REFLECTIVE ESSAY

Financial Rehabilitation and Insolvency Act

1. When is suspension of payment be applied?

- Suspension of payment shall only be applied by an individual debtor whose liabilities are
greater than its assets. Being insolvent is not necessary however, if the debtor foresees that
paying his debt is impossible once due date approaches. Once applied, payment of obligation is
suspended however, it does not mean that the debtor is entirely free from his obligation.

2. What is the difference between rehabilitation and liquidation?

- In rehabilitation, only the juridical person can apply-- such as sole proprietorship,
partnership, and corporation; and its goal is to resuscitate or restore the debtor by maintaining
the assets in order for the business operations to continue. On the other hand, Liquidation shall
be filed either by a natural or a juridical person; if debtor is indeed proven insolvent, he shall
undergo the process of liquidation; it requires the debtor to sell all assets and distribute to
creditors.

3. How much is the minimum liability or obligation in order for suspension of payment,
rehabilitation, and liquidation of an individual debtor be granted by the court?
- Having a minimum liability is not necessary in applying for suspension of payment for the
court to grant the request. However, in rehabilitation, it requires an aggregate of Php 1,000,000
or 25% of the subscribed capital stock or contribution of the partners, whichever is higher. As
for liquidation, the minimum liability must be at least Php 100,000 for insolvent debtor and Php
1,000,000 for juridical person.

4. What is the effect of Suspension of Payment?

- After applying for SOP, it is not necessary for the debtor to be proven insolvent. Once
granted, the debtor’s obligation is stopped or stayed however, it does not mean the obligation
is already discharged. Once the court issued a suspension order, it would suspend all actions or
proceedings enforced by the court against the debtor; suspend all action to enforce any
judgement, attachment or provisional remedies against the debtor; prohibit the debtor from
selling, transferring, or disposing any properties (except properties from the ordinary course of
business; and prohibit any payment of outstanding liabilities by the debtor.

5. What are the three types of Rehabilitation?

- In (1) Court Supervised Rehabilitation, as the term suggests, it is managed by the court
wherein debtor is the one who applies for insolvency if voluntary rehabilitation or creditor
applies if it is an involuntary rehabilitation; (2) Pre-negotiated Rehabilitation, it is the insolvent
debtor or with the creditors that files a petition in the court that is subject for approval by the
creditor; Lastly, (3) Out of Court Rehabilitation. Generally, rehabilitation is not supervised by
the court hence, an agreement or rehabilitation plan may occur between the creditor and
debtor.
6. Discuss the different kinds of creditor.
- Creditor generally refer to a natural or juridical person that debtor has an obligation to.
General Unsecured Creditor with Priority, regardless of having no pledged attached, are paid.
On the other hand, General Unsecured without Priority are satisfied only when secured and
unsecured creditors with priority are settled. As for fully secured creditor, an asset is pledged as
a security. There is a lien and they can claim the debtors real or personal property. In partially
secured creditor, the asset pledged covers only partial or less than the value of the obligation.