Activity for BL-3 Class

Student’s Name: Keny de Guzman

Kindly research and provide the following. For purposes of research kindly refer to Republic Act
No. 10142 otherwise known as Financial Rehabilitation and Insolvency Act (FRIA).

1. What is the state policy for enacting FRIA Law. (Sec. 2 FRIA)
 Section 2 of FRIA - 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.

2. What is Corporate Rehabilitation Proceeding? (Sec. 4 FRIA)

3. What is/are the purpose/s for corporate rehabilitation?
4. Which entities may avail corporate rehabilitation, define each.
5. What is insolvency?
 Insolvency is a term for when an individual or company can no longer meet their financial
obligations to lenders as debts become due.
6. Differentiate Actual vs. Technical Insolvency.
 Actual Insolvency is a type of insolvency that involves a debtor being unable to pay their debts
when they become due and payable. This type of insolvency can be constrasted with technical
insolvency whereby a company (or individual) has a greater sum of liabilities than assets.
 Technical Insolvency – refers to a situation where the value of a company’s liabilities exceeds the
value of its assets. Technical Insolvency looks only at the firm’s balance sheet, deeming a
company “insolvent on the books” when its net worth appears negative.
7. When should a corporate rehabilitation be denied? When improper?
8. What are the three types of corporate rehabilitation proceedings? Differentiate each a state the
requirements for availment.
a. Court supervised – Under Section 12 and 13 of FRIA
 Voluntary Proceeding Court-Supervised Rehabilitation – may be initiated by
a corporation through the majority of the board of directors or trustees and
authorized by the vote of the stockholders representing at least 2/3 of the
outstanding capital stock or at least 2/3 of the member in a non-stock
corporation. A voluntary proceeding is initiated by filing a PETITION FOR
VOLUNTARY REHABILITATION.
 Involuntary Proceeding Court-Supervised Rehabilitation – may be initiated
by any creditor or group of creditors with a claim of, or aggregate of whose claim
is at least Php 1,000,000.00 or at least 25% of subscribe capital stock,
whichever is higher. An involuntary proceeding is initiated by filing a
PETITION FOR INVOLUNTARY REHABILITATION.

b. Pre-negotiated – Under Section 76 of FRIA

  An insolvent corporation may, by itself or jointly with any of its creditors file a
verified petition with the court of approval of PRE-NEGOTIATED
REHABILITATION PLAN which has been endorsed and approved by the
creditor holding at least 2/3 of the total liabilities of the corporation-debtor
including the secured creditors holding more than 50% of the total secured claim
and unsecured creditors holding 50% of unsecured claims.

c. Out of Court or Informal Restructuring – Under Section 83 of FRIA

 Minimum requirements for Out of Court
a. The debtor must agree to the out of court or informal restructuring/workout
agreement or rehabilitation plan;
b. It must be approved by creditor representing at least sixty-seven percent
(67%) of the secured obligations of the debtor
c. It must be approved by creditors representing at least seventy-five per cent
(75%) of the unsecured obligations of the debtor; and
d. It must be approved by creditors holding at least eighty-five percent percent
(85%) of the total liabilities, secured and unsecured, of the debtor.

9. Differentiate and state the GROUNDS for voluntary and involuntary proceedings in a court
supervised corporate rehabilitation.
o Voluntary Proceeding Court-Supervised Rehabilitation – may be initiated by a
corporation through the majority of the board of directors or trustees and authorized by
the vote of the stockholders representing at least 2/3 of the outstanding capital stock or
at least 2/3 of the member in a non-stock corporation. A voluntary proceeding is
initiated by filing a PETITION FOR VOLUNTARY REHABILITATION.
o Involuntary Proceeding Court-Supervised Rehabilitation – may be initiated by any
creditor or group of creditors with a claim of, or aggregate of whose claim is at least Php
1,000,000.00 or at least 25% of subscribe capital stock, whichever is higher. An
involuntary proceeding is initiated by filing a PETITION FOR INVOLUNTARY
REHABILITATION.

10. What is a Commencement Order and its contents?
o Commencement of Proceeding and Issuance of a Commencement Order – the
rehabilitation proceeding shall commence upon the issuance of the commencement order,
which shall:
 Identify the debtor, its principal business or activity/ies and its principal place of
business
 Summarize the ground/s for initiating proceedings;
 State the relief sought under this Act and any requirements or procedure
particular to the relief sought;
 State the legal effects of the commencement order, including those mention in
Section 17 hereof;
 Declare the debtor is under rehabilitation;
 Direct the publication of the commencement order in the newspaper of general
circulation in the Philippines once a week for at least (2) consecutive weeks, with
first publication to be made within seven (7) days from the time of issuance
 If the petitioner is a debtor, direct the service by personal delivery of a copy of
the petition on each creditor holding at least ten percent (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;
 Appoint a rehabilitation receiver who may or may 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
 Summarize the requirements and deadlines for creditors to establish their claims
against the debtor and direct all creditors to file their claims with the court at
least five (5) days before the initial hearing;
 Direct the 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 to the Supreme Court
 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;
 Authorize the payment of administrative expenses as they become due;
 Set the case for initial hearing, which shall not 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;
 Make available copies of the petition and rehabilitation plan for examination and
copying by any interested party
 Indicate the location or locations at which documents regarding the debtor and
the proceeding under this Act may be reviewed and copied
 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
 Include a stay or suspension order which shall:
 Suspend all actions or proceeding, in court or otherwise, for the
enforcement of claims against the debtor;
 Suspend all actions to enforce any judgment, attachment or other
provisional remedies against the debtor
 Prohibit the debtor from selling, encumbering, transferring or disposing
in any manner any of its properties except in the order course of
business; and
 Prohibit debtor from making any payment of its liabilities outstanding as
of the commencement date except as may be provided herein.
11. Who is a Rehabilitation Receiver?
 Section 28 – Who may serve as a rehabilitation receiver – any qualified natural or juridical person
may serve as a rehabilitation receiver: provided, that if the rehabilitation receiver is a juridical
entity, it must designate a natural person/s who possess/es all the qualifications and none of the
disqualifications as its representative, it being understood that the juridical entity and the
representative/s are solidarily liable for all obligations and responsibilities of the rehabilitation
receiver.
12. Enumerate qualifications before one can become a receiver.
 Section 29 – Qualification of a Rehabilitation Receiver – The rehabilitation receiver shall have
the following minimum qualifications:
a. A citizen of the Philippines or a resident of the Philippines in the six (6) months
immediately preceding his nomination
 b. Of good moral character and with acknowledged integrity, impartiality and
independence;
c. Has the requisite knowledge of insolvency and other relevant commercial laws, rules
and procedures as well as the relevant training and/or experience that may be
necessary to enable him to properly discharge the duties and obligations of a
rehabilitation receiver; and
d. Has no conflict of interest: provided, that such conflict of interest may be waived,
expressly or impliedly, by a party who may be prejudiced thereby.

13. What are the powers of a receiver?

 Section 31 – Power, Duties, and Responsibilities of the Rehabilitation Receiver – the
rehabilitation receiver shall be deemed an officer of the court with the principal duty of
preserving and maximizing the value of the assets of the debtor during the rehabilitation
proceedings, determining the viability of the rehabilitation of the debtor, preparing and
recommending a rehabilitation plan to the court, and implementing the approved rehabilitation
plan. To this end, and without limiting the generality of the foregoing, the rehabilitation receiver
shall have the following power, duties and responsibilities:
o To verify the accuracy of the factual allegations in the petition and its annexes
o To verify and correct, if necessary, of all of the assets of the debtor, and their valuation;
o To verify and correct, if necessary, the schedule of debts and liabilities of the debtor
o To evaluate the validity, genuineness and true amount of all claims against the debtor
o To take possession, custody and control, and to preserve the value of all property of the
debtor
o To sue and recover, with the approval of the court, all amount owned to, and all
properties pertaining to the debtor
o To have access to all information necessary, proper or relevant to the operations and
business of the debtor and for its rehabilitation
o To sue and recover, with approval of the court, all property or money of the debtor paid,
transferred or disbursed in fraud of the debtor or its creditors, or which constitute undue
preference of creditor/s;
o To monitor the operations and the business of the debtor to ensure that no payments or
transfer of property are made other than in the ordinary course of business
o With the court’s approval, to engage the services of or to employ persons or entities to
assist him in the discharge of his functions;
o To determine the manner by which the debtor may be best rehabilitated, to review, revise
and/or recommend action on the rehabilitation plan and submit the same or a new one to
the court for approval
o To assume and exercise the powers of management of the debtor, if directed by the court
pursuant to Section 36 hereof;
o To exercise such other power as may, from time to time, be conferred upon him by the
court; and
o To submit a status report on the rehabilitation proceedings eever quarter or as may be
required by the court motu proprio, or upon motion of any creditor, or may be provided,
in the rehabilitation plan
14. Define Immunity from Suit of a receiver.
 Section 41 – Immunity – The rehabilitation receiver and all persons employed by him, and the
member of the management committee and all persons employed by it, shall not be subject to any
action, claim or demands in connection with any act done or omitted to be done by them in good
faith in connection with the exercise of their powers and functions under this Act or other actions
duly approved by the court.
15. What is a Stay or Suspension Order?
 Stay or Suspension Order is provided to the debtor to suspend all action or proceeding for
enforcement of claims against to him, enforce judgement, attachment or the provisional remedies,
to prohibit the debtor from selling, encumbering transferring or disposing in any manner of its
properties and prohibits the debtor from making any payment of its liabilities outstanding.
16. Enumerate Exceptions to Stay or Suspension Order
 Section 18 – Exceptions to the Stay or Suspension Order – The stay or suspension order shall not
apply:
o (a) to cases already pending appeal in the supreme court as of commencement date:
Provided, that any final and executory judgement arising from such appeal shall be
referred to the court for appropriate action;
o (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, faily and efficiently than the court: Provided, that any final and
executory judgement of such court or agency shall be referred to the court and shall be
treated as a non-disputed claim;
o (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;
o (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;
o (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;
o (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
o (g) any criminal action against the individual debtor or owner, partner, director or officer
of a debtor shall not be affected by any proceeding commenced under this Act.

17. Enumerate other effects of issuance of Commencement Order

 Section 17 – Effect of the Commencement Order – unless otherwise provided for in this Act, the
court’s issuance of a commencement order shall, in addition to the effect of a stay or suspension
order describe in Section 16 hereof:
o (a) vest the rehabilitation receiver with the power and functions provided for in this act,
such as the right to review and obtain all records to which the debtor’s management and
directors have access, including bank accounts of whatever nature of the debtor, subject
to the approval by the court of the performance bond filed by the rehabilitation receiver;
o (b) prohibit, or otherwise serve as the legal basis for rendering null and void the results of
any extrajudicial activity or process to seize property, sell encumbered property, or
 otherwise attempt to collect on or enfore a claim against the debtor after the
commencement date unless otherwise allowed in this Act, subject to the provision of
Section 50 hereof;
o (c) serve as the legal basis for rendering null and void any set-off after the
commencement date of any debt owned to the debtor by any of the debtors’ creditors;
o (d) serve as the legal basis for rendering null and void the perfection of any lien against
the debtor’s property after the commencement date; and
o (e) consolidate the resolution of all legal proceedings by and against the debtor to the
court: Provided, however, that the court may allow the continuation of cases in other
courts where the debtor had initiated the suit
18. What is a material financial commitment rule in rehabilitation.
19. Define Rehabilitation Plan and enumerate the effects of its confirmation.
20. What is Cram Down Rule in rehabilitation
 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. The notice of the
rehabilitation plan or restructuring agreement or plan shall be published once a week for at least
three (3) consecutive weeks in a newspaper of general circulation in the Philippines. The
rehabilitation plan or restructuring agreement shall take effect upon the lapse of fifteen (15) days
from the date of the last publication of the notice thereof.
21. When should a corporate rehabilitation be terminated?
22. What is the rule on Standstill Period in Out of Court rehabilitation?
 Section 85 – 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 the creditors representing more that fifty percent
(50%) of the total liabilities of the debtor;
b. Notice thereof is published in a newspaper of general circulation in 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
effectivity.
o The notice must invite creditors to participate in the negotiation for out-of-court
rehabilitation or restructuring agreement and participate 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.
23. What is Liquidation?
 Section 2 – Declaration of Policy - 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, recognized creditors right and respct priority of claims, and
ensure equitable treatment of creditors who are similarly situated.
24. Differentiate voluntary and involuntary liquidation in cases of corporate debtors (Sec. 90-91
FRIA)
BASE VOLUNTARY LIQUIDATION INVOLUNTARY LIQUIDATION
FILING The corporate debtor initiates The credtor apply for and seek the
liquidation proceedings by filing a liquidation of an insolvent debtor by
motion in same court where the filing a petition for liquidation of the
rehabilitation proceeding is pending to debtor with the court. The petition shall
convert the rehabilitation proceedings show that:
into liquidation proceedings. 1. There is no geneuine issue of
 fact or law on the claim/s of the
petitioner/s, and that the due and
demandable payments thereon
have not been made for at least
on hundred eighty (180) days or
that the debtor has failed
generally to meet its liabilities as
they fall due.
2. There is no substantial likelihood
that the debtor may be
rehabilitated
FILER Corporate Debtor Three (3) or more creditors the aggregate
of whose claims is at least either one
million pesos or at least 25% of the
subscribed capital stock or partner’s
contributions pf debtor whichever is
higher

25. Differentiate voluntary and involuntary liquidation in cases of individual debtors. (Sec. 103-105
FRIA)
VOLUNTARY LIQUIDATION
 Section 103 – Application – An individual debtor whose properties are not sufficient to cover his
liabilities, and owing debts exceeding Five hundred thousand pesos (Php 500,000.00), 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 sided 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.
 Section 104 – Liquidation Order – if the court finds the petition sufficient in form and substance,
it shall, within five (5) working days, issue the liquidation order mentioned in Section 112 hereof.
INVOLUNTARY LIQUIDATION
 Section 105 – Petition; Acts of Insolvency – Any creditor or group of creditors with a claim of, or
with claims aggregating, at least Five hundred thousand pesos (Php 500,000.00) may file a
verified petition for liquidation with the court of the province or city in which the individual
debtor resides.

BASE VOLUNTARY LIQUIDATION INVOLUNTARY LIQUIDATION

INTENTION Has no intention to run away from its Has the intention to fraud, absent in
creditors. Filed a legal action hearings, delay, conceal according to
section 105 (a) to (m)
FILER Individual debtor Creditor or Group of Creditor

26. Can a corporate rehabilitation be converted to voluntary liquidation instead. Explain.

27. Enumerate Acts considered as insolvency.
28. Effects of Liquidation. (Sec. 113 FRIA)