STUDENT ID No. 3143541 MARIAN IVY F.

REYES-FAJARDO
BUSINESS BANKRUPTCY IN THE UNITED STATES: PAPER No. 1

1. What aspects or features of commencing a bankruptcy case in the United States differ
greatly from the aspects or features of commencing an insolvency case in your home
jurisdiction?

The laws on corporate rehabilitation in my country, the Philippines, is fairly new. The
law entitled “An Act Providing for the Rehabilitation or Liquidation of Financially Distressed
Enterprises and Individuals” otherwise known as “FRIA” became effective on February 17,
2010. It provides for the corporate rehabilitation of “businesses”, although the law does not refer
to the individuals or entities as “businesses” but their legal form, i.e., sole-proprietorship,
partnership or corporation, duly registered with the proper governmental office. It does not cover
other associations such as “unincorporated company or association” or “business trust”, unlike in
Section 101 (9) (A) of Chapter 11.

The striking difference between Chapter 11 and FRIA is that there is no concept of a
Rehabilitation Receiver in Chapter 11. From our readings, we understand that the debtor,
referred to as a debtor-in-possession, is still entitled to manage the business while under a
Chapter 11 rehabilitation. The same is true in FRIA, except that a rehabilitation proceeding
cannot commence without the appointment of a Rehabilitation Receiver, who, in essence, takes
charge of the estate and comes up with the Rehabilitation Plan and ensures the efficient
implementation thereof. Section 31 of FRIA provides, to wit: “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 x x.”

The other difference is the discharge provision provided under Chapter 11. Under
Chapter 11, the pre-confirmation debts are discharged, and for a corporation, the discharge is
after the approval of the Plan. There is no equivalent express discharge provision under FRIA.

FRIA instead has the Stay Order, similar to Chapter 11’s stay order and while the same is
effective, no cases can be filed for individuals in the debtor sole-proprietorship, partnership and
corporation and its the officers and directors for the purpose of enforcing a claim against the
debtor. Also, while there is no express discharge provision under FRIA, the approval of the plan
should have the effect of discharging the debtor since the rehabilitation proceeding under FRIA
is a proceeding in rem. Jurisdiction overall persons are considered acquired upon publication of
the notice of the commencement of the proceedings in any newspaper of general circulation
(Section 3). Section 69 of FRIA also provides that the confirmation of the Rehabilitation Plan
by the court shall result in the Rehabilitation Plan and its provisions being “binding upon the
person and all persons who may be affected by it, including the creditors, whether or not such
persons have participated in the proceedings or opposed the Rehabilitation Plan or whether or not
their claims have been scheduled.”