Financial Rehabilitation and Insolvency Act (FRIA) of 2010"

1. Liquidation of Insolvent Juridical Debtors (180) days or that the debtor has failed generally to meet its
liabilities as they fall due; and
The liquidation of insolvent debtors, as opposed to individual
debtors, may be voluntary or involuntary. Voluntary (b) there is no substantial likelihood that the debtor may be
liquidation proceedings are initiated by the debtor itself, rehabilitated.
while involuntary insolvency proceedings are initiate by three
At any time during the pendency of or after a court-
or more creditors.
supervised rehabilitation proceedings or prenegotiated
1.1 Voluntary Liquidation rehabilitation proceedings, three (3) or more creditors whose
claims is at least either One Million Pesos (PhP1,000,000.00)
An insolvent debtor may apply for liquidation by filing a
or at least twenty-five percent (25%) of the subscribed capital
petition for liquidation with the court. The petition shall be
or partner’s contributions of the debtor, whichever is higher,
verified, shall establish the insolvency of the debtor and shall
may also initiate liquidation proceedings by filing a motion in
contain, whether as an attachment or as part of the body of
the same court where the rehabilitation proceedings are
the petition:
pending to convert the rehabilitation proceedings into
(a) a schedule of the debtor’s debts and liabilities including a liquidation proceedings. The motion shall be verified, shall
list of creditors with their addresses, amounts of claims and contain or set forth the same matters required in the
collaterals, or securities, if any; preceding paragraph, and state that the movants are seeking
the immediate liquidation of the debtor.
(b) an inventory of all its assets including receivables and
claims against third parties; and If the petition or motion is sufficient in form and substance,
the court shall issue an Order:
(c) the names of at least three (3) nominees to the position of
liquidator. (1) directing the publication of the petition or motion in a
newspaper of general circulation once a week for two (2)
At any time during the pendency of court-supervised consecutive weeks; and
rehabilitation proceedings or pre-negotiated rehabilitation
proceedings, the debtor may also initiate liquidation (2) directing the debtor and all creditors who are not the
proceedings by filing a motion in the same court where the petitioners to file their comment on the petition or motion
rehabilitation proceedings are pending to convert the within fifteen (15) days from the date of last publication.
rehabilitation proceedings into liquidation proceedings. The
If, after considering the comments filed, the court determines
motion shall be verified, shall contain or set forth the same
that the petition or motion is meritorious, it shall issue the
matters required in the preceding paragraph, and state that
Liquidation Order. [Back to the top]
the debtor is seeking immediate dissolution and termination
of its corporate existence.If the petition or the motion, as the 1.3 Conversion by the Court into Liquidation Proceedings
case may be, is sufficient in form and substance, the court
During the pendency of court-supervised or pre-negotiated
shall issue a Liquidation Order.
rehabilitation proceedings, the court may order the
1.2 Involuntary Liquidation conversion of rehabilitation proceedings to liquidation
proceedings pursuant to (a) Section 25(c) of this Act; or (b)
Three (3) or more creditors the aggregate of whose claims is
Section 72 of this Act; or (c) Section 75 of this Act; or (d)
at least either One Million Pesos (PhP1,000,000,00) or at
Section 90 of this Act; or at any other time upon the
least twenty-five percent (25%) of the subscribed capital
recommendation of the rehabilitation receiver that the
stock or partner’s contributions of the debtor, whichever is
rehabilitation of the debtor is not feasible. Thereupon, the
higher, may apply for and seek the liquidation of an insolvent
court shall issue the Liquidation Order.
debtor by filing a petition for liquidation of the debtor with
the court. The petition shall show that: 1.4 Powers of the SEC

(a) there is no genuine issue of fact or law on the claim/s of The provisions regarding the liquidation of insolvent juridical
the petitioner/s, and that the due and demandable payments debtors shall not affect the regulatory powers of the
thereon have not been made for at least one hundred eighty Securities and Exchange Commission (SEC) under Section 6 of
Presidential Decree No. 902-A, as amended, with respect to (e) forbidding the individual debtor from selling, transferring,
any dissolution and liquidation proceeding initiated and encumbering or disposing in any manner of his property,
heard before it. except those used in the ordinary operations of commerce or
of industry in which the petitioning individual debtor is
2. Insolvency of Individual Debtors
engaged so long as the proceedings relative to the
Insolvent individual debtors have the following options: suspension of payments are pending;

(a) Suspension of payments; (f) prohibiting the individual debtor from making any
(b) Voluntary liquidation; and payment outside of the necessary or legitimate expenses of
(c) Involuntary liquidation. his business or industry, so long as the proceedings relative to
the suspension of payments are pending; and
2.1 Suspension of Payments
(g) appointing a commissioner to preside over the creditors’
a. Petition meeting.
An individual debtor who, possessing sufficient property to c. Actions suspended; Suspension Order
cover all his debts but foreseeing the impossibility of meeting
them when they respectively fall due, may file a verified Upon motion filed by the individual debtor, the court may
petition that he be declared in the state of suspension of issue an order suspending any pending execution against the
payments by the court of the province or city in which he has individual debtor. Properties held as security by secured
resides for six (6) months prior to the filing of his petition. He creditors shall not be the subject of such suspension order.
shall attach to his petition, as a minimum: The suspension order shall lapse when three (3) months shall
have passed without the proposed agreement being
(a) a schedule of debts and liabilities; accepted by the creditors or as soon as such agreement is
(b) an inventory of assets; and denied.
(c) a proposed agreement with his creditors.
No creditor shall sue or institute proceedings to collect his
b. Action on the Petition claim from the debtor from the time of the filing of the
If the court finds the petition sufficient in form and petition for suspension of payments and for as long as
substance, it shall, within five (5) working days from the filing proceedings remain pending except:
of the petition, issue an Order: (a) those creditors having claims for personal labor,
(a) calling a meeting of all the creditors named in the maintenance, expense of last illness and funeral of the wife
schedule of debts and liabilities at such time not less than or children of the debtor incurred in the sixty (60) days
fifteen (15) days nor more than forty (40) days from the date immediately prior to the filing of the petition; and
of such Order and designating the date, time and place of the (b) secured creditors.
meeting; d. Creditors’ Meeting
(b) directing such creditors to prepare and present written The presence of creditors holding claims amounting to at
evidence of their claims before the scheduled creditors’ least three-fifths (3/5) of the liabilities shall be necessary for
meeting; holding a meeting. The commissioner appointed by the court
(c) directing the publication of the said order in a newspaper shall preside over the meeting and the clerk of court shall act
of general circulation published in the province or city in as the secretary thereof, subject to the following rules:
which the petition is filed once a week for two (2) (a) The clerk shall record the creditors present and amount of
consecutive weeks, with the first publication to be made their respective claims;
within seven (7) days from the time of the issuance of the
Order; (b) The commissioner shall examine the written evidence of
the claims. If the creditors present hold at least three-fifths
(d) directing the clerk of court to cause the sending of a copy (3/5) of the liabilities of the individual debtor, the
of the Order by registered mail, postage prepaid, to all commissioner shall declare the meeting open for business;
creditors named in the schedule of debts and liabilities;
(c) The creditors and individual debtor shall discuss the (a) defects in the call for the meeting, in the holding thereof
propositions in the proposed agreement and put them to a and in the deliberations had thereat which prejudice the
vote; rights of the creditors;
(b) fraudulent connivance between one or more creditors
(d) To form a majority, it is necessary:
and the individual debtor to vote in favor of the proposed
(1) that two-thirds (2/3) of the creditors voting unite agreement; or
upon the same proposition; and (c) fraudulent conveyance of claims for the purpose of
(2) that the claims represented by said majority vote obtaining a majority. The court shall hear and pass upon such
amount to at least threefifths (3/5) of the total objection as soon as possible and in a summary manner.
liabilities of the debtor mentioned in the petition;
In case the decision of the majority of creditors to approve
and
the individual debtor’s proposal or any amendment thereof
(e) After the result of the voting has been announced, all made during the creditors’ meeting is annulled by the court,
protests made against the majority vote shall be drawn up, the court shall declare the proceedings terminated and the
and the commissioner and the individual debtor together creditors shall be at liberty to exercise the rights which may
with all creditors taking part in the voting shall sign the correspond to them.
affirmed propositions.
h. Effects of approval of proposed agreement
No creditor who incurred his credit within ninety (90) days
If the decision of the majority of the creditors to approve the
prior to the filing of the petition shall be entitled to vote.
proposed agreement or any amendment thereof made
e. Persons who may refrain from voting during the creditors’ meeting is uphold by the court, or when
no opposition or objection to said decision has been
Creditors who are unaffected by the Suspension Order may presented, the court shall order that the agreement be
refrain from attending the meeting and from voting therein. carried out and all parties bound thereby to comply with its
Such persons shall not be bound by any agreement terms.
determined upon at such meeting, but if they should join in
the voting they shall be bound in the same manner as are the The court may also issue all orders which may be necessary
other creditors. or proper to enforce the agreement on motion of any
affected party. The Order confirming the approval of the
f. Rejection of the proposed agreement proposed agreement or any amendment thereof made
The proposed agreement shall be deemed rejected if the during the creditors’ meeting shall be binding upon all
number of creditors required for holding a meeting do not creditors whose claims are included in the schedule of debts
attend thereat, or if the two (2) majorities mentioned in and liabilities submitted by the individual debtor and who
Section 97 hereof are not in favor thereof. In such instances, were properly summoned, but not upon:
the proceeding shall be terminated without recourse and the (a) those creditors having claims for personal labor,
parties concerned shall be at liberty to enforce the rights maintenance, expenses of last illness and funeral of the wife
which may correspond to them. or children of the debtor incurred in the sixty (60) days
g. Objections immediately prior to the filing of the petition; and
(b) secured creditors who failed to attend the meeting or
If the proposal of the individual debtor, or any amendment refrained from voting therein.
thereof made during the creditors’ meeting, is approved by
the majority of creditors in accordance with Section 97 i. Failure of individual debtor to perform agreement
hereof, any creditor who attended the meeting and who If the individual debtor fails, wholly or in part, to perform the
dissented from and protested against the vote of the majority agreement decided upon at the meeting of the creditors, all
may file an objection with the court within ten (10) days from the rights which the creditors had against the individual
the date of the last creditors’ meeting. The causes for which debtor before the agreement shall revest in them. In such
objection may be made to the decision made by the majority case the individual debtor may be made subject to the
during the meeting shall be: insolvency proceedings in the manner established by this Act.
[Back to the top]
2.2 Voluntary Liquidation or delaying the liquidation or of defrauding any creditors or
a. Application claimant;

An individual debtor whose properties are not sufficient to (g) That he has willfully suffered judgment to be taken against
cover his liabilities, and owing debts exceeding Five hundred him by default for the purpose of hindering or delaying the
thousand pesos (Php500,000.00), may apply to be discharged liquidation or of defrauding his creditors;
from his debts and liabilities by filing a verified petition with
(h) That he has suffered or procured his property to be taken
the court of the province or city in which he has resided for
on legal process with intent to give a preference to one or
six (6) months prior to the filing of such petition. He shall
more of his creditors and thereby hinder or delay the
attach to his petition a schedule of debts and liabilities and an
liquidation or defraud any one of his creditors;
inventory of assets. The filing of such petition shall be an act
of insolvency. (i) That he has made any assignment, gift, sale, conveyance or
transfer of his estate, property, rights or credits with intent to
b. Liquidation Order
hinder or delay the liquidation or defraud his creditors;
If the court finds the petition sufficient in form and substance
(j) That he has, in contemplation of insolvency, made any
it shall, within five (5) working days issue the Liquidation
payment, gift, grant, sale, conveyance or transfer of his
Order. [Back to the top]
estate, property, rights or credits;
2.3 Involuntary Liquidation
(k) That being a merchant or tradesman, he has generally
a) The Petition defaulted in the payment of his current obligations for a
period of thirty (30) days;
Any creditor or group of creditors with a claim of, or with
claims aggregating at least Five hundred thousand pesos (l) That for a period of thirty (30) days, he has failed, after
(Php500, 000.00) may file a verified petition for liquidation demand, to pay any moneys deposited with him or received
with the court of the province or city in which the individual by him in a fiduciary; and
debtor resides. [Back to the top]
(m) That an execution having been issued against him on final
b) Acts of Insolvency judgment for money, he shall have been found to be without
sufficient property subject to execution to satisfy the
The following shall be considered acts of insolvency, and the
judgment.
petition for liquidation shall set forth or allege at least one of
such acts: The petitioning creditor/s shall post a bond in such as the
court shall direct, conditioned that if the petition for
(a) That such person is about to depart or has departed from
liquidation is dismissed by the court, or withdrawn by the
the Republic of the Philippines, with intent to defraud his
petitioner, or if the debtor shall not be declared an insolvent
creditors;
the petitioners will pay to the debtor all costs, expenses,
(b) That being absent from the Republic of the Philippines, damages occasioned by the proceedings and attorney’s fees.
with intent to defraud his creditors, he remains absent; [Back to the top]

(c) That he conceals himself to avoid the service of legal c) Order to Individual Debtor to Show Cause
process for the purpose of hindering or delaying the
Upon the filing of such creditors’ petition, the court shall
liquidation or of defrauding his creditors;
issue an Order requiring the individual debtor to show cause,
(d) That he conceals, or is removing, any of his property to at a time and place to be fixed by the said court, why he
avoid its being attached or taken on legal process; should not be adjudged an insolvent. Upon good cause
shown, the court may issue an Order forbidding the
(e) That he has suffered his property to remain under individual debtor from making payments of any of his debts,
attachment or legal process for three (3) days for the purpose and transferring any property belonging to him. However,
of hindering or delaying the liquidation or of defrauding his nothing contained herein shall affect or impair the rights of a
creditors; secured creditor to enforce his lien in accordance with its
(f) That he has confessed or offered to allow judgment in terms.
favor of any creditor or claimant for the purpose of hindering
 d) Default f) All property held for all creditors; Appeal bonds;
Exemptions to sureties
If the individual debtor shall default or if, after trial, the issues
are found in favor of the petitioning creditors the court shall In all cases where property is taken into custody by the
issue the Liquidation Order. sheriff, if it does not embrace all the property and effects of
the debtor not exempt from execution, any other creditor or
e) Absent individual debtor
creditors of the individual debtor, upon giving bond to be
In all cases where the individual debtor resides out of the approved by the court in double the amount of their claims,
Republic of the Philippines; or has departed therefrom; or singly or jointly, shall be entitled to similar orders and to like
cannot, after due diligence, be found therein; or conceals action, by the sheriff; until all claims be provided for, if there
himself to avoid service of the Order to show cause, or any be sufficient property or effects. All property taken into
other preliminary process or orders in the matter, then the custody by the sheriff by virtue of the giving of any such
petitioning creditors, upon submitting the affidavits requisite bonds shall be held by him for the benefit of all creditors of
to procedure an Order of publication, and presenting a bond the individual debtor whose claims shall be duly proved. The
in double the amount of the aggregate sum of their claims bonds to procure the order for custody of the property and
against the individual debtor, shall be entitled to an Order of effects of the individual debtor shall be conditioned that if,
the court directing the sheriff of the province or city in which upon final hearing of the petition in insolvency, the court
the matter is pending to take into his custody a sufficient shall find in favor of the petitioners, such bonds and all of
amount of property of the individual debtor to satisfy the them shall be void; if the decision be in favor of the individual
demands of the petitioning creditors and the costs of the debtor, the proceedings shall be dismissed, and the individual
proceedings. Upon receiving such Order of the court to take debtor, his heirs, administrators, executors or assigns shall be
into custody of the property of the individual debtor, it shall entitled to recover such sum of money as shall be sufficient
be the duty of the sheriff to take possession of the property to cover the damages sustained by him, not to exceed the
and effects of the individual debtor, not exempt from amount of the respective bonds. Such damages shall be fixed
execution, to an extent sufficient to cover the amount and allowed by the court. If either the petitioners or the
provided for and to prepare within three (3) days from the debtor shall appeal from the decision of the court, upon final
time of taking such possession, a complete inventory of all hearing of the petition, the appellant shall be required to give
the property so taken, and to return it to the court as soon as bond to the successful party in a sum double the amount of
completed. The time for taking the inventory and making the value of the property in controversy, and for the costs of
return thereof may be extended for good cause shown to the the proceedings.
court. The sheriff shall also prepare a schedule of the names
Any person interested in the estate may take exception to
and residences of the creditors, and the amount due each,
the sufficiency of the sureties on such bond or bonds. When
from the books of the debtor, or from such other papers or
excepted to the petitioner’s sureties, upon notice to the
data of the individual debtor available as may come to his
person excepting of not less than two (2) nor more than five
possession, and shall file such schedule or list of creditors and
(5) days, must justify as to their sufficiency; and upon failure
inventory with the clerk of court.
to justify, or of others in their place fail to justify at the time
The bonds to procure the order for custody of the property and place appointed the judge shall issue an Order vacating
and effects of the individual debtor shall be conditioned that the order to take the property of the individual debtor into
if, upon final hearing of the petition in insolvency, the court the custody of the sheriff, or denying the appeal, as the case
shall find in favor of the petitioners, such bonds and all of may be.
them shall be void; if the decision be in favor of the individual
g) Sale under execution
debtor, the proceedings shall be dismissed, and the individual
debtor, his heirs, administrators, executors or assigns shall be If, in any case, proper affidavits and bonds are presented to
entitled to recover such sum of money as shall be sufficient the court or a judge thereof, asking for and obtaining an
to cover the damages sustained by him, not to exceed the order of publication and an order for the custody of the
amount of the respective bonds. Such damages shall be fixed property of the individual debtor and thereafter the
and allowed by the court. petitioners shall make it appear satisfactorily to the court or a
judge thereof that the interest of the parties to the
proceedings will be subserved by a sale thereof, the court
may order such property to be sold in the same manner as The liquidator shall resolve disputed claims and submit his
property is sold under execution, the proceeds to deposited findings thereon to the court for final approval. The liquidator
in the court to abide by the result of the proceedings. may disallow claims.

3. Common provisions 3.2 Avoidance Proceedings

In addition to the provisions on the Liquidation Order, Any transaction occurring prior to the issuance of the
Liquidation Plan and Liquidator, the following provisions shall Liquidation Order or, in case of the conversion of the
apply to liquidation in insolvency proceedings of both rehabilitation proceedings prior to the commencement date,
individual debtors and juridical debtors: entered into by the debtor or involving its assets, may be
rescinded or declared null and void on the ground that the
3.1 Determination of Claims
same was executed withintent to defraud a creditor or
a. Registry of Claims creditors or which constitute undue preference of creditors.
A disputablepresumption of such intent shall arise if the
Within twenty (20) days from his assumption into office the transaction:
liquidator shall prepare a preliminary registry of claims of
secured and unsecured creditors. Secured creditors who have (a) provides unreasonably inadequate consideration to the
waived their security or lien, or have fixed the value of the debtor and is executed within ninety (90) days prior to the
property subject of their security or lien by agreement with commencement date;
the liquidator and is admitted as a creditor for the balance ,
(b) involves an accelerated payment of a claim to a creditor
shall be considered as unsecured creditors. The liquidator
within ninety (90) days prior to the commencement date;
shall make the registry available for public inspection and
provide publication notice to creditors, individual debtors (c) provides security or additional security executed within
owner/s of the sole proprietorship-debtor, the partners of ninety (90) days prior to the commencement date;
the partnership-debtor and shareholders or members of the
(d) involves creditors, where a creditor obtained, or received
corporation-debtor, on where and when they may inspect it.
the benefit of, more than its pro rata share in the assets of
All claims must be duly proven before being paid.
the debtor, executed at a time when the debtor was
b. Right of Set-off insolvent; or

If the debtor and creditor are mutually debtor and creditor of (e) is intended to defeat, delay or hinder the ability of the
each other one debt shall be set off against the other, and creditors to collect claims where the effect of the transaction
only the balance, if any shall be allowed in the liquidation is to put assets of the debtor beyond the reach of creditors or
proceedings. to otherwise prejudice the interests of creditors.

c. Opposition or Challenge to Claims The liquidator or, with his conformity, a creditor may initiate
and prosecute any action to rescind, or declare null and void
Within thirty (30 ) days from the expiration of the period for
any transaction described in the immediately preceding
filing of applications for recognition of claims, creditors,
paragraph. If the liquidator does not consent to the filling or
individual debtors, owner/s of the sole proprietorship-
prosecution of such action, any creditor may seek leave of
debtor, partners of the partnership-debtor and shareholders
the court to commence said action.
or members of the corporation -debtor and other interested
parties may submit a challenge to claim or claims to the If leave of court is granted, the liquidator shall assign and
court, serving a certified copy on the liquidator and the transfer to the creditor all rights, title and interest in the
creditor holding the challenged claim. Upon the expiration of chose in action or subject matter of the proceeding, including
the (30) day period, the rehabilitation receiver shall submit to any document in support thereof.
the court the registry of claims containing the undisputed
Any benefit derived from the proceeding, to the extent of his
claims that have not been subject to challenge. Such claims
claim and the costs, belongs exclusively to the creditor
shall become final upon the filling of the register and may be
instituting the proceeding, and the surplus, if any, belongs to
subsequently set aside only on grounds or fraud, accident,
the estate.
mistake or inexcusable neglect.

d. Submission of Disputed to the Court

Where, before an order is made, the liquidator signifies to value of payments projected in the plan, more if the debtor
the court his readiness to the institute the proceeding for the continues as a going concern than if it is immediately
benefit of the creditors, the order shall fix the time within liquidated.
which he shall do so and, in that case the benefit derived
There are three types of rehabilitation, namely:
from the proceedings, if instituted within the time limits so
fixed, belongs to the estate.s 1. Court-supervised rehabilitation
2. Pre negotiated rehabilitation; and
The Purpose and Scope of the FRIA Law 3. Out-of-court/Formal Restructuring
 To encourage debtors, both juridical and natural persons, 1. Court-Supervised Rehabilitation
and their creditors to collectively and realistically resolve
and adjust competing claims and property rights, Republic Court-supervised rehabilitation may be initiated
Act No. 10142, or otherwise known as the Financial through voluntary proceedings or involuntary proceedings.
Rehabilitation and Insolvency Act of 2010 (“FRIA”) was A.1.a. Voluntary Proceedings
enacted.
 Basically, FRIA is a law which governs the rehabilitation or Voluntary Proceedings may be initiated by an
liquidation of debtors, may it be a sole proprietorship, insolvent debtor through filing a petition for rehabilitation
partnership, corporation or an individual debtor. It with the court and on the grounds provided under the FRIA.
guarantees a timely, fair, transparent, effective and
The filing of the petition for rehabilitation must be
efficient rehabilitation or liquidation of debtors.
approved by the owner in case of a sole proprietorship, or by
 Under this law, rehabilitation refers to the restoration of
a majority of the partners in case of a partnership, or in case
the debtor to a condition of successful operation and
of a corporation, by a majority vote of the board of directors
solvency. When rehabilitation is not feasible, it is in the
or trustees and authorized by the vote of the stockholders
interest of the State to facilitate a speedy and orderly
representing at least two-thirds (2/3) of the outstanding
liquidation of these debtor’s assets and the settlement of
capital stock, or in case of nonstock corporation, by the vote
their obligations. On the other hand, liquidation is a
of at least two-thirds (2/3) of the members, in a stockholder’s
process by which assets are converted to cash.
or member’s meeting duly called for the purpose.
 The proceedings involved under FRIA are considered as in
rem, which means that it binds the whole world. A group of debtors may jointly file a petition for
Jurisdiction over all persons affected by the proceedings rehabilitation when one or more of its members foresee the
shall be considered as acquired upon publication of the impnossibility of meeting debts when they respectively fall
notice of the commencement of the proceedings in any due, and the financial distress would likely adversely affect
newspaper of general circulation in the Philippines. the financial condition and/or operations of the other
 The definition of a debtor is important to be able to members of the group and/or the participation of the other
determine if the parties may avail of the proceedings members of the group is essential under the terms and
provided by FRIA. The term debtor covers a sole conditions of the proposed Rehabilitation Plan.
proprietorship duly registered with the Department of
Rehabilitation Plan shall refer to a plan by which the
Trade and Industry (DTI), a partnership duly registered
financial well-being and viability of an insolvent debtor can
with the Securities and Exchange Commission (SEC), a
be restored using various means including, but not limited to,
corporation duly organized and existing under Philippine
debt forgiveness, debt rescheduling, reorganization or quasi-
laws, or an individual debtor who has become insolvent.
reorganization, dacion en pago, debt-equity conversion and
 However, the term debtor does not include banks,
sale of the business (or parts of it) as a going concern, or
insurance companies, pre-need companies, and national
setting-up of new business entity, or other similar
and local government agencies or units.
arrangements as may be approved by the court or creditors.
Rehabilitation under the FRIA Law
A.1.b. Involuntary Proceedings
Rehabilitation refers to the restoration of the debtor
Any creditor or group of creditors with a claim of, or
to a condition of successful operation and solvency, if it is
the aggregate of whose claims is, at least One Million Pesos
shown that its continuance of operation is economically
(Php1,000,000.00) or at least twenty-five percent (25%) of
feasible and its creditors can recover by way of the present the subscribed capital stock or partners’ contributions,
whichever is higher, may initiate involuntary proceedings informal restructuring/workout agreement or
against the debtor by filing a petition for rehabilitation with Rehabilitation Plan.
the court if:  The agreement must be approved by creditors
(a) there is no genuine issue of fact on law on the claim/s of representing more than fifty percent (50%) of the total
the petitioner/s, and that the due and demandable payments liabilities of the debtor and notice thereof is published in
thereon have not been made for at least sixty (60) days or a newspaper of general circulation in the Philippines
that the debtor has failed generally to meet its liabilities as once a week for two (2) consecutive weeks.
they fall due; or  The standstill period shall be effective and enforceable
not only against the contracting parties but also against
(b) a creditor, other than the petitioner/s, has initiated
the other creditors.
foreclosure proceedings against the debtor that will prevent
the debtor from paying its debts as they become due or will Who is a rehabilitation receiver and what are his or her
render it insolvent. qualifications?
2. Pre-negotiated Rehabilitation A rehabilitation receiver shall refer to the person or
The second way of rehabilitation is the pre- persons, natural or juridical, appointed as such by the court
negotiated. Under this preceding, an insolvent debtor, by and which shall be entrusted with such powers and duties.
itself or jointly with any of its creditors, may file a verified The rehabilitation receiver shall have the following minimum
petition with the court for the approval of a pre-negotiated qualifications:
Rehabilitation Plan which has been endorsed or approved by
creditors holding at least two-thirds (2/3) of the total  A citizen of the Philippines or a resident of the
liabilities of the debtor, including secured creditors holding Philippines in the six (6) months immediately
more than fifty percent (50%) of the total secured claims of preceding his nomination;
the debtor and unsecured creditors holding more than fifty  Of good moral character and with acknowledged
percent (50%) of the total unsecured claims of the debtor. integrity, impartiality and independence;
 Has the requisite knowledge of insolvency and other
3. Out-of-court or Informal Restructuring Agreements or relevant commercial laws, rules and procedures, as
Rehabilitation Plans well as the relevant training and/or experience that
For an out-of-court or informal may be necessary to enable him to properly
restructuring/workout agreement or Rehabilitation Plan to discharge the duties and obligations of a
qualify, it must meet the following minimum requirements: rehabilitation receiver; and
 Has no conflict of interest: Provided, That such
 The debtor must agree to the out-of-court or conflict of interest may be waived, expressly or
informal restructuring/workout agreement or impliedly, by a party who may be prejudiced thereby.
Rehabilitation Plan;
 It must be approved by creditors representing at What is management committee and its qualifications?
least sixty-seven (67%) of the secured obligations of  The management committee shall take the place of the
the debtor; management and the governing body of the debtor and
 It must be approved by creditors representing at assume their rights and responsibilities.
least seventy-five percent (75%) of the unsecured  The qualifications and disqualifications of the members of
obligations of the debtor; and the management committee shall be set forth in the
 It must be approved by creditors holding at least procedural rules, taking into consideration the nature of
eighty-five percent (85%) of the total liabilities, the business of the debtor and the need to protect the
secured and unsecured, of the debtor. interest of all stakeholders concerned.
What is a Standstill Period? Liquidation
 A standstill period, which does not exceed one hundred  Liquidation is the process by which assets are converted
twenty (120) days from the date of effectivity, is a period to cash. A liquidator is a natural person or juridical entity
that may be agreed upon by the parties pending appointed as such by the court and entrusted with such
negotiation and finalization of the out-of-court or powers and duties as set forth under the FRIA. If the
 liquidator is a juridical entity, it must designate a natural liquidation of the debtor with the court. The petition
person who possesses all the qualifications and none of shall show that:
the disqualifications as its representative, it being  there is no genuine issue of fact or law on the
understood that the juridical entity and the representative claims/s of the petitioner/s, and that the due
are solidarity liable for all obligations and responsibilities and demandable payments thereon have not
of the liquidator. been made for at least one hundred eighty
 Liquidation can be voluntary or involuntary. (180) days or that the debtor has failed
generally to meet its liabilities as they fall
Voluntary Liquidation
due; and
 In Voluntary Liquidation, an insolvent debtor may  there is no substantial likelihood that the
apply for liquidation by filing a petition for liquidation debtor may be rehabilitated.
with the court. The petition shall be verified, shall  At any time during the pendency of or after a
establish the insolvency of the debtor and shall rehabilitation court-supervised or pre-negotiated
contain, whether as an attachment or as part of the rehabilitation proceedings, three (3) or more creditors
body of the petition: whose claims is at least either One million pesos
 a schedule of the debtor’s debts and liabilities (Php1,000,000.00) or at least twenty-five percent
including a list of creditors with their addresses, (25%) of the subscribed capital or partner’s
amounts of claims and collaterals, or securities, if any; contributions of the debtor, whichever is higher, may
 an inventory of all its assets including receivables and also initiate liquidation proceedings by filing a motion
claims against third parties; and in the same court where the rehabilitation proceedings
 the names of at least three (3) nominees to the are pending to convert the rehabilitation proceedings
position of liquidator. into liquidation proceedings.
 At any time during the pendency of court-supervised or  In case of an individual debtor, involuntary liquidation
pre-negotiated rehabilitation proceedings, the debtor takes place when a creditor or group of creditors with
may also initiate liquidation proceedings by filing a a claim of, or with claims aggregating at least Five
motion in the same court where the rehabilitation hundred thousand pesos (Php500, 000.00) files a
proceedings are pending to convert the rehabilitation verified petition for liquidation with the court of the
proceedings into liquidation proceedings. province or city in which the individual debtor resides.
 If the petition or the motion, as the case may be, is
sufficient in form and substance, the court shall issue a
Liquidation Order. An individual debtor whose
properties are not sufficient to cover his liabilities, and
owing debts exceeding Five hundred thousand pesos
(Php500,000.00), may apply to be discharged from his
debts and liabilities by filing a verified petition with the
court of the province or city in which he has resided for
six (6) months prior to the filing of such petition. He
shall attach to his petition a schedule of debts and
liabilities and an inventory of assets. The filing of such
petition shall be an act of insolvency.

Involuntary Liquidation

 In case of Involuntary Liquidation, three (3) or more

creditors the aggregate of whose claims is at least
either One million pesos (Php1,000,000,00) or at least
twenty-five percent (25%) of the subscribed capital
stock or partner’s contributions of the debtor,
whichever is higher, may apply for and seek the
liquidation of an insolvent debtor by filing a petition for