Financial Rehabilitation and Insolvency Act

• What is the title of Republic Act No. 10142?

  Financial Rehabilitation and Insolvency Act
• What is the policy of the State regarding debtors and creditors?

  The State encourages debtors and creditors to collectively resolve and adjust competing claims and property rights.
• What are the goals of rehabilitation or liquidation as stated in the policy?


  To ensure predictability in commercial affairs, preserve asset value, recognize creditor rights, and ensure equitable treatment of creditors.
• What should happen when rehabilitation is not feasible?


  The State should facilitate a speedy and orderly liquidation of the debtor's assets.
• Who is excluded from the definition of a debtor under this Act?

  Banks, insurance companies, pre-need companies, and government agencies or units.
• What does the term 'bank' refer to in this Act?

  Any duly licensed bank or quasi-bank subject to conservatorship, receivership, or liquidation proceedings under the New Central Bank Act.
• What is the definition of an insurance company in this Act?

  Companies potentially or actually subject to insolvency proceedings under the Insurance Code.
• What is a pre-need company as defined in this Act?

  A corporation authorized to sell or offer pre-need plans.
• What is required for a debtor to initiate voluntary proceedings under this Act?

  Approval from the owner, majority of partners, or majority vote of the board of directors or stockholders.
• What must be included in the petition for rehabilitation?

  Identification of the debtor, statement of insolvency, specific relief sought, grounds for the petition, schedule of debts, inventory of assets, rehabilitation plan, and nominees for rehabilitation receiver.
• What is the minimum amount of claims required for creditors to initiate involuntary proceedings?

  At least One Million Pesos (Php1,000,000.00) or at least twenty-five percent (25%) of the subscribed capital stock.
• What are the circumstances necessary to initiate involuntary proceedings?

  There must be no genuine issue of fact on the claims, and payments have not been made for at least sixty days, or foreclosure proceedings have been initiated against the debtor.
• What is the purpose of the Commencement Order in rehabilitation proceedings?


  To identify the debtor, summarize grounds for proceedings, state relief sought, and declare that the debtor is under rehabilitation.
• How long must the Commencement Order be published in a newspaper?

  Once a week for at least two consecutive weeks.
• What does the Stay or Suspension Order do?

  It suspends all actions for the enforcement of claims against the debtor and prohibits the debtor from selling or transferring properties.
• What are the effects of the Commencement Order?

  It vests the rehabilitation receiver with powers, prohibits extrajudicial activities against the debtor, and consolidates legal proceedings against the debtor.
• What is the time frame for the rehabilitation receiver to submit a report to the court?


  Within forty (40) days from the initial hearing.
• What should the rehabilitation receiver's report include?

  Findings on the debtor's insolvency, causes, financial goals, likelihood of rehabilitation, and recommendations for dismissal or liquidation.
• Under what circumstances can the court appoint a rehabilitation receiver to manage the debtor?

  In cases of imminent danger of asset loss, paralysis of business operations, or gross mismanagement.
• What powers may the court grant to the rehabilitation receiver?


  To assume management powers, engage services for assistance, and authorize an increase in compensation.
• What are the key components of the Financial Rehabilitation and Insolvency Act?

  • Encourages collective resolution of claims
  • Ensures timely and fair rehabilitation or liquidation
  • Excludes banks, insurance companies, and government agencies
  • Outlines procedures for voluntary and involuntary proceedings
  • Establishes roles for rehabilitation receivers and management committees
• What are the differences between voluntary and involuntary proceedings under the Financial Rehabilitation and Insolvency Act?

  Voluntary Proceedings:

  • Initiated by the debtor with approval from owners or majority stakeholders
  • Requires a verified petition with specific information

  
  

  Involuntary Proceedings:

  • Initiated by creditors with significant claims
  • Requires proof of non-payment or foreclosure actions
• What are the responsibilities of the rehabilitation receiver?

  • Manage the debtor's operations if appointed
  • Submit a report on the debtor's status and recommendations
  • Ensure compliance with the rehabilitation plan
  • Protect the interests of creditors and the debtor
• What are the circumstances that may lead to the appointment of a rehabilitation receiver?

  Actual or imminent danger of asset loss, paralysis of business operations, or gross mismanagement.
• What powers may the court grant to a rehabilitation receiver upon appointment?


  The court may require a bond, authorize engagement of services, and increase compensation.
• What is the role of the management committee in rehabilitation proceedings?


  • Takes the place of the debtor's management and governing body
  • Assumes rights and responsibilities of management
  • Members are considered officers of the court
• What is the time frame for establishing a preliminary registry of claims by the rehabilitation receiver?

  Twenty (20) days from the assumption into office.
• What must the rehabilitation receiver do with the registry of claims?


  Make it available for public inspection and notify stakeholders.
• Who retains management of the juridical debtor during rehabilitation proceedings?

  The existing management, subject to applicable laws and agreements.
• What must happen to disbursements and property transactions during rehabilitation?

  They must be approved by the rehabilitation receiver and/or the court.
• What happens to valid contracts of the debtor at the commencement of rehabilitation proceedings?

  They continue in force unless cancelled by a court judgment.
• What must the debtor do regarding contracts within ninety (90) days of the commencement of proceedings?

  Notify each contractual counter-party whether it is confirming the contract.
• What are the minimum contents required in a Rehabilitation Plan?

  • Underlying assumptions and financial goals
  • Comparison of creditor recovery under the plan vs. liquidation
  • Information for creditors to assess financial interest
  • Classes and subclasses of voting creditors
  • Treatment of claims and administrative expenses
  • Debtor's role and management responsibilities
• What is the maximum time frame for creditors to vote on the approval of the Rehabilitation Plan?

  Twenty (20) days from notification.
• What is required for a class of creditors to approve the Rehabilitation Plan?

  More than fifty percent (50%) of the total claims in that class must vote in favor.
• Under what conditions can the court confirm a Rehabilitation Plan despite its rejection by creditors?


  If the plan complies with the Act, is recommended by the receiver, and results in loss of controlling interest for shareholders.
• What happens if no objections are filed against the Rehabilitation Plan?

  The court will issue an order confirming the Rehabilitation Plan.
• What is the effect of the confirmation of the Rehabilitation Plan?

  It becomes binding on the debtor and all affected persons, including creditors.
• What must the debtor do after the confirmation of the Rehabilitation Plan?

  Comply with the provisions of the Rehabilitation Plan and take necessary actions.
• What are the consequences of termination of rehabilitation proceedings?

  • Discharge of the rehabilitation receiver after final accounting
  • Lifting of the Stay Order and enforcement actions against the debtor
  • Conversion to liquidation if termination is due to failure of rehabilitation