary to Initiate Involuntary Proceedings: No genuine issue of fact or law on the claim/s, Due and demandable payments not made for at least 60 days, Creditor has initiated foreclosure proceedings

  2. Grounds: Substantial likelihood that debtor may be rehabilitated
• Action on the Petition

  1. Court issues Commencement Order within 5 working days if petition is sufficient

  2. Commencement Order includes Stay or Suspension Order: Suspends actions/proceedings for enforcement of claims, Prohibits debtor from selling/encumbering/transferring assets, Prohibits debtor from making payments except as provided
• Pre-negotiated Settlement


  Petition by Debtor: Debtor files verified petition with court for approval of pre-negotiated Rehabilitation Plan endorsed/approved by creditors holding at least 2/3 of total liabilities
• Out of Court / Informal Proceedings

  1. Minimum Requirements: Debtor agrees, Approved by creditors representing at least 67% of secured obligations, 75% of unsecured obligations, 85% of total liabilities

  2. Standstill Period: Agreed by parties, Approved by creditors representing more than 50% of total liabilities, Published in newspaper, Max 120 days
• Exceptions to the Stay or Suspension Order
• Insolvency


  The financial condition of the debtor that is generally unable to pay its or his liabilities as they fall due in the ordinary course of business or has liabilities that are greater than its or his assets
• Debtor


  A sole proprietorship duly registered with the Department of Trade and Industry (DTI), a partnership duly registered with the Securities and Exchange Commission (SEC), a corporation duly organized and existing under Philippine laws, or an individual debtor who has become insolvent as defined herein. Excluded from the term debtors are include banks, insurance companies, pre-need companies, and national and local government agencies or units.
• Actual insolvency


  The corporation's assets are not enough to cover its liabilities
• Technical insolvency


  The corporation has enough assets but it foresees its inability to pay its obligations for more than one year
• Suspension of payments


  1. Individual debtor files verified petition to be declared in the state of suspension of payments

  2. Attach schedule of debts and liabilities, inventory of assets, and proposed agreement with creditors

  3. Court may issue order suspending any pending execution against the individual debtor

  4. Suspension order lapses when 3 months pass without proposed agreement being accepted or when agreement is denied

  5. No creditor shall sue or institute proceedings to collect claim except for claims for personal labor, maintenance, expense of last illness and funeral, and secured creditors
• Action on the petition

  If court finds petition sufficient, it shall within 5 working days issue an order calling a meeting of all creditors, directing creditors to prepare and present written evidence of claims, forbidding the individual debtor from disposing of property, and appointing a commissioner to preside over the creditors' meeting
• Requirements in the creditors' meeting

  1. Presence of creditors holding claims amounting to at least 3/5 of liabilities is necessary

  2. Creditors and individual debtor shall discuss and vote on propositions in the proposed agreement

  3. 2/3 of creditors voting and claims representing at least 3/5 of total liabilities are required to form a majority (Double Majority Rule)

  4. Creditors who incurred credit within 90 days prior to filing of petition shall not be entitled to vote

  5. Proposed agreement is deemed rejected if required number of creditors do not attend or double majorities are not in favor
• Rehabilitation


  The restoration of the debtor to a condition of successful operation and solvency, if it is shown that its continuance of operation is economically feasible and its creditors can recover by way of the present value of payments projected in the plan, more if the debtor continues as a going concern than if it is immediately liquidated
• Types of rehabilitation


  • Court Supervised
  • Pre-Negotiated
  • Out of Court Rehabilitation (OCR)
• Voluntary rehabilitation proceedings


  Initiated by the debtor when approved by: sole proprietorship - owner, partnership - majority of partners, corporation - majority vote of board and 2/3 of stockholders, non-stock corporation - 2/3 of members
• Involuntary rehabilitation proceedings


  Initiated by any creditor or group of creditors with claim of at least 1 million pesos or 25% of subscribed capital/partners' contributions, or by an insolvent debtor itself or jointly with any of its creditors
• Commencement order


  Court issues commencement order within 5 days of filing petition, appointing receiver, prohibiting suppliers from withholding goods/services, authorizing payment of administrative expenses, and issuing stay order
• Effects of commencement order

  • Vests rehabilitation receiver with powers, prohibits extrajudicial seizure/collection activities, renders null and void any set-off or perfection of liens after commencement date, consolidates resolution of all legal proceedings against debtor
• Stay or suspension order


  Order included in commencement order that suspends actions/proceedings for enforcement of claims against debtor, prohibits debtor from making payments or disposing of property except in ordinary course of business
• Claims covered by stay order

  • All claims for money or otherwise, liquidated or not, fixed or contingent, matured or not, disputed or not, including damages, labor cases, collection claims, government claims, claims against directors/officers, non-pecuniary claims, preferred claims, reinstatement orders, foreclosure by government financial institutions, patent infringement cases
• Claims excluded from stay order

  • Cases already pending appeal in Supreme Court as of commencement date
  • Cases pending or filed at specialized court/quasi-judicial agency that can resolve claim more quickly, fairly and efficiently
  • Enforcement of claims against sureties, other persons solidarily liable, and third party/accommodation mortgagors
• Claims against directors and officers of the debtor


  Arising from acts done in the discharge of their functions falling within the scope of their authority
• Rehabilitation receiver


  The person or persons, natural or juridical, appointed as such by the court pursuant to this Act and which shall be entrusted with such powers and duties as set forth herein
• Rehabilitation receiver (if a juridical entity)


  • Must designate a natural person/s who possess/es all the qualifications and none of the disqualifications as its representative, it being understood that the juridical entity and the representative/s are solidarily liable for all obligations and responsibilities of the rehabilitation receiver
• Powers, Duties and Responsibilities of the Receiver

  • Court officer
  • Preserve/maximize value of assets
  • Determine viability of rehabilitation
  • Recommend Rehab Plan
  • Sue/recover, amounts owed to, and properties pertaining to the debtor
  • Recover property transferred in fraud of creditors
  • Access/monitor operations/business of the debtor
• The rehabilitation receiver is tasked only to monitor the successful implementation of the rehabilitation plan. The receiver will not automatically take over the business operations of the debtor-corporation. At best, he will just monitor, but it doesn't mean that he becomes the president, CEO, or board member. The Management of juridical debtor shall remain with the existing management. BUT all disbursements, payments or sale, disposal, assignment, transfer or encumbrance of property , or any other act affecting title or interest in property, shall be subject to the approval of the rehabilitation receiver and/or the court.