Let’s talk about FRIA..

Alright ganito ha, dalawa yung concepts of insolvency, one concept is in the Civil Code and the
other concept was in the former Insolvency Act.
Yung salitang insolvency, dalawa kahulugan nyan. Yung isang meaning or concept sa Civil
Code, yung isa naman, dun sa dating Insolvency Act. Ang nangyari, much much later, yun sa
Insolvency Act was repealed by the Finance Rehabilitation and Insolvency Act (FRIA).
Kaya ang tanong ngayon, ano ang ibig sabihin ng Insolvency?
Pag Insolvency under the Civil Code, very simple, when the debtor is unable to pay his debts as
they become due. Under the Civil Code, a debtor is considered insolvent the moment he is
unable to pay his debt as they become due, and that is, eventhough he has more asset than
liabilities.
Kaya ang tanong, ano naman ang ibig sabihin ng insolvency under the former Insolvency Act?
The other concept was when a debtor already has more liabilities than assets. Or stated
differently, when the liabilities exceed the assets.
Ngayon, if you were that debtor, still with more assets than liabilities, but you foresee that you
won’t be unable to pay your debts as they become due, ngayon nafoforesee mo na, “hindi ko
mababayaran mga utang ko as they become due”, andyan na yung risk of getting sued. So what
do you do if you are in that situation. Mas maramika pang assets kesa liabilities, ang problema
mo lang, kulang ka sa cash. And your worry is your creditors might already sued you or might
already consider filing a complaint against you. O kaya, pag ganyan ang scenario, the remedy is
called Rehabilitation—if a debtor has more assets than liabilities but foresees he cannot pay his
debts as they become due, that debtor may file for rehabilitation. That’s one.
Kaya yang petition for rehabilitation is initiated by somebody who is engaged in business. Kaya
ang tanong, who may file for rehabilitation? One is, a person who is a sole proprietorship
registered with DTI. Basta etong rehabilitation, ito yung remedy of somebody who is engaged in
business, kaya pwede sole proprietorship or partnership registered with the SEC, pwede rin
corporation registered with the SEC, at pwede rin an individual not registered with the DTI.
Meron din mga nagnenegosyo na walang ginagamit na business name, yung mga nakarehistro sa
DTI, eto yung mga gumagamit ng business name. You don’t need to have a lot of clients in order
to profit, basta meron ka lang isa or dalawang customer, kumikita ka na, o di mo na
kinakailangan mo pa magregister sa DTI, di mo kinakailangan magtindahan, sabi ko yung may
business name, yan yung may sign, kase ang requirement ng Business Names Law, as I
mentioned before, a person would put up a sign or put in his commercial document showing a
name not his true name, kailangan ng prior registration with the DTI.. kaya lang sabi ko nga,
hindi lahat ng taong nagnenegosyo kailangan magkaroon ng tindahan, especially nowadays, diba
online? Yan. Yung iba naglalagay nun para may pupuntahan yung customer. Kaya lang ang sabi
ko nga sainyo sa pagnenegosyo hindi mo kinakailangan maraming customer. Kung meron kang
isa or dalawa that gives you good income, tama na yon, mahirap yun marami, kase kung nagiisa
ka lang tapos dalawa yung customer mo, then you don’t need to hire employees and yet you will
be making a lot of money. Ok? O pag yung apat na yun ha, pag yung apat na yun would have
still more assets than liabilities but who may encountering liquidity or cash problem, then they
may file for rehabilitation.
Kase alam nyo pag kung minsan, kaya nagkakaroon ng liquidity problem, hindi nakakasingil,
especially if you serve orders of government, pag nagpalit ng Mayor, ay disgrasya ka na,
kaaway pa yun pumalit o di galit pa sayo, o yun.. ipit yung collection mo and you’ll be waiting
for the next three years at pagdasalan mong “sana matalo ka na sa susunod” para mabalik yun
dati, kase pag bumalik yung dati, edi makakasingil ka. Eh kung hindi? At nare-elect ng nare-elect
pa, hanggang three terms, edi 9 years kang walang collection, yon, kaya you apply for
rehabilitation.
Ngayon when you file a petition for rehabilitation, ang napakaimportanteng dokumento na you
should attach to it ay yung “Rehabilitation Plan”. When an insolvent debtor files for
rehabilitation, he should attach to his petition his proposed rehabilitation plan without which,
dismissed. Why? Walang paguusapan. Kase yun ang pag-uusapan sa court ng mga creditors at
nung petitioner. Ngayon kung gagawa ka ng rehabilitation plan, so it would be approved by the
creditors, kinakailangan, reasonable hindi yung sasabihin mong 20 years to pay, magagalit yung
creditors mo nun, kinakailangan reasonable.
Ngayon ang sabi ko kanina, one of the exempt securities is those issued by a receiver in an
insolvency, eto yun. Kung ikaw yung insolvent na ito, still what i need are assets, magsasubmit
ka ng rehabilitation plan, dun sa rehabilitation plan mo, nakalagay dun on how you’re going to
raise the money that you are going to pay the creditors. Ang nakalagay don: mag-iissue ako ng
preferred shares, mangungutang ako, etc.
So yung rehabilitation plan will be approved by the Court, kaya since it is approved by the Court,
surely the Court have seen to it that nobody will be defrauded. Kaya hindi na kinakailangan ng
prior registration with the SEC. Kaya yun yung among exempt securities not requiring
registration from the SEC.
Yun isa pang klase, kung ikaw, hindi ka naman nagnenegosyo, a person is not engaged in any
business, he may be a mere employee. Being a mere employee, you receive salaries. Kaya lang
ang situation mo, you have assets, o sabihin na natin ang liabilities mo konti lang. Kaya lang
unfortunately, minsan sa buhay, darating ang problema, may nagkasakit o naaksidente tapos
naospital, o alam nyo naman pag naospital, malaking gastos yan. O kung salaried employee ka
lang, tapos kamalas-malas naman tapos yung miyembro ng pamilya naospital, naka ICU pa, o di
yung bills are piling everyday. Ang tanong, kung hindi mo na mabayaran, kaya lang marami pa
yung assets mo than liabilities mo, ano ang remedy mo? Ang una kong binanggit, they are all
engaged in business. Eto naman, hindi ito engaged in business. So if you were that person, not
engaged in business, but still you have more assets than liabilities, but you cannot pay your debts
as they become due, kaya ano ang remedy under the FRIA? Under the FRIA, that person may
file for suspension of payments. Kaya kung ikaw yun petitioner, you are not engaged in any
business, your assets are more than your liabilities, but you already foresee that you won’t pay
your debts when they become due, then you file for suspension of payments. In your petition,
you present to your creditors, your payment plan. You file for suspension of payments and in
your petition present file your payment plan to your creditors.
So alam nyo na ang remedies ah. Pag may negosyo, rehabilitation, pero pag individual naman,
more assets than liabilities, suspension of payment. Maganda nga yun plans mo, pero hindi
naman nagmaterialize and the time had come that your liabilities are more than your assets..ano
na pwede mong gawin ngayon? wag ka naman magpapakamatay, what you may do is? Start all
over again. Ang gagawin mo, file for liquidation. So when the rehabilitation plan or the proposal
of suspension of payment won’t materialize, what the debtor may do, if his liabilities already
exceed his assets is simply file for liquidation. The point is, nakita mo nang pabaon ka na ng
pabaon sa dami ng losses, give up your assets, and let your creditors take over. Kaya if you have
a partnership or corporation o edi liquidation na, umpisa ka nalang ulit.
Pag hindi ka naman in business, pero mas marami na utang mo kesa sa assets, then you apply for
liquidation. And once the creditors have taken over your assets, then you may apply for
discharge. Yun discharge, once granted, it extinguishes all obligations which have arisen from
credit transactions. Kaya lang emphasize ko lang ha, only obligations arisen from credit
transactions will be forever extinguished by a discharge. Kaya may mga obligations na hindi
extinguished by discharge like civil obligations arisen from a crime. Diba a person criminally
liable is also civilly liable, mga civil liabilities na yun ay not extinguished by discharged. Also,
legal obligations such as obligations to support your spouse, kahit na sya ang nagpabankrupt
sayo, tuloy padin ang support, hindi naeextinguish yon. What you may do is, extinguish your
spouse.
Also, taxes. You don’t extinguish your obligation to pay taxes by applying for discharge, ang
remedy mo ay compromise sa BIR. Alam nyo ang BIR kausapin nyo lang, hindi ka naman
gugustuhin ipakulong ng BIR, dahil kung ipapakulong ka, kailangan pa magraise ng BIR ng
pangkain sayo habang nakakakulong ka. Impraktikal. Kaya magoffer ka nalang ng reasonable
compromise, after all, pag sinabi mong nagapply na ako for liquidation, the BIR will believe you
and you can apply. Just compromise.
So yun ang remedies under FRIA. O you might be asked, ano ba ang epekto ng issuance by the
Court of a commencement order on a petition for rehabilitation? Pag nagissue na ng
commencement order ang Court, in a rehabilitation case, that suspends all actions including
executions. Even the mortgage cannot foreclose his mortgage, kase kung ikaw naman ang
mortgagee, actually you have nothing to worry kase the thing mortgaged to you, you have
already most preferred, since you are a lien holder of the property. Madedelay lang ang pagbayad
sayo, pero you don’t have to worry because ikaw naman ang number one priority with respect to
the property mortgaged to you.
Ang purpose ng rehabilitation is to enable the debtor to get back on his feet. Actually, yan
rehabilitation that’s favourable to the creditors, kase ganito ha, if you would allow the creditors
to take over the assets of the insolvent. And you happen to be among the creditors in the lowest
order of preference, wala ka nang makukuha. Papayagan mong pa-foreclose yung mortgage, at
yun lang yung property, pinabayaan mo, pano naman yung mga unsecured credit loss, it’s always
better to allow a rehabilitation. If you would allow for rehabilitation, there is a possibility that the
insolvent debtor to get back on his feet. Kase kung hinayaan mong ma-foreclose, wala nang pag-
asang makarecover. In fact, I tell this to some big depositors of banks, pag magsasara na yung
banko, sabi ko tignan nyo, kausapin nyo yung stockholders baka pumayag sila na yung deposito
mo iconvert into common shares, pag pumayag sila, edi mababawasan yung liabilities ng banko,
marereclassify as capital investment. Kaya because of that, mawawala na yung insolvency,
malaki pa magiging capital investment. Kase if ikaw yung among the unsecured creditors,
parang napakalabo mong makasingil na, although magbabakasali ka padin, kaya lang the point
is, andun ka sa pinakailamilaliman ng order of preference, malamang wala ka nang makuha.
Kase syempre you will settle your creditors according to order of preference, baka dun palang sa
una ubos na, kase diba yun una unpaid laborers, separation pay, mga unpaid salaries, benefits, o
baka dun palang kulangin na. So ayan kung may chance magkonsulta ng ganyan, pagaralan nyo
maige if the petitioner could get back up his feet, while it might take time, better than not getting
anything at all. Yung ibang creditors nagooffer pa nga, i’ll share the profits with you para
maimplement yung rehabilitation plan. Mere sharing of profits does not necessarily give rise to
partnership. Kase eto yan, if the debtor would have an arrangement with the creditors, that the
creditors will manage the affairs of the insolvent debtors and compensation with their efforts, the
managers will share with the owner the profits with them.
Those are all about the FRIA.