AN ACT PROVIDING FOR THE REHABILITATION OR LIQUIDATION OF FINANCIALLY DISTRESSED ENTERPRISES AND INDIVIDUALS

Case Overview and Summary

Summary of the Financial Rehabilitation and Insolvency Act (FRIA) of 2010

Objectives and General Provisions
- Encourages debtors and creditors to resolve and adjust competing claims and property rights. (Section 2)
- Ensures timely, fair, transparent, effective and efficient rehabilitation or liquidation of debtors. (Section 2)
- Proceedings are in rem, with jurisdiction acquired upon publication of notice. (Section 3)
- Defines key terms such as administrative expenses, affiliate, claim, commencement date, control, creditor, debtor, encumbered property, and others. (Section 4)
- Excludes banks, insurance companies, pre-need companies, and government agencies from the definition of debtor, unless otherwise specified. (Section 5)
- The Supreme Court shall designate courts and promulgate procedural rules. (Section 6)
- Allows consolidation of assets and liabilities of related enterprises under certain conditions. (Section 7)
- Decisions of creditors shall follow the Corporation Code or Civil Code. (Section 8)
- Creditors may designate representatives to act on their behalf. (Section 9)
- Imposes liability on owners, partners, directors, or officers for certain acts. (Section 10)
- Allows banks to acquire equity interest in debtors in satisfaction of debts. (Section 11)

Court-Supervised Rehabilitation
- Initiation of voluntary or involuntary proceedings by filing a petition with the court. (Sections 12-14)
- Court issues a Commencement Order, which has various effects such as vesting powers in the rehabilitation receiver, staying actions against the debtor, and others. (Sections 15-17)
- Exceptions to the Stay Order are provided. (Section 18)
- Waiver of taxes and fees due to the government during rehabilitation proceedings. (Section 19)
- Stay Order applies to government financial institutions. (Section 20)
- Commencement Order is effective during rehabilitation proceedings if there is substantial likelihood of successful rehabilitation. (Section 21)
- Court actions at the initial hearing, such as determining creditors, appointing a rehabilitation receiver, and others. (Section 22)
- Effects of failure to file a notice of claim. (Section 23)
- Rehabilitation receiver submits a report on the debtor's financial condition and recommendations. (Section 24)
- Court may give due course to the petition, dismiss it, or convert it to liquidation proceedings. (Section 25)
- If petition is given due course, rehabilitation receiver reviews and submits a Rehabilitation Plan. (Section 26)
- Dismissal of petition may result in damages to creditors or debtor. (Section 27)
- Qualifications and appointment of the rehabilitation receiver. (Sections 28-30)
- Powers, duties, and responsibilities of the rehabilitation receiver. (Section 31)
- Removal of the rehabilitation receiver. (Section 32)
- Compensation and terms of service of the rehabilitation receiver. (Section 33)
- Oath and bond of the rehabilitation receiver. (Section 34)
- Vacancy in the position of rehabilitation receiver. (Section 35)
- Displacement of existing management by the rehabilitation receiver or management committee under certain circumstances. (Section 36)
- Role of the management committee. (Section 37)
- Qualifications of members of the management committee. (Section 38)
- Employment of professionals by the rehabilitation receiver or management committee. (Section 39)
- Conflict of interest provisions for the rehabilitation receiver, management committee, and professionals. (Section 40)
- Immunity for the rehabilitation receiver, management committee, and their employees. (Section 41)
- Creditors may form a creditors' committee. (Sections 42-43)
- Determination of claims through a registry of claims, opposition or challenge of claims, and appeal. (Sections 44-46)
- Management of the debtor during rehabilitation proceedings. (Section 47)
- Use or disposition of assets, including sale of assets and treatment of encumbered property. (Sections 48-53)
- Treatment of post-commencement interest, loans, obligations, employee claims, and contracts. (Sections 54-57)
- Rescission or nullity of certain pre-commencement transactions. (Section 58)
- Actions for rescission or nullity of transactions. (Section 59)
- No diminution of secured creditor rights, and lack of adequate protection provisions. (Sections 60-61)
- Contents of a Rehabilitation Plan. (Section 62)
- Consultation with debtor and creditors on the Rehabilitation Plan. (Section 63)
- Creditor approval of the Rehabilitation Plan, including provisions for cram-down. (Section 64)
- Submission of the Rehabilitation Plan to the court. (Section 65)
- Filing of objections to the Rehabilitation Plan. (Section 66)
- Hearing on objections to the Rehabilitation Plan. (Section 67)
- Confirmation of the Rehabilitation Plan by the court. (Section 68)
- Effects of confirmation of the Rehabilitation Plan. (Section 69)
- Liability of general partners for unpaid balances under an approved Plan. (Section 70)
- Treatment of amounts of indebtedness or obligations forgiven or reduced. (Section 71)
- Period for confirmation of the Rehabilitation Plan. (Section 72)
- Accounting discharge of the rehabilitation receiver. (Section 73)
- Termination of rehabilitation proceedings. (Sections 74-75)

Pre-Negotiated Rehabilitation
- Petition by debtor for approval of a pre-negotiated Rehabilitation Plan endorsed by creditors. (Section 76)
- Issuance of Order by the court and publication requirements. (Section 77)
- Approval of the pre-negotiated Rehabilitation Plan by the court. (Section 78)
- Objection to the petition or Rehabilitation Plan. (Section 79)
- Hearing on objections to the petition or Rehabilitation Plan. (Section 80)
- Period for approval of the pre-negotiated Rehabilitation Plan. (Section 81)
- Effect of approval of the pre-negotiated Rehabilitation Plan. (Section 82)

Out-of-Court or Informal Restructuring Agreements or Rehabilitation Plans
- Recognition of out-of-court or informal restructuring agreements or Rehabilitation Plans. (Section 83)
- Minimum requirements for out-of-court or informal restructuring agreements or Rehabilitation Plans. (Section 84)
- Standstill period during negotiations. (Section 85)
- Cram-down effect of approved out-of-court or informal restructuring agreements or Rehabilitation Plans. (Section 86)
- Amendment or modification of out-of-court or informal restructuring agreements or Rehabilitation Plans. (Section 87)
- Effect of court action or other proceedings on out-of-court or informal restructuring agreements or Rehabilitation Plans. (Section 88)
- Court assistance for execution or implementation of out-of-court or informal Rehabilitation Plans. (Section 89)

Liquidation of Insolvent Juridical Debtors
- Voluntary liquidation by filing a petition with the court. (Section 90)
- Involuntary liquidation by creditors filing a petition with the court. (Section 91)
- Conversion by the court into liquidation proceedings under certain circumstances. (Section 92)
- Powers of the Securities and Exchange Commission (SEC) regarding dissolution and liquidation proceedings. (Section 93)

Insolvency of Individual Debtors
- Suspension of Payments: Petition by an individual debtor foreseeing inability to meet debts. (Sections 94-102)
- Voluntary Liquidation: Application by an individual debtor whose assets are insufficient to cover liabilities. (Sections 103-104)
- Involuntary Liquidation: Petition by creditors against an individual debtor for acts of insolvency. (Sections 105-110)

Provisions Common to Liquidation of Individual and Juridical Debtors
- Liquidation Order and its effects. (Sections 112-113)
- Rights of secured creditors during liquidation. (Section 114)
- Election and appointment of the liquidator. (Sections 115-116)
- Oath and bond of the liquidator. (Section 117)
- Qualifications of the liquidator. (Section 118)
- Powers, duties, and responsibilities of the liquidator. (Section 119)
- Compensation of the liquidator. (Section 120)
- Reporting requirements for the liquidator. (Section 121)
- Discharge of the liquidator. (Section 122)
- Determination of claims through a registry of claims, opposition or challenge of claims, and submission to the court. (Sections 123-126)
- Rescission or nullity of certain transactions. (Section 127)
- Actions for rescission or nullity of transactions. (Section 128)
- The Liquidation Plan, including contents, implementation, and observance of concurrence and preference of credits. (Sections 129-133)
- Order removing the debtor from the SEC registry and termination of proceedings. (Sections 134-135)
- Liquidation of securities market participants. (Section 136)

Proceedings Ancillary to Other Insolvency or Rehabilitation Proceedings
- Provision of assistance to banks and other financial institutions under rehabilitation receivership pursuant to a state-funded or state-mandated insurance system. (Section 137)
- Application of relevant legislation to the liquidation of banks, financial institutions, insurance companies, and pre-need companies. (Section 138)
- Adoption of the UNCITRAL Model Law on Cross-Border Insolvency. (Section 139)
- Initiation of cross-border insolvency proceedings. (Section 140)
- Provision of relief in cross-border insolvency proceedings. (Section 141)
- Factors in granting relief in cross-border insolvency proceedings. (Section 142)

Funds for Rehabilitation of Government-Owned and Controlled Corporations
- Public funds for rehabilitation of government-owned and controlled corporations shall be released only pursuant to an appropriation by Congress and supported by available funds certified by the National Treasurer. (Section 143)
- The Department of Finance and the Department of Budget and Management shall promulgate rules for the use and release of such funds. (Section 143)

Miscellaneous Provisions
- Applicability of provisions in Chapter II to other proceedings. (Section 144)
- Penalties for certain acts committed by owners, partners, directors, officers, or employees of the debtor. (Section 145)
- Application to pending insolvency, suspension of payments, and rehabilitation cases. (Section 146)
- Application to pending contracts. (Section 147)
- Repealing clause. (Section 148)
- Separability clause. (Section 149)
- Effectivity clause. (Section 150)