BM1808

FINANCIAL REHABILITATION AND INSOLVENCY ACT (FRIA) OF 2010

REPUBLIC ACT NO. 10142

General Provisions
Policies (Section 2)
1. It is the policy of the State to encourage debtors, both juridical and natural persons, and their creditors to
collectively and realistically resolve and adjust competing claims and property rights.
2. The State shall ensure a timely, fair, transparent, effective and efficient rehabilitation or liquidation of
debtors.
3. The rehabilitation or liquidation shall be made with a view 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, it is in the interest of the State to facilitate a speedy and orderly
liquidation of these debtor's assets and the settlement of their obligations.

Key Definitions
1. Debtor is a sole proprietorship duly registered with the Department of Trade and Industry (DTI), a
partnership duly registered with the Securities and Exchange Commission (SEC), a corporation duly
organized and existing under Philippine laws, or an individual debtor who has become insolvent.
a. Individual Debtor is a natural person who is a resident and citizen of the Philippines that has become
insolvent as defined herein.
b. Group of debtors refers to and can cover only: (1) corporations that are financially related to one
another as parent corporations, subsidiaries or affiliates; (2) partnerships that are owned more than
50% by the same person; and (3) single proprietorships that are owned by the same person. When the
petition covers a group of debtors, all reference under these rules to debtor shall include and apply to
the group of debtors

2. 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.
a. Liabilities are to monetary claims against the debtor, including stockholder's advances that have been
recorded in the debtor's audited financial statements as advances for future subscriptions.
b. Ordinary course of business refers to transactions in the pursuit of the individual debtor's or debtor's
business operations prior to rehabilitation or insolvency proceedings and on ordinary business terms.

3. Creditor is a natural or juridical person who has a claim against the debtor that arose on or before the
commencement date.

Commencement date is the date on which the court issues the Commencement Order, which shall be
retroactive to the date of filing of the petition for voluntary or involuntary proceedings.

4. General unsecured creditor refers to a creditor whose claim or a portion thereof its neither secured,
preferred nor subordinated under the FRIA.

5. Secured creditor is a creditor with a secured claim.

a. Secured claim refers to a claim that is secured by a lien.
b. Lien refers to a statutory or contractual claim or judicial charge on real or personal property that legally
entitles a creditor to resort to said property for payment of the claim or debt secured by such lien.

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Excluded Debtors (Section 5)

1. Bank refers to any duly licensed bank or quasi-bank that is potentially or actually subject to
conservatorship, receivership or liquidation proceedings under the New Central Bank Act (Republic Act
No. 7653) or successor legislation;

2. Insurance company refers to those companies that are potentially or actually subject to insolvency
proceedings under the Insurance Code (Presidential Decree No. 1460) or successor legislation; and

3. Pre-need company refers to any corporation authorized/licensed to sell or offer to sell pre-need plans.
Note: Government financial institutions other than banks and government-owned or -controlled
corporations shall be covered by this Act unless their specific charter provides otherwise.

Proceedings covered by FRIA and persons who will file and/or approve the petition
Type of Business Type of Proceeding Who will Approve or File the Petition
Organization
Sole Proprietorship Voluntary Rehabilitation Owner/ Proprietor (Sec. 12)
Partnership Voluntary Rehabilitation Majority of Partners (Sec. 12)
1. Majority of the Director or Trustees; and
2. Stockholders representing 2/3 of Outstanding
Corporation Voluntary Rehabilitation
Capital or 2/3 of members of non-stock
corporation (Sec. 12)
Creditor or group of creditors with a claim of, or
Sole Proprietorship, the aggregate of whose claim is, at least
Partnership, and Involuntary Rehabilitation P1,000,000.00 or at least 25% of the subscribed
Corporation capital stock or partners’ contributions,
whichever is higher (Sec. 13)
The insolvent debtor and the Rehabilitation Plan
is endorsed or approved by creditors holding at
Pre-Negotiated Rehabilitation
Sole Proprietorship, least 2/3 of the total liabilities of the debtor,
(Petition for Approval of Pre-
Partnership, and including secured creditors holding more than
Negotiated Rehabilitation
Corporation 50% of the total secured claim and unsecured
Plan)
creditors holding more than 50% of the total
unsecured claims of the debt (Sec. 76).
Sole Proprietorship,
Partnership, and Voluntary Liquidation (Sec. 90) Insolvent Debtor
Corporation
a. Three (3) or more creditors; and
b. The aggregate of whose claims is at least
Sole Proprietorship,
Involuntary Liquidation (Sec. either P1,000,000.00 or at least 25% of the
Partnership, and
91) subscribed capital stock or partner’s
Corporation
contributions of the debtor, whichever is
higher
Suspension of Payment (Sec.
Individual Debtor Individual Debtor
94)
Individual debtor with at least P500,000.00 debts,
Voluntary Liquidation (Sec.
Individual Debtor who does not have sufficient assets to cover his
103)
liabilities.

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Type of Business Type of Proceeding Who will Approve or File the Petition
Organization
Involuntary Liquidation
Any creditor or group of creditors with a claim of,
Individual Debtor (Petition for Acts of
or with claims aggregating at least P500,000.00
Insolvency) (Sec. 105)

A group of debtors may jointly file a petition for rehabilitation under this Act when one (1) or more of its
members foresee the impossibility of meeting debts when they respectively fall due, and the financial distress
would likely adversely affect the financial condition and/or operations of the other members of the group
and/or the participation of the other members of the group is essential under the terms and conditions of the
proposed Rehabilitation Plan.

Insolvency of Individual Debtors

I. Suspension of Payments (Section 94)
Only an individual debtor may file a petition for suspension of payment.
a. The debtor has sufficient property to cover all his debts but foreseeing the impossibility of meeting
them when they respectively fall due.
b. The purpose is to delay the payment of debts.
c. The amounts of indebtedness are not affected (not reduced or discharged).
d. The debtor may file a verified petition that he be declared in the state of suspension of payments by
the court of the province or city in which he has resided for six (6) months prior to the filing of his
petition.

He shall attach to his petition, as a minimum:

a. a schedule of debts and liabilities;
b. an inventory of assets; and
c. a proposed agreement with his creditors.

A. Suspension Order (Section 96)

Upon motion filed by the individual debtor, the court may issue an order suspending any pending
execution against the individual debtor.
1. No creditor shall sue or institute proceedings to collect his claim from the debtor from the time of
the filing of the petition for suspension of payments and for as long as proceedings remain pending
except:
a. those creditors having claims for personal labor, maintenance, expense of last illness and
funeral of the wife or children of the debtor incurred in the 60 days immediately prior to the
filing of the petition; and
b. secured creditors.
Note: These excepted creditors are not affected by the proposed agreement with the debtor
unless participated and voted in the creditors meeting (Section 98).
2. Properties held as security by secured creditors shall not be subject of such suspension order.
3. The suspension order shall lapse when three (3) months shall have passed without the proposed
agreement being accepted by the creditors or as soon as such agreement is denied.
B. Prohibited Acts (Section 95)
In the order issued by the court after filing the Petition for Suspension of Payments, the Individual
debtor is prohibited from:

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1. selling, transferring, encumbering, or disposing in any manner of his property, except those used
in the voluntary operations of commerce or of industry in which the petitioning individual debtor
is engaged, so long as the proceedings relative to the suspension of payments are made; and
2. making any payment outside of the necessary or legitimate expenses of his business or industry,
so long as the proceedings relative to the suspension of payments are pending.

C. Creditors’ Meeting (Section 97)

1. Quorum
The presence of creditors holding claims amounting to at least three-fifths (3/5) of the liabilities
shall be necessary for holding a meeting.
2. Required vote by the creditors for the approval of the proposal (Double Majority)
a. Two-thirds (2/3) of the creditors voting unite upon the same proposition; and
b. The claims represented by said majority vote amount to at least three-fifths (3/5) of the total
liabilities of the debtor mentioned in the petition.
Note: No creditor who incurred his credit within 90 days prior to the filing of the petition shall
be entitled to vote.
3. Persons who may refrain from voting
Creditors who are unaffected by the Suspension Order may refrain from attending the meeting
and from voting therein. Such persons shall not be bound by any agreement determined upon at
such meeting, but if they should join in the voting, they shall be bound in the same manner as are
the other creditors (Section 98).
4. Effects of disapproval by creditors
If there is no approval of the double majority, the suspension of payments proceedings will be
terminated, and the creditors shall be at liberty to enforce their rights which corresponds to them.
5. Effects of approval of the proposed agreement by insolvent debtor (Section 101)
a. The court shall order that the agreement be carried out and all parties bound thereby to
comply with its terms.
b. The court may also issue all orders which may be necessary or proper to enforce the
agreement on motion of any affected party.

If the individual debtor fails, wholly or in part, to perform the agreement decided upon at the meeting of
the creditors, all the rights that the creditors had against the individual debtor before the agreement shall
revest in them. In such case, the individual debtor may be made subject to the insolvency proceedings in
the manner established by the FRIA (Section 102).

II. Liquidation of Individual Debtors (Sundiang Sr. & Aquino, 2014)

a. Liquidation of individual debtors may be voluntary or involuntary. Their similarities and distinctions
are as follows:

Voluntary Liquidation of Individual Debtor Involuntary Liquidation of Individual Debtor

1. Debtor is insolvent 1. Debtor is insolvent
2. Acts of insolvency need not be alleged and 2. Creditors must prove acts of insolvency
proved
3. The debts must be at least P500,000.00 3. The debts must be at least P500,000.00
4. The individual debtor files the petition 4. A creditor or group of creditors files the
petition

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5. The debtor is not absent as he files the 5. Applies even in the case of absent debtor
petition (Debtor resides outside or has departed
from the Philippines, cannot be found or
conceals himself) (Section 108)
6. Posting of bond by creditors not required 6. Posting of bond by creditors is required
(Section 105)
7. Liquidation Order is issued without trial 7. Liquidation Order is issued after trial (Section
(Section 104) 107)

b. Involuntary liquidation of individual debtors distinguished from involuntary liquidation of business

organizations
Involuntary Liquidation of Sole Proprietorship,
Involuntary Liquidation of Individual Debtor
Partnership, and Corporation
1. At least three (3) creditors are required 1. There can be one (1) or more creditors
2. The debts must be at least P500,000.00 2. The debt or aggregate of debts must be at
least P1,000,000.00 or equivalent to 25% of
the subscribed capital or partner’s
contribution whichever is higher
3. The individual can continue his business 3. The business organization will be dissolved
4. There must be an act of insolvency 4. Act of insolvency is not required

Acts of insolvency which must be alleged by the creditors (Section 105)

1. That such person is about to depart or has departed from the Republic of the Philippines, with
intent to defraud his creditors;
2. That being absent from the Republic of the Philippines, with intent to defraud his creditors, he
remains absent;
3. That he conceals himself to avoid the service of legal process for the purpose of hindering or
delaying the liquidation or of defrauding his creditors;
4. That he conceals, or is removing, any of his property to avoid it being attached or taken on legal
process;
5. That he has suffered his property to remain under attachment or legal process for three (3) days
for the purpose of hindering or delaying the liquidation or of defrauding his creditors;
6. That he has confessed or offered to allow judgment in favor of any creditor or claimant for the
purpose of hindering or delaying the liquidation or of defrauding any creditor or claimant;
7. That he has willfully suffered judgment to be taken against him by default for the purpose of
hindering or delaying the liquidation or of defrauding his creditors;
8. That he has suffered or procured his property to be taken on legal process with intent to give a
preference to one or more of his creditors and thereby hinder or delay the liquidation or defraud
any one of his creditors;
9. That he has made any assignment, gift, sale, conveyance or transfer of his estate, property, rights
or credits with intent to hinder or delay the liquidation or defraud his creditors;
10. That he has, in contemplation of insolvency, made any payment, gift, grant, sale, conveyance or
transfer of his estate, property, rights or credits;
11. That being a merchant or tradesman, he has generally defaulted in the payment of his current
obligations for a period of thirty (30) days;
12. That for a period of thirty (30) days, he has failed, after demand, to pay any money deposited with
him or received by him in a fiduciary capacity; and

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13. That an execution having been issued against him on final judgment for money, he shall have been
found to be without sufficient property subject to execution to satisfy the judgment.

Corporate 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 (Section 4).

Types of Rehabilitation
1. Court-supervised rehabilitation – This involves filing a petition before the Regional Trial Court (RTC)
wherein the rehabilitation of the business is under the supervision and control by the rehabilitation court.
a. Voluntary court-supervised rehabilitation – In this type of court-supervised rehabilitation, the
insolvent businessman files the petition for rehabilitation before the rehabilitation court.
b. Involuntary court-supervised rehabilitation – In this type of court-supervised rehabilitation, the
creditors of the insolvent businessman files the petition for rehabilitation before the rehabilitation
court.
2. Pre-negotiated rehabilitation – This involves the filing before the Regional Trial Court (RTC) of
rehabilitation plan which is already pre-negotiated by the insolvent business debtor and its creditors.
3. Out-of-court restructuring or informal rehabilitation – This does not involve the filing before the RTC of
any petition, but the rehabilitation shall be governed by the outside agreement of the insolvent
businessman and its creditors. This will have the same effect as the other types of rehabilitation filed
before the court as long as the requisites provided by FRIA are present.

Court-Supervised Rehabilitation
1. Voluntary proceedings (Section 12)
a. Grounds for voluntary proceedings
i. The debtor is generally unable to pay its or his liabilities as they fall due in the ordinary course of
business.
ii. The debtor has liabilities that are greater than its or his assets.
b. Minimum allegations for voluntary proceedings
i. The petition shall be verified to establish the insolvency of the debtor.
ii. The petition shall be verified to establish the viability of the rehabilitation of the insolvent debtor.

2. Involuntary court-supervised rehabilitation

a. Grounds for involuntary proceedings (Section 13)
i. There is no genuine issue of fact or law on the claim/s of the petitioner/s, and that the due and
demandable payments thereon have not been made for at least 60 days or that the debtor has
failed generally to meet its liabilities as they fall due.
ii. A creditor, other than the 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.

b. Effects of Issuance of Commencement Order (Section 17)

The court shall issue a Commencement Order it court finds the petition for rehabilitation to be
sufficient in form and substance.

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i. Vest the rehabilitation receiver with all the powers and functions provided for in the FRIA,
such as the right to review and obtain all records to which the debtor’s management and
directors have access, including bank accounts of whatever nature of the debtor, subject to
the approval by the court of the performance bond filed by the rehabilitation receiver;
ii. Prohibit, or otherwise serve as the legal basis for rendering null and void the results of any
extrajudicial activity or process to seize property, sell encumbered property, or otherwise
attempt to collect on or enforce a claim against the debtor after the commencement date
unless otherwise allowed in this Act, subject to the provisions of Section 50 hereof;
iii. Serve as the legal basis for rendering null and void any set-off after the commencement date
of any debt owed to the debtor by any of the debtor’s creditors;
iv. Serve as the legal basis for rendering null and void the perfection of any lien against the
debtor’s property after the commencement date; and
v. Consolidate the resolution of all legal proceedings by and against the debtor to the court:
Provided, however, that the court may allow the continuation of cases in other courts where
the debtor had initiated the suit.

c. Stay Order or Suspension Order

The rehabilitation proceedings shall commence upon the issuance of the Commencement Order,
which shall include among others a Stay Order or Suspension Order (Section 16). The Stay or
Suspension Order shall:
i. Suspend all actions or proceedings, in court or otherwise, for the enforcement of claims
against the debtor;
ii. Suspend all actions to enforce any judgment, attachment or other provisional remedies
against the debtor;
iii. Prohibit the debtor from selling, encumbering, transferring or disposing in any manner any of
its properties except in the ordinary course of business; and
iv. Prohibit the debtor from making any payment of its liabilities outstanding as of the
commencement date except as may be provided herein.

Exceptions to the Stay or Suspension Order (Section 18)

i. cases already pending appeal in the Supreme Court as of commencement date;
ii. subject to the discretion of the court, to cases pending or filed at a specialized court or quasi-
judicial agency which, upon determination by the court, is capable of resolving the claim more
quickly, fairly and efficiently than the court: Provided, that any final and executory judgment of
such court or agency shall be referred to the court and shall be treated as a non-disputed claim;
iii. enforcement of claims against sureties and other persons solidarily liable with the debtor, and
third party or accommodation mortgagors as well as issuers of letters of credit, unless the
property subject of the third party or accommodation mortgage is necessary for the
rehabilitation of the debtor as determined by the court upon recommendation by the
rehabilitation receiver;
iv. any form of action of customers or clients of a securities market participant to recover or
otherwise claim moneys and securities entrusted to the latter in the ordinary course of the
latter’s business as well as any action of such securities market participant or the appropriate
regulatory agency or self-regulatory organization to pay or settle such claims or liabilities;
v. actions of a licensed broker or dealer to sell pledged securities of a debtor pursuant to a
securities pledge or margin agreement for the settlement of securities transactions in
accordance with the provisions of the Securities Regulation Code and its implementing rules and
regulations;

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vi. clearing and settlement of financial transactions through the facilities of a clearing agency or
similar entities duly authorized, registered and/or recognized by the appropriate regulatory
agency like the Bangko Sentral ng Pilipinas (BSP) and the Securities and Exchange Commission
(SEC) as well as any form of actions of such agencies or entities to reimburse themselves for any
transactions settled for the debtor; and
vii. any criminal action against the individual debtor or owner, partner, director or officer of a
debtor shall not be affected by any proceeding commenced under this Act.

d. Court Action on Petition for Rehabilitation (Section 25)

Within 10 days from receipt of report of the rehabilitation receiver, the court may:
i. Give due course to the petition upon a finding that:
1) The debtor is insolvent; and
2) There is a substantial likelihood for the debtor to be successfully rehabilitated;
ii. Dismiss the petition upon a finding that:
1) Debtor is not insolvent;
2) The petition is a sham filing intended only to delay the enforcement of the rights of the
Creditor/s or of any group of creditors;
3) The petition, the Rehabilitation Plan and the attachments thereto contain any materially
false or misleading statements; or
4) The debtor has committed acts of misrepresentation or in fraud of its creditor/s or a group
of creditors;
iii. Convert the proceedings into one for the liquidation of the debtor upon a finding that:
1) The debtor is insolvent; and
2) There is no substantial likelihood for the debtor to be successfully rehabilitated as
determined in accordance with the rules to be promulgated by the Supreme Court.

e. The Rehabilitation Receiver, Management Committee, and Creditors’ Committee

Who May Serve as a Rehabilitation Receiver (Section 28)
Any qualified natural or juridical person may serve as a rehabilitation receiver. If the rehabilitation
receiver 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 representatives are solidarily liable for all obligations and responsibilities of the
rehabilitation receiver.

Qualifications of a Rehabilitation Receiver (Section 29)

i. a citizen of the Philippines or a resident of the Philippines in the six (6) months immediately
preceding his nomination;
ii. of good moral character and with acknowledged integrity, impartiality, and independence;
iii. has the requisite knowledge of insolvency and other relevant commercial laws, rules and
procedures, as well as the relevant training and/or experience that may be necessary to
enable him to properly discharge the duties and obligations of a rehabilitation receiver; and
iv. has no conflict of interest: Provided, that such conflict of interest may be waived, expressly or
impliedly, by a party who may be prejudiced thereby.

Powers, Duties, and Responsibilities of the Rehabilitation Receiver (Section 31)

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

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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.
i. to verify the accuracy of the factual allegations in the petition and its annexes;
ii. to verify and correct, if necessary, the inventory of all of the assets of the debtor, and their
valuation;
iii. to verify and correct, if necessary, the schedule of debts and liabilities of the debtor;
iv. to evaluate the validity, genuineness and true amount of all the claims against the debtor;
v. to take possession, custody, and control, and to preserve the value of all the property of the
debtor;
vi. to sue and recover, with the approval of the court, all amounts owed to, and all properties
pertaining to the debtor;
vii. to have access to all information necessary, proper or relevant to the operations and business
of the debtor and for its rehabilitation;
viii. to sue and recover, with the approval of the court, all property or money of the debtor paid,
transferred, or disbursed in fraud of the debtor or its creditors, or which constitute undue
preference of creditor/s;
ix. to monitor the operations and the business of the debtor to ensure that no payments or
transfers of property are made other than in the ordinary course of business;
x. With the court’s approval, to engage the services of or to employ persons or entities to assist
him in the discharge of his functions;
xi. to determine how the debtor may be best rehabilitated, to review, revise and/or recommend
action on the Rehabilitation Plan and submit the same or a new one to the court for approval;
xii. to implement the Rehabilitation Plan as approved by the court, if so provided under the
Rehabilitation Plan;
xiii. to assume and exercise the powers of management of the debtor, if directed by the court
pursuant to Section 36 hereof;
xiv. to exercise such other powers as may, from time to time, be conferred upon him by the court;
and
xv. to submit a status report on the rehabilitation proceedings every quarter or as may be
required by the court motu proprio, or upon motion of any creditor, or as may be provided, in
the Rehabilitation Plan.

Note: Unless appointed by the court, pursuant to Section 36 hereof, the rehabilitation receiver shall
not take over the management and control of the debtor but may recommend the appointment of
a management committee over the debtor in the cases provided by this Act.
Removal of the Rehabilitation Receiver (Section 32)
The rehabilitation receiver may be removed at any time by the court, either motu proprio or upon
motion by any creditor/s holding more than 50% of the total obligations of the debtor, on such
grounds as the rules of procedure may provide which shall include, but are not limited to, the
following:
i. incompetence, gross negligence, failure to perform or failure to exercise the proper degree of
care in the performance of his duties and powers;
ii. lack of a particular or specialized competency required by the specific case;
iii. illegal acts or conduct in the performance of his duties and powers;
iv. lack of qualification or presence of any disqualification;
v. conflict of interest that arises after his appointment; and

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vi. manifest lack of independence that is detrimental to the general body of the stakeholders.
f. Rehabilitation Plan
Contents of a Rehabilitation Plan (Section 62)
i. Specify the underlying assumptions, the financial goals and the procedures proposed to
accomplish such goals;
ii. Compare the amounts expected to be received by the creditors under the Rehabilitation Plan
with those that they will receive if liquidation ensues within the next 120 days;
iii. Contain information sufficient to give the various classes of creditors a reasonable basis for
determining whether supporting the Plan is in their financial interest when compared to the
immediate liquidation of the debtor, including any reduction of principal interest and penalties
payable to the creditors;
iv. Establish classes of voting creditors;
v. Establish subclasses of voting creditors if prior approval has been granted by the court;
vi. Indicate how the insolvent debtor will be rehabilitated including, but not limited to, debt
forgiveness, debt rescheduling, reorganization or quasi-reorganization, dacion en pago, debt-
equity conversion and sale of the business (or parts of it) as a going concern, or setting-up of a
new business entity or other similar arrangements as may be necessary to restore the financial
well-being and viability of the insolvent debtor;
vii. Specify the treatment of each class or subclass described in subsections (d) and (e);
viii. Provide for equal treatment of all claims within the same class or subclass, unless a particular
creditor voluntarily agrees to less favorable treatment;
ix. Ensure that the payments made under the plan follow the priority established under the
provisions of the Civil Code on concurrence and preference of credits and other applicable laws;
x. Maintain the security interest of secured creditors and preserve the liquidation value of the
security unless such has been waived or modified voluntarily;
xi. Disclose all payments to creditors for pre-commencement debts made during the proceedings
and the justifications thereof;
xii. Describe the disputed claims and the provisioning of funds to account for appropriate
payments should the claim be ruled valid or its amount adjusted;
xiii. Identify the debtor’s role in the implementation of the Plan;
xiv. State any rehabilitation covenants of the debtor, the breach of which shall be considered a
material breach of the Plan;
xv. Identify those responsible for the future management of the debtor and the supervision and
implementation of the Plan, their affiliation with the debtor and their remuneration;
xvi. Address the treatment of claims arising after the confirmation of the Rehabilitation Plan;
xvii. Require the debtor and its counter-parties to adhere to the terms of all contracts that the
debtor has chosen to confirm;
xviii. Arrange for the payment of all outstanding administrative expenses as a condition to the Plan’s
approval unless such condition has been waived in writing by the creditors concerned;
xix. Arrange for the payment of all outstanding taxes and assessments, or an adjusted amount
pursuant to a compromise settlement with the BIR or other applicable tax authorities;
xx. Include a certified copy of a certificate of tax clearance or evidence of a compromise settlement
with the BIR;
xxi. Include a valid and binding resolution of a meeting of the debtor’s stockholders to increase the
shares by the required amount in cases where the Plan contemplates an additional issuance of
shares by the debtor;

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xxii. State the compensation and status, if any, of the rehabilitation receiver after the approval of
the Plan; and
xxiii. Contain provisions for conciliation and/or mediation as a prerequisite to court assistance or
intervention in the event of any disagreement in the interpretation or implementation of the
Rehabilitation Plan.

Creditor Approval of Rehabilitation Plan (Section 64)

i. Required vote for creditor approval
1) The plan shall be deemed rejected unless approved by all classes of creditors whose right
are adversely modified or affected by the Plan.
2) For purposes of this section, the Plan is deemed to have been approved by a class of
creditors if members of the said class holding more than 50% of the total claims of the
said class vote in favor of the Plan.
Note: The votes of the creditors shall be based solely on the amount of their respective claims
based on the registry of claims submitted by the rehabilitation receiver pursuant to Section 44
hereof.

ii. Requisites for court’s confirmation

Notwithstanding the rejection of the Rehabilitation Plan, the court may confirm the
Rehabilitation Plan if all of the following circumstances are present:
1) The Rehabilitation Plan complies with the requirements specified in the FRIA;
2) The rehabilitation receiver recommends the confirmation of the Rehabilitation Plan;
3) The shareholders, owners or partners of the juridical debtor lose at least their controlling
interest as a result of the Rehabilitation Plan; and
4) The Rehabilitation Plan would likely provide the objecting class of creditors with
compensation which has a net present value greater than that which they would have
received if the debtor were under liquidation.

iii. Submission in Court and Filing of Objection to Rehabilitation Plan (Sections 65-66)
1) If the Rehabilitation Plan is approved, the rehabilitation receiver shall submit the same to
the court for confirmation. Within five (5) days from receipt of the Rehabilitation Plan, the
court shall notify the creditors that the Rehabilitation Plan has been submitted for
confirmation, that any creditor may obtain copies of the Rehabilitation Plan and that any
creditor may file an objection thereto.
2) A creditor may file an objection to the Rehabilitation Plan within 20 days from receipt of
notice from the court that the Rehabilitation Plan has been submitted for confirmation.

Objections to a Rehabilitation Plan shall be limited to the following:

a) The creditors’ support was induced by fraud;
b) The documents or data relied upon in the Rehabilitation Plan are materially false or
misleading; or
c) The Rehabilitation Plan is in fact not supported by the voting creditors.

iv. Confirmation of Rehabilitation Plan (Section 68)

1) If no objections are filed within the relevant period or, if objections are filed, the court
finds them lacking in merit, or determines that the basis for the objection has been cured

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or determines that the debtor has complied with an order to cure the objection, the court
shall issue an order confirming the Rehabilitation Plan.
2) The court may confirm the Rehabilitation Plan notwithstanding unresolved disputes over
claims if the Rehabilitation Plan has made adequate provisions for paying such claims.
Effects of Confirmation of the Rehabilitation Plan
1) The Rehabilitation Plan and its provisions shall be binding upon the debtor 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;
2) The debtor shall comply with the provisions of the Rehabilitation Plan and shall take all
actions necessary to carry out the Plan;
3) Payments shall be made to the creditors in accordance with the provisions of the
Rehabilitation Plan;
4) Contracts and other arrangements between the debtor and its creditors shall be
interpreted as continuing to apply to the extent that they do not conflict with the
provisions of the Rehabilitation Plan;
5) Any compromises on amounts or rescheduling of timing of payments by the debtor shall
be binding on creditors regardless of whether or not the Plan is successfully implemented;
and
6) Claims arising after approval of the Plan that are otherwise not treated by the Plan are
not subject to any Suspension Order.
Note: The court shall have a maximum period of one (1) year from the date of the filing of the
petition to confirm a Rehabilitation Plan. If no Rehabilitation Plan is confirmed within the said
period, the proceedings may, upon motion or motu proprio, be converted into one for the
liquidation of the debtor (Section 72).

g. Termination of Proceedings
The rehabilitation proceedings shall, upon motion by any stakeholder or the rehabilitation receiver,
be terminated by order of the court either declaring a successful implementation of the Rehabilitation
Plan or a failure of rehabilitation (Section 74).

Cases of Failure of Rehabilitation

i. Dismissal of the petition by the court;
ii. The debtor fails to submit a Rehabilitation Plan;
iii. Under the Rehabilitation Plan submitted by the debtor, there is no substantial likelihood that
the debtor can be rehabilitated within a reasonable period;
iv. The Rehabilitation Plan or its amendment is approved by the court but in the implementation
thereof, the debtor fails to perform its obligations thereunder, or there is a failure to realize
the objectives, targets or goals set forth therein, including the timelines and conditions for the
settlement of the obligations due to the creditors and other claimants;
v. The commission of fraud in securing the approval of the Rehabilitation Plan or its amendment;
and
vi. Other analogous circumstances as may be defined by the rules of procedure.

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Effects of Termination
Termination of the proceedings shall result in the following:
i. The discharge of the rehabilitation receiver, subject to his submission of a final accounting;
and
ii. The lifting of the Stay Order and any other court order holding in abeyance any action for the
enforcement of a claim against the debtor.
Provided, however, that if the termination of proceedings is due to failure of rehabilitation or
dismissal of the petition for reasons other than technical grounds, the proceedings shall be
immediately converted to liquidation as provided in Section 92 of this Act.

h. Other Types of Rehabilitation

i. Pre-negotiated Rehabilitation (Section 76)
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.

Required creditor’s vote for approval

a) Endorsement or approval by creditors holding at least two-thirds (2/3) of the total
liabilities of the debtor, including secured creditors holding more than 50% of the total
secured claims of the debtor; or
b) Endorsement and approval by the total secured claims of the debtor and unsecured
creditors holding more than 50% of the total unsecured claims of the debtor.

ii. Out-of-Court or Informal Restructuring Agreements

Rehabilitation is not necessarily court supervised. An out-of-court or informal restructuring
agreement of the Rehabilitation Plan that meets the minimum requirements is recognized
under the FRIA.
Minimum requirements (Section 84)
a) The debtor must agree to the out-of-court or informal restructuring/workout agreement
or Rehabilitation Plan;
b) It must be approved by creditors representing at least 67% of the secured obligations of
the debtor;
c) It must be approved by creditors representing at least 75% of the unsecured obligations
of the debtor; and
d) It must be approved by creditors holding at least 85% of the total liabilities, secured and
unsecured, of the debtor.
Standstill Period (Section 85)
An agreement of standstill period may be binding if the following are present:
(a) Such agreement is approved by creditors representing more than 50% of the total
liabilities of the debtor;
(b) Notice thereof is publishing in a newspaper of general circulation in the Philippines once
a week for two (2) consecutive weeks; and
(c) the standstill period does not exceed 120 days from the date of effectivity.
(d) The Cram Down Rule applies upon publication of the notice of the out-of-court approved
rehabilitation plan (Section 86).
Cram Down Rule

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The Rehabilitation Plan (including pre-negotiated plans), confirmed 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 have participated in the proceedings, opposed the Plan or
whether or not their claims have been scheduled (Section 69, 82, and 68).

Cross-Border Insolvency
The FRIA adopted the Model Law on Cross-Border Insolvency of the United Nations Center for International
Trade and Development as part thereof (Section139).

If there is a rehabilitation proceeding filed by a foreign entity in another jurisdiction, a petition may be filed by
the latter’s representative and the court may issue orders:
1. suspending any action to enforce claims against the entity or otherwise seize or foreclose on property of
the foreign entity located in the Philippines;
2. requiring the surrender property of the foreign entity to the foreign representative; or
3. providing other necessary relief.

In determining whether to grant relief under this subchapter, the court shall consider:
1. the protection of creditors in the Philippines and the inconvenience in pursuing their claim in a foreign
proceeding;
2. the just treatment of all creditors through resort to a unified insolvency or rehabilitation proceedings;
3. whether other jurisdictions have given recognition to the foreign proceeding;
4. the extent that the foreign proceeding recognizes the rights of creditors and other interested parties in a
manner substantially in accordance with the manner prescribed in this Act; and
5. the extent that the foreign proceeding has recognized and shown deference to proceedings under this Act
and previous legislation.

References
Congress of the Philippines. (2010). Republic Act No. 10142. Retrieved from House of Representatives:
http://www.congress.gov.ph/legisdocs/ra_14/RA10142.pdf
Sundiang Sr., J. R., & Aquino, T. B. (2014). Reviewer on commercial law. Manila: Rex Book Store.

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