Review Notes on the Financial Rehabilitation and Insolvency Act of 2010 (R.A.
10142)
I. Overview of R.A. 10142
● The Financial Rehabilitation and Insolvency Act of 2010 (FRIA) governs the
procedures for corporate and individual rehabilitation and insolvency in the Philippines.
● It aims to assist financially distressed entities in recovering while ensuring fair
treatment of creditors.
● It applies to juridical persons (corporations and partnerships), as well as individuals
who are insolvent.
II. Key Principles
1. Rehabilitation over Liquidation – Encourages efforts to restore businesses to financial
health instead of immediate dissolution.
2. Debt Relief and Recovery – Provides mechanisms for financially distressed entities to
reorganize and recover.
3. Fair Treatment of Creditors – Balances the interests of secured and unsecured
creditors.
4. Transparency and Accountability – Ensures court supervision and creditor
participation in the process.
III. Rehabilitation Proceedings
A. Court-Supervised Rehabilitation
● Initiated by the debtor, creditor, or SEC in case of publicly listed companies.
● A Rehabilitation Plan is proposed and implemented under court supervision.
● A Rehabilitation Receiver is appointed to oversee proceedings.
B. Pre-Negotiated Rehabilitation
● The debtor and creditors agree on a Rehabilitation Plan before filing with the court.
● Must be approved by at least two-thirds (2/3) of secured creditors and a majority of
unsecured creditors.
● The court reviews and confirms the plan without undergoing full rehabilitation
proceedings.
C. Out-of-Court Rehabilitation (Suspended Payment Agreement)
● Also called Corporate Debt Restructuring (CDR).
● A voluntary agreement between the debtor and creditors.
● Requires approval from at least 60% of secured creditors and 67% of unsecured
creditors.
IV. Liquidation Proceedings
● Applied when rehabilitation is not feasible.
● Can be voluntary (filed by the debtor) or involuntary (filed by creditors).
● A liquidator is appointed to oversee asset distribution among creditors.
● Once assets are liquidated, the entity is formally dissolved.
V. Stay or Suspension Order
● Upon filing of a petition for rehabilitation, the court issues a Stay Order.
● Effects of the Stay Order:
○ Suspension of all pending claims against the debtor.
○ Prevention of foreclosure on the debtor's assets.
○ Prohibition of collection efforts.
VI. Individual Insolvency
● Applies to natural persons who cannot pay their debts.
● Can file for Voluntary Insolvency (debtor-initiated) or be subject to Involuntary
Insolvency (creditor-initiated).
● The court may discharge the debtor from liabilities upon liquidation of assets.
VII. Rights of Creditors and Debtors
A. Debtor’s Rights
● Right to propose a rehabilitation plan.
● Right to continue business operations under rehabilitation.
● Protection from collection efforts and lawsuits during the stay period.
B. Creditor’s Rights
● Right to vote on the rehabilitation plan.
● Right to receive proportional payment in case of liquidation.
● Right to challenge fraudulent transfers before the court.
VIII. Conclusion
● FRIA promotes corporate recovery over liquidation to maintain economic stability.
● Provides a structured process for handling insolvency, ensuring fair treatment of
creditors and debtors.
● Encourages out-of-court settlements to reduce judicial burden and expedite debt
restructuring.
● Understanding FRIA is crucial for businesses, creditors, and legal practitioners handling
financial distress cases.
