FRIA Notes

"Financial Rehabilitation and Insolvency Act (FRIA) of 2010".
Rehabilitation shall refer to 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.
Pari en passu All are considered equal before the liquidation proceeding.
Insolvent shall refer to 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 shall refer to 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. - The term debtor does not include banks, insurance companies, preneed companies, and national and local government agencies or units.
For purposes of this section:
(a) Bank shall refer to 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;
(b) Insurance company shall refer to those companies that are potentially or
actually subject to insolvency proceedings under the Insurance Code (Presidential
Decree No. 1460) or successor legislation; and
(c) Pre-need company shall refer to any corporation authorized/licensed to sell or
offer to sell pre-need plans.
Declaration of Policy. - 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. In furtherance thereof, 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.
Salient Features
Authorization to Exchange Debt for Equity. - Notwithstanding applicable
banking legislation to the contrary, 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.
Provided, that such ownership shall be subject to the ownership limits applicable to
universal banks for equity investments. Please check applicability.
Provided, further, that any equity investment or interest acquired or held pursuant
to this section shall be disposed by the bank within a period of five (5) years or as
may be prescribed by the Monetary Board. Reckoned from the day investment is
acquired.
Types of proceedings
1. Court-supervised proceedings (COURT-SUPERVISED REHABILITATION)
Voluntary Proceeding
Petition to Initiate Voluntary Proceedings by Debtor. - When approved by the
owner in case of a sole proprietorship, or by a majority of the partners in case
of a partnership, or in case of a corporation, by a majority vote of the board
of directors or trustees and authorized by the vote of the stockholders
representing at least two-thirds (2/3) of the outstanding capital stock, or in
case of nonstock corporation, by the vote of at least two-thirds (2/3) of the
members, in a stockholder's or member's meeting duly called for the
purpose, an insolvent debtor may initiate voluntary proceedings under this
Act by filing a petition for rehabilitation with the court and on the grounds
hereinafter specifically provided.
Grounds:
A. Insolvency of the debtor
B. Viability of rehabilitation
Petition must be verified. It must contain among others:
1. Schedule of the debtor's debts and liabilities including a list of creditors
with their addresses, amounts of claims and collaterals, or securities, if
any;
2. An inventory of all its assets including receivables and claims against third
parties;
3. A Rehabilitation Plan;
4. The names of at least three (3) nominees to the position of rehabilitation
receiver;
A group of debtors may jointly file a petition for rehabilitation under this Act
when one or more of its members foresee the impossibility of meeting debts
when they respectively fall due, and the financial distress would likely
adversely affect the financial condition and/or operations of the other
members of the group and/or the participation of the other members of the
group is essential under the terms and conditions of the proposed
Rehabilitation Plan.
Members must be financially related with each other. Groups of partnership
may also file.
Involuntary Proceeding
Circumstances Necessary to Initiate Involuntary Proceedings. - Any creditor or
group of creditors with a claim of, or the aggregate of whose claims is, at
least One Million Pesos (Php1,000,000.00) or at least twenty-five percent
(25%) of the subscribed capital stock or partners' contributions, whichever is
higher, may initiate involuntary proceedings against the debtor by filing a
petition for rehabilitation with the court if:
(a) there is no genuine issue of fact on law on the claim/s of the petitioner/s,
and that the due and demandable payments thereon have not been made for
at least sixty (60) days or that the debtor has failed generally to meet its
liabilities as they fall due; or
(b) a creditor, other than the petitioner/s, has initiated foreclosure
proceedings against the debtor that will prevent the debtor from paying its
debts as they become due or will render it insolvent.
Grounds: Substantial likelihood that debtor may be rehabilitated.
Action on the Petition. - If the court finds the petition for rehabilitation to be
sufficient in form and substance, it shall, within five (5) working days from the
filing of the petition, issue a Commencement Order. If, within the same
period, the court finds the petition deficient in form or substance, the court
may, in its discretion, give the petitioner/s a reasonable period of time within
which to amend or supplement the petition, or to submit such documents as
may be necessary or proper to put the petition in proper order. In such case,
the five (5) working days provided above for the issuance of the
Commencement Order shall be reckoned from the date of the filing of the
amended or supplemental petition or the submission of such documents.
Commencement order includes Stay or Suspension Order which shall:
(1) suspend all actions or proceedings, in court or otherwise, for the
enforcement of claims against the debtor;
(2) suspend all actions to enforce any judgment, attachment or other
provisional remedies against the debtor;
(3) prohibit the debtor from selling, encumbering, transferring or disposing in
any manner any of its properties except in the ordinary course of business;
and
(4) prohibit the debtor from making any payment of its liabilities outstanding
as of the commencement date except as may be provided herein.
Claim shall refer to all claims or demands of whatever nature or character
against the debtor or its property, whether for money or otherwise, liquidated
or unliquidated, fixed or contingent, matured or unmatured, disputed or
undisputed, including, but not limited to; (1) all claims of the government,
whether national or local, including taxes, tariffs and customs duties; and (2)
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:Provided, That, this inclusion does not prohibit the creditors or third
parties from filing cases against the directors and officers acting in their
personal capacities.
2. Pre-negotiated settlement (PRE-NEGOTIATED REHABILITATION)

Petition by Debtor. - An insolvent debtor, by itself or jointly with any of its
creditors, may file a verified petition with the court for the approval of a prenegotiated Rehabilitation Plan which has been endorsed or approved by
creditors holding at least two-thirds (2/3) of the total liabilities of the debtor,
including secured creditors holding more than fifty percent (50%) of the total
secured claims of the debtor and unsecured creditors holding more than fifty
percent (50%) of the total unsecured claims of the debtor.
Pre-negotiated rehabilitation plan needs to be approved by court in order to
bind third person.
3. Out of court / informal proceedings.
Out-of-Court or Informal Restructuring Agreements and Rehabilitation Plans. An out-of-court or informal restructuring agreement or Rehabilitation Plan
that meets the minimum requirements prescribed in this chapter is hereby
recognized as consistent with the objectives of this Act.
Minimum Requirements of Out-of-Court or Informal Restructuring

Agreements and Rehabilitation Plans. - For an out-of-court or informal
restructuring/workout agreement or Rehabilitation Plan to qualify under this
chapter, it must meet the following minimum requirements:
(a)
The
debtor
must
agree
to
the
out-of-court
restructuring/workout agreement or Rehabilitation Plan;
or
informal
(b) It must be approved by creditors representing at least sixty-seven (67%)

of the secured obligations of the debtor;
(c) It must be approved by creditors representing at least seventy-five
percent (75%) of the unsecured obligations of the debtor; and
(d) It must be approved by creditors holding at least eighty-five percent
(85%) of the total liabilities, secured and unsecured, of the debtor.
Standstill Period. - A standstill period that may be agreed upon by the

parties pending negotiation and finalization of the out-of-court or informal
restructuring/workout agreement or Rehabilitation Plan contemplated herein
shall be effective and enforceable not only against the contracting parties but
also against the other creditors: Provided, That (a) such agreement is
approved by creditors representing more than fifty percent (50%) of the total
liabilities of the debtor; (b) notice thereof is publishing in a newspaper of
general circulation in the Philippines once a week for two (2) consecutive
weeks; and (c) the standstill period does not exceed one hundred twenty
(120) days from the date of affectivity. The notice must invite creditors to
participate in the negotiation for out-of-court rehabilitation or restructuring
agreement and notify them that said agreement will be binding on all
creditors if the required majority votes prescribed in Section 84 of this Act are
met even without court approval.
Exceptions to the Stay or Suspension Order. - The Stay or Suspension

Order shall not apply:
(a) to cases already pending appeal in the Supreme Court as of

commencement date Provided, That any final and executory judgment arising
from such appeal shall be referred to the court for appropriate action;
(b) subject to the discretion of the court, to cases pending or filed at a
specialized court or quasi-judicial agency which, upon determination by the
court is capable of resolving the claim more quickly, fairly and efficiently than
the court: Provided, That any final and executory judgment of such court or
agency shall be referred to the court and shall be treated as a non-disputed
claim;
(c) to the enforcement of claims against sureties and other persons solidarily
liable with the debtor, and third party or accommodation mortgagors as well
as issuers of letters of credit, unless the property subject of the third party or
accommodation mortgage is necessary for the rehabilitation of the debtor as
determined by the court upon recommendation by the rehabilitation receiver;
(d) to any form of action of customers or clients of a securities market
participant to recover or otherwise claim moneys and securities entrusted to
the latter in the ordinary course of the latter's business as well as any action
of such securities market participant or the appropriate regulatory agency or
self-regulatory organization to pay or settle such claims or liabilities;
(e) to the actions of a licensed broker or dealer to sell pledged securities of a
debtor pursuant to a securities pledge or margin agreement for the
settlement of securities transactions in accordance with the provisions of the
Securities Regulation Code and its implementing rules and regulations;
(f) the clearing and settlement of financial transactions through the facilities
of a clearing agency or similar entities duly authorized, registered and/or
recognized by the appropriate regulatory agency like the Bangko Sentral ng
Pilipinas (BSP) and the SEC as well as any form of actions of such agencies or
entities to reimburse themselves for any transactions settled for the debtor;
and
(g) any criminal action against individual debtor or owner, partner, director or
officer of a debtor shall not be affected by any proceeding commend under
this Act.

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"Financial Rehabilitation and Insolvency Act (FRIA) of 2010".

Rehabilitation shall refer to the restoration of the debtor to a condition of

2. Pre-negotiated settlement (PRE-NEGOTIATED REHABILITATION)

Minimum Requirements of Out-of-Court or Informal Restructuring

(b) It must be approved by creditors representing at least sixty-seven (67%)

Standstill Period. - A standstill period that may be agreed upon by the

Exceptions to the Stay or Suspension Order. - The Stay or Suspension

(a) to cases already pending appeal in the Supreme Court as of

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