Manila * Cavite * Laguna * Cebu * Cagayan De Oro * Davao

Since 1977

RFBT.3409 VILLEGAS/APRADO/MAGUMUN
FRIA (RA 10142) and TILA (RA 3765) MAY 2023

Financial Rehabilitation last illness and funeral of the wife or children of the debtor
and Insolvency Act incurred in the sixty (60) days immediately prior to the filing
(RA 10142) of the petition; and b. Secured creditors.

Action on the Petition

1. DEFINITION OF TERMS
If the court finds the petition sufficient in form and
Insolvency refers to the financial condition of the debtor that substance, it shall, within five (5) working days from the
is generally unable to pay its or his liabilities as they fall due filing of the petition, issue an Order, among others:
in the ordinary course of business or has liabilities that are
greater than its or his assets. 1. (calling a meeting of all the creditors named in the
schedule of debts and liabilities at such time not less
Debtor shall refer to, unless specifically excluded by a than fifteen (15) days nor more than forty (40) days
provision of this Act, a sole proprietorship duly registered from the date of such Order and designating the
with the Department of Trade and Industry (DTI), a date, time and place of the meeting;
partnership duly registered with the Securities and 2. (b) directing such creditors to prepare and present
Exchange Commission (SEC), a corporation duly organized written evidence of their claims before the
and existing under Philippine laws, or an individual debtor scheduled creditors' meeting;
who has become insolvent as defined herein. Excluded from 3. forbidding the individual debtor from selling,
the term debtors are include banks, insurance companies, transferring, encumbering or disposing in any
pre-need companies, and national and local government manner of his property, except those used in the
agencies or units. ordinary operations of commerce or of industry in
which the petitioning individual debtor is engaged
Actual vs. Technical Insolvency so long as the proceedings relative to the
suspension of payments are pending; and
Actual insolvency – the corporation’s assets are not enough 4. appointing a commissioner to preside over the
to cover its liabilities creditors' meeting.

Technical insolvency – the corporation has enough assets Requirements in the Creditor’s Meeting
but it foresees its inability to pay its obligations for more
than one year. 1. The presence of creditors holding claims amounting
to at least three-fifths (3/5) of the liabilities shall be
2. SUSPENSION OF PAYMENTS necessary for holding a meeting.
2. The creditors and individual debtor shall discuss the
An individual debtor who, possessing sufficient property to propositions in the proposed agreement and put
cover all his debts but foreseeing the impossibility of them to a vote. To form a majority, it is necessary:
meeting them when they respectively fall due, may file a
verified petition that he be declared in the state of (1) that two-thirds (2/3) of the creditors voting
suspension of payments by the court of the province or city unite upon the same proposition; and
in which he has resides for six (6) months prior to the filing (2) that the claims represented by said majority
of his petition. He shall attach to his petition, as a minimum: vote amount to at least three-fifths (3/5) of the
total liabilities of the debtor mentioned in the
(a) a schedule of debts and liabilities; petition. (Double Majority Rule)
(b) an inventory of assess; and 3. After the result of the voting has been announced,
(c) a proposed agreement with his creditors. all protests made against the majority vote shall be
drawn up, and the commissioner and the individual
debtor together with all creditors taking part in the
Upon motion filed by the individual debtor, the court may
voting shall sign the affirmed propositions. No
issue an order suspending any pending execution against
creditor who incurred his credit within ninety (90)
the individual debtor: Provided, that properties held as
days prior to the filing of the petition shall be
security by secured creditors shall not be the subject of such
entitled to vote.
suspension order.
4. The proposed agreement shall be deemed rejected
if the number of creditors required for holding a
The suspension order shall lapse when three (3) months meeting do not attend thereat, or if the double
shall have passed without the proposed agreement being majorities mentioned hereof are not in favor
accepted by the creditors or as soon as such agreement is thereof. In such instances, the proceeding shall be
denied. terminated without recourse and the parties
concerned shall be at liberty to enforce the rights
No creditor shall sue or institute proceedings to collect his which may correspond to them.
claim from the debtor from the time of the filing of the
petition for suspension of payments and for as long as
proceedings remain pending except: a. Those creditors
having claims for personal labor, maintenance, expense of

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debts when they respectively

3. REHABILITATION fall due, and the financial
distress would likely
Rehabilitation shall refer to the restoration of the debtor to adversely affect the financial
a condition of successful operation and solvency, if it is condition and/or operations
shown that its continuance of operation is economically of the other members of the
feasible and its creditors can recover by way of the present group and/or the
value of payments projected in the plan, more if the debtor participation of the other
continues as a going concern than if it is immediately members of the group is
liquidated. essential under the terms
and conditions of the
proposed Rehabilitation Plan.
1. Types

Involuntary
Court Supervised Pre-Negotiated
Who may initiate
Filing a petition for
Voluntary Proceedings An insolvent debtor, by
rehabilitation with the
itself or jointly with any of
court if:
Initiated by the debtor when its creditors.
approved by: a. Sole
a. there is no genuine issue
proprietorship – owner; b.
of fact or law on the claim/s
Partnership – majority of the
of the petitioner/s, and that
partners; c. Corporation – a
the due and demandable
majority vote of the board of
payments thereon have not
directors or trustees and
been made for at least sixty
authorized by the vote of the
(60) days or that the debtor
stockholders representing at
has failed generally to meet
least twothirds (2/3) of the
its liabilities as they fall due;
outstanding capital stock; or
or
d. Nonstock corporation – by
the vote of at least two-
thirds (2/3) of the members, b. a creditor, other than the
in a stockholder's or petitioner/s, has initiated
member's meeting duly foreclosure proceedings
called for the purpose. against the debtor that will
prevent the debtor from
paying its debts as they
Involuntary Proceedings
become due or will render it
insolvent.
Any creditor or group of
creditors with a claim of, or
The petition shall be verified
the aggregate of whose
to establish the substantial
claims is, at least One million
likelihood that the debtor
pesos (Php1,000,000.00) or
may be rehabilitated
at least twenty-five percent
(25%) of the subscribed
capital stock or partners' Third Type: Out of Court Rehabilitation (OCR)
contributions, whichever is
higher. Rehabilitation is not necessarily court supervised. An OCR
How initiated or informal restructuring agreement or rehabilitation plan
Voluntary By filing a verified petition that meets the minimum requirements is recognized under
with the court for the FRIA.
An insolvent debtor may approval of a pre-
initiate voluntary negotiated Rehabilitation Minimum requirements
proceedings under this Act Plan which has been
by filing a petition for endorsed or approved by a. The debtor must agree to the out-of-court or
rehabilitation with the court creditors holding at least informal restructuring/workout agreement or
and on the grounds two-thirds (2/3) of the Rehabilitation Plan;
hereinafter specifically total liabilities of the b. It must be approved by creditors representing at
provided. The petition shall debtor, including: least sixty-seven percent (67%) of the secured
be verified to establish the obligations of the debtor;
insolvency of the debtor and a. secured creditors c. It must be approved by creditors representing at
the viability of its holding more than fifty least seventy-five percent (75%) of the unsecured
rehabilitation. percent (50%) of the total obligations of the debtor; and
secured claims of the d. It must be approved by creditors holding at least
Grounds: A group of debtors debtor; and b. unsecured eighty-five percent (85%) of the total liabilities,
may jointly file a petition for creditors holding more secured and unsecured, of the debtor.
rehabilitation under this Act than fifty percent (50%)
when one or more of its of the total unsecured
members foresee the claims of the debtor.
impossibility of meeting

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Claims covered is all encompassing, for money or otherwise.

2. Commencement Order Liquidated or not, fixed or contingent, matured or not,
disputed or not. Claims suspended includes:
If sufficient in form and substance, the court will issue a. includes damages founded on a breach of contract
Commencement Order (CO) - 5 days from filing of of carriage, labor cases, collection claims
petition. The rehabilitation proceedings shall commence b. all claims of the government, whether national or
upon the issuance of the Commencement Order. local, including taxes, tariffs and customs duties;
The CO contains, among others, the following: c. claims against directors and officers of the debtor
a. Appointment of receiver (court appointed or arising from acts done in the discharge of their
nominated by the parties) functions falling within the scope of their authority;
b. Prohibit suppliers from withholding goods/services d. non-pecuniary claims;
as long as debtor can pay e. preferred claims/maritime liens/admiralty
c. Authorize payment of administrative expenses proceedings;
d. Stay Order (SO) f. Claim arising from alleged illegal dismissal;
g. reinstatement order of the Labor Arbiter;
Effects of the Commencement Order h. Foreclosure initiated by government financial
institutions; and
1. It vests the rehabilitation receiver with all the powers i. Case involving infringement of patent.
and functions provided for in the Act, such as the right
to review and obtain all records to which the debtor's Excluded Claims
management and directors have access, including bank
accounts of whatever nature of the debtor, subject to the (a) to cases already pending appeal in the Supreme
approval by the court of the performance bond filed by Court as of commencement date;
the rehabilitation receiver. (b) subject to the discretion of the court, to cases
2. It prohibits, or otherwise serves as the legal basis for pending or filed at a specialized court or quasi-
rendering null and void the results of any extrajudicial judicial agency which, upon determination by the
activity or process to seize property, sell encumbered court is capable of resolving the claim more quickly,
property, or otherwise attempt to collect on or enforce a fairly and efficiently than the court;
claim against the debtor after the commencement date. (c) to the enforcement of claims against sureties and
3. It serves as the legal basis for rendering null and void other persons solidarily liable with the debtor, and
any set-off after the commencement date of any debt third party or accommodation mortgagors as well as
owed to the debtor by any of the debtor's creditors. issuers of letters of credit, unless the property
4. It serves as the legal basis for rendering null and void subject of the third party or accommodation
the perfection of any lien against the debtor's property mortgage is necessary for the rehabilitation of the
after the commencement date. debtor as determined by the court upon
5. It consolidates the resolution of all legal proceedings by recommendation by the rehabilitation receiver;
and against the debtor to the court: Provided, however, (d) to any form of action of customers or clients of a
that the court may allow the continuation of cases in securities market participant to recover or
other courts where the debtor had initiated the suit. otherwise claim moneys and securities entrusted to
the latter in the ordinary course of the latter's
Effectivity of CO business as well as any action of such securities
market participant or the appropriate regulatory
Unless lifted by the court, the Commencement Order shall agency or self-regulatory organization to pay or
be effective for the duration of the rehabilitation settle such claims or liabilities;
proceedings for as long as there is a substantial likelihood (e) to the actions of a licensed broker or dealer to sell
that the debtor will be successfully rehabilitated. pledged securities of a debtor pursuant to a
Note: A creditor whose claim is not listed in the schedule of securities pledge or margin agreement for the
debts and liabilities and who fails to file a notice of claim in settlement of securities transactions in accordance
accordance with the Commencement Order but with the provisions of the Securities Regulation
subsequently files a belated claim shall not be entitled to Code and its implementing rules and regulations;
participate in the rehabilitation proceedings but shall be (f) the clearing and settlement of financial transactions
entitled to receive distributions arising therefrom. through the facilities of a clearing agency or similar
entities duly authorized, registered and/or
3. Stay or suspension order recognized by the appropriate regulatory agency
like the Bangko Sentral ng Pilipinas (BSP) and the
An order included in the Commencement Order that has the SEC as well as any form of actions of such agencies
following effects: or entities to reimburse themselves for any
1. Suspending all actions or proceedings, in court or transactions settled for the debtor; and
otherwise, for the enforcement of claims against the (g) any criminal action against individual debtor or
debtor; owner, partner, director or officer of a debtor shall
2. Suspending all actions to enforce any judgment, not be affected by any proceeding commenced.
attachment or provisional remedies against the
debtor; 4. Rehabilitation Receiver
3. Prohibiting the debtor from selling, encumbering,
transferring or disposing in any manner any of its
properties except in the ordinary course of
business; and Rehabilitation receiver shall refer to the person or persons,
4. Prohibiting the debtor from making any payment of natural or juridical, appointed as such by the court pursuant
its liabilities outstanding as of the commencement to this Act and which shall be entrusted with such powers
date except as may be provided herein. and duties as set forth herein.
If the rehabilitation receiver is a juridical entity, it must
designate a natural person/s who possess/es all the

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qualifications and none of the disqualifications as its willful violation of this Act by, existing management
representative, it being understood that the juridical entity of the debtor or the owner, partner, director, officer
and the representative/s are solidarily liable for all or representative/s in management of the debtor.
obligations and responsibilities of the rehabilitation receiver.
Composition of the Committee

Three qualified members appointed as follows:

Powers, Duties and Responsibilities of the Receiver 1. The first member shall be appointed by the debtor;
2. The second member shall be appointed by the
a. Court officer creditor(s) holding more than 50% of the total
b. Preserve/maximize value of assets obligations of the debtor; and
c. Determine viability of rehabilitation 3. The third member shall be appointed by the first
d. Recommend Rehab Plan and second members within 10 from the
e. sue/recover, amounts owed to, and properties appointment.
pertaining to the debtor.
In case of failure to nominate, the court shall appoint the
f. recover property transferred in fraud of creditors.
member(s) concerned. In case the decision to appoint a
g. access/monitor operations/business of the debtor.
management committee is due to the third ground
Note: The rehabilitation receiver is tasked only to monitor (mismanagement, etc.), the court shall appoint the first
the successful implementation of the rehabilitation plan. member.
The receiver will not automatically take over the business
operations of the debtor-corporation. At best, he will just 6. Rehabilitation Plan
monitor, but it doesn’t mean that he becomes the president,
It refers to a plan by which the financial well-being and
CEO, or board member. The Management of juridical debtor
viability of an insolvent debtor can be restored using various
shall remain with the existing management. BUT all
means including, but not limited to, debt forgiveness, debt
disbursements, payments or sale, disposal, assignment,
rescheduling, reorganization or quasi-reorganization,
transfer or encumbrance of property , or any other act
dacion en pago, debtequity conversion and sale of the
affecting title or interest in property, shall be subject to the
business (or parts of it) as a going concern, or setting-up of
approval of the rehabilitation receiver and/or the court.
new business entity, or other similar arrangements as may
Removal of the Rehabilitation Receiver
be approved by the court or creditors.
The rehabilitation receiver may be removed at any time by
The Plan is deemed to have been approved by a class of
the court, either motu proprio or upon motion by any
creditors if members of the said class holding more than
creditor/s holding more than fifty percent (50%) of the total
50% of the total claims of the said class vote in favor of the
obligations of the debtor, on such grounds as the rules of
Plan.
procedure may provide which shall include, but are not
limited to, the following:
Important Requirements in a Rehabilitation Plan
a. Incompetence, gross negligence, failure to perform
1. Concept of Feasibility
or failure to exercise the proper degree of care in
the performance of his duties and powers; Rehabilitation, otherwise referred to as the restoration of
b. Lack of a particular or specialized competency the debtor to a condition of successful operation and
required by the specific case; solvency, is resorted to when it is shown that the
c. Illegal acts or conduct in the performance of his continuance of its operation is economically feasible and
duties and powers; its creditors can recover by way of the present value of
d. Lack of qualification or presence of any payments projected in the plan, more if the debtor
disqualification; continues as a going concern than if it is immediately
e. Conflict of interest that arises after his liquidated. [Sec. 4(gg)] Hence, the Rehabilitation Plan must
appointment; and contain such relevant information to enable a reasonable
f. Manifest lack of independence that is detrimental to investor to make an informed decision on the feasibility of
the general body of the stakeholders. the Plan. [FR Rules, Rule 2, Sec. 61(BB)]
Findings as to whether the assumptions, goals and
5. Management Committee procedures of the Rehabilitation Plan are realistic, feasible
and reasonable are also part of the Report of the
When appointed, the management committee shall take the
Rehabilitation Receiver.
place of the management and the governing body of the
debtor and assume their rights and responsibilities.
Members of the management committee are considered
2. It must comply with the required contents
also as officers of the court.
under FRIA and FR Rules. Aside from the
How the management committee is appointed
above, this includes, among others:
Upon motion of any interested party, the court may appoint
and direct the rehabilitation receiver to assume the powers
a. Material Financial Commitments
of management of the debtor, or appoint a management
committee that will undertake the management of the The Rehabilitation Plan, shall “include material financial
debtor, upon clear and convincing evidence of any of the undertakings or commitments to support [it].” [FR Rules,
following circumstances: Rule 2, Sec.61 (Y)]
A material financial commitment becomes significant in
a. Actual or imminent danger of dissipation, loss, gauging the resolve, determination, earnestness and good
wastage or destruction of the debtor's assets or faith of the distressed corporation in financing the proposed
other properties; rehabilitation plan.
b. Paralyzation of the business operations of the This commitment may include the voluntary undertakings
debtor; or of the stockholders or the would-be investors of the debtor-
c. Gross mismanagement of the debtor, or fraud or corporation indicating their readiness, willingness and
other wrongful conduct on the part of, or gross or ability to contribute funds or property to guarantee the

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continued successful operation of the debtor corporation a. The Rehabilitation Plan and its provisions shall be
during the period of rehabilitation. binding upon the debtor and all persons who may
be affected by it, including the creditors, whether or
b. Liquidation Analysis not such persons have participated in the
proceedings or opposed the Rehabilitation Plan or
As one of the required contents of a Rehabilitation Plan, a whether or not their claims have been scheduled;
liquidation analysis sets out for each creditor or each class b. The debtor shall comply with the provisions of the
of creditor, as applicable, the amounts they expect to Rehabilitation Plan and shall take all actions
receive under the Rehabilitation Plan and those that they necessary to carry out the Plan;
will receive if liquidation ensues within one hundred twenty c. Payments shall be made to the creditors in
(120) days after the filing of the petition. [FR Rules, Rule 2, accordance with the provisions of the Rehabilitation
Sec. 61 (B)] Plan;
Note: The failure of the Rehabilitation Plan to state any d. Contracts and other arrangements between the
material financial commitment to support rehabilitation, as debtor and its creditors shall be interpreted as
well as to include a liquidation analysis, is insufficient to continuing to apply to the extent that they do not
decree the feasibility of the debtor’s rehabilitation. It is well conflict with the provisions of the Rehabilitation
to emphasize that the remedy of rehabilitation should be Plan;
denied to corporations that do not qualify under the Rules. e. Any compromises on amounts or rescheduling of
Neither should it be allowed to corporations whose sole timing of payments by the debtor shall be binding
purpose is to delay the enforcement of any of the rights of on creditors regardless of whether or not the Plan is
the creditors. successfully implemented; and
f. Claims arising after approval of the Plan that are
Approval of the Plan otherwise not treated by the Plan are not subject to
any Suspension Order.
The receiver shall notify the stakeholders that the Plan is
ready for examination. Within 20 days from notification, the 7. Cram Down Effect
receiver shall convene the creditors to vote on the Plan.
The Plan must be approved by all classes of creditors whose The cram-down refers to the power of the rehabilitation
rights are adversely modified or affected. Otherwise, it is court to approve and implement a rehabilitation plan
deemed rejected. notwithstanding the objection of the majority of creditors.
The Plan is approved by a class of creditors if members of It is necessary to curb the majority creditors’ natural
the said class holding more than 50% of the total claims of tendency to dictate their own terms and conditions to the
the class vote in favor of the Plan. rehabilitation, absent due regard to the greater long-term
If the Plan is approved, the receiver shall submit the same benefit of all stakeholders.
to the court for confirmation. It forces the creditors to accept the terms and conditions of
The creditor may file an objection to the Plan with 20 days the rehabilitation plan, preferring long-term viability over
from receipt of notice that it has been submitted for immediate but incomplete recovery.
confirmation. Objections are limited to the following: A cram down is permitted only if all of the following
1. The creditors’ support was induced by fraud; circumstances are present:
2. The documents or data relied upon in the Plan are 1. The Rehabilitation Plan complies with the
materially false or misleading; requirements specified in the FRIA;
3. The Plan is in fact not supported by the voting 2. The receiver recommends confirmation of the
creditors. [Sec. 66] If upon hearing, the court finds Rehabilitation Plan;
merit in the objections, it should order the curing of 3. The shareholders, owners or partners of the debtor
the defect. If the court determines the debtor acted lost at least their controlling interest as a result of
in bad faith, or that it is not possible to cure the the Rehabilitation Plan; and
defect, the court shall convert the proceedings into 4. The Rehabilitation Plan would likely provide the
one for liquidation. objecting class or creditors with compensation
which has a net present value greater than that
Confirmation of the Plan which they would have received if the debtor were
under liquidation.
If no objections are filed within the relevant period or, if
objections are filed, the court finds them lacking in merit, 4. LIQUIDATION
or determines that the basis for the objection has been
cured, or determines that the debtor has complied with an
order to cure the objection, the court shall issue an order Liquidation is a judicial insolvency proceeding by which the
confirming the Rehabilitation Plan. debtor’s assets are reduced and converted to cash in order
The court may confirm the Rehabilitation Plan to discharge the claims against the debtor.
notwithstanding unresolved disputes over claims if the
Rehabilitation Plan has made adequate provisions for paying The concept of liquidation is thus diametrically opposed to
such claims. that of rehabilitation, and both cannot be undertaken at the
For the avoidance of doubt, the provisions of other laws to same time.
the contrary notwithstanding, the court shall have the
power to approve or implement the Rehabilitation Plan 1. Types
despite the lack of approval, or objection from the owners,
partners or stockholders of the insolvent debtor: Provided,
Voluntary Liquidation Involuntary Liquidation
that the terms thereof are necessary to restore the financial
Who may file
wellbeing and viability of the insolvent debtor.
An insolvent debtor may Three (3) or more creditors
Effects of confirmation of rehabilitation plan apply for liquidation by the aggregate of whose
filing a petition for claims is at least either One
liquidation with the court million pesos
(Php1,000,000.00) or at

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least twenty-five percent e. Direct payments of any claims and conveyance of

(25%) of the subscribed any property due the debtor to the liquidator;
capital stock or partner's f. Prohibit payments by the debtor and the transfer of
contributions of the debtor, any property by the debtor;
whichever is higher, may g. Direct all creditors to file their claims with the
apply for and seek the liquidator within the period set by the rules of
liquidation of an insolvent procedure;
debtor by filing a petition h. Authorize the payment of administrative expenses
for liquidation of the debtor as they become due;
with the court. i. State that the debtor and creditors who are not
Contents of the petition petitioner/s may submit the names of other
The petition shall be The petition shall show nominees to the position of liquidator; and
verified, shall establish the that: j. Set the case for hearing for the election and
insolvency of the debtor appointment of the liquidator, which date shall not
and shall contain, whether a. there is no genuine issue be less than thirty (30) days nor more than forty-
as an attachment or as part of fact or law on the claim/s five (45) days from the date of the last publication.
of the body of the petition: of the petitioner/s, and that
a. a schedule of the the due and demandable 4. Rights of the Secured Creditor
debtor's debts and payments thereon have not
liabilities including a list of been made for at least one It refers to a creditor with secured claim. Secured claim shall
creditors with their hundred eighty (180) days refer to a claim that is secured by a lien. Secured Creditor
addresses, amounts of or that the debtor has failed refers to a claim secured by a lien, which is a statutory or
claims and collaterals, or generally to meet its contractual claim or juridical charge on real or personal
securities, if any; b. an liabilities as they fall due; property that legally entitles a creditor to resort to said
inventory of all its assets and b. there is no property for payment of the debt or claim secured.
including receivables and substantial likelihood that
claims against third the debtor may be The Liquidation Order shall not affect the right of a secured
parties; and c. the names rehabilitated.
creditor to enforce his lien in accordance with the applicable
of at least three (3)
contract or law. General Rule: Upon issuance of the
nominees to the position of Liquidation Order, no foreclosure proceeding shall be
liquidator.
allowed for 180 days. Exception: However, the Liquidation
Order shall not affect the right of a secured creditor to
2. Conversion of rehabilitation to liquidation enforce his lien.
proceedings
A secured creditor may:
During the pendency of court-supervised or prenegotiated
rehabilitation proceedings, the court may order the a. Waive his rights under the security or lien, prove his
conversion of rehabilitation proceedings to liquidation claim in the liquidation proceedings and share in the
proceedings: distribution of the assets of the debtor; or
b. Maintain his rights under his security or lien.
a. Upon a finding that: 1. The debtor is insolvent; and
2. There is no substantial likelihood for the debtor If the secured creditor maintains his rights under the
to be successfully rehabilitated as determined in security or lien:
accordance with the rules to be promulgated by the
supreme court [FRIA, Sec. 25(c)];
b. If there is no rehabilitation plan is confirmed within 1. The value of the property may be fixed in a manner
one year from filing a petition to confirm a agreed upon by the creditor and the liquidator.
rehabilitation plan (FRIA, Sec. 72); When the value of the property is less than the claim
c. If the termination of proceedings is due to failure of it secures, the liquidator may convey the property
rehabilitation or dismissal of the petition for reasons to the secured creditor and the latter will be
other than technical grounds (FRIA, Sec. 75); admitted in the liquidation proceedings as a creditor
d. In voluntary liquidation of juridical debtors (FRIA, for the balance; if its value exceeds the claim
Sec. 90); or secured, the liquidator may convey the property to
e. At any other time upon the recommendation of the the creditor and waive the debtor's right of
rehabilitation receiver that the rehabilitation of the redemption upon receiving the excess from the
debtor is not feasible (FRIA, Sec. 92). creditor;
2. The liquidator may sell the property and satisfy the
3. Liquidation Order secured creditor's entire claim from the proceeds of
the sale; or
3. The secured creditor may enforce the lien or
The liquidation order shall: foreclose on the property pursuant to applicable
laws.
a. Declare the debtor insolvent;
b. Order the liquidation of the debtor and, in the case 5. Liquidator
of a juridical debtor, declare it as dissolved;
c. Order the sheriff to take possession and control of Liquidator – Any qualified person, natural or juridical, may
all the property of the debtor, except those that may serve as a receiver.
be exempt from execution; If the receiver is a juridical entity, he must designate a
d. Order the publication of the petition or motion in a natural person as a representative. Such representative
newspaper of general circulation once a week for must possess all the qualifications and none of the
two (2) consecutive weeks; disqualifications.

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7. Liquidation Plan
Powers, Duties and Responsibilities
Within three (3) months from his assumption into office, the
The principal duty of the liquidator is to preserve and Liquidator shall submit a Liquidation Plan to the court. The
maximize the value and recover the assets of the debtor, Liquidation Plan shall, as a minimum, enumerate all the
with the end of liquidating them and discharging all the assets of the debtor, all the claims against the debtor and a
claims against the debtor. The powers, duties and schedule of liquidation of the assets and payment of the
responsibilities include: claims.

1. To sue and recover all the assets, debts and claims, Sales of assets in Liquidation
belonging or due to the debtor;
2. To take possession of all the property of the debtor The liquidator may sell the unencumbered assets of the
except property exempt by law from execution; debtor and convert the same into money. The sale shall be
3. To sell, with the approval of the court, any property made at public auction.
of the debtor which has come into his possession or However, a private sale may be allowed with the approval
control; of the court if:
4. To redeem all mortgages and pledges, and so a. The goods to be sold are of a perishable nature, or
satisfy any judgement which may be an are liable to quickly deteriorate in value, or are
encumbrance on any property sold by him; disproportionately expensive to keep or maintain;
5. To settle all accounts between the debtor and his or
creditors, subject to the approval of the court; b. The private sale is for the best interest of the debtor
6. To recover any property or its value, fraudulently and his creditors. With the approval of the court,
conveyed by the debtor; unencumbered property of the debtor may also be
7. To recommend to the court the creation of a conveyed to a creditor in satisfaction of his claim or
creditors' committee which will assist him in the part thereof.
discharge of the functions and which shall have
With court’s approval, unencumbered property of Debtor
powers as the court deems just, reasonable and
may also be conveyed to a creditor in satisfaction of his
necessary; and
claim or part thereof.
8. Upon approval of the court, to engage such
professional as may be necessary and reasonable to
assist him in the discharge of his duties.
FRIA MC QUESTIONS
In addition to the rights and duties of a rehabilitation
receiver, the liquidator shall have the right and duty to take 1. S1 - The insolvency proceedings under FRIA is in rem.
all reasonable steps to manage and dispose of the debtor's S2 - The insolvency proceedings is summary and
assets with a view towards maximizing the proceedings adversarial.
therefrom, to pay creditors and stockholders, and to a. Both are correct
terminate the debtor's legal existence. b. Both are incorrect
c. S1 is correct, S2 is incorrect
6. Determination of Claims d. S1 is incorrect, S1 is correct
The rules on the determination of claims are as follows:
2. It refers to the financial condition of a debtor that is
1. Within 20 days from assuming office, the liquidator
generally unable to pay its or his liabilities as they fall
shall prepare a preliminary registry of claims.
due in the ordinary course of business or has liabilities
2. Secured creditors who have waived their security or
that are greater than its or his assets.
have fixed the value of the property subject of the
a. Insolvency
security shall be considered unsecured.
b. Exemplary
3. The registry shall be available for public inspection
c. In Fraud of Creditors
and publication notice shall be provided to
d. Litis Pendentia
stakeholders. [Sec. 123]
e. In Pari Delicto
4. The debtor and the creditor have the right to set off
their debts against each other; only the balance, if
3. It means the transactions in pursuit of the individual
any, shall be allowed in the proceedings. [Sec. 124]
debtor’s or debtor’s business operations prior to
5. Within 30 days from expiration of the period for
rehabilitation or insolvency proceedings and on ordinary
filing of applications for recognition of claims,
business terms.
interested parties may challenge claims to the
a. Acts of Administration
court.
b. Acts of Strict dominion
6. Upon the expiration of the 30-day period, the
c. Regular course of Business
liquidator shall submit the registry of claims
d. Ordinary Course of Business
containing the claims not subject to challenge. Such
e. Acts in the usual way of the business
claims shall become final upon filing of the register.
7. Claims that have become final may be set aside only
4. The following are not considered debtors for purposes
on grounds of fraud, accident, mistake or
of FRIA, except:
inexcusable neglect. [Sec. 125] 8. The liquidator
a. sole proprietorship duly registered with the
shall submit disputed claims to court for final
Department of Trade and Industry
approval. [Sec. 126]
b. Banks
General Rule: All contracts are deemed terminated and/or c. Insurance companies
breached. d. Pre-need companies
Exception: When the liquidator, within 90 days from e. National and local agencies or units
assumption of office, declares otherwise and the contracting
party agrees. 5. Group of debtors refers to and covers only:

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a. Corporation that are financially related to one d. S1 is incorrect, S1 is correct

another as parent corporations, subsidiaries or
affiliates. 12. Under FRIA, for the proposal of the debtor to be
b. Partnerships that are owned more than fifty percent considered as approved, the double majority rule
(50%) by the same person. applies which is
c. Single proprietorship that are owned by the same a. Two thirds (2/3) of the creditors voting unite upon
person. the same proposition; and
d. All of the above The claims represented by the said majority vote
e. None of the above amount to at least three-fifths (3/5) of the total
liabilities of the debtor mentioned in the petition.
6. Group of debtors refers to and covers only, except: b. Three-Fourths (3/4) of the creditors voting unite
a. Corporation that are financially related to one upon the same proposition; and
another as parent corporations, subsidiaries or The claims represented by the said majority vote
affiliates; amount to at least three-fifths (3/5) of the total
b. Partnerships that are owned more than sixty liabilities of the debtor mentioned in the petition.
percent (60%) by the same person; c. Two thirds (2/3) of the creditors voting unite upon
c. Single proprietorship that are owned by the same the same proposition; and
person; The claims represented by the said majority vote
d. All of the above amount to at least three-fourths (3/4) of the total
e. None of the above liabilities of the debtor mentioned in the petition.
d. Two thirds (2/3) of the creditors voting unite upon
7. Under the FRIA, An insolvent person may avail the the same proposition; and
following, except: The claims represented by the said majority vote
a. Rescission of contracts amount to at least two-thirds (2/3) of the total
b. Suspension of payments liabilities of the debtor mentioned in the petition.
c. Rehabilitation e. Answer not given
d. Discharge of debts and liabilities
e. Answer not given
13. Rehabilitation refers to the restoration of the debtor to
8. A petition of a debtor who, possessing sufficient a condition of successful operation and solvency,
property to cover his debts, foresees the impossibility a. The debtor has insufficient property to cover his
of meeting them when they fall due. debts but foresees the impossibility of meeting
a. Rescission of contracts them when they fall due.
b. Suspension of payments b. if it is shown that its continuance of operation is
c. Rehabilitation economically feasible.
d. Discharge of debts and liabilities c. its creditors can recover by way of the present value
e. Answer not given of payments projected in the plan.
d. more if the debtor continues as a going concern
9. The following are requirements for Filing a Petition for than if it is immediately liquidated.
Suspension of Payments, except;
a. The debtor is an individual debtor. 14. Rehabilitation plan refers to plan by which the financial
b. The debtor has insufficient property to cover his well-being and viability of an insolvent debtor can be
debts but foresees the impossibility of meeting restored using various means including, but no limited
them when they fall due. to the following, except:
c. The amount of indebtedness is not reduced or a. debt forgiveness,
discharged. b. debt rescheduling,
d. The number of creditors is not material. c. reorganization or quasi-reorganization,
d. dacion en pago,
10. The filing of petition for suspension of payment has the e. debt equity appropriation
following effects:
S1 - All executions pending against the debtor shall be 15. S1 Voluntary Rehabilitation is a rehabilitation
suspended. proceeding initiated by the debtor.
S2 - Any creditor can sue or institute proceedings to S2 - Involuntary Rehabilitation is a rehabilitation
collect his claim from the debtor while the proceedings proceeding initiated by the creditor.
are pending. S3 - Pre-Negotiated Rehabilitation is a rehabilitation
a. Both are correct proceeding initiated by the debtor, itself or jointly with
b. Both are incorrect any of its creditors for the approval of the pre-
c. S1 is correct, S2 is incorrect negotiated rehabilitation plan.
d. S1 is incorrect, S1 is correct a. All are correct
b. All are incorrect
11. S1 - The presence of the creditors under the FRIA c. Only S1 and S2 are correct and S3 is incorrect
holding claims amounting to at least 3/4 of the liabilities d. Only S2 and S3 are correct and S1 is incorrect
shall be necessary for holding the meeting or for the e. Correct answer not given
quorum.
S2 - During the creditors’ meeting under FRIA, the 16. S1 –The grounds for filing of the petition for Voluntary
creditors will vote for the proposed manner of payment Proceedings for Insolvency are Insolvency of the debtor
by the debtor. However, creditors who incurred his and Viability of rehabilitation.
credit within sixty (60) days prior to the filing of the S2 - The petition for voluntary proceedings of the
petition are not entitled to vote. insolvent debtor must be approved by Majority of the
a. Both are correct board of directors or trustees and authorized by
b. Both are incorrect stockholders representing at least 2/3 of the
c. S1 is correct, S2 is incorrect

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outstanding capital stock or 2/3 of its members in case S2 - The Commencement Order and consequently the
of non-stock Stay Order in FRIA shall be effective for the entire
a. Both are correct duration of the rehabilitation proceedings for as long as
b. Both are incorrect there is a substantial likelihood that the debtor will be
c. S1 is correct, S2 is incorrect successfully rehabilitated.
d. S1 is incorrect, S1 is correct a. Both are correct
17. S1 – The Filing of Petition for Voluntary Rehabilitation b. Both are incorrect
by Group of Debtors may be filed when the financial c. S1 is correct, S2 is incorrect
distress would likely adversely affect the financial d. S1 is incorrect, S1 is correct
condition and/or operation if the other members of the
group, and/or the participation of the other member of 22. The rehabilitation receiver must have the following
the group is essential. minimum qualifications, except:
S2 - Any creditor or group of creditors, with a claim of, a. A natural born citizen of the Philippines or a resident
or the aggregate of whose claim is, at least P1,000,000 of the Philippines in the six (6) months immediately
or at least 30% of the subscribed capital stock or preceding his nomination;
partners’ contributions, whichever is higher, may b. Of good moral character and with acknowledged
initiate involuntary proceeding against the debtor by integrity, impartiality and independence;
filing a petition for rehabilitation with the court. c. Has the requisite knowledge of insolvency and other
a. Both are correct relevant commercial laws, rules and procedure;
b. Both are incorrect d. Has no conflict of interest.
c. S1 is correct, S2 is incorrect
d. S1 is incorrect, S1 is correct 23. S1 –If the Rehabilitation Receiver is a juridical entity,
the juridical entity and the representative are solidarily
18. An insolvent debtor, by itself or jointly with any of its liable for all obligations and responsibilities of the
creditor, may file a verified petition with the court for rehabilitation receiver.
the approval of a pre-negotiated Rehabilitation Plan and S2 - The rehabilitation receiver may be removed at any
the requisites of the said plan must be, except: time by the court either motu proprio or upon motion
a. Endorsed or approved by creditors; by any creditor/s holding more than sixty percent
b. The creditor must be at least two-thirds (2/3) of the (60%) of the total obligations of the debtor.
total liabilities of the debtor; a. Both are correct
c. The liabilities include secured creditors holding b. Both are incorrect
more than sixty percent (60%) of the total secured c. S1 is correct, S2 is incorrect
claims of the debtor d. S1 is incorrect, S1 is correct
d. The liabilities include unsecured creditors holding
more than fifty percent (50%) of the total 24. The following are grounds for the removal of the
unsecured claims of the debtor. Rehabilitation Receiver, except:
e. Answer not given a. Incompetence, gross negligence, failure to perform
or failure to exercise the proper degree of care in
19. S1 – The court shall have a maximum period of one the performance of his duties and powers;
hundred twenty (120) days from the date of the filing b. Lack of a particular or specialized competency
of the petition to approve the Rehabilitation Plan. required by the specific case;
S2 - If the court fails to act within the 120-day period, c. Illegal acts or conduct in the performance of his
the Rehabilitation Plan shall be deemed approved and duties and powers;
its effect shall retroact to the date of the filing. d. Lack of qualification or presence of disqualification;
a. Both are correct e. Manifest lack of inter-dependence that is
b. Both are incorrect detrimental to the general body of the stakeholders.
c. S1 is correct, S2 is incorrect
d. S1 is incorrect, S1 is correct 25. The court will appoint a management committee upon
clear and convincing evidence of any of the following
20. The following are the effects of the Stay Order in FRIA, circumstances.
except: a. Actual or imminent danger or dissipation, loss,
a. Suspend all the actions or proceedings in court, or wastage or destruction of the debtor’s assets or other
otherwise, for the enforcement of claim by and properties;
against the creditor; b. Paralyzation of the business operations of the debt;
b. Suspend all actions to enforce any judgement, or
attachment, or other provisional remedies against c. Gross mismanagement of the debtor or fraud or other
the debtor; wrongful conduct on the part of, or gross or willful
c. Prohibit the debtor from selling, encumbering, violation of FRIA by existing management of the debtor
transferring or disposing in any manner any of its or the owner, partner, director, officer or
properties except in the ordinary course of representative/s in management of the debtor.
business; d. All of the above
d. Prohibit the debtor from making any payment of its e. None of the above
liabilities outstanding as of the commencement date
except as may be provided herein.
26. It is an order issued by the Rehabilitation Court if the
21. S1 - A creditor whose claim is not listed in the schedule petition for rehabilitation filed by the financially distressed
of debts and liabilities in FRIA and who fails to file a debtor or by its creditor is sufficient in form and
notice of claim but subsequently files a belated claim is substance.
entitled to participate in the rehabilitation proceedings a. Stop Order .
but shall not be entitled to receive distributions arising b. Rehabilitation Order
therefrom. c. Commencement Order .
d. Bank Order

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2. OBLIGATIONS OF CREDITORS TO PERSONS

27. The following are excluded from the term “debtor” WHOM CREDIT IS EXTENDED
under the Financial Rehabilitation and Insolvency Act
(FRIA) except: Who does the law protect?
I. Bank
ii. Insurance companies Person who uses credit. "Person" means any individual,
III. Pre-need company corporation, partnership, association, or other organized
IV. National and local government agencies or group of persons, or the legal successor or representative
units of the foregoing, and includes the Philippine Government or
any agency thereof, or any other government, or of any of
a. All except II, IV its political subdivisions, or any agency of the foregoing.
b. All except III, IV (Sec. 3, RA 3765)
c. All except III
d. All are excluded What is Credit?

28. Upon motion filed by the individual debtor, the court "Credit" means any loan, mortgage, deed of trust, advance,
may issue this order against the individual debtor; or discount; any conditional sales contract; any contract to
Provided that, properties held as security by secured sell, or sale or contract of sale of property or services, either
creditors shall not be the subject of such suspension order. for present or future delivery, under which part or all of the
a. Commencement Order price is payable subsequent to the making of such sale or
b. Suspension of Payments contract; any rental-purchase contract; any contract or
c. Liquidation Order arrangement for the hire, bailment, or leasing of property;
d. Freeze Order any option, demand, lien, pledge, or other claim against, or
for the delivery of, property or money; any purchase, or
29. The following are the effects of liquidation order other acquisition of, or any credit upon the security of, any
except: obligation of claim arising out of any of the foregoing; and
a. The juridical debtor shall be deemed dissolved any transaction or series of transactions having a similar
and its corporate or juridical existence purpose or effect. (Sec. 3, RA 3765)
terminated.
b. No foreclosure proceeding shall be allowed for Obligations of Creditors
a period of 180 days.
c. Legal title to and control of all the assets of the The creditor or lender is required to inform the debtor or
debtor, except those that may be exempt from borrower of the following facts:
execution, shall be deemed vested in the
creditor. (1) the cash price or delivered price of the property
d. No separate action for the collection of an or service to be acquired;
unsecured claim shall be allowed.
(2) the amounts, if any, to be credited as down
30. Under the Financial Rehabilitation and Insolvency Act
payment and/or trade-in;
(FRIA), the filing of a petition for voluntary rehabilitation
must be approved by:
a. A majority vote of the Board of Directors and (3) the difference between the amounts set forth
authorized by the vote of the stockholders under clauses (1) and (2);
representing at least a majority of the
outstanding capital stock. (4) the charges, individually itemized, which are
b. A majority vote of the Board of Directors and paid or to be paid by such person in connection with
authorized by the vote of the stockholders the transaction but which are not incident to the
representing at least 2/3 of the outstanding extension of credit;
capital stock.
c. 2/3 vote of the Board of Directors and (5) the total amount to be financed;
authorized by the vote of the stockholders
representing at least a majority of the
(6) the finance charge expressed in terms of pesos
outstanding capital stock.
and centavos; and
d. 2/3 vote of the Board of Directors and
authorized by the vote of the stockholders
representing at least 2/3 of the outstanding (7) the percentage that the finance bears to the
capital stock. total amount to be financed expressed as a simple
annual rate on the outstanding unpaid balance of
the obligation. (Sec. 4, RA3765)

Truth in Lending Act (TILA) The rationale of this provision is to protect users of credit
(RA 3765) from a lack of awareness of the true cost thereof,
proceeding from the experience that banks are able to
conceal such true cost by hidden charges, uncertainty of
1. PURPOSE interest rates, deduction of interests from the loaned
amount, and the like. The law thereby seeks to protect
The law is enacted to protect the people from lack of debtors by permitting them to fully appreciate the true cost
awareness of the true cost of credit by assuring full of their loan, to enable them to give full consent to the
disclosure of such cost, with a view of preventing the contract, and to properly evaluate their options in arriving
uninformed use of credit to the detriment of the national at business decisions. (UCPB vs. Spouses Beluso, GR No.
economy. (Sec. 2, Republic Act (RA) No. 3765) 159912, August 17, 2007)

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Note: "Finance charge" includes interest, fees, service c. Full reporting

charges, discounts, and such other charges incident to the d. Substantive reporting
extension of credit. (Sec. 3, RA 3765)

2. S1 - Imposition of usurious interest rates such as “5-6

3. COVERED AND EXCLUDED TRANSACTIONS money lending” is illegal. The legality or illegality of the
contract stipulation entered into by the parties is subject
to the court’s determination.
Who are required to abide by the disclosure
S2 – The minimum paid-up capital stock for lending
requirements of the TILA?
companies is P1,000,000.00.
a. All are true
It covers any creditor. "Creditor" means any person b. All are false
engaged in the business of extending credit (including any c. Only S1 is false
person who as a regular business practice make loans or d. Only S2 is false
sells or rents property or services on a time, credit, or
installment basis, either as principal or as agent) who
requires as an incident to the extension of credit, the 3. S1 - If the lender required an ATM card as collateral, the
payment of a finance charge. (Sec. 3, RA 3765) ATM card owner should relinquish possession of the ATM
card, either as a collateral or for any other purpose.
If not engaged in the business of extending credit is not S2 - The borrower and lender are free to agree on the
obliged to abide by the disclosure requirements. interest rates, fees and other charges that will apply to
the loan in their agreement.
4. CONSEQUENCES OF NON-COMPLIANCE WITH a. All are true
OBLIGATIONS b. All are false
c. Only S1 is false
What if the amount of finance charges and interest are not d. Only S2 is false
disclosed? The imposition is void, hence the creditor cannot
collect the same. (Heir of Espiritu vs. Landrito, GR No.
169618, April 4, 2007) 4. S1 - Collection of interest on a principal amount without
If the borrower is not duly informed of the data required by any stipulation thereof in writing is prohibited by law.
the law prior to the consummation of the availment or S2 - The law requires that the imposition of the interest,
drawdown, the lender will have no right to collect such its rate and the fact of its compounding should be
charge or increases thereof, even if stipulated in the reduced in writing.
promissory note. (DBP vs. Arcilla, GR. No. 161397, June 30, a. All are true
2005) b. All are false
Note: Subsequent Compliance with the disclosure c. Only S1 is false
requirement cannot be deemed substantial compliance with d. Only S2 is false
the disclosure requirement. (UCPB vs. Spouse Beluso,
supra.) 5. S1 - The nullity of the stipulation on the usurious
Is the violation of the disclosure requirement renders the interest affects the lender’s right to recover the principal
contract or transaction void? No, such failure shall not affect of the loan and also affect the terms of the real estate
the validity or enforceability of any contract or transaction. mortgage.
(DBP vs. Arcilla, supra.) S2 - Stipulations authorizing the imposition of iniquitous
or unconscionable interest rates are contrary to morals,
Penalties if not against the law.
a. All are true c. Only S1 is false
1. Any creditor who violates the law is liable in the b. All are false d. Only S2 is false
amount of P100 or in an amount equal to twice the
finance charged required by such creditor in 6. The following are required to be declared under TILA,
connection with such transaction, whichever is the except:
greater, except that such liability shall not exceed a. the cash price or delivered price of the property or
P2,000 on any credit transaction. The action must service to be acquired;
be brought within one year from the date of the b. the discounts, if any, to be credited as down payment
occurrence of the violation. and/or trade-in;
2. The creditor is also liable for reasonable attorney’s c. the difference between the amounts set forth under
fees and court costs as determined by the court. clauses (1) and (2);
3. Any person who willfully violates any provision of d. the charges, individually itemized, which are paid or
this law or any regulation issued thereunder shall to be paid by such person in connection with the
be fined by not less than P100 or more than P5,000 transaction but which are not incident to the extension
or imprisonment of not less than 6 months, nor of credit;
more than one year or both. (Sec. 6, RA 3765).
7. S1 - the imposition of interest and finance charges is
void if not disclosed in the disclosure statement.
S2 - The law may be violated if the agreement provides
TRUTH IN LENDING ACT MC QUESTIONS for an escalation clause on interest which is dependent
solely on the will of the bank.
1. Under the Truth in Lending Act, the law requires full a. All are true c. Only S1 is false
disclosure by requiring the lender to give the borrower b. All are false d. Only S2 is false
all the details regarding the transaction.
a. Material revelation 8. The period to file the case under TILA
b. Material disclosure a. within 6 months from the date of the occurrence of
the violation

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b. within one year from the date of the occurrence of d. No, because it violates the disclosure
the violation requirement of the Truth in Lending Act.
c. within two years from the date of the occurrence of
the violation 12. A person engaged in the following types of credit shall
d. within ten years from the date of the occurrence of be covered by the Truth in Lending Act.
the violation I. Loan, mortgage, deed of trust
II. Conditional sales contract, any contract to sell,
9. Lending company shall refer to a corporation engaged or sale
in granting loans from its own capital funds or from III. Rental-purchase contract
funds sourced from not more than ___ persons. IV. Marriage contract
a. 10 persons c. 19 persons V. Option, Demand, Lien, Pledge
b. 15 persons d. 20 persons
a. All except II
10. Linda bought 10 units of Dodge Caliber from Mojo b. All except IV
Corporation. RBC Bank granted a loan to Mojo Corporation c. All except III
which executed a financing agreement which provided for d. All except IV and V
the principal amount, the installment payments, the interest
rates and the due dates. On due dates of the installment 13. I. Credit transactions which do not involve the payment
payments, Mojo Corporation was asked to pay for some of any finance charge by the debtor are covered by the
handling charges and other fees which were not mentioned Truth in Lending Act.
in the financing agreement. Can Mojo Corporation refuse to II. Credit transactions in which the debtor is the one
pay the same? specifying a definite and fixed set of credit terms such as
a. No, because handling charges and other fees bank deposits are not covered by the Truth in Lending Act.
are usual in certain banking transactions.
b. Yes, because RBC Bank is required to provide a. Both statements are correct.
Mojo Corporation not only the amount of the b. Both statements are incorrect.
monthly installments but also the details of the c. Statement I is correct while statement II is
finance charges as required by the Truth in incorrect.
Lending Act. d. Statement I is incorrect while statement II is
c. No, because the Financing Agreement is a valid correct.
document to establish the existence of the
obligation. 14. The creditor shall furnish the following information to
d. Yes, because legally, finance charges are never the person whom credit is extended prior to the
allowed in any banking transaction. consummation of the transaction:
a. the cash price or delivered price of the property
11. Can a loan agreement provide that the debtor shall pay or service to be acquired.
interest at the rate determined by the bank’s branch b. the total amount to be financed
manager? c. the discounted price for next season’s sale
a. Yes, as parties to the contract can create their e. Both A and B
terms and conditions.
b. Yes, because it is permitted by law.
c. No, because the rate must be later determined End of RFBT.3409
by the bank.

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