Nature of Proceedings in FRIA
- In rem. Meaning it is a proceeding which binds the whole world;
- Jurisdiction over all persons affected shall be acquired upon publication of the notice of commencement in a newspaper of general circulation in the Philippines;
- Proceedings shall be summary; and
- Non-adversarial
as defined under the law are insolvent:
- Sole proprietorship registered with the DTI;
- Partnership registered with the SEC
- Corporations organized and existing under the laws of the Philippines; or
- Individual debtors which are natural persons who are residents and citizens of the Philippines
GROUP OF DEBTORS: refer to:
- Financially related corporations – parent, subsidiary or affiliates
- Partnerships – more than 50% of which is owned by the same person
- Single Proprietorships – owned by the same individual
EXCLUDED DEBTORS:
Banks, pre-need companies, insurance companies and government agencies or units – governed by their respective special law
INSOLVENT: shall refer to the financial condition of a debtor that is generally
- Unable to pay its or his liabilities as they fall due; or
- Has liabilities greater than its or his assets
CREDITORS: include natural or juridical persons which has a claim against the debtor that arose on or before commencement date, which can either be
secured or unsecured
are those whose claim or a portion thereof is neither secured, preferred nor subordinated
Unsecured creditors
are those whose claims are secured by a lien (either by law, agreement or by judicial judgment) which legally entitles a creditor to resort the property subject of a lien for payment of his claim
Secured creditors
is the restoration of the debtor to a condition of successful operation and solvency. If it is shown that its continuance of operation is economically feasible; and its creditors can recover by way of the present value of payments projected in the plan, more if the debtor continues as a going concern than if it is immediately liquidated
Rehabilitation
TYPES OF REHABILITATION
- Voluntary
- Involuntary
Voluntary Rehabilitation, initiated by the debtor, upon showing that
a. The debtor is insolvent; and
b. The viability of rehabilitation
Who will file voluntary rehabilitation?
Sole Prop - Owner/Proprietor
Partnership - Majority of partners
Corporation - Majority of directors or trustees and 2/3 of OCS or members
Involuntary Rehabilitation is initiated by the creditor or group of creditors, if there is no genuine issue of fact or law on the claim/s of the petitioner/s, and that
a. No payments on the due and demandable debts have been made for at least 60 days; or
b. That the debtor has failed generally to meet its liabilities as they fall due; or
c. A creditor, other than petitioner/s has initiated foreclosure proceedings against the debtor that will prevent the debtor from paying its debts as they become due or will render it insolvent.
Who will file for involuntary rehabilitation
Creditors with claims or aggregate of whose claim is at least P1M or 25% of the subscribed capital stock
or partners’ contributions, whichever is higher
the court shall issue a Commencement Order which shall include a Stay Order, which shall
- Suspend all actions or proceedings, 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 ordinary course of business;
- Prohibit the debtor from making any payment of its liabilities outstanding as of commencement date except as may be provided for by law
during the rehabilitation proceeding, the management shall be done by the:
- Existing Board and/or management; or
- Upon motion, the court may appoint:
a. Rehabilitation Receiver; or
b. Management Committee
REHABILITATION RECEIVER: appointed by the court with the principal duty of:
- Preserving 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
Qualifications of a rehabilitation receiver
- Citizen of the Philippines
- Resident of the Philippines in the 6 months immediately preceding the nomination
- Has the requisite knowledge of insolvency and commercial laws
- No conflict of interest
CREDITORS’ COMMITTEE creditors belonging to a class may formally organize a committee, or as a body create a committee composed of each class of creditors, such as
- Secured creditors;
- Unsecured creditors
- Trade creditors and suppliers; and
- Employees of the debtor
Cram Down Effect: the rehabilitation plan approved by the court shall be binding upon the
- Debtor and
- All persons who may be affected by it, including creditors, whether or not such persons:
a. have participated in the proceedings,
b. opposed the plan, or
c. whether or not the claims have been scheduled
A pre-negotiated rehabilitation plan may be approved by the court if it is
approved or endorsed by: creditors holding at least 2/3 of the total liabilities, including
1. Secured creditors holding more than 50% of the total secured claims; and
2. Unsecured creditors holding more than 50% of the total unsecured claims
Who may file a pre-negotiated rehabilitation?
- The debtor by him/itself; or
- The debtor with any of its/his creditors
Within ________, and after determination that the petition is sufficient in form and substance, the court shall issue an Order
five (5) working days
Within _____ from the date of the second publication of the Order, the court shall approve the Rehabilitation Plan unless a creditor or other interested party submits an objection to it
10 days
