FINANCIAL REHABILITATION and INSOLVENCY ACT (FRIA)

REPUBLIC ACT 10142

PROF. MARIAN IVY F. REYES-FAJARDO
COURSE SYLLABUS

I. GENERAL PROVISIONS

1. FRIA’s Declared Policies (Sec. 2)

2. Proceedings Covered by FRIA

(a) Suspension of Payments Proceedings for Individual Debtors
(b) Court-Supervised Corporate Rehabilitation (Chapter II)
• Voluntary or Debtor-Initiated Proceedings
• Involuntary or Creditor-Initiated Proceedings
(c) Pre-Negotiated Rehabilitation
(d) Out of Court Rehabilitation or Informal Restructuring Agreements
(Chapter IV)
(e) Liquidation of Insolvent Juridical Debtors
• Voluntary Liquidation
• Involuntary Liquidation
(f) Insolvency of Individual Debtors
• Voluntary Insolvency
• Involuntary Insolvency
Sec. 148
Sec. 146
Sec. 147
Sec. 6

3. Nature of Proceedings (Sec. 3)

Advent Capital and Finance Corp. v. Alcantara, 664 SCRA 224 (2012)

4. Debtors Covered by FRIA

Sec. 49 (k)
Sec. 5
Sec. 143
Sec.137
Sec. 138
Substantial and Procedural Consolidation
Sec. 7
Sec. 4 (f)
5. Matters Referring to Creditors
a. Creditors Covered
Sec. 4 (h)
b. Types of Creditors
Sec. 4 (jj)
Sec. 4 (kk)
Sec. 4 (ll)
Sec. 4 (pp)
Sec. 4 (qq)
Sec. 4 (m)
Sec. 4 (ss)

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 Sec. 4 (t)
c. Decisions of Creditors
Sec. 8
d. Creditors Representatives
Sec. 9
e. Authorization for Banks to Exchange Debt for Equity
Section 11
6. Penalties under FRIA
a. Liability for Acts with Intent to Defraud Creditors
Sec. 10
Sec. 4 (x)
b. Criminal Penalties under FRIA
Sec. 145

II. COURT-SUPERVISED REHABILITATION

A. PRELIMINARY MATTERS

1. Definition and Coverage of “Rehabilitation”

Sec. 4 (gg)
2. Purpose of Corporate Rehabilitation
Metropolitan Bank & Trust Co. v. ASB Holdings, Inc., 517 SCRA 1 (2007)
Wonder Book Corp. v. Philippine Bank of Communications, 676 SCRA 489 (2012)
3. Difference between Corporate Rehabilitation and Corporate Liquidation
Philippine Islands Corp. for Tourism Dev. v. Victorias Milling, 554 SCRA 528 (2008)
Rubberworld (Phils), Inc. v. NLRC, 305 SCRA 721 (1999)
Philippine Veterans Bank Employees Union v. Vega, 360 SCRA 33 (2001)
4. Difference between Suspension of Payments Proceedings and Rehabilitation
Proceedings

B. INITIATION OF REHABILITATION PROCEEDINGS

1. Voluntary Proceedings
Sec. 4 (rr)
a. Petition to Initiate Voluntary Rehabilitation Proceedings
(Sec. 12)
(1) Approval Required for the Filing of the Petition
(2) Formal Requirements for the Petition
(3) Joint Filing of Petition
Sec. 4 (n), Sec. 4 (aa), Sec. 4 (oo), Sec. 4 (b)
2. Involuntary Proceedings
Sec. 4 (r)
a. Circumstances Necessary to Initiate Involuntary Proceedings
Sec. 13
b. Petition to Initiate Involuntary Proceedings
Sec. 14

C. COURT ACTION ON THE PETITION and COMMENCEMENT OF

PROCEEDINGS

1. Action on the Petition

Sec. 15

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 a. When Petition is Sufficient
2. Commencement of Proceedings and Issuance of Commencement Order
Sec. 16
a. Jurisdictional Importance of “Commencement Date”
Sec. 4 (d)
b. Contents of Commencement Order
(1) As to the Debtor
(2) As to the Appreciation of the Petition
(3) As to the Legal Effects of the Commencement Order
(4) On the In-Rem Nature of the Proceedings to be Pursued
(5) As to Creditors and Other Interested Parties
(6) Appoint a Rehabilitation Receiver
(7) Set the Case for Initial Hearing
Administrative Expense, Sec. 4 (a)
c. Effects of Commencement Order
Sec. 17

(1) Vesting of Powers on the Rehabilitation Receiver

(2) On Claims and Proceedings Against the Debtor Outside of
the Proceedings
(3) Consolidate the resolution of all legal proceedings by and
against the debtor to the rehabilitation court
BIR v. Lepanto Ceramics, Inc. G.R. No. 22764, 24 April 2017
(4) Waiver of Taxes and Fees
Sec. 19
Sec. 20
d. Stay or Suspension Order
Sec. 4 (c)
Exceptions to the Stay/Suspension Order
Sec. 18
Alemar’s Sibal v. Elbinias, 186 SCTA 94 (1990)
Ruby Industrial Corp. v. Court of Appeals, 284 SCRA 445 (1998)
Bank of P.I. v. Court of Appeals, 229 SCTA 223 (1994)
Tyson’s Super Concrete v. Court of Appeals, 461 SCRA 469 (2005)
Trader’s Royal Bank v. Court of Appeals, 177 SCRA 788 (1989)
e. Effectivity and Duration of Commencement Order
Sec. 21
f. Action at the Initial Hearing
Sec. 22
Sec. 23
g. Report of the Rehabilitation Receiver
Sec. 24
h. Giving Due Course to or Dismissal of Petition or Conversion of
Proceedings
Sec. 25
Sec. 26
Sec. 27
3. The Rehabilitation Receiver
Sec. 4 (hh)
a. Initial Appointment of the Rehabilitation Receiver
Sec. 30
b. Who may serve as a Rehabilitation Receiver

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 Sec. 28
c. Qualifications of a Rehabilitation Receiver
Sec. 29
Section 30
d. Oath and Bond of the Rehabilitation Receiver
Sec. 34
e. Power, Duties and Responsibilities of the Rehabilitation
Receiver
Sec. 31
f. Compensation and Terms of Service
Sec. 33
g. Removal of the Rehabilitation Receiver
Sec. 32
h. Vacancy
Sec. 35
4. The Management Committee
Sec. 37
Jacinto v. First Women’s Credit, 410 SCRA 140 (2003)
Section 38
5. Power and Inhibition on the Rehabilitation Receiver or Management
Committee
a. Employment of Professionals
Sec. 39
b. Conflict of Interest
Sec. 40
c. Immunity
Sec. 41
6. Creditors’ Committee
Sec. 42
a. Formation of Committee
b. Role of Creditors’ Committee
Sec. 43
7. Determination of Claims
a. Registry of Claims
Sec. 44
b. Opposition or Challenge of Claims
Sec. 45
Sec. 46

D. GOVERNANCE OF THE BUSINESS OF THE DEBTOR

1. Management of the Debtor’s Business

a. General Rule: Management-in-Place
Sec. 47
b. Displacement of Existing Management
Sec. 36
2. Use, Preservation and Disposal of Assets and Treatment of Assets and Claims
after Commencement Date
a. Use or Disposition of Assets
Sec. 48
b. Sale of Assets
Sec. 49

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 c. Sale or Disposal of Encumbered Property of the Debtor and
Assets of Third Parties Held by Debtor
Sec. 50
Sec. 4 (l)
Sec. 4 (ee)
d. Assets of Debtor Held by Third Parties
Sec. 51
e. Rescission of Nullity of Sale, Payment, Transfer or
Conveyance of Assets
Sec. 52
Sec. 4 (cc)
f. Assets Subject to Rapid Obsolescence, Depreciation and
Diminution of Value
Sec. 53
g. Post-Commencement Interest
Sec. 54
h. Post-Commencement Loans and Obligations
Sec. 55
i. Treatment of Employees, Claims
Sec. 56
j. Treatment of Contracts
Sec. 57
3. Avoidance Proceedings
a. Rescission or Nullity of Certain Pre-Commencement
Transactions
Sec. 58
Sec. 4 (q)
b. Actions for Rescission or Nullity
Sec. 59
4. Treatment of Secured Creditors
a. No diminution of Secured Creditor Rights
Sec. 60
b. Pre-FRIA Jurisprudence
NDC v. Philippine Veterans Bank, 192 SCRA 257 (1990)
RCBC v. Court of Appeals, 320 SCTA 279 (1999)
Metropolitan Bank & Trust Co. v. ASB Holdings, Inc., 517 SCRA 1 (2007)
Express Investments III v. Bayan Telecommunications, 687 SCRA 50 (2013)
c. Lack of Adequate Protection
Sec. 61
5. Administration of Proceedings
a. Contents of a Rehabilitation Plan
Sec. 62
Sec. 4 (ii)
Phil. Asset Growth Two, Inc. v. Fastech Synergy Phils., 794 SCRA 625 (296)
b. Consultation with Debtors and Creditors
Sec. 63
c. Proceedings on Creditors’ Approval and Objection of
Rehabilitation Plan
Sec. 64
(1) Notification by Rehabilitation Receiver
(2) Convening of Creditors
(3) When Creditors Approve the Plan

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 Sec. 65
(4) When Creditors Reject the Plan; Court may “Cram
Down” of the Plan
Bank of the Philippine Island v. Sarabia Manor Hotel, 702 SCRA 432
(2013)
Section 64
(5) Objections to Rehabilitation Plan
Sec. 66
(6) Hearing on the Objections
Sec. 67
(7) Confirmation of the Rehabilitation Plan
Sec. 68
(8) Period for Confirmation of the Plan
Sec. 72
d. Effects of Confirmation of the Rehabilitation Plan
Sec. 69
Veterans Philippine Scout Security Agency v. First Dominion Prime Holdings,
679 SCRA 168 (2012)
Panlilio v. RTC, Br. 51, City of Manila, 641 SCRA 438 (2011)
e. Liability of General Partners of a Partnership for Unpaid Balances under
an Approved Plan
Sec. 70
f. Treatment of General Partners of a Partnership for Unpaid Balances
under an Approved Plan
Sec. 71
g. Accounting Discharge of Rehabilitation Receiver
Sec. 73
6. Termination of Proceedings
Sec. 74
a. In case of Breach, or Failure of the Plan
b. Effects of Termination
Sec. 75

7. Appeal in Rehabilitation Proceedings

New Frontier Sugar Corp. v. RTC, Branch 39, Iloilo City, 513 SCRA 601 (2007)

III. PRE-NEGOTIATED REHABILITATION

1. Petition by Debtor
Sec. 76
a. The Petitioner and Requisite Creditor’s Endorsement
b. Form of the Petition
c. Period for Approval of the Rehabilitation Plan
Sec. 81
2. Issuance of Order
Sec. 77
3. Approval of the Plan
Sec. 78
4. Objection to the Petition or Rehabilitation Plan
Sec. 79
5. Hearing on the Objections
Sec. 80

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 6. Effect of Approval
Sec. 82

IV. OUT-OF-COURT or INFORMAL RESTRUCTURING AGREEMENTS or

REHABILITATION PLANS
(“CHAPTER IV” SCHEME)

Sec. 83
1. Minimum Requirements for Chapter III Scheme
Sec. 84
2. Standstill Period
Sec. 85
3. Cram Down Effect
Sec. 86
4. Amendment or Modification
Sec. 87
5. Effect of Court Action or Other Proceedings
Sec. 88
6. Court Assistance
Sec. 89

V. SUSPENSION OF PAYMENTS PROCEEDINGS FOR INDIVIDUAL DEBTORS

1. FRIA recognizes Suspension of Payments Proceedings only for Individual

Debtors
a. Individual Debtor - Sec. 4 (o)
b. Meaning of “Insolvent” - Sec. 4 (p)
Sec. 4 (y)
2. Suspension of Payment Proceedings
a. Petition
Sec. 94
b. Court Action on the Petition
Sec. 95
c. Action Suspended
Sec. 96
3. Creditors Meeting
Sec. 97
a. Conduct of Creditor’s Meeting
Sec. 4 (s)
(1) Quorum
Sec. 97
(2) Officers at the Meeting
(3) Proceedings and Voting on the Propositions
Sec. 98
Sec. 99
(4) Objections
Sec. 100
(5) Effects of Approval of Proposed Agreement
Sec. 101

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 (6) Creditors Not Affected
(7) Failure of Individual Debtor to Perform Agreement
Sec. 102

VI. LIQUIDATION IN INSOLVENCY PROCEEDINGS

1. Voluntary Liquidation
Sec. 90
a. Debtor Initiated Liquidation Proceedings
b. Conversion from Rehabilitation Proceedings
c. Issuance of the Liquidation Order
2. Involuntary Liquidation
Sec. 91
a. Creditor-Initiated Liquidation Proceedings
b. Conversion of Rehabilitation Proceedings
c. Action on the Petition/Motion
3. Powers of the SEC
Sec. 93

B. INSOLVENCY OF INDIVDUAL DEBTORS

1. Voluntary Liquidation in Insolvency

a. Application (Sec. 103)
b. Issuance of the Liquidation Order
Sec. 104
2. Involuntary Liquidation in Insolvency
a. Petition
Sec. 105
(1) Standing of Foreign Creditors to File a Petition
State Investment House v. Citibank, 203 SCRA 9 (1991)
b. Acts of Insolvency
Sec. 105
c. Order to Individual Debtor to Show Cause
Sec. 106
d. Issuance of the Liquidation Order
Sec. 107
e. Taking Custody of Debtor’s Asset by Sheriff
(1) Grounds upon which creditor may seek Levy of Debtor’s
Assets
Sec. 108
Sec. 109
(2) Duty of Sheriff
Sec. 108
Sec. 109
(3) Appeal from the Order of Levy
Sec. 109
(4) Exception Taken on the Sureties
Sec. 109
(5) Sale Under Execution
Sec. 110

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C. LIQUIDATION ORDER and IMPLEMENTATION

Metropolitan Bank v. S.F. Naguiat Enterprises, Inc., 753 SCRA 474 (2015)
1. The Liquidation Order
Sec. 112
a. Effects of the Liquidation Order
Sec. 113
b. Rights of Secured Creditors
Sec. 114
2. The Liquidator
a. Who is qualified to be a Liquidator?
Sec. 4 (w)
Sec. 118
b. Election of Liquidator
Sec. 115
c. Court-Appointed Liquidator
Sec. 116
d. Oath and Bond of the Liquidator
Sec. 117
e. Powers, Duties and Responsibilities of the Liquidator
Sec. 119
f. Compensation of the Liquidator
Sec. 120
g. Reporting Requirements for the Liquidator
Sec. 121
h. Removal of the Liquidator
Sec. 123
i. Discharge of Liquidator
Sec. 122
3. Determination of Claims
a. Registry of Claims
Sec. 123
b. Right of Set-Off
Sec. 124
c. Opposition or Challenge to Claims
Sec. 125
d. Submission of Disputed Claims to the Court
Sec. 126
4. Avoidance Proceedings
a. Rescission or Nullity of Certain Transactions
Sec. 127
b. Actions for Rescission or Nullity
Sec. 128
5. The Liquidation Plan
a. The Liquidation Plan
Sec. 129
b. Exempt Property to be Set Apart
Sec. 130
c. Sale of Assets in Liquidation
Sec. 131
d. Liquidation of a Securities Market Participant

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 Sec. 136
e. Manner of Implementing the Liquidation Plan
Sec. 132
f. Order Removing the Debtor from the SEC List
Sec. 134
g. Termination of Proceedings
Sec. 135

D. PREFERENCES and CONCURRENCES of CREDITS

1. Concurrence and Preference of Credits

Sec. 133
Pacific Coast v. Chinese Groceries Assn., 65 Phil. 375 (1938)
2. Preferred Claims under Civil Code
a. Article 2241
Art. 2246
Art. 2247
Arabesque Industrial Phil. v. Court of Appeals, 216 SCRA 602 (1992)
b. Article 2242
Art. 2248
Art. 2249
Baretto v. Villanueca, 1 SCRA 288 (1961)
c. Art. 2243
Art. 2250
State Investment House v. Court of Appeals, 277 SCRA 209 (1997)
d. Art. 2244
e. Art. 2245

E. CROSS-BORDER INSOLVENCY PROCEEDINGS

1. Adoption of UNCITRAL Model Law on Cross-Border Insolvency

Sec. 139
2. Procedures for Cross-Border Insolvency Proceedings
a. Initiation of Proceedings
Sec. 212
b. Provisional Relief
Sec. 141
c. Factors in Granting Relief
Sec. 142

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