GROUP 6

ATUPAN , JOHN NANDREIAN

ALCOVINDAS , SHEENA
BALAHADIA , CHARLES MARTIN JOSEPH
DE PAZ , JERIMAE
LUNGAYAN , MICHELLE
MONTESCLAROS , MICHELLE
FAYE , TABITHA
THE FINANCIAL REHABILITATION
AND INSOLVENCY ACT
(RA 10142)
INTRODUCTION

• THE FINANCIAL REHABILITATION AND INSOLVENCY ACT OF 2010 (FRIA)

TOOK EFFECT ON AUGUST 31, 2010 WHICH REPEALED THE INSOLVENCY LAW.
FRIA CONTAINS THREE MAIN PARTS:
• (III) INSOLVENCY
• (II) REHABILITATION
• (III) LIQUIDATION
PURPOSE AND SCOPE

SECTION 2
• ) TO ENCOURAGE DEBTORS, BOTH JURIDICAL AND NATURAL PERSONS, AND
THEIR CREDITORS TO COLLECTIVELY AND REALISTICALLY RESOLVE
AND ADJUST COMPETING CLAIMS AND PROPERTY RIGHTS.
• 2) TO ENSURE A TIMELY, FAIR, TRANSPARENT, EFFECTIVE AND EFFICIENT
REHABILITATION OR LIQUIDATION OF DEBTORS.
• 3) TO ENSURE OR MAINTAIN CERTAINLY AND PREDICTABILITY IN
COMMERCIAL AFFAIRS, PRESERVE AND MAXIMIZE THE VALUE OF THE
ASSETS OF THESE DEBTORS, RECOGNIZE CREDITOR RIGHTS AND
RESPECT PRIORITY OF CLAIMS, AND ENSURE EQUITABLE TREATMENT OF
CREDITORS WHO ARE SIMILARLY SITUATED.
• 4) WHEN REHABILITATION IS NOT FEASIBLE, TO FACILITATE A SPEEDY AND
ORDERLY LIQUIDATION OF THESE DEBTOR'S ASSETS AND THE
SETTLEMENT OF THEIR OBLIGATION
1) INSOLVENCY (SECTION 4)

• UNDER THE FRIA, THE TERM “INSOLVENT” REFERS TO THE FINANCIAL

CONDITION OF A DEBTOR THAT IS GENERALLY UNABLE TO PAY ITS OR HIS
LIABILITIES AS THEY FALL DUE IN THE ORDINARY COURSE OF BUSINESS OR
HAS LIABILITIES THAT ARE GREATER THAN ITS OR HIS ASSETS. THUS, THE
TERM “INSOLVENT” COVERS BOTH BANKRUPTCY AND ILLIQUIDITY.
• IN DETERMINING WHETHER THE DEBTOR’S LIABILITIES ARE GREATER THAN
HIS ASSETS, REFERENCE MUST BE MADE TO THE FAIR VALUATION OF HIS
ASSETS. THE DEBTOR’S ASSETS MUST NOT, AT FAIR VALUATION, BE
SUFFICIENT TO PAY HIS DEBTS.
I. KINDS OF DEBTORS AND AVAILABLE REMEDIES

1. INDIVIDUAL DEBTOR – NATURAL PERSON

A. SUSPENSION OF PAYMENTS
B. LIQUIDATION
2. JURIDICAL DEBTOR –
(1) SOLE PROPRIETORSHIP REGISTERED WITH DTI;
(2) PARTNERSHIP REGISTERED WITH SEC;
(3) CORPORATION DULY INCORPORATED UNDER THE RCCP
A. REHABILITATION
B. LIQUIDATION
•
• KINDS OF INSOLVENCY (SECTION 4)
1. TECHNICAL INSOLVENCY – GENERALLY UNABLE TO PAY LIABILITIES AS
THEY FALL DUE IN THE ORDINARY COURSE OF BUSINESS
2. ACTUAL INSOLVENCY – ASSETS ARE LESS THAN THE LIABILITIES
EXCLUSIONS FROM FRIA (SECTION 5)
1. BANKS, QUASI-BANKS, AND ENTITIES SUBJECT TO CONSERVATORSHIP,
RECEIVERSHIP AND LIQUIDATION UNDER THE PROVISIONS OF NCBA AND PDIC LAW;
2. INSURANCE COMPANIES
3. PRE-NEED COMPANIES
4. NATIONAL AND LOCAL GOVERNMENT UNITS
A. EXCEPT:
(1) NON-BANK GOVERNMENT FINANCIAL INSTITUTIONS (GFIS)
(2) GOVERNMENT OWNED AND CONTROLLED CORPORATIONS (GOCCS)
II. SUSPENSION OF PAYMENTS
• GROUND:
WHEN AN INDIVIDUAL DEBTOR HAVING SUFFICIENT PROPERTY
TO COVER ALL HIS DEBTS
➢ BUT FORESEES THE IMPOSSIBILITY OF MEETING THEM WHEN
THEY RESPECTIVELY FALL DUE

• APPLIES TO INDIVIDUAL DEBTOR ONLY

• WHERE TO FILE: COURT OF PROVINCE OR CITY WHERE

INDIVIDUAL DEBTOR RESIDES
PETITION FOR SUSPENSION OF PAYMENTS (SECTION 95)

(1) SCHEDULE OF DEBTS AND LIABILITIES (INCLUDING NAMES OF CREDITORS)

(2) INVENTORY OF ASSETS
(3) PROPOSED AGREEMENT WITH CREDITORS
- IF SUFFICIENT IN FORM AND SUBSTANCE → ORDER CALLING A CREDITOR’S
MEETING
• PUBLICATION 1 X 2
• SENDING BY REGISTERED MAIL
• EFFECT:
• PROHIBITION TO DISPOSE OR ENCUMBER EXCEPT FOR ORDINARY COURSE OF BUSINESS
• PROHIBITION TO MAKE UNRELATED OR UNNECESSARY PAYMENTS
MOTION FOR SUSPENSION OF EXECUTION (SECTION 96)

MOTION FILED BY INDIVIDUAL DEBTOR

• NOT EFFECTIVE: AGAINST PROPERTIES HELD AS SECURITY BY
SECURED CREDITORS
• LAPSES: IF WITHIN 3 MONTHS, PROPOSED AGREEMENT NOT
ACCEPTED OR DENIED
EFFECT OF FILING PETITION FOR SUSPENSION (SECTION 96)

➢ PROHIBITION FROM ENFORCEMENT OF CLAIMS: CREDITORS ARE

PROHIBITED TO SUE OR INSTITUTE PROCEEDINGS TO COLLECT HIS
CLAIM FROM THE DEBTOR
➢ FROM THE TIME OF THE FILING OF PETITION
CONDITIONS FOR THE APPROVAL OF SUSPENSION OF PAYMENT
(SECTION 97)

✓ REQUIRED QUORUM: CREDITORS REPRESENTING AT LEAST 3/5

OF LIABILITIES
✓ DOUBLE MAJORITY RULE. – THE PROPOSED AGREEMENT FOR
SUSPENSION OF PAYMENT SHOULD BE APPROVED
• BY AT LEAST 2/3 OF THE CREDITORS O
• WHICH REPRESENTS AT LEAST 3/5 OF THE TOTAL LIABILITIES
EFFECT OF APPROVAL OF AGREEMENT (SECTION 101)

• ➢ COURT SHALL ORDER THE AGREEMENT BE CARRIED OUT AND

ALL PARTIES BOUND THEREBY TO COMPLY
• ➢ BINDING EFFECT: TO ALL CREDITORS WHOSE CLAIMS ARE
INCLUDED IN THE SCHEDULE
WHEN DEEMED REJECTED (SECTION 99)

• ✓ GROUNDS:
1. LACK OF QUORUM SUCH AS WHEN REQUIRED NUMBER OF
CREDITORS ARE NOT PRESENT;
2. DOUBLE MAJORITY RULE IS NOT MET TO APPROVE THE
AGREEMENT
✓ EFFECT:
• PROCEEDINGS SHALL BE TERMINATED
• PARTIES CONCERNED AT LIBERTY TO ENFORCE RIGHTS
CORRESPONDING TO THEIR CLAIM
 2) REHABILITATION

• REHABILITATION REFERS TO 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.
OBJECTIVE OF CORPORATE REHABILITATION

• TO ENABLE THE COMPANY TO GAIN A NEW

LEASE ON LIFE AND THEREBY ALLOW
CREDITORS TO BE PAID THEIR CLAIMS FROM ITS
EARNINGS (PBC V. BASIC POLYPRINTERS [2014])
BPI FAMILY SAVINGS BANK V. ST. MICHAEL
MEDICAL CENTER
G.R. NO. 205469, MARCH 25, 2015
• IN OTHER WORDS, REHABILITATION ASSUMES THAT THE CORPORATION HAS
BEEN OPERATIONAL BUT FOR SOME REASONS LIKE ECONOMIC CRISIS OR
MISMANAGEMENT HAD BECOME DISTRESSED OR INSOLVENT, I.E., THAT IT IS
GENERALLY UNABLE TO PAY ITS DEBTS AS THEY FALL DUE IN THE ORDINARY
COURSE OF BUSINESS OR HAS LIABILITY THAT ARE GREATER THAN ITS
ASSETS. THUS, THE BASIC ISSUES IN REHABILITATION PROCEEDINGS
CONCERN THE VIABILITY AND DESIRABILITY OF CONTINUING THE BUSINESS
OPERATIONS OF THE DISTRESSED CORPORATION, ALL WITH A VIEW OF
EFFECTIVELY RESTORING IT TO A STATE OF SOLVENCY OR TO ITS FORMER
HEALTHY FINANCIAL CONDITION THROUGH THE ADOPTION OF A
REHABILITATION PLAN.
I. TYPES OF REHABILITATION PROCEEDINGS:

1) COURT-SUPERVISED REHABILITATION:
a. VOLUNTARY
b. INVOLUNTARY
2) PRE-NEGOTIATED REHABILITATION
3) OUT-OF-COURT OR INFORMAL RESTRUCTURING
1) COURT SUPERVISED REHABILITATION

a. VOLUNTARY COURT-SUPERVISED REHABILITATION

VOLUNTARY PROCEEDINGS MAY BE INITIATED BY AN INSOLVENT
DEBTOR THROUGH FILING A PETITION FOR REHABILITATION
WITH THE COURT AND ON THE GROUNDS PROVIDED UNDER THE
FRIA.
INITIATION OF VOLUNTARY REHABILITATION PROCEEDINGS
(SECTION 12)

WHO FILES: FILED BY INSOLVENT DEBTOR

APPROVED BY:
• IF SOLE PROPRIETORSHIP → BY OWNER
• IF PARTNERSHIP → MAJORITY OF THE PARTNERS
• IF CORPORATION → 2/3 OF THE OUTSTANDING CAPITAL STOCK;
OR MEMBERS (IF NON-STOCK)
B. INVOLUNTARY COURT-SUPERVISED REHABILITATION
ANY CREDITOR OR GROUP OF CREDITORS WITH A CLAIM OF, OR
THE AGGREGATE OF WHOSE CLAIMS IS, AT LEAST ONE MILLION
PESOS (PHP1,000,000.00) OR AT LEAST TWENTY-FIVE PERCENT (25%)
OF THE SUBSCRIBED CAPITAL STOCK OR PARTNERS’
CONTRIBUTIONS, WHICHEVER IS HIGHER, MAY INITIATE
INVOLUNTARY PROCEEDINGS AGAINST THE DEBTOR BY FILING A
PETITION FOR REHABILITATION WITH THE COURT
INITIATION OF INVOLUNTARY REHABILITATION PROCEEDINGS
(SECTION 13)
• WHO FILES?
FILED BY CREDITOR OR GROUP OF CREDITORS WITH A CLAIM OF, OR THE AGGREGATE OF WHOSE
CLAIMS
1. AT LEAST P1 MILLION; OR
2. AT LEAST 25% OF THE SUBSCRIBED CAPITAL STOCK WHICHEVER IS HIGHER
•
• CONDITIONS OF FILING:
1. NO GENUINE ISSUE OF FACT OR LAW ON THE CLAIM/S AND THAT THE DUE AND DEMANDABLE
PAYMENT NOT BEEN MADE AT LEAST 60 DAYS OR THAT THE DEBTOR HAS FAILED TO MEET
LIABILITIES WHEN THEY FALL DUE;
2. WHEN A NON-PETITIONER CREDITOR HAS INITIATED FORECLOSURE PROCEEDINGS THAT WILL
PREVENT THE DEBTOR FROM PAYING ITS DEBTS OR WILL RENDER IT INSOLVENT
2) PRE-NEGOTIATED REHABILITATION PLAN
(SECTION 76)
• THE SECOND WAY OF REHABILITATION IS THE PRE-NEGOTIATED. UNDER THIS
PRECEDING, AN INSOLVENT DEBTOR, BY ITSELF OR JOINTLY WITH ANY OF
ITS CREDITORS, MAY FILE A VERIFIED PETITION WITH THE COURT FOR THE
APPROVAL OF A PRE-NEGOTIATED REHABILITATION PLAN WHICH HAS BEEN
ENDORSED OR APPROVED BY CREDITORS HOLDING AT LEAST TWO-THIRDS
(2/3) OF THE TOTAL LIABILITIES OF THE DEBTOR, INCLUDING SECURED
CREDITORS HOLDING MORE THAN FIFTY PERCENT (50%) OF THE TOTAL
SECURED CLAIMS OF THE DEBTOR AND UNSECURED CREDITORS HOLDING
MORE THAN FIFTY PERCENT (50%) OF THE TOTAL UNSECURED CLAIMS OF
THE DEBTOR.
WHO MAY FILE?
AN INSOLVENT DEBTOR, BY ITSELF OR JOINTLY WITH ANY OF ITS CREDITORS, MAY FILE A
VERIFIED POSITION WITH THE COURT FOR THE APPROVAL OF A PRE-NEGOTIATED
REHABILITATION PLAN.
a) WITH RESPECT TO THE DEBTOR, THE FILING OF THE PETITION MUST BE AUTHORIZED BY:
i. THE OWNER, IN CASE OF A SOLE PROPRIETORSHIP;
ii. II. THE MAJORITY OF PARTNERS IN A PARTNERSHIP; OR
iii. III. THE MAJORITY VOTE OF THE BOARD OF DIRECTORS/TRUSTEES AND BY THE VOTE OF
STOCKHOLDERS REPRESENTING 2/3 OF THE OUTSTANDING CAPITAL STOCK OR MEMBERS
B. APPROVAL
THE PRE-NEGOTIATED REHABILITATION PLAN MUST HAVE BEEN APPROVED BY
CREDITORS HOLDING AT LEAST 2/3 OF THE TOTAL LIABILITIES OF THE DEBTOR,
INCLUDING SECURED CREDITORS HOLDING MORE THAN 50% OF THE TOTAL
SECURED CLAIMS OF THE DEBTOR AND SECURED CREDITORS HOLDING MORE
THAN 50% OF THE TOTAL UNSECURED CLAIMS OF THE DEBTOR.
EFFECT OF APPROVAL (SECTION 82):
HAS THE SAME LEGAL EFFECT OF APPROVING A PLAN IN REHABILITATION
PROCEEDINGS
3) OUT-OF-COURT OR INFORMAL RESTRUCTURING
AGREEMENT OR REHABILITATION PLAN

• OUT OF COURT RESTRUCTURING AGREEMENTS (OCRA) OR REHABILITATION

PLAN IS A REHABILITATION PLAN AGREED UPON BY THE DEBTOR AND
THE REQUIRED NUMBER OF CREDITORS. OCRA NEED NOT BE
SUBMITTED TO THE COURT FOR APPROVAL.
MINIMUM REQUIREMENTS (SECTION 84)

1. DEBTOR MUST AGREE

2. AT LEAST 85% OF THE CREDITORS REPRESENTING THE TOTAL LIABILITIES
HAVE APPROVED:
A. AT LEAST 75% OF UNSECURED OBLIGATIONS;
B. AT LEAST 67% OF THE SECURED OBLIGATIONS
STANDSTILL PERIOD (SECTION 85)
• STANDSTILL PERIOD REFERS TO THE PERIOD AGREED UPON BY THE DEBTOR AND
ITS CREDITORS TO ENABLE THEM TO NEGOTIATE AND ENTER INTO AN OCRA

REQUISITES:
(a) THE STANDSTILL PERIOD AGREEMENT IS APPROVED BY MORE THAN 50% OF
THE TOTAL LIABILITIES
(b) NOTICE PUBLISHED 1 X 2 GENERAL CIRCULATION IN THE PHILIPPINES
(c) FOR A PERIOD NOT EXCEEDING 120 DAYS
MINIMUM REQUIREMENTS OF NOTICE OF STANDSTILL
AGREEMENTS:
• THE DEBTOR MUST AGREE TO THE OUT-OF-COURT OR INFORMAL
RESTRUCTURING/WORKOUT AGREEMENT OR REHABILITATION PLAN;
• IT MUST BE APPROVED BY CREDITORS REPRESENTING AT LEAST SIXTY-SEVEN
(67%) OF THE SECURED OBLIGATIONS OF THE DEBTOR;
• IT MUST BE APPROVED BY CREDITORS REPRESENTING AT LEAST SEVENTY-
FIVE PERCENT (75%) OF THE UNSECURED OBLIGATIONS OF THE DEBTOR; AND
• IT MUST BE APPROVED BY CREDITORS HOLDING AT LEAST EIGHTY-FIVE
PERCENT (85%) OF THE TOTAL LIABILITIES, SECURED AND UNSECURED, OF
THE DEBTOR.
• EFFECT OF APPROVAL: IF APPROVED PURSUANT TO AN INFORMAL WORKOUT
FRAMEWORK
➢ SHALL HAVE THE SAME EFFECT AS A CONFIRMATION OF A PLAN
➢ PUBLISHED 1 X 3 GENERAL CIRCULATION IN THE PHILIPPINES
➢ TAKES EFFECT 15 DAYS FROM THE DATE OF THE LAST PUBLICATION OF
NOTICE
II. COMMENCEMENT ORDER (ISSUANCE OF A
COMMENCEMENT ORDER, SECTION 16)
EFFECTS OF A COMMENCEMENT ORDER
(SECTION 17)
• 1. VESTS REHABILITATION RECEIVER THE POWER, INCLUDING THE POWER TO OBTAIN
RECORDS, BANK ACCOUNTS
• 2. PROHIBIT OR SERVE AS LEGAL BASIS TO RENDER NULL AND VOID ANY
EXTRAJUDICIAL ACTIVITY TO POSSESS, SEIZE, SELL ENCUMBERED PROPERTY, ATTEMPT
TO COLLECT, OR ENFORCE CLAIM AFTER THE COMMENCEMENT DATE
• 3. SERVE AS LEGAL BASIS TO RENDER NULL AND VOID ANY SETOFF (COMPENSATION)
AFTER COMMENCEMENT DATE
• 4. SERVE AS LEGAL BASIS TO RENDER NULL AND VOID PERFECTION OF ANY LIEN
AGAINST DEBTOR’S PROPERTY AFTER THE COMMENCEMENT DATE
• 5. CONSOLIDATE THE RESOLUTION OF ALL LEGAL PROCEEDING BY AND AGAINST THE
DEBTOR TO THE [INSOLVENCY] COURT → BUT THE COURT MAY ALLOW CONTINUATION
OF OTHER CASES
EFFECTS OF STAY ORDER SUSPENSION (SECTION 16)

1. SUSPENDS ALL ACTIONS FOR ENFORCEMENT OF CLAIMS, IN COURT OR OTHERWISE

2. SUSPENDS ALL ACTIONS FOR JUDGMENT, ATTACHMENT, OR OTHER PROVISIONAL
REMEDIES AGAINST DEBTOR
3. PROHIBITS DEBTOR FROM SELLING, TRANSFERRING, ENCUMBERING, OR
OTHERWISE DISPOSING OF PROPERTY EXCEPT IN THE ORDINARY COURSE OF
BUSINESS 4. PROHIBITS DEBTOR FROM MAKING ANY PAYMENT OF LIABILITIES
OUTSTANDING AS OF COMMENCEMENT DATE

NOTE: APPLIES TO GOVERNMENT FINANCIAL INSTITUTIONS NOTWITHSTANDING

THEIR CHARTER OR OTHER LAWS (SECTION 20)
IV. REHABILITATION RECEIVER
APPOINTMENT OF REHABILITATION RECEIVER (SECTION 28)
1. ANY QUALIFIED NATURAL OR JURIDICAL PERSON
2. IN CASE OF JURIDICAL PERSON – DESIGNATE A QUALIFIED NATURAL PERSON
(SOLIDARY LIABILITY)

NOTE: THE COURT HAS DISCRETION ON WHETHER TO APPOINT FROM THE

NOMINEE LISTED IN THE PETITION. HOWEVER, THE COURT SHALL APPOINT THE
CREDITOR’S NOMINEE AS REHABILITATION RECEIVER WHEN:
➢ SUCH QUALIFIED PERSON IS NOMINATED BY MORE THAN 50% OF THE
SECURED CREDITORS AND THE GENERAL UNSECURED CREDITORS AND
SATISFACTORY EVIDENCE IS SUBMITTED (SECTION 30).
POWERS, DUTIES, AND RESPONSIBILITIES OF THE
REHABILITATION RECEIVER (SECTION 31)

✓ AN OFFICER OF THE COURT

✓ PRINCIPAL DUTY:
PRESERVING AND MAXIMIZING THE VALUE OF THE ASSETS OF THE DEBTOR DURING
THE REHABILITATION PROCEEDINGS, DETERMINING VIABILITY AND PREPARING
AND IMPLEMENTING THE REHABILITATION PLAN
NOTE:
NOT TO TAKE CONTROL OR MANAGEMENT. THE REHABILITATION RECEIVER SHALL
NOT TAKE OVER THE MANAGEMENT OR CONTROL OF THE DEBTOR BUT MAY
RECOMMEND THE APPOINTMENT OF A MANAGEMENT COMMITTEE.
VI. REHABILITATION PLAN

• REHABILITATION PLAN (SECTION 4[II])

PLAN BY WHICH THE FINANCIAL WELL-BEING AND VIABILITY OF AN
INSOLVENT DEBTOR CAN BE RESTORED USING VARIOUS MEANS, INCLUDING
BUT NOT LIMITED TO:
✓ DEBT FORGIVENESS
✓ DEBT RESCHEDULING
✓ REORGANIZATION OR QUASI-REORGANIZATION
✓ DACION EN PAGO ✓ DEBT-EQUITY CONVERSION
✓ SALE OF THE BUSINESS (OR PARTS OF IT) AS A GOING CONCERN
✓ SETTING UP A NEW BUSINESS ENTITY
EFFECT OF CONFIRMATION OF REHABILITATION PLAN
(SECTION 69)

BINDING EFFECT:
✓ DEBTOR; AND
✓ ALL CREDITORS WHO MAY BE AFFECTED BY IT
• INCLUDING CREDITORS WHETHER OR NOT SUCH HAVE PARTICIPATED IN THE
PROCEEDINGS OR OPPOSED THE PLAN
• WHETHER OR NOT THE CLAIMS HAVE BEEN SCHEDULED

CLAIMS ARISING AFTER APPROVAL OF THE PLAN

• ➢ NOT COVERED BY THE SUSPENSION ORDER
FAILURE OF REHABILITATION (SECTION 74)

(1) DISMISSAL OF PETITION

(2) (2) DEBTOR FAILS TO SUBMIT A REHABILITATION PLAN
(3) NO SUBSTANTIAL LIKELIHOOD THAT THE DEBTOR CAN BE REHABILITATED WITHIN A
REASONABLE PERIOD
(4) DEBTOR FAILS TO PERFORM OR FAILURE TO REALIZE OBJECTIVES WITHIN THE
TIMEFRAME
(5) COMMISSION OF FRAUD IN SECURING APPROVAL OF THE PLAN OR ITS AMENDMENTS
(6) OTHER ANALOGOUS CIRCUMSTANCE
EFFECTS OF TERMINATION (SECTION 75)

(1) DISCHARGE OF RECEIVER SUBJECT TO ACCOUNTING

(2) LIFTING OF STAY ORDER
(3) IF GROUND IS DUE TO
(A) FAILURE OF REHABILITATION
(B) DISMISSAL OF PETITION OTHER THAN TECHNICAL GROUNDS
→ PROCEEDINGS SHALL BE IMMEDIATELY CONVERTED TO
LIQUIDATION
APPROVAL AND REJECTION OF THE PLAN (SECTION 64)

REHABILITATION RECEIVER NOTIFIES THE CREDITORS AND STAKEHOLDERS

THAT THE PLAN IS READY FOR EXAMINATION
✓ CREDITORS ARE THEN CONVENED
✓ DEEMED APPROVED: VOTE BY MORE THAN 50% OF THAT TOTAL CLAIMS
• IF APPROVED → SUBMISSION FOR CONFIRMATION SUBJECT TO
OBJECTIONS
✓ DEEMED REJECTED: DID NOT REACH MORE THAN 50%
CONFIRMATION BY THE COURT DESPITE REJECTION
(SECTION 64)

• ALSO TERMED AS THE CRAM DOWN CLAUSE, NOTWITHSTANDING THE

REJECTION, THE COURT MAY CONFIRM THE PLAN PROVIDED THAT
(1) COMPLIES WITH THE REQUIREMENTS OF FRIA;
(2) REHABILITATION RECEIVER RECOMMENDS THE CONFIRMATION;
(3) SHAREHOLDERS, OWNERS OR PARTNERS LOSE AT LEAST THEIR
CONTROLLING INTEREST AS A RESULT;
(4) PLAN WOULD LIKELY PROVIDE OBJECTING CLASS OF CREDITORS NET
PRESENT VALUE RECOVERY GREATER THAN IF THERE WAS THAT OF
LIQUIDATION
3) LIQUIDATION

• LIQUIDATION IS THE PROCESS BY WHICH ASSETS ARE CONVERTED TO CASH.

A LIQUIDATOR IS A NATURAL PERSON OR JURIDICAL ENTITY APPOINTED AS
SUCH BY THE COURT AND ENTRUSTED WITH SUCH POWERS AND DUTIES AS
SET FORTH UNDER THE FRIA. IF THE LIQUIDATOR IS A JURIDICAL ENTITY, IT
MUST DESIGNATE A NATURAL PERSON WHO POSSESSES ALL THE
QUALIFICATIONS AND NONE OF THE DISQUALIFICATIONS AS ITS
REPRESENTATIVE, IT BEING UNDERSTOOD THAT THE JURIDICAL ENTITY AND
THE REPRESENTATIVE ARE SOLIDARITY LIABLE FOR ALL OBLIGATIONS AND
RESPONSIBILITIES OF THE LIQUIDATOR.
I. TYPES OF LIQUIDATION PROCEEDINGS
1. VOLUNTARY 2. INVOLUNTARY
LIQUIDATION LIQUIDATION
 LIQUIDATION OF INSOLVENT JURIDICAL DEBTOR
VOLUNTARY LIQUIDATION
(SECTION 90)
(1) INSOLVENT JURIDICAL DEBTOR FILES A
PETITION FOR LIQUIDATION
(2) ATTACH: [A] SCHEDULE OF DEBTS AND
LIABILITIES; [B] INVENTORY OF ASSETS; [C]
NOMINEE LIQUIDATORS
3) MOTION BY INSOLVENT DEBTOR TO
INITIATE LIQUIDATION PROCEEDINGS
PENDING COURT-SUPERVISED OR
PRENEGOTIATED REHABILITATION →
CONVERT TO LIQUIDATION; SEEKING
DISSOLUTION AND TERMINATION OF THE
CORPORATE EXISTENCE
INVOLUNTARY LIQUIDATION
(SECTION 91)
(1) PETITION FILED BY 3 OR MORE CREDITORS
(2) CLAIMS
• AT LEAST P1 MILLION; OR
• AT LEAST 25% OF THE SUBSCRIBED CAPITAL STOCK OR
PARTNER’S CONTRIBUTIONS WHICHEVER IS HIGHER
(3) AND MUST SHOW THAT
[A] NO GENUINE ISSUE AS TO FACT OR LAW ON THEIR
CLAIMS; AND
[B] DUE AND DEMANDABLE BUT NO PAYMENT FOR AT
LEAST 180 DAYS OR THAT DEBTOR FAILS TO GENERALLY
MEET ITS LIABILITIES WHEN THEY FALL DUE; AND
[C] NO SUBSTANTIAL LIKELIHOOD OF REHABILITATION
(4) MOTION TO CONVERT REHABILITATION PROCEEDINGS TO
LIQUIDATION
• FILED IN THE REHABILITATION COURT
• BY 3 OR MORE CREDITORS WITH CLAIMS
• AT LEAST P1 MILLION;
• OR AT LEAST 25% OF THE SUBSCRIBED CAPITAL STOCK
OR PARTNER’S CONTRIBUTIONS WHICHEVER IS HIGHER

• SEEKING FOR IMMEDIATE LIQUIDATION OF THE INSOLVENT

JURIDICAL DEBTOR

(5) ORDER (IF PETITION OR MOTION IS SUFFICIENT IN FORM AND

SUBSTANCE)
(1) PUBLICATION 1 X 2 IN NEWSPAPER OF GENERAL
CIRCULATION
(2) DIRECT DEBTOR AND ALL CREDITORS TO FILE
COMMENTS WITHIN 15 DAYS FROM LAST PUBLICATION

(6) IF FOUND MERITORIOUS → LIQUIDATION ORDER

II. CONVERSION OF REHABILITATION TO
LIQUIDATION PROCEEDINGS (SECTION 92)
1. SECTION 25(C): AFTER THE INITIAL HEARING, THE REHABILITATION RECEIVER SENDS A REPORT,
AND WITHIN 10 DAYS FROM RECEIPT OF REPORT THE COURT MAY DECIDE TO CONVERT THE
PROCEEDINGS INTO LIQUIDATION UPON A FINDING THAT [1] THE DEBTOR IS INSOLVENT; AND [2]
THERE IS NO SUBSTANTIAL LIKELIHOOD FOR THE DEBTOR TO BE REHABILITATED.

2. SECTION 72: THE COURT SHALL HAVE A MAXIMUM PERIOD OF 1 YEAR FROM FILING TO CONFIRM
A REHABILITATION PLAN AND IF NO PLAN IS CONFIRMED WITHIN THE SAID PERIOD, THE
PROCEEDINGS, BY MOTION OR MOTU PROPRIO MAY BE CONVERTED INTO ONE FOR LIQUIDATION.

3. SECTION 75: IF THE TERMINATION OF THE REHABILITATION IS DUE TO (1) FAILURE OF

REHABILITATION; OR (2) DISMISSAL OTHER THAN TECHNICALITIES, THE PROCEEDINGS SHALL BE
IMMEDIATELY CONVERTED INTO LIQUIDATION.
4. SECTION 90 AND 91: DURING THE PENDENCY OF THE PRE-NEGOTIATED REHABILITATION
OR COURT-SUPERVISED REHABILITATION, THE DEBTOR (IN CASE OF VOLUNTARY
LIQUIDATION) OR THE CREDITORS (IN CASE OF INVOLUNTARY LIQUIDATION, SUBJECT TO
THE CONDITIONS) MAY ALSO INITIATE LIQUIDATION PROCEEDINGS BY FILING A MOTION IN
THE SAME COURT WHERE THE REHABILITATION PROCEEDINGS ARE PENDING TO CONVERT
THE PROCEEDINGS INTO LIQUIDATION PROCEEDINGS.

5. ANY OTHER TIME UPON THE RECOMMENDATION OF THE REHABILITATION RECEIVER

THAT REHABILITATION OF THE DEBTOR IS NOT FEASIBLE.
CONTENTS OF LIQUIDATION ORDER (SECTION
112)
✓ DECLARES THE DEBTOR AS INSOLVENT
✓ ORDER THE LIQUIDATION OR DEBTOR, AND IN CASE JURIDICAL, DECLARE IT AS DISSOLVED
✓ ORDER THE SHERIFF TO TAKE POSSESSION AND CONTROL OF ALL THE PROPERTY OF THE
DEBTOR EXCEPT THOSE EXEMPT FROM EXECUTION
✓ ORDER PUBLICATION 1 X 2 OF PETITION OR MOTION
✓ DIRECT PAYMENTS OR CONVEYANCE (WHICH ARE FOR THE DEBTOR) TO THE LIQUIDATOR
✓ PROHIBIT PAYMENTS OR TRANSFERS BY THE DEBTOR
✓ DIRECT ALL CREDITORS TO FILE THEIR CLAIMS WITHIN THE PERIOD SET
✓ AUTHORIZE PAYMENT OF ADMINISTRATIVE EXPENSES
✓ SUBMIT NAMES OF OTHER NOMINEES ✓ HEARING FOR ELECTION OR APPOINTMENT OF
LIQUIDATOR
EFFECTS OF LIQUIDATION ORDER (SECTION 113)
✓ JURIDICAL DEBTOR DEEMED DISSOLVED AND JURIDICAL EXISTENCE
TERMINATED
✓ LEGAL TITLE AND CONTROL SHALL BE VESTED TO THE LIQUIDATOR OR
COURT (IF NOT YET APPOINTED)
✓ ALL CONTRACTS ARE DEEMED TERMINATED/BREACHED UNLESS DECLARED
OTHERWISE BY LIQUIDATOR WITHIN 90 DAYS FROM ASSUMPTION AND
CONTRACTING PARTY AGREES
✓ NO SEPARATE ACTION FOR THE COLLECTION OF UNSECURED CLAIM SHALL
BE ALLOWED → THOSE PENDING WILL BE TRANSFERRED TO THE LIQUIDATOR
TO SETTLE OR CONTEST
✓ NO FORECLOSURE PROCEEDING SHALL BE ALLOWED FOR A PERIOD OF 180
DAYS.
 III. RIGHTS OF SECURED CREDITORS
(SECTION 114)

THE LIQUIDATION ORDER SHALL NOT AFFECT THE RIGHT OF THE SECURED
CREDITOR TO ENFORCE HIS LIEN.
OPTIONS TO SECURED CREDITOR
1. WAIVE HIS SECURITY RIGHT AND PARTICIPATE AND SHARE IN THE
DISTRIBUTION OF ASSETS
2. 2. MAINTAIN HIS RIGHTS UNDER THE SECURITY OR LIEN
IF CREDITOR CHOOSES TO MAINTAIN SECURITY; THE FOLLOWING CAN
HAPPEN:
1. FIX VALUE OF PROPERTY IN MANNER AGREED UPON BY CREDITOR AND
LIQUIDATOR
A. IF CLAIM IS MORE THAN THE VALUE OF THE PROPERTY
I. CONVEY THE PROPERTY
II. CREDITOR, AS TO THE BALANCE, BE ADMITTED IN LIQUIDATION
B. IF CLAIM IS LESS THAN THE VALUE OF THE PROPERTY
I. CONVEY THE PROPERTY
II. CREDITOR PAYS THE EXCESS VALUE BACK TO THE DEBTOR
III. DEBTOR WAIVES REDEMPTION
2. LIQUIDATOR MAY SELL PROPERTY AND ENTIRE CLAIM SATISFIED FROM
PROCEEDS; OR
3. ENFORCEMENT OF LIEN UNDER THE APPLICABLE LAW (PPSA, ACT 3135, RULE
68)

NOTE: THE SECURED CREDITOR HOWEVER IS SUBJECT TO THE TEMPORARY

STAY OF FORECLOSURE PROCEEDINGS FOR 180 DAYS UPON ISSUANCE OF
LIQUIDATION ORDER UNDER SECTION 113.
•
IV. LIQUIDATOR

ELECTION OF LIQUIDATOR (SECTION 115)

ELECTED BY UNSECURED CREDITORS WHO HAVE FILED CLAIM WITHIN THE
PERIOD AND CLAIMS HAVE NOT PRESCRIBED
➢ SECURED CREDITOR DOES NOT PARTICIPATE IN ELECTION UNLESS HE
WAIVES SECURITY OR IS ADMITTED TO THE BALANCE
COURT APPOINTED LIQUIDATION (SECTION 116)
COURT CAN APPOINT
✓ CREDITORS DO NOT ATTEND ELECTION
✓ FAILS OR REFUSES TO ELECT ✓ LIQUIDATOR FAILS TO QUALIFY
✓ VACANCY (BUT THE COURT MAY SET ANOTHER HEARING FOR ELECTION INSTEAD)

• NOTE: A REHABILITATION RECEIVER CAN BE APPOINTED AS A LIQUIDATOR

POWERS, DUTIES AND RESPONSIBILITIES OF
LIQUIDATOR (SECTION 119)

✓ AN OFFICER OF THE COURT

✓ PRINCIPAL DUTY:
• PRESERVING AND MAXIMIZING THE VALUE AND RECOVERING THE
ASSETS OF THE DEBTOR
• WITH THE END OF LIQUIDATING THEM AND DISCHARGING TO THE EXTENT
POSSIBLE ALL CLAIMS AGAINST THE DEBTOR
IV. DETERMINATION OF CLAIMS
REGISTRY OF CLAIMS (SECTION 123)
THE LIQUIDATOR (WITHIN 20 DAYS FROM ASSUMPTION TO OFFICE) SHALL
PREPARE A PRELIMINARY REGISTRY OF CLAIMS
➢ REGISTRY OF CLAIMS OF UNSECURED AND SECURED CREDITORS
➢ OPEN FOR PUBLIC INSPECTION
➢ PUBLICATION NOTICE TO CREDITORS, OWNER, PARTNER/S, OF THE
AVAILABILITY FOR INSPECTION

PROVE FIRST BEFORE PAID: ALL CLAIMS MUST BE DULY PROVEN BEFORE
BEING PAID
OPPOSITION OR CHALLENGE TO CLAIMS
(SECTION 125)
• DISPUTING OF CLAIMS
➢ WITHIN 30 DAYS FROM EXPIRATION TO FILE FOR RECOGNITION OF CLAIM
A. THE CREDITORS, INDIVIDUAL DEBTORS, OWNER/S ETC. MAY SUBMIT A
CHALLENGE TO THE CLAIM
▪ TO THE COURT
▪ SERVING A COPY TO THE LIQUIDATOR AND CREDITOR HOLDING THE CLAIM

• UNDISPUTED CLAIMS
➢ SUBMIT REGISTRY OF CLAIMS CONTAINING UNDISPUTED CLAIMS TO THE COURT
➢ UNDISPUTED CLAIMS BECOME FINAL UPON THE FILING OF THE REGISTER
• SET ASIDE ONLY: FRAUD, ACCIDENT, MISTAKE OR INEXCUSABLE NEGLECT
V. LIQUIDATION PLAN (SECTION 129)

• THE LIQUIDATION PLAN GUIDES THE LIQUIDATOR IN SETTLING THE CLAIMS

AGAINST THE INSOLVENT DEBTOR.
➢ WITHIN 3 MONTHS FROM ASSUMPTION FROM OFFICE LIQUIDATOR SHALL
SUBMIT A LIQUIDATION PLAN TO THE COURT
-ENUMERATE ALL ASSETS OF THE DEBTOR; AND
- SCHEDULE OF LIQUIDATION OF THE ASSETS AND PAYMENT OF CLAIMS

PAYMENTS SHALL BE MADE TO THE CREDITORS ONLY IN ACCORDANCE WITH

THE PROVISIONS OF THE PLAN (SECTION 132)