FRIA LAW

Lapsed into law on July 18, 2010

Took effect on August 31, 2010

Repealed the following:
1. Insolvency Law AND OTHERS

Rehabilitation shall refer to the restoration of the debtor to a condition of successful operation
and solvency, if it is shown that:
A. its continuance of operation is economically feasible and
B. its creditors can recover more if the debtor continues as a going concern than if it is
immediately liquidated. (Sec. 4 (gg). Definition of terms, FRIA Law)

Insolvency / Insolvent - 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. (Sec. 4. (p), Definition of terms, FRIA Law)

Art. 2236. The debtor is liable with ALL his property, present and future, for the fulfillment of
his obligations, subject to the exemptions provided by law.
General rule - If the judgment against the debtor is not fully satisfied, there can be an execution
of the balance with respect to the FUTURE property of the debtor.
Exception if the debtor is granted a discharge under the insolvency law (future acquisitions is
not liable for the payment of the balance).
Exception to the exception taxes

Nature of proceedings
Section 3. The proceedings under this Act shall be in rem. Jurisdiction over all persons affected
by the proceedings shall be considered as acquired upon publication of the notice of the
commencement of the proceedings in any newspaper of general circulation in the Philippines in
the manner prescribed by the rules of procedure to be promulgated by the Supreme Court.
The proceedings shall be conducted in a summary and non-adversarial manner
consistent with the declared policies of this Act and in accordance with the rules of procedure
that the Supreme Court may promulgate.

Section 5. Exclusions. - The term debtor does not include banks, insurance companies, pre-
need companies, and national and local government agencies or units.
Provided, that government financial institutions other than banks and government-owned or
controlled corporations shall be covered by this Act, unless their specific charter provides
otherwise.
BENEFITS FROM THE FRIA :
1. Suspension or Stay Order
2. Cram down provisions
3. Waiver of taxes
Stay or suspension order
Section 16. The rehabilitation proceedings shall commence upon the issuance of the
Commencement Order, which shall:
(q) Include 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.

*They are directed to file their claims with the receiver who is a duly appointed officer of the
SEC

Section 18. Exceptions to the Stay or Suspension Order. - The Stay or Suspension Order shall
not apply:
to cases already pending appeal in the Supreme Court as of commencement date
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
to the enforcement of claims against sureties and other persons solidarily liable with
the debtor
Any criminal action against individual debtor or owner, partner, director or officer of
a debtor shall not be affected by any proceeding commenced under this Act.
Cram down provisions:
Section 69.Effect of Confirmation of the Rehabilitation Plan, - The confirmation of the
Rehabilitation Plan by the court shall result in the following:
(a) The Rehabilitation Plan and its provisions shall be binding upon the debtor and all
persons who may be affected by . it, including the creditors, whether or not such
persons have participated in the proceedings or opposed the Rehabilitation Plan or
whether or not their claims have been scheduled;
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Section 86. Cram Down Effect. - A restructuring/workout agreement or Rehabilitation Plan that
is approved pursuant to an informal workout framework referred to in this chapter shall have
the same legal effect as confirmation of a Plan under Section 69 hereof.
In 2007, in Leca Realty Corporation v. Manuela Corporation, et al., G.R. No. 166800,
168924, September 25, 2007 voided a rehabilitation plan insofar as it altered the
contractual relations between two parties.
Waiver of taxes
Section 19. Upon issuance of the Commencement Order by the court, and until the approval
of the Rehabilitation Plan or dismissal of the petition, whichever is earlier, the imposition of all
taxes and fees including penalties, interests and charges thereof due to the national
government or to LGUs shall be considered waived, in furtherance of the objectives of
rehabilitation.

Section 10. Individual debtor, owner of a sole proprietorship, partners in a partnership, or
directors and officers of a debtor shall be liable for double the value of the property sold,
embezzled or disposed of or double the amount of the transaction involved, whichever is
higher to be recovered for benefit of the debtor and the creditors, if they,
having notice of the commencement of the proceedings, or
having reason to believe that proceedings are about to be commenced, or
in contemplation of the proceedings, willfully commit the following acts:

(a) Dispose or cause to be disposed of any property of the debtor other than in the
ordinary course of business or authorize or approve any transaction in fraud of
creditors or in a manner grossly disadvantageous to the debtor and/or creditors; or
(b) Conceal or authorize or approve the concealment, from the creditors, or
embezzles or misappropriates, any property of the debtor.
The court shall determine the extent of the liability of an owner, partner, director or officer
under this section. In this connection, in case of partnerships and corporations, the court shall
consider the amount of the shareholding or partnership or equity interest of such partner,
director or officer, the degree of control of such partner, director or officer over the debtor,
and the extent of the involvement of such partner, director or debtor in the actual
management of the operations of the debtor.

TYPES OF REHABILITATION PROCEEDINGS:
Court-supervised (Sec. 12-75)
Pre-negotiated (Sec. 76-82)
Out-of-court or informal (sec. 83-89)

Court-supervised
1. Initiated by filing of petition for rehabilitation:
a. by the DEBTOR (Voluntary Proceeding)
b. by the CREDITOR/S (Involuntary Proceeding) Aggregate claim is 1M or
25% of subscribed capital stock/partners contribution of the creditor,
whichever is higher and 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.
Sec. 13, FRIA
2. Upon finding that the Petition is sufficient in form and substance, the court will then issue a
Commencement Order which:
a. appoints a rehabilitation receiver
b. summarizes the requirements and deadline for creditors to raise and
establish their claims against the debtor,
c. prohibits suppliers of goods or services from withholding supply for as long
as prompt payments are made by the debtor, and the debtor from making
any payment of its outstanding liabilities,
d. and issues a Stay or Suspension Order.
Pre-negotiated rehabilitation:
1. Initiated by the debtor either on his own or together with his creditors.
2. Commenced by filing a petition with the court asking for the approval of the pre-negotiated
rehabilitation endorsed or approved by creditors holding at least 2/3 of the total liabilities of
the debtor which include creditors holding more than 50% of the total secured claims and
creditors holding more than 50% of the total unsecured claims.
3. If the petition is sufficient in form and substance, the court will issue an Order that directs
the appointment of a rehabilitation receiver, if provided for in the rehabilitation plan, orders
creditors and other interested parties to file their comments to the petition, and issues a Stay
or Suspension Order.
Court supervised / Pre-negotiated Rehabilitation
Within a maximum period of 120 days from the filing date, the court must act on the petition.
Failure to do so will automatically consider the submitted rehabilitation plan as approved.
Out-of-court and informal agreements:
There must be approval by:
1. The debtor and
2. 85% of the total creditors, 67% of which must represent secured creditors and
75% unsecured creditors.
The commencement order:
Section 16. The rehabilitation proceedings shall commence upon the issuance of the
Commencement Order, which shall:
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(e) declare that the debtor is under rehabilitation;
(f) direct the publication of the Commencement Order in a newspaper of general
circulation in the Philippines once a week for at least two (2) consecutive weeks, with
the first publication to be made within seven (7) days from the time of its issuance;
(g) If the petitioner is the debtor direct the service by personal delivery of a copy of
the petition on each creditor holding at least 10% of the total liabilities of the
debtor as determined from the schedule attached to the petition within five (5) days;
if the petitioner/s is/are creditor/s, direct the service by personal delivery of a copy
of the petition on the debtor within five (5) days;
(h) appoint a rehabilitation receiver who may or not be from among the nominees of
the petitioner/s and who shall exercise such powers and duties defined in this Act as
well as the procedural rules that the Supreme Court will promulgate;
(i) summarize the requirements and deadlines for creditors to establish their claims
against the debtor and direct all creditors to their claims with the court at least five
(5) days before the initial hearing;
(j) direct Bureau of internal Revenue (BIR) to file and serve on the debtor its
comment on or opposition to the petition or its claim/s against the debtor under
such procedures as the Supreme Court provide;
(k) prohibit the debtor's suppliers of goods or services from withholding the supply
of goods and services in the ordinary course of business for as long as the debtor
makes payments for the services or goods supplied after the issuance of the
Commencement Order;
(l) authorize the payment of administrative expenses as they become due;
(m) set the case for initial hearing, which shall not be more than forty (40) days from
the date of filing of the petition for the purpose of determining whether there is
substantial likelihood for the debtor to be rehabilitated;
(n) make available copies of the petition and rehabilitation plan for examination and
copying by any interested party;
(o) indicate the location or locations at which documents regarding the debtor and
the proceedings under Act may be reviewed and copied;
(p) state that any creditor or debtor who is not the petitioner, may submit the name
or nominate any other qualified person to the position of rehabilitation receiver at
least five (5) days before the initial hearing;